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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|_| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period for Commission file number
the eight months ended December 31, 1998 1-10555
POLYVISION CORPORATION
----------------------
(Exact name of registrant as specified
in its charter)
New York 13-3482597
------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
48-62 36th Street
Long Island City, New York 11101
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (718) 433-2170
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------------------- -----------------------------------------
Common Stock, par value
$.001 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 the
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by
non-affiliates of the Registrant was $17,891,000 as of March 24, 1999.
The number of shares outstanding of the Registrant's common stock as
of March 24, 1999 was 14,117,750 shares.
--------------------
The following document is incorporated by reference into Part III of this
Form 10-K:
Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 with respect to the 1998 annual meeting of
shareholders.
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POLYVISION CORPORATION
1998 FORM 10-K TRANSITION REPORT
TABLE OF CONTENTS
Page
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PART I
ITEM 1. BUSINESS ........................................................ 3
ITEM 2. PROPERTIES ...................................................... 10
ITEM 3. LEGAL PROCEEDINGS ............................................... 11
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS ............ 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ............................................. 12
ITEM 6. SELECTED FINANCIAL DATA ......................................... 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................. 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................... 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ................... 53
PART III
ITEMS 10, 11, 12 AND 13 ................................................... 53
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K ..................................................... 54
2
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PART I
ITEM 1. BUSINESS
OVERVIEW
PolyVision Corporation, through its operating units, Greensteel, Alliance
and Posterloid, manufactures and sells information display products.
o Through Greensteel, it manufactures and sells custom-designed and
engineered writing, projection and other visual display surfaces
(such as ceramicsteel chalkboards and markerboards), custom
cabinets, and workstation and conference center casework primarily
for schools and offices.
o Through the recently-purchased Alliance division, it manufactures
continuous coiled ceramicsteel (a high grade, fused, ceramic surface
on light-gauge steel producing a non-porous, uniform finish) used in
writing surfaces for schools, conference rooms and other business
environments, as well as for construction projects, such as tunnel
and people moving systems. Alliance also produces proprietary
projection screen surfaces, screen printed and non-screen printed
ceramicsteel surfaces used for interior and exterior architectural
applications and high endurance signage.
o Through Posterloid, it manufactures and sells menuboard display
systems to the fast food and convenience store industries, and
merchandising displays used principally by banks.
Greensteel combines its own direct marketing network with approximately 65
independent dealers, which enables it to market its products to schools,
healthcare facilities, offices and other institutions throughout the country.
Most of Greensteel's products are sold in connection with new facility
construction and renovation. These products are generally sold as part of a bid
process conducted through architects and general contractors working with
Greensteel's sales staff and those of its dealers, and are custom-made to
specifications. Successful marketing of these products is dependent on
Greensteel's maintenance of strong relationships with its dealers, architects
and general contractors. Greensteel has been advised by its customers that
Greensteel products have achieved general recognition as quality products.
Alliance's products are sold in the United States and, through facilities
in Belgium, France and Denmark, throughout Europe and the rest of the world. In
the United States, Alliance uses its direct sales personnel to sell its products
to fabricators/original equipment manufacturers ("OEMs") of finished board
products for the educational, office supply and other markets, and screen and
non-screen printed interior and exterior panels for the transportation, building
construction and other markets ("infrastructure products"). Outside the United
States, Alliance sells its products to OEMs and, through its facilities in
France and Denmark, finished products, in each case predominantly for schools.
Alliance's infrastructure product sales are made by direct sales efforts through
employees and sales agents working with architects and designers on specific
projects, such as vehicular tunnels and transportation terminals having
specialized durability, cosmetic or signage requirements.
Posterloid uses a direct sales force to sell throughout the United States.
Its customers are restaurants (mostly in the fast food and stadium/terminal food
concession markets), banks and design firms serving these types of customers.
Posterloid manufactures its products with a variety of materials and is able to
supply its customers an assortment of menuboards and merchandising displays,
such as interior back lit menuboards, interior magnetic menuboards,
drive-through menuboards, and specifically for banks, magnetic interest rate
boards and other merchandising displays.
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PolyVision has achieved its current position in the specialized markets it
serves largely because it performs a full range of services, including the
custom design, production and installation of products. PolyVision believes this
integrated approach enhances its responsiveness to customer needs and allows its
customers to obtain a full line of products and services from a single source.
This makes it easier for PolyVision to establish ongoing relationships with
customers and provide for their future requirements. Competition in PolyVision's
markets is based largely on price, product quality, customer service and
reliability.
RECENT DEVELOPMENTS
Acquisition of Alliance International Group and Change in Fiscal Year
In November 1998, PolyVision purchased, from Wind Point Partners III, L.P.
and certain minority stockholders, all of the outstanding capital stock of
Alliance International Group, Inc. (usually referred to as "Alliance"), a
leading manufacturer of ceramicsteel products. The purchase price was $75.8
million, consisting of $32.6 million in cash, $8.0 million in a 10% convertible
subordinated promissory note due in 2007 and $35.2 million of third-party debt
which was assumed or refinanced by PolyVision. Following the purchase, Alliance
became a division of PolyVision.
Alliance has its headquarters in Norcross, Georgia, and manufacturing
facilities in Oklahoma, Belgium, France and Denmark. It had approximately $60.0
million in revenues during calendar 1997. Following the closing of the Alliance
acquisition, Michael H. Dunn, Alliance's Chairman and Chief Executive Officer,
became the new President and Chief Operating Officer of PolyVision, as well as a
member of the PolyVision Board of Directors.
The cash portion of the Alliance acquisition and the simultaneous
refinancing of PolyVision's existing credit facility was funded by a $60.0
million senior secured bank loan, a $25.0 million senior subordinated bank loan,
and $5.0 million in cash proceeds from the sale of shares of PolyVision 9%
Series C Convertible Preferred Stock to The Alpine Group, Inc. ("Alpine").
In December 1998, PolyVision announced its decision to change to a
December 31 fiscal year from an April 30 fiscal year, consistent with Alliance's
fiscal period.
Recapitalization of Preferred Stock and Debt
In November 1998, under an Exchange Agreement between PolyVision and
Alpine and another preferred stockholder, PolyVision accepted approximately
$25.7 million in liquidation value of its Series A Preferred Stock (plus accrued
dividends) and approximately $7.4 million debt that PolyVision owed to Alpine,
in exchange for approximately 5.3 million shares of PolyVision's common stock
and approximately $12.4 million in liquidation value of its 9% Series B
Convertible Preferred Stock. As a result of this transaction, Alpine directly
owns approximately 48.4% of PolyVision's outstanding shares of common stock
(including 16.8% of such shares previously owned) and could own after conversion
of the Series A and Series B Preferred Stock as much as 65.1% of PolyVision's
outstanding shares.
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BUSINESS OPERATIONS
Greensteel
Products
Greensteel manufactures custom-made systems incorporating ceramicsteel
chalkboards and markerboards, tackboards, display cases and bulletin boards.
Greensteel also manufactures wood and plastic laminate casework, Mostly, these
products are sold in new construction, usually construction of schools.
Ceramicsteel used by Greensteel is now being manufactured at Alliance's Oklahoma
plant, where porcelain is fused to continuous coil steel in gas furnaces.
Ceramicsteel writing surfaces, which are available in a range of colors
and surface types, are virtually indestructible and maintenance free, and are
warranted by Greensteel to retain their original writing and erasing qualities
under normal usage and wear. As a result of these product qualities, Greensteel
believes that ceramicsteel writing surfaces currently account for approximately
75% of all chalkboard and markerboard sales in the United States and will
continue to grow for the foreseeable future.
Greensteel's chalkboards, tackboards, markerboards and cabinetry are
typically sold together as a package to finish facility wall surfaces in schools
and offices. These products are manufactured at one or more of Greensteel's
production and fabrication facilities and are generally sold together as part of
a package to end-users through a sales force operating out of Greensteel's
regional sales offices and through independent dealer organizations.
Greensteel's writing surface products are normally priced from $100 to $900 per
unit, depending on the core material, dimension, steel, gauge and trim, and
whether the products are being sold through its own sales staff or through
independent dealers.
Sales and Markets
Most of Greensteel's products are sold pursuant to a bid process conducted
through architects and general contractors working with Greensteel's sales
staff. Warranties made by Greensteel with respect to its products and services
are consistent with industry standards, except for a 50-year warranty on the
writing surface of its ceramicsteel chalkboards, which is in keeping with
industry standards. Greensteel markets its products through a direct sales staff
of six persons, most of whom work on a salary plus commission basis, and
maintains four sales offices. Greensteel has converted part of its distribution
channel to sales efforts through independent dealers who do their own
estimating, quoting, project management and installation, and who bear the cost
of performance bonds and contract retainage. As of December 31, 1998, Greensteel
had approximately 65 dealers covering various geographical areas of the United
States. Sales to educational institutions and facilities account for a majority
of Greensteel's revenues. Greensteel's business is concentrated in the eastern
half of the United States, California, Florida and select other states that
represent the highest educational spending and growth.
Manufacturing
Greensteel conducts manufacturing operations primarily at its 200,000
square-foot facility in Dixonville, Pennsylvania, and a second 31,000
square-foot facility in Riverside, California.
Raw Materials
Greensteel purchases its ceramicsteel requirements from its recently
acquired Alliance division. As a result, its ceramicsteel writing surfaces are
readily available as are all other raw materials.
5
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Competition
Greensteel competes with a variety of companies that manufacture visual
display products (such as chalkboards, markerboards and tackboards) and
institutional cabinetry, primarily for sale in the education market (such as
schools, pre-schools and day-care centers). There are more than 100 companies
that compete in the sale of visual display products, of which approximately 20
companies compete in large geographical regions, and two of which, Nelson-Adams
and Claridge Products & Equipment, Inc., compete nationally through a network of
independent distributors and sales offices. Greensteel also competes with
numerous local woodworking firms with respect to its cabinetry, and at least
nine such companies that sell nationally, either through a system of dealers,
direct sales offices, or both. Greensteel maintains a competitive position
through design quality, reliability, and its constant attention to costs.
Seasonality
Greensteel's business is seasonal and much of its revenues and most of its
operating profits occur during the late spring and summer months of the year.
This occurs primarily as a result of increased business activity in the summer
months when schools are closed and construction and renovation activity
increases. Greensteel typically incurs a loss in the winter months.
Backlog
As of December 31, 1998, Greensteel's backlog was approximately $18.0
million, as compared with $15.4 million as of December 31, 1997. Management
expects that most of the backlog will be filled in fiscal 1999. Revenues from
sales of specific products are recorded when title transfers, which is typically
upon shipment. Revenues from construction of custom installations under
contracts are recorded on the percentage-of-completion method of accounting,
measured on the basis of costs incurred to estimated total costs, which
approximates contract performance to date. See Note 2, "Revenue Recognition" to
the Notes to Consolidated Financial Statements included herein.
Employees
As of December 31, 1998, Greensteel employed approximately 240 people.
Approximately 100 employees at Greensteel's Dixonville, Pennsylvania plant are
members of the Carpenters Union. In February 1999, Greensteel and the Carpenters
Union ratified a new three-year collective bargaining agreement. Greensteel
considers relations with its employees to be good.
Patents and Trademarks
Greensteel holds a number of trademarks covering various products and
processes relating to its business. Greensteel believes that its "Greensteel"
trademark is important because it is highly recognized by customers, general
contractors and architects in the education and institutional markets as
providers of quality products used in construction projects. Greensteel
periodically monitors for infringing uses of this mark and has never encountered
any such infringement. Management of Greensteel believes that such infringement
is unlikely. None of Greensteel's trademarks are considered to be material to
Greensteel's ongoing business.
Insurance
Greensteel maintains insurance with respect to its properties and
operations in such form, in such amounts and with such insurers as is customary
in the businesses in which Greensteel is engaged. Greensteel believes that the
amount and form of its insurance coverage is sufficient.
6
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Environmental Matters
Greensteel's manufacturing operations are subject to numerous federal,
state and local laws and regulations relating to the storage, handling,
emission, transportation and discharge of hazardous materials and waste
products. Compliance with these laws has not resulted in a material cost to
Greensteel and has not had a material effect upon its capital expenditures,
earnings or competitive position.
Alliance
Products
Alliance manufactures continuous coil, light-gauge ceramicsteel for a wide
range of market applications, including visual communications products,
transportation/infrastructure and industrial markets. Alliance's ceramicsteel
combines the strength of steel with the unique properties of ceramicsteel,
utilizing proprietary processes developed by Alliance. Certain characteristics
of ceramicsteel that Alliance believes distinguishes it from other types of
durable surfaces are longevity, ease of maintenance, non-toxicity and resistance
to harsh environments.
Alliance's ceramicsteel coils and sheets, which are available in a variety
of surface finishes, treatments and colors, are used primarily as writing
surfaces for markerboards and chalkboards and also as surfaces for projection
screens. Alliance also manufactures non-standard, high performance,
application-specific ceramicsteel coils and sheets with distinctive graphics,
such as calendars, maps, artwork and signage. Ceramicsteel, used in visual
communications and finished visual display products, accounted for approximately
80% of Alliance's fiscal 1998 revenues, with most of the remaining sales from
infrastructure and industrial products described below.
Alliance's ceramicsteel surfaces are particularly well-suited for interior
and exterior surfaces of tunnel systems, subways, airports, bus terminals and
train stations, and are frequently chosen substitutes for ceramic tile, glazed
block and painted aluminum, because of its longevity, non-toxicity,
fire-resistance, aesthetic potential, surface uniformity and relative ease of
installation and maintenance. In addition, Alliance's ceramicsteel surfaces have
a variety of industrial applications, such as components in radiant heaters and
as surfaces for industrial graphic displays due to its ability to withstand high
temperatures and high abuse environments.
Sales and Markets
Alliance's visual display products are sold in the United States and,
through facilities in Belgium, France and Denmark, throughout Europe and to over
40 countries worldwide. In the United States, Alliance uses its direct sales
personnel to sell its products to fabricators/OEMs that produce visual
communication products, such as markerboards, chalkboards and other related
products. These products are sold through a variety of distribution channels to
a broad range of end users, particularly educational facilities and businesses.
Outside the United States, Alliance sells its products to OEMs and, through its
facilities in France and Denmark, it sells finished visual communications
products predominantly to educational and business institutions. Sales of
Alliance's infrastructure and industrial products are made by direct sales
efforts through employees and other sales agents working with architects and
designers on specific projects in the United States, Europe and the Far East.
As of December 31, 1998, Alliance had a total of approximately 15 sales
agents covering various geographical areas outside of the United States,
principally in Europe and the Far East. In addition, Alliance employs six direct
sales personnel in the US and 17 sales personnel in Europe.
Manufacturing
Alliance conducts manufacturing operations at its 180,000 square-foot
facility in Okmulgee, Oklahoma (near Tulsa), its 124,000 square-foot facility in
Genk, Belgium, a 155,200 square-foot facility in Crespin, France and a 29,800
square-foot facility in Odense, Denmark.
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The following table summarizes Alliance's manufacturing facilities:
<TABLE>
<CAPTION>
Okmulgee, Oklahoma Genk, Belgium Odense, Denmark Crespin, France
------------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Products o Coils & Sheets o Coils & Sheets o Finished Visual o Finished Visual
Manufactured o Graphic Sheets o Graphic Sheets Communication Communication
- ------------ o Laminated Panels o Laminated Panels o Surfaces o Surfaces
o Tunnel Panels Laminated Panels Laminated Panels
o Heating Elements
o Projection Screens
Equipment o 4ft. Coil Line o 4ft. Coil Line o Laminating Line o 4ft. Sheet Line
- --------- o 5ft. Coil Line o Silkscreen Graphics o Laminating Line
o Aluminum Molding o Furniture Molding o Assembly Lines
Line o Polyurethane Molding o Silkscreen
o Silkscreen o Laminating Equipment Graphics
Graphics o Printed Circuit Assembly
o Laminating
Equipment
</TABLE>
Raw Materials
The production of ceramicsteel requires three basic materials: steel coil,
frit (glass fragments) and pigments or oxides. Alliance has never experienced
any difficulty in obtaining these materials in adequate quantity or quality and
relies predominately on a range of suppliers in the United States, Europe and
Japan. Alliance maintains multiple sources of supply on all critical items and
manages its purchasing commitments on a worldwide basis to leverage its
purchasing strength.
Competition
Although Alliance believes that its ceramicsteel visual display surfaces
currently occupy approximately 70% to 80% of the North American and European OEM
markets for such surfaces, respectively, it competes with several domestic and
international companies, some of which may have substantially greater financial
and other resources than those of Alliance. In North America, Alliance faces
competition from companies such as Claridge Products & Equipment, Inc., Kawasaki
and NGK. Claridge is Alliance's most significant competitor in North America,
but differs from Alliance in its market focus and production capabilities.
Although Kawasaki and NGK are large companies with substantial resources, they
manufacture ceramicsteel in only a limited range of products. In Europe, NGK and
Kawasaki are Alliance's most significant ceramicsteel competitors but, as in
North America, offer only a limited range of products. Alliance believes that
its future success will depend upon its ability to develop and produce reliable
products which incorporate developments in technology and satisfy consumer
tastes with respect to style and design and its ability to market a broad range
of such products in each applicable category at competitive prices.
Seasonality
Alliance's business is somewhat seasonal with much of its revenues and
operating profits occurring in the spring and summer months of the year. This is
due to the increased business activity in the months when schools are closed and
general construction activity increases.
Backlog
As of December 31, 1998, Alliance's backlog totaled approximately
$7,840,000. Due to the nature of its manufacturing process and customer base,
Alliance produces and ships products to its customers without incurring material
backlog.
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Employees
As of December 31, 1998, Alliance employed approximately 360 people.
Approximately 65 employees at Alliance's Okmulgee, Oklahoma facility are members
of the Steel Workers of America Union. A renewed labor agreement with the Steel
Workers of America became effective in July 1998, and expires in April 2001. In
Alliance's European operations, including Crespin, France, and Odense, Denmark,
most of the employees are members of various national unions within each
country. To date, neither the Steel Workers of America Union nor the European
unions have engaged in strikes or work stoppages against Alliance. Alliance
believes that its relationships with both its union and non-union employees are
good.
Patents and Trademarks
In June 1998, Alliance filed a federal trademark application that covers
the mark "QuartzVue" for use with its front projection screens. During recent
years, Alliance has filed for and received a number of patents relating to its
core products and processes. It believes these patents continue to provide a
competitive advantage in the markets served by Alliance and it will continue to
ensure its position is protected and defended when necessary.
Insurance
Alliance maintains insurance with respect to its properties and operations
in such form, in such amounts and with such insurers as is customary in the
businesses in which Alliance is engaged. Alliance believes that the amount and
form of its insurance coverage is sufficient.
Environmental Matters
Alliance's manufacturing operations are subject to numerous U.S. federal,
state and local laws and regulations, as well as foreign laws and regulations
relating to the storage, handling, emission, transportation and discharge of
hazardous materials and waste products. Compliance with these laws has not been
a material cost to Alliance and has not had a material effect upon its capital
expenditures, earnings or competitive position. Alliance continues to monitor a
project to achieve full environmental compliance on a facility no longer owned
by Alliance and it is fully indemnified by owners prior to Alliance. To date,
this project has not had a material impact on Alliance, and Alliance does not
expect it to have a material impact in the future.
Posterloid
Posterloid is engaged in the development, manufacture and sale of indoor
and outdoor menuboard display systems to the fast food and convenience store
industries. The Viscon division of Posterloid develops, manufactures and markets
changeable magnetic display signage used primarily by banks to display interest
rates, currency exchange rates and other information. Posterloid's displays are
custom manufactured in arrays of screen printed plastic strips for ceiling
hanging or for window or counter displays. As of December 31, 1998, Posterloid
had approximately 800 customers. Posterloid's marketing activities are conducted
through both a direct sales force and sales representatives. Raw materials used
in Posterloid's operations are widely available but are purchased from a limited
number of sources in order to obtain favorable prices and terms. Posterloid
competes with three other significant national menuboard manufacturers and a
large number of local manufacturers. Menuboard products compete on the basis of
design capability, price, quality and ability to meet delivery requirements.
Posterloid had approximately 65 employees as of December 31, 1998, and considers
its employee relations to be good. None of its employees are covered by a
collective bargaining agreement.
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ITEM 2. PROPERTIES
Greensteel owns two of its facilities. Real estate owned by Greensteel is
subject to mortgages. Greensteel believes that all of its facilities are
well-maintained, in good condition and adequate for its present business.
Greensteel's production facilities are currently utilized to the extent of one
production shift per day and are scheduled for additional shifts as demand
requires during the busy seasonal period. At such levels of utilization,
Greensteel's production facilities have sufficient capacity to meet the current
demand for Greensteel's products.
Information concerning the principal facilities of Greensteel is set forth
below:
Floor Area
Location Owned or Leased (Square Feet) Lease Expiration
- -------------------------- --------------- ----------- ----------------
Dixonville, Pennsylvania Owned 199,200 --
Alliance, Ohio (1) Owned 28,000 --
Landis, North Carolina (2) Leased 16,000 1999
Riverside, California Leased 31,000 2002
Fraser, Michigan Leased 4,700 2000
(1) This facility was closed in February 1999 and operations were moved to
Alliance's Oklahoma manufacturing facility. Greensteel is currently in the
process of selling this facility.
(2) Greensteel intends to renew this lease.
Alliance owns all of its facilities. Real estate owned by Alliance has
been pledged as collateral under PolyVision's credit facilities, both in the
United States and Europe. Alliance believes that all of its facilities are
well-maintained, in good condition and adequate for its present business.
Alliance's Oklahoma and three European production facilities are currently
utilized to the extent of two to three production shifts per day and are
scheduled for additional shifts as demand requires during the busy seasonal
period. At such levels of utilization, Alliance's production facilities have
sufficient capacity to meet the current demand for Alliance's products.
Information concerning the principal facilities of Alliance is set forth
below:
Approximate Owned or Floor Area
Location Leased (Square Feet)
- ------------------------------- ---------------- -------------------
Norcross, Georgia Owned 9,500
Okmulgee, Oklahoma Owned 180,000
Crespin, France Owned 155,200
Genk, Belgium Owned 124,000
Odense, Denmark Owned 29,800
The only facility used by Posterloid, which is leased, is as follows:
Approximate Owned or Floor Area Lease
Location Leased (Square Feet) Expiration
- ------------------------------- ---------------- -------------- -----------
Long Island City, New York Leased 54,000 2001
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ITEM 3. LEGAL PROCEEDINGS
PolyVision and its subsidiaries are parties to routine litigation
incidental to their business, none of which in the opinion of management will
have a material impact on the financial condition of PolyVision.
In 1994, Reliance Insurance Company of New York (the "Plaintiff")
commenced an action in the Supreme Court of the State of New York, County of
Suffolk, against several defendants including PolyVision seeking money damages
based on the purported sale and delivery by defendants of some 860 insulated
metal curtain wall panels manufactured by PolyVision in 1987 and of an
additional 520 replacement panels in 1991 and 1992. Plaintiff has alleged that
such panels were defective in their design and manufacture. Among the theories
of liability advanced by Plaintiff are breach of contract, breach of express
warranty and implied warranty. Pursuant to orders of the Court, the causes of
action based on the 1987 transaction were dismissed on statute of limitation
grounds. However, Plaintiff has been granted leave to serve an amended complaint
to allege, among other things, a claim under the New Jersey Consumer Fraud Act
(the "NJCFA") (which might permit treble damages), while preserving the right of
the defendants, including PolyVision, to challenge the applicability of the
NJCFA.
The amended complaint was served during April 1997 and Plaintiff currently
seeks $1,405,000 in damages from all defendants, as well as treble damages under
the NJCFA. PolyVision has served its answer to the amended complaint
substantially denying Plaintiff's allegations of defective design and
manufacture and pleading affirmative defenses, as well as commencing third party
claims against an adhesives supplier whose product was utilized by PolyVision in
fabricating the subject panels. As of the date hereof, discovery is
continuing, but it is premature to render an estimate of the outcome of this
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during two months
ended December 31, 1998.
11
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock Information
The common stock of PolyVision is traded on the American Stock Exchange
under the symbol PLI. The following table shows the high and low closing prices
for trades on the American Stock Exchange:
High Low
---- ---
Fiscal April 1997
First Quarter..................... $2-1/4 $5/8
Second Quarter.................... 1-1/8 5/8
Third Quarter..................... 15/16 11/16
Fourth Quarter.................... 3/4 1/4
Fiscal April 1998
First Quarter..................... 3/4 1/4
Second Quarter.................... 1 3/8
Third Quarter..................... 15/16 11/16
Fourth Quarter.................... 1-1/2 3/4
Eight Months ended December 1998
May to July 1998.................. 1-5/8 7/8
August to October 1998............ 2-1/4 7/8
November to December 1998......... 2-3/8 1-1/2
The approximate number of security holders of PolyVision's common stock
was 1,895 as of March 22, 1999. This number does not include the number of
security holders for whom shares are held in a "nominee" or "street" name. The
closing price of PolyVision's common stock on March 24, 1999, as reported by the
American Stock Exchange, was $2-11/16 per share.
Dividend Policy
PolyVision has never declared or paid dividends on its common stock and
does not expect to pay dividends on its common stock at any time in the
foreseeable future. Also, the terms of PolyVision's credit facilities prohibit
the payment of common stock dividends and the terms of PolyVision's Series B and
Series C Preferred Stock prohibit PolyVision from paying dividends on all
classes of stock junior to such stock (including the common stock) while shares
of PolyVision's Series B and Series C Preferred Stock remain outstanding.
Recent Sales of Unregistered Securities
Subordinated Note Financing; Warrants to Purchase Common Stock
In December 1998, PolyVision issued $25,000,000 of 12.5% Senior
Subordinated Notes due December 30, 2006 (the "Hancock Notes") to John Hancock
Mutual Life Insurance Company and certain of its affiliates (collectively, "John
Hancock") pursuant to a Senior Subordinated Note and Warrant Purchase Agreement
(the "Subordinated Note Agreement"). Under the Subordinated Note Agreement, John
Hancock purchased from PolyVision the Hancock Notes and warrants to purchase up
to 2,986,467 shares of PolyVision common stock (the "Warrants"). John Hancock
may exercise the Warrants at any time during their ten-year term. The exercise
price of the Warrants is $.001 per share.
12
<PAGE>
Exchange Transaction; Common Stock and Series B Convertible Preferred
Stock
In November 1998, shortly before the Alliance purchase, PolyVision
completed a related transaction (the "Exchange Transaction") with Alpine and
another preferred shareholder. In the transaction, PolyVision exchanged
approximately $25.7 million in liquidation value of PolyVision Series A
Preferred Stock (plus accrued dividends) and indebtedness of approximately $7.4
million due from PolyVision, for approximately 5.3 million shares of common
stock and approximately $12.4 million in liquidation value of Series B Preferred
Stock to Alpine and another entity. The Series B Preferred Stock may be
converted into 4,132,517 shares of common stock at any time at a conversion
price of $3.00 per share. Alpine is entitled to the payment of cumulative cash
dividends at the rate of 9% per year. These dividends, however, are prohibited
through July 2001 under the terms of PolyVision's senior subordinated credit
facility, and thereafter can only be paid if PolyVision is in compliance with
specified financial ratios set forth in the senior secured credit facility and
senior subordinated credit facility. Also, although PolyVision can redeem the
Series B Preferred Stock under the terms of the preferred stock agreement at
face value, plus accrued but unpaid dividends, at any time, the terms of
PolyVision's credit facilities prohibit PolyVision from doing so. Shares of
Series B Preferred Stock have no voting rights, except (voting as a separate
class) for certain significant business transactions such as the merger or
consolidation of PolyVision, the sale of all or substantially all of
PolyVision's assets or an amendment of PolyVision's Certificate of Incorporation
or By-laws which adversely affects the rights of holders of Series B Preferred
Stock. However, if Alpine were to transfer ownership of its shares of Series B
Preferred Stock to an unaffiliated third party, such transferee would be
entitled to vote (together with common shareholders) the equivalent number of
shares of common stock as it would hold if it converted its shares immediately
prior to the record date of such vote. The Series B Preferred Stock also has
customary anti-dilution provisions for stock dividends, stock splits, share
combinations, recapitalizations and other capital adjustments.
Also, in November 1998, PolyVision issued to Alpine an additional 209,790
shares of common stock and Series B Preferred Stock convertible into 150,000
shares of common stock, valued together at $750,000, as compensation for
structuring and assisting PolyVision in completing the Alliance purchase.
Series C Convertible Preferred Stock
In November 1998, PolyVision sold to Alpine for $5.0 million in cash,
shares of PolyVision Series C Preferred Stock. PolyVision applied the $5.0
million to the purchase price for Alliance. The Series C Preferred Stock may be
converted into 2,500,000 shares of common stock at any time. Other than the
conversion price, the terms of the Series C Preferred Stock are identical to the
terms of the Series B Preferred Stock and rank equally with respect to
distribution rights upon the liquidation, dissolution or winding-up of the
affairs of PolyVision, and with respect to dividend rights.
10% Convertible Subordinated Promissory Note
The purchase price in the Alliance acquisition included an $8.0 million,
10% convertible subordinated promissory note due in 2007 (the "Note"), which was
issued to Wind Point Partners III, L.P., as agent for the sellers in the
transaction. The Note may be converted at any time after May 20, 1999 into
shares of common stock at a conversion price of $3.00 per share. However, if the
Note has not been repaid by November 20, 2004, the conversion price will be
reduced by $.25 to $2.75 per share. Likewise, the conversion price will be
reduced by another $.25 per share on each of November 20, 2005, 2006 and 2007
(to a final conversion price of $2.00 per share) if the Note has not been repaid
by any such date. The principal amount of the Note may also be reduced, by up to
$2.0 million, for claims made by PolyVision against Wind Point Partners and the
other sellers on account of misrepresentations or breaches of warranty stemming
from the Stock Purchase Agreement among the parties in the Alliance purchase. If
this were to happen, the number of shares available to Wind Point Partners for
conversion would be proportionally reduced.
All of the foregoing issuances of PolyVision securities were made pursuant
to private placements under Section 4(2) of the Securities Act.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements of PolyVision and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Report.
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
DECEMBER 31, TWELVE MONTHS ENDED APRIL 30,
---------------------------- ---------------------------------------------
1998(4) 1997(3) 1998 1997(2) 1996 1995(1)
------------ -------------- -------- ------------- -------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales from operations ................ $ 33,877 $ 22,860 $ 34,167 $ 32,233 $ 35,627 $ 13,572
Income (loss) from operations ............ 2,050 1,288 1,392 (4,289) (5,245) (5,644)
Net income (loss) ........................ 591 1,097 1,010 (5,109) (5,769) (5,728)
Preferred stock dividends ................ (179) (1,376) (1,545) (2,059) (2,040) (448)
Accretion of preferred stock ............. (312) -- -- -- -- --
Gain on conversion ....................... 19,252 -- -- -- -- --
Income (loss) applicable to common stock . 19,352 (279) (535) (7,168) (7,809) (6,176)
Income (loss) per share-basic and diluted 2.04 (.03) (0.06) (0.84) (0.94) (0.67)
Balance Sheet Data:
Total assets ............................. 122,208 19,091 18,464 16,901 18,983 22,153
Long-term obligations .................... 74,511 13,537 13,842 11,499 7,380 1,785
Preferred stock .......................... 17,848 25,731 25,731 25,731 25,731 25,502
Total shareholders' equity (deficit) ..... 20,921 (3,207) (3,475) (2,990) 4,084 11,090
</TABLE>
- ----------
(1) Includes the results of Greensteel for the four months ended April 30,
1995.
(2) Includes a $650,000 restructuring charge for the discontinuance of APV's
operations.
(3) Eight month results for the period ended December 31, 1997 are unaudited.
(4) Includes a $1,250,000 nonrecurring charge related to the acquisition of
Alliance.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table summarizes, for the periods presented, the respective
amounts of Greensteel, Posterloid, Alliance and APV, PolyVision's primary
operating segments:
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
DECEMBER 31, TWELVE MONTHS ENDED APRIL 30,
----------------------- ----------------------------------
1998 1997 1998 1997 1996
----------- ----------- ---------- ------------ --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Net sales
Greensteel .................... $ 23,058 $ 18,803 $ 27,813 $ 26,152 $ 30,070
Posterloid .................... 4,202 4,057 6,354 6,081 5,557
Alliance ...................... 6,617 -- -- -- --
------------------------------------------------------------
33,877 22,860 34,167 32,233 35,627
Gross profit
Greensteel .................... 6,362 5,090 7,459 5,740 6,129
Posterloid .................... 1,564 1,532 2,422 1,738 1,635
Alliance ...................... 2,591 -- -- -- --
------------------------------------------------------------
10,517 6,622 9,881 7,478 7,764
Gross margin ...................... 31.0% 29.0% 28.9% 23.2% 21.8%
Greensteel .................... 27.6% 27.1% 26.8% 21.9% 20.4%
Posterloid .................... 37.2% 37.8% 38.1% 28.6% 29.4%
Alliance ...................... 39.2% -- -- -- --
Selling, general and administrative
expenses
Greensteel .................... 4,330 4,024 6,184 6,967 6,356
Posterloid .................... 1,182 1,150 1,725 1,668 1,766
Alliance ...................... 1,209 -- -- -- --
APV and Corporate ............. 218 64 435 1,179 1,856
------------------------------------------------------------
6,939 5,238 8,344 9,814 9,978
Amortization of goodwill
Posterloid .................... 97 96 145 145 145
Alliance ...................... 151 -- -- -- --
------------------------------------------------------------
248 96 145 145 145
Research and development
APV ........................... -- -- -- 1,158 2,886
Alliance ...................... 30 -- -- -- --
------------------------------------------------------------
30 -- -- 1,158 2,886
Operating income (loss)
Greensteel .................... 2,032 1,066 1,275 (1,227) (227)
Posterloid .................... 285 286 552 (75) (276)
Alliance ...................... 1,201 -- -- -- --
APV and Corporate ............. (218) (64) (435) (2,337) (4,742)
Non-recurring expenses ........ (1,250) -- -- (650)
------------------------------------------------------------
2,050 1,288 1,392 (4,289) (5,245)
Net interest expense .............. 1,408 533 839 910 516
Other (income) expense ............ 201 (342) (472) (90) (8)
</TABLE>
15
<PAGE>
RESULTS OF OPERATIONS
EIGHT MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH THE UNAUDITED EIGHT MONTHS
ENDED DECEMBER 31, 1997 [TRANSITION PERIOD]
Net sales for the eight months ended December 31, 1998, totaled
$33,877,000, an increase of 48% over the 1997 comparable eight-month period of
$22,860,000. The increase of $11,017,000 was primarily due to the inclusion of
the results of Alliance which was purchased on November 20, 1998, ($6,617,000),
combined with increased business activity at Greensteel and Posterloid. For the
eight months ended December 31, 1998, Greensteel's net sales increased
$4,255,000, to $23,058,000, or 23% over the prior's year eight-month period of
$18,803,000, due to continuing demand in the education visual display market.
Posterloid's net sales also increased in the eight month period ended December
31, 1998, as compared to the previous year, from $4,057,000 to $4,202,000.
Gross profit for the eight-month period ended December 31, 1998, totaled
$10,517,000 compared to $6,622,000 for the comparable 1997 eight-month period.
The increase in gross profit of $3,895,000 was due in part to the inclusion of
$2,591,000 of gross profit earned by Alliance since its purchase on November 20,
1998. Greensteel's gross profit increased by $1,272,000 in the 1998 eight-month
period, to $6,362,000 versus $5,090,000 in 1997. This increase was due to the
sales gains noted above. Gross profit margin, as a percent of sales revenue,
increased from 29.0% in 1997 to 31.0% in 1998. This increase was principally due
to the purchase of Alliance on November 20, 1998, combined with production
efficiencies at Greensteel during the 1998 period. Due to the nature of its
business, Alliance's gross profit margin is normally higher than Greensteel's
gross profit margin.
Selling, general and administrative costs in the eight-month period ended
December 31, 1998 were $6,939,000, an increase of $1,701,000 over the 1997 total
of $5,238,000. Of the increase, $1,209,000 was due to the normal and customary
business activities of Alliance since the purchase on November 20, 1998. The
remaining increase in the 1998 eight-month period compared to 1997 was
principally due to higher selling commissions and increased professional fees.
An additional $1,250,000 of nonrecurring expense recorded in the
eight-month period ended December 31, 1998, was directly related to the purchase
of Alliance, and included a one-time fee of $750,000 paid to an affiliate for
investment banking advisory services, and $500,000 of nonrecurring restructuring
costs related to consolidation of manufacturing activities.
Interest expense in the eight-month period ended December 31, 1998
increased by $875,000, to $1,408,000, versus $533,000 in the 1997 comparable
eight-month period. Most of the increase is attributable to the purchase of
Alliance (See "Liquidity and Capital Resources").
Income tax expense for the 1998 eight month period increased $286,000,
compared to no expense in the 1997 comparable period, and relates principally to
income taxes for the European business income of Alliance.
16
<PAGE>
EIGHT MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH TWELVE MONTHS ENDED APRIL 30,
1998
For the eight months ended December 31, 1998, PolyVision's net sales
totaled $33,877,000 compared to net sales of $34,167,000 for the full year ended
April 30, 1998, a decline of $290,000. The decline in net sales is the result of
the shorter period comparison through December 31, which was offset by the
inclusion of the net sales of Alliance since the purchase on November 20, 1998
($6,617,000).
Gross profit for the eight month period ended December 31, 1998, totaled
$10,517,000 compared to $9,881,000 for the twelve months ended April 30, 1998.
Despite the shorter period comparison through December 31, 1998, gross profit
increased $636,000, as the eight month period included Alliance's gross profit
of $2,591,000 since the purchase. As a percent of sales revenue, gross profit
margin was 31.0% for the eight-month period ended December 31, 1998, versus a
gross profit margin of 28.9% for the twelve-month period ended April 30, 1998.
The increase in gross profit margin was principally due to the inclusion of
Alliance's gross profit since the purchase, combined with production
efficiencies at Greensteel. Since Alliance normally earns a higher gross profit
margin than Greensteel, the overall gross profit margin increased.
Consolidated selling, general and administrative expenses for the eight
months ended December 31, 1998, totaled $6,939, a decrease from the twelve month
total of $8,344 for the period ended April 30, 1998. The decline was due to the
shorter comparison period during the eight months ended December 31, 1998,
partially offset by the inclusion of Alliance's operating expenses since the
purchase.
Interest expense in the eight month 1998 period ended December 31, 1998,
increased $569,000, to $1,408,000, compared to $839,000 for the twelve month
period ended April 30, 1998. Most of the increase is attributable to the
acquisition of Alliance (See "Liquidity and Capital Resources").
Income tax expense for the 1998 eight month period ended December 31, 1998
totaled $286,000, compared to $15,000 in the twelve-month period ended April 30,
1998. The increase was caused by the inclusion of income taxes related to the
European business income of Alliance since the purchase.
TWELVE MONTHS ENDED APRIL 30, 1998 COMPARED WITH TWELVE MONTHS ENDED APRIL 30,
1997
PolyVision's net sales for the fiscal year ended April 30, 1998 increased
by 6% to $34,167,000 compared to net sales of $32,233,000 for the fiscal year
ended April 30, 1997. Sales at Greensteel improved by 6% to $27,813,000, an
increase of $1,661,000 over the previous fiscal year. PolyVision's conversion to
a dealer network using specialty school supply dealers, rather than a direct
sales effort, resulted in increased volume due to better geographical coverage.
Dealer revenue for the fiscal year ended April 30, 1998 improved from the
previous year by $4,713,000 or 40% and represented 58% of total sales. This
increase was partially offset by the loss of installation work that was
previously done by PolyVision and is currently performed by the dealer. Total
bookings for the fiscal year for Greensteel were $32,700,000 as compared to
$26,438,000 for the prior year, an increase of $6,262,000, or 24%. Backlog at
April 30, 1998 was $16,761,000 as compared to $11,874,000 at the end of the
previous year. Posterloid's net sales for fiscal 1998 were $6,354,000 as
compared to $6,081,000 for the previous year, an increase of 4%. This increase
was due to added sales of menuboards to several restaurant and theater chains.
Bookings for the fiscal year were $6,541,000 as compared to $6,168,000 for the
prior year, an increase of 6%. The backlog at April 30, 1998 was $760,000 as
compared to a backlog at April 30, 1997 of $573,000, an increase of $187,000, or
33%.
17
<PAGE>
Consolidated gross profit for the fiscal year ended April 30, 1998
improved by $2,403,000 to $9,881,000, or 32%, as compared to $7,478,000 in the
previous year. The gross margin increased to 28.9% from 23.2% of net sales.
Greensteel's gross margin improved to 26.8% from 21.9% reflecting improved
product mix related to additional sales to dealers and increased plant
throughput. The gross profit and gross margin for Posterloid were higher in
fiscal 1998 than in fiscal 1997, being $2,422,000 compared with $1,738,000, and
38.1% compared with 28.6%. This increase in gross profit was principally due to
a change in product mix, including a sales shift to more exterior signage, which
typically generates higher profit margins. In addition, Posterloid moved
operations into one facility during 1998, which reduced manufacturing costs in
the 1998 period compared to 1997.
Selling, general and administrative expenses for the fiscal year ended
April 30, 1998 decreased by $1,470,000 as compared to the previous year. This
decrease was due to lower bad debt expenses and lower selling expenses resulting
from the conversion to a dealer network, to rather than direct sales.
In April 1997, PolyVision determined to discontinue its research and
development efforts and market its PolyVision flat panel technology solely
through third-party licensing agreements. Therefore, in fiscal 1998, there were
no research and development costs. The restructuring costs in fiscal 1997
represented the costs to discontinue APV.
Other income in 1998 includes a $307,000 gain on the sale of PolyVision's
property in North Carolina.
TWELVE MONTHS ENDED APRIL 30, 1997 COMPARED WITH TWELVE MONTHS ENDED APRIL 30,
1996
PolyVision's net sales for the fiscal year ended April 30, 1997 decreased
10% to $32,233,000 compared to net sales of $35,627,000 for the fiscal year
ended April 30, 1996. This decline resulted from reduced sales of $3,918,000 at
Greensteel. In fiscal 1997, Greensteel had been in the process of converting its
distribution channels to sales through dealers which do not require extended
project management and are not subject to construction cost overruns or
increased working capital requirements for performance bonds and retainage. As a
result of selling through dealers, installation work that was previously done by
PolyVision is performed by the dealer, resulting in reduced revenues. During
fiscal 1997, PolyVision added 19 new dealers covering various geographic areas
of the United States.
Distributor sales for fiscal 1997 increased by 27% compared to fiscal
1996. Net sales for Posterloid increased by $524,000 or 9% in fiscal 1997. These
additional sales were due to a significant increase in volume with a fast food
restaurant chain.
PolyVision's gross profit for fiscal 1997 decreased to $7,478,000 from
$7,764,000 for fiscal 1996. Gross profit decreased at Greensteel from $6,129,000
to $5,740,000 due to lower revenues. Gross profit margins improved, however, to
22.0% from 20.4% due to higher margins on dealer sales and lower benefits costs
due to a more favorable union contract. Posterloid increased its gross profit by
$103,000 due to higher revenues, however the gross margin decreased from 29.4%
in fiscal 1996 to 28.6% in fiscal 1997 due to increased costs.
Selling, general and administrative costs for fiscal 1997 were $9,814,000
compared to $9,978,000 for the prior year. The decrease was due to lower
administrative personnel expense and related items offset by higher bad debt
expense.
Interest expense increased by $394,000 for fiscal 1997 due to a higher
level of debt in order to fund working capital needs and research and
development expenses.
Research and development costs related to the PolyVision flat panel
technology decreased by $1,728,000 for fiscal 1997. In April 1997, PolyVision
made the decision to discontinue its research and development efforts and market
the PolyVision flat panel technology through licensing agreements. This decision
permitted PolyVision to better utilize its financial resources and resulted in a
charge of $650,000 for restructuring expenses. This includes the estimated costs
of severance pay and benefits and the write-down of assets to net realizable
value.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Acquisition and Ongoing Working Capital Financing
PolyVision believes its credit facilities, combined with cash flows
generated from current operations, are adequate to meet PolyVision's current
and anticipated liquidity needs for at least the next 24 months.
Financing for the Alliance purchase, and for PolyVision's ongoing working
capital requirements, was and will be provided through:
o senior credit facilities provided by Fleet National Bank and KBC
Bank, N.V., in the maximum aggregate principal amount of $60,000,000
(the "Senior Credit Facilities"),
o a $25,000,000 senior subordinated loan provided by John Hancock
Mutual Life Insurance Company and certain of its affiliates (the
"Subordinated Loan"), and
o the purchase by Alpine of $5,000,000 of Series C Preferred Stock of
PolyVision.
The Senior Credit Facilities consist of (a) a revolving line of credit in
the maximum principal amount of $15,000,000 (of which $9,500,000 is available in
the United States, and $5,500,000 is available to PolyVision's European
subsidiaries), (b) term loans (the "Tranche A Loans") in the aggregate principal
amount of $25,000,000 (of which $4,369,392 was loaned in the United States, and
$20,630,608 was loaned in Europe), and (c) an additional term loan (the "Tranche
B Loan") in the principal amount of $20,000,000 (all of which was loaned in the
United States). Advances under the revolving line of credit will be available
through November 20, 2004, and borrowings thereunder may not at any time exceed
(1) for the United States borrowers, an amount equal to the lesser of $9,500,000
or the sum of 85% of eligible accounts receivable plus 60% of eligible
inventory, and (2) for the European borrowers, the lesser of $5,500,000 or the
sum of 85% of eligible accounts receivable and 50% of eligible inventory. The
term loans are repayable in quarterly principal installments through October 31,
2004 (in the case of the Tranche A Loans) and October 31, 2005 (in the case of
the Tranche B Loan), and such principal installments have been weighted so that
the majority of payments do not come due until the later years (including a
$14,900,000 balloon payment under the Tranche B Loan due on October 31, 2005).
PolyVision has the option of selecting interest rates on these loans based on
either the announced prime rate of interest or the prevailing LIBOR rate, and
the rate of interest in effect at any time will be dependent upon PolyVision's
ratio of consolidated indebtedness to EBITDA (earnings before interest, taxes,
depreciation and amortization) from time to time. The Tranche A Loan and Tranche
B Loan are subject to mandatory prepayment to the extent of net unreinvested
proceeds of certain asset sales and proceeds of certain future debt issuances by
PolyVision, and out of a portion of annual excess cash flow and net proceeds of
certain future equity issuances by PolyVision.
The Senior Credit Facilities are secured by liens and security interests
on substantially all of PolyVision's real and personal property, including the
assets of PolyVision's subsidiaries and a pledge of the outstanding stock of
such subsidiaries, and by cross-guarantees by PolyVision and its subsidiaries.
PolyVision is required to comply with customary affirmative and negative
covenants, and with financial covenants including a maximum ratio of total
indebtedness to EBITDA, a minimum ratio of EBITDA to interest expense, a minimum
ratio of EBITDA to fixed charges, and a maximum amount of annual capital
expenditures. PolyVision will also be prohibited from paying any dividends on
its common stock without the lenders' prior written consent, and from paying
dividends on its preferred stock until such time as PolyVision reduces its ratio
of total debt to EBITDA to certain prescribed levels. The lenders have reserved
the right to declare all of these loans to be immediately due and payable upon
the occurrence and during the continuance of certain customary events of
default, including non-payment of principal or interest, bankruptcy, insolvency,
default on other material indebtedness, and other material adverse developments
or occurrences relating to PolyVision.
19
<PAGE>
The Senior Subordinated Loan bears interest at a fixed rate of 12.5% per
annum, payable quarterly in arrears, and matures as to all principal in a single
installment on December 30, 2006, subject to mandatory prepayment (at the option
of the lender) at 101% of the principal balance (together with accrued interest)
upon a change of control of PolyVision. Except for the guaranty thereof by
PolyVision's domestic subsidiaries, the Senior Subordinated Loan is an unsecured
obligation of PolyVision. The loan agreement includes customary affirmative and
negative covenants, financial covenants similar to (but less stringent than) the
financial covenants applicable to the Senior Credit Facilities, and customary
events of default. The Senior Subordinated Loan is junior in right of payment to
the Senior Credit Facilities, but senior in right of payment to the $8,000,000
promissory note issued by PolyVision to the Sellers as part of the purchase
price in the Alliance acquisition.
In conjunction with the borrowing of the Senior Subordinated Loan,
PolyVision issued to the lender detachable warrants entitling the holder thereof
to purchase, for nominal consideration, 2,986,467 shares of common stock of
PolyVision, representing approximately 12.5% of the fully diluted common stock
of PolyVision. PolyVision has agreed to file a registration statement with the
Securities and Exchange Commission covering the shares of common stock
underlying the warrants, to enable the resale of such shares to the public, by
no later than April 30, 1999 and to use its best efforts to make such
registration statement effective by no later than June 15, 1999.
Immediately after giving effect to the consummation of the acquisition,
all of the Tranche A Loans and the Tranche B Loan under the Senior Credit
Facilities, and the entire Senior Subordinated Loan, had been borrowed and were
outstanding. In addition, approximately $1,557,000 of borrowings were
outstanding under the European portion of the revolving credit facilities, and
no amounts were outstanding under the United States portion of the revolving
credit facilities.
As of December 31, 1998, PolyVision's cash position totaled $4,841,000,
an increase of $4,550,000 over the balance as of April 30, 1998. Most of the
increase was due to the cash at Alliance on the purchase date combined with
the proceeds remaining from the financing of the acquisition discussed above.
For the eight-month period ended December 31, 1998, cash flows provided by
operating activities totaled $1,469,000. During this period, PolyVision
experienced a decrease in trade accounts receivable, net of effects from the
purchase of Alliance, of $729,000 over the balance as of April 30, 1998,
principally due to the seasonality of PolyVision's business, which is
normally more active during the summer months. Also, PolyVision experienced a
decrease in accounts payable and accrued expenses, net of effects from the
purchase of Alliance, of $1,170,000 compared with the April 30, 1998
balance. This decline was also due to business seasonality.
Exchange Transaction and Alpine Financing
In May 1995, PolyVision entered into an agreement with Alpine,
PolyVision's largest single shareholder, pursuant to which PolyVision had the
right to borrow, prior to May 24, 1997, up to $5,000,000 from Alpine to be used
by PolyVision to fund its working capital needs, including research, development
and commercialization activities in connection with the flat panel display
technology of APV, Inc., a wholly-owned subsidiary of PolyVision. Borrowings
under the agreement were unsecured and accrued interest at a market rate
reflecting Alpine's cost of borrowing such funds (then approximately 8-1/2%),
with interest payable semiannually in cash. The principal balance was due on May
24, 2005, subject to mandatory prepayment of principal and interest, in whole or
in part, from the net cash proceeds of any public or private equity or debt
financing received by PolyVision at any time before maturity. In April 1997,
PolyVision entered into a second agreement with Alpine to borrow $811,000 to
fund its corporate borrowing requirements. Borrowings under this agreement were
also at Alpine's cost of borrowing such funds. PolyVision had historically
relied upon the support of Alpine to meet its working capital needs and
financial commitments.
In November 1998, all indebtedness of PolyVision due Alpine was exchanged
for shares of PolyVision common stock and Series B Preferred Stock and is no
longer outstanding.
EFFECTS OF INFLATION
Inflation remains at a low rate and is not expected to have a significant
effect on PolyVision in the near term.
20
<PAGE>
YEAR 2000 COMPLIANCE
Overview
The year 2000 ("Y2K") problem is the result of computer programs having
been written using two digits (rather than four) to define the applicable year,
thus not properly recognizing dates after December 31, 1999. The six-digit date
(YYMMDD) has become the standard for date representations and is embedded in a
multitude of computer programs and computer chips. Information Technology ("IT")
hardware, "embedded" technology, such as microprocessors, or software that is
date-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000, which could result in miscalculations or system and mechanical
failures. PolyVision does not manufacture or sell products with embedded
technology.
During 1998, PolyVision began identifying and resolving Year 2000 issues.
These efforts include identification and review of internal operating systems
and applications, and customer projects and services, as well as discussions
with information providers and other key suppliers to the business. At this
time, based upon the efforts taken to date and those yet to be taken, PolyVision
does not expect any serious disruptions in its business operations and,
therefore, does not anticipate any material negative effect upon its revenues or
earnings as a result of the Y2K issue. Remediation costs for problems identified
thus far are not expected to be material to PolyVision's consolidated financial
position, liquidity or results of operations. PolyVision has established a
timetable for resolving Year 2000 issues so as not to interrupt ongoing
operations.
PolyVision's State of Readiness
The Year 2000 project plan, including assessment, improvement, testing and
implementation has been established. The assessment phase is 75% complete and
should be completed in May 1999 upon receipt of all remaining vendor and
supplier Y2K readiness inquiries.
Assessment of the Year 2000 compliance of third parties with whom
PolyVision has material relationships is in process. PolyVision's material third
party relationships include the following:
(a) Raw material vendors: PolyVision's raw material purchases are
through third party raw material vendors. Most mission critical raw
material vendors have responded to PolyVision's Y2K readiness
inquiry;
(b) Equipment vendors: The response to the Y2K readiness inquiries from
equipment vendors, which includes all embedded chip equipment, is
80% complete;
(c) Service providers: The response to the Y2K readiness inquiries from
third party service providers, which includes utilities, phone
service and all facility related services, is 75% complete; and
(d) Software vendors: PolyVision has upgraded most purchased software to
Y2K compliant version and is in the testing phase.
The responses received, thus far, from PolyVision's third party vendors
and suppliers indicate compliance on or before October 1, 1999.
The preliminary assessment of internal IT and non-IT systems has been
completed. Internal non-complaint items have been identified and prioritization
of internal non-compliant items is in process. A system for tracking remediation
has been established and non-compliant items identified are expected to be
completed in April 1999. Based on the findings of the planning and assessment
phases completed to date, PolyVision does not believe independent verification
and validation processes will be necessary.
21
<PAGE>
Costs to Address PolyVision's Year 2000 Issues
The current estimate of the cost of remediation and equipment and software
replacement is approximately $500,000 and is summarized below.
PolyVision is installing a new computer system at its manufacturing
facility in France and Denmark. The cost of computer hardware/software for these
locations will approximate $250,000 and $80,000, respectively. PolyVision's
computer system in Belgium is being upgraded to adequately handle the Year 2000
compliance issues, at an approximate cost of $150,000. Management believes its
other computer systems are Year 2000 Compliant.
Risks of PolyVision's Year 2000 Issues and PolyVision's Contingency Plans
A reasonable worst case Y2K scenario is not known at this time. This
determination will be made after the receipt of the remaining material third
party questionnaires. However, the shipment of product to customers is expected
to continue with minimal interruption and no material loss of revenues is
anticipated. The Y2K project has had minimal impact on the schedule of other
major IT projects.
PolyVision has not completed a contingency plan, however, it will by May
1999. Each manufacturing facility will incorporate Year 2000 into their existing
disaster contingency plan. The contingency plan will ensure that: (i) adequate
levels of inventory will be on hand to mitigate the impact of any potential
short-term disruptions in production; (ii) adequate supply of raw materials will
be available from alternate sources; and (iii) the necessary backup measures for
computer processing are identified.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset, or
liability measured at its fair value. SFAS No. 133 requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. PolyVision will be required to adopt the new
statement in 2000. PolyVision has not yet quantified the impact of adopting SFAS
No. 133 and has not determined the method of adoption. However, SFAS No. 133
could increase the volatility in earnings and other comprehensive income.
Effective December 31, 1998, PolyVision adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires disclosures regarding PolyVision's
comprehensive income defined as the total of net income and all other non-owner
changes in equity, and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information, " which revises disclosure requirements
related to segment reporting. SFAS No. 130 and SFAS No. 131 require disclosure
only; therefore their adoption had no impact on PolyVision's financial position
or results of operations.
FOREIGN CURRENCY
With the purchase of Alliance, PolyVision has foreign-based operations,
primarily in Europe, which it anticipates will account for approximately 35% of
its sales during calendar 1999. In the conduct of its foreign operations,
PolyVision makes intercompany sales principally between its European
subsidiaries. These transactions are primarily denominated in Belgian and French
francs, the functional currencies of PolyVision's major European subsidiaries.
PolyVision does not have a significant amount of intercompany sales between its
European and U.S. businesses, and does not routinely transfer funds between its
domestic and foreign operations.
22
<PAGE>
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are based largely on PolyVision's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond PolyVision's
control. Actual results could differ materially from these forward-looking
statements as a result of, among other factors, risks related to PolyVision's
history of operating losses and accumulated deficit; future capital
requirements; competition, technical advances and seasonality; environmental
matters; dependence on the construction market generally; and other risks. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this report will in fact occur.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PolyVision's exposure to market risk primarily relates to interest
rates on long-term debt. For example, a one percent increase in interest
rates affecting PolyVision's floating rate debt would increase the interest
expense during the eight months ended December 31, 1998 by approximately
$50,000 and PolyVision's budgeted interest expense for the year ending
December 31, 1999 by approximately $450,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of PolyVision and its subsidiaries
are listed below:
Report of independent public accountants ................................. 24
Consolidated balance sheets as of December 31, 1998 and April 30,
1998 and 1997 ........................................................ 25
For the periods ended December 31, 1998 and April 30, 1998, 1997 and 1996:
Consolidated statements of operations ................................ 27
Consolidated statements of shareholders' equity (deficit) ............ 28
Consolidated statements of cash flows ................................ 30
Notes to consolidated financial statements ............................... 32
The following financial statement schedules of PolyVision and its
subsidiaries are included:
Consolidated Financial Statement Schedules:*
II - Valuation and Qualifying Accounts ............................... 52
- ----------
* Schedules other than those listed above are omitted because the conditions
requiring their filing do not exist or because the required information is
provided in the financial statements, including the notes thereto.
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PolyVision Corporation:
We have audited the accompanying consolidated balance sheets of PolyVision
Corporation (a New York corporation) and subsidiaries as of December 31, 1998
and April 30, 1998 and 1997 and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for the eight months
ended December 31, 1998 and each of the three years in the period ended April
30, 1998. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PolyVision Corporation and
subsidiaries as of December 31, 1998 and April 30, 1998 and 1997 and the results
of their operations and their cash flows for the eight months ended December 31,
1998 and each of the three years in the period ended April 30, 1998 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 18, 1999
24
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, April 30,
1998 1998 1997
-------- -------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 4,841 $ 291 $ 415
Accounts receivable, net of allowance for
doubtful accounts of $2,519, $795 and $1,013 17,883 7,267 7,020
Inventories 13,084 4,519 3,336
Costs and estimated earnings in excess of
billings on uncompleted contracts 838 719 690
Prepaid expenses and other current assets 1,532 453 146
Deferred taxes 942 -- --
-------- -------- --------
Total current assets 39,120 13,249 11,607
Property, plant and equipment, net 17,768 1,513 1,442
Goodwill, net 61,402 3,692 3,836
Deferred financing costs, net 3,661 -- --
Other assets 257 10 16
-------- -------- --------
TOTAL ASSETS $122,208 $ 18,464 $ 16,901
-------- -------- --------
-------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings $ 235 $ 2,965 $ 2,298
Current maturities of long-term debt 363 240 980
Accounts payable 7,223 2,499 2,361
Accrued expenses 12,283 2,014 2,494
Billings in excess of costs and estimated
earnings on uncompleted contracts 503 379 259
-------- -------- --------
Total current liabilities 20,607 8,097 8,392
Long-term debt, less current maturities 74,511 160 --
Indebtedness to The Alpine Group, Inc. -- 7,028 6,382
Deferred taxes 5,418 -- --
Accrued dividends 178 5,643 4,099
Royalties payable -- 750 750
Excess of assets over purchase price of acquisition 256 261 268
Other noncurrent liabilities 317 -- --
-------- -------- --------
TOTAL LIABILITIES $101,287 $ 21,939 $ 19,891
-------- -------- --------
</TABLE>
25
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, April 30,
1998 1998 1997
------------ --------- ---------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY (DEFICIT):
Series A Preferred Stock, $.01 par value, at
$25 per share liquidation value;
1,500,000 shares authorized; 1,029,253
shares issued and outstanding at
April 30, 1998 and April 30, 1997 $ -- $ 25,731 $ 25,731
Series B Preferred Stock, $.01 par value, at $50 per
share liquidation value; 300,000 shares authorized;
256,951 shares issued and outstanding at
December 31, 1998 12,848 -- --
Series C Preferred Stock, $.01 par value, at $50 per
share liquidation value; 150,000 shares authorized;
100,000 shares issued and outstanding at
December 31, 1998 5,000 -- --
Common Stock, $.001 par value, 25,000,000
shares authorized; 14,092,750, 8,561,762 and
8,540,762 shares issued and outstanding
at December 31, 1998, April 30, 1998, and
April 30, 1997, respectively 14 9 9
Additional paid-in capital 70,750 38,668 38,618
Retained deficit (67,783) (67,883) (67,348)
Cumulative foreign currency translation adjustment 92 -- --
--------- --------- ---------
Total shareholders' equity (deficit) 20,921 (3,475) (2,990)
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT) $ 122,208 $ 18,464 $ 16,901
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Eight months ended Twelve months ended
December 31, April 30,
------------------- ----------------------------------
1998 1998 1997 1996
<S> <C> <C> <C> <C>
NET SALES $ 33,877 $ 34,167 $ 32,233 $ 35,627
COST OF GOODS SOLD 23,360 24,286 24,755 27,863
-------- -------- -------- --------
GROSS PROFIT 10,517 9,881 7,478 7,764
Selling, general and administrative 6,939 8,344 9,814 9,978
Research and development 30 -- 1,158 2,886
Amortization of goodwill 248 145 145 145
Nonrecurring expenses 1,250 -- 650 --
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 2,050 1,392 (4,289) (5,245)
Interest expense, net (1,408) (839) (910) (516)
Other income (expense), net (201) 472 90 (8)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY GAIN ON THE
EARLY EXTINGUISHMENT OF DEBT 441 1,025 (5,109) (5,769)
INCOME TAXES 286 15 -- --
-------- -------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN ON THE
EARLY EXTINGUISHMENT OF DEBT 155 1,010 (5,109) (5,769)
EXTRAORDINARY GAIN ON THE EARLY
EXTINGUISHMENT OF DEBT 436 -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) 591 1,010 (5,109) (5,769)
PREFERRED STOCK DIVIDENDS (179) (1,545) (2,059) (2,040)
ACCRETION OF PREFERRED STOCK (312) -- -- --
GAIN ON CONVERSION 19,252 -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ 19,352 $ (535) $ (7,168) $ (7,809)
======== ======== ======== ========
Net income (loss) per share of common stock:
Basic and Diluted
Income (loss) before extraordinary gain 0.02 0.12 (0.60) (0.69)
Extraordinary gain on early extinguishment
of debt 0.05 -- -- --
Preferred stock dividends (0.02) (0.18) (0.24) (0.25)
Accretion of preferred stock (0.03) -- -- --
Gain on conversion 2.02 -- -- --
-------- -------- -------- --------
Net income (loss) per basic and diluted share
of common stock $ 2.04 $ (0.06) $ (0.84) $ (0.94)
======== ======== ======== ========
Average common shares outstanding
Basic and Diluted 9,506 8,562 8,535 8,339
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock
---------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995 1,020,076 $ 25,502 -- $ -- -- $ --
Dividends on preferred stock -- -- -- -- -- --
Share issued in connection with Union
agreement -- -- -- -- -- --
Issuance of preferred stock in lieu of
deferred interest 9,177 229 -- -- -- --
Compensation expense related to stock grants -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------------------------------------------------------------------------------
Balance at April 30, 1996 1,029,253 25,731 -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Compensation expense related to stock grants -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------------------------------------------------------------------------------
Balance at April 30, 1997 1,029,253 25,731 -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Compensation expense related to stock grants -- -- -- -- -- --
Net income -- -- -- -- -- --
---------------------------------------------------------------------------------
Balance at April 30, 1998 1,029,253 25,731 -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Compensation expense related to stock grants -- -- -- -- -- --
Conversion of preferred stock, accrued
dividends and notes payable (1,029,253) (25,731) 247,951 12,398 -- --
Issuance of shares for investment advisory
services -- -- 9,000 450 -- --
Issuance of common stock warrants -- -- -- -- -- --
Issuance of preferred stock -- -- -- -- 100,000 4,688
Accretion of preferred stock -- -- -- -- -- 312
Foreign currency translation adjustment -- -- -- -- -- --
Net income -- -- -- -- -- --
---------------------------------------------------------------------------------
Balance at December 31, 1998 -- $ -- 256,951 $ 12,848 100,000 $ 5,000
=================================================================================
</TABLE>
28
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (continued)
(amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Additional Currency
------------------- Paid-In Retained Translation Comprehensive
Shares Amount Capital Deficit Adjustment Total Income (Loss)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995 8,301,073 $ 8 $37,951 $(52,371) $-- $ 11,090 $ --
Dividends on preferred stock -- -- -- (2,040) -- (2,040) --
Shares issued in connection with Union
agreement 229,000 1 486 -- -- 487 --
Issuance of preferred stock in lieu of
deferred interest -- -- -- -- -- 229 --
Compensation expense related to stock
grants -- -- 87 -- -- 87 --
Net loss -- -- -- (5,769) -- (5,769) (5,769)
----------------------------------------------------------------------------------
Balance at April 30, 1996 8,530,073 9 38,524 (60,180) -- 4,084 (5,769)
=======
Dividends on preferred stock -- -- -- (2,059) -- (2,059) --
Compensation expense related to stock
grants 10,689 -- 94 -- -- 94 --
Net loss -- -- -- (5,109) -- (5,109) (5,109)
----------------------------------------------------------------------------------
Balance at April 30, 1997 8,540,762 9 38,618 (67,348) -- (2,990) (5,109)
=======
Dividends on preferred stock -- -- -- (1,545) -- (1,545) --
Compensation expense related to stock
grants 21,000 -- 50 -- -- 50 --
Net income -- -- -- 1,010 -- 1,010 1,010
----------------------------------------------------------------------------------
Balance at April 30, 1998 8,561,762 9 38,668 (67,883) -- (3,475) 1,010
=======
Dividends on preferred stock -- -- -- (179) -- (179) --
Compensation expense related to stock
grants 46,333 -- 9 -- -- 9 --
Conversion of preferred stock, accrued
dividends and notes payable 5,274,865 5 26,235 -- -- 12,907 --
Issuance of shares for investment advisory
services 209,790 -- 300 -- -- 750 --
Issuance of common stock warrants -- -- 5,226 -- -- 5,226 --
Issuance of preferred stock -- -- 312 -- -- 5,000 --
Accretion of preferred stock -- -- -- (312) -- -- --
Foreign currency translation adjustment -- -- -- -- 92 92 92
Net income -- -- -- 591 -- 591 591
----------------------------------------------------------------------------------
Balance at December 31, 1998 14,092,750 $14 $70,750 $(67,783) $92 $ 20,921 $ 683
==================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Eight months
ended Twelve months ended
December 31, April 30,
1998 1998 1997 1996
--------------- -------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 591 $ 1,010 $(5,109) $(5,769)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operations:
Depreciation and amortization 781 382 498 1,156
Amortization of deferred financing costs and
accretion of debt discount 129 -- -- --
Deferred interest 260 87 571 229
Compensation expense for stock grants 9 50 94 574
Investment advisory service fee 750 -- -- --
Extraordinary gain on early extinguishment
of debt (436) -- -- --
Gain on sale of assets -- (307) -- --
Deferred income tax provision 194 -- -- --
Change in assets and liabilities, net of
effects from acquisition:
Accounts receivable 729 (247) 1,007 331
Inventories (601) (1,183) 399 1,294
Other current assets (2) (336) 332 31
Other assets 112 5 (16) --
Accounts payable and accrued expenses (1,170) (119) (689) (1,468)
Other liabilities 123 120 (244) (19)
-------- ------- ------- -------
Cash provided by (used for) operating activities 1,469 (538) (3,157) (3,641)
-------- ------- ------- -------
Cash flows from investing activities:
Acquisition, net of cash acquired (65,728) -- -- --
Purchase of fixed assets (586) (539) (435) (774)
Proceeds from sale of assets -- 307 35 --
-------- ------- ------- -------
Cash used for investing activities (66,314) (232) (400) (774)
-------- ------- ------- -------
Cash flows from financing activities:
Net short-term borrowings (repayments) -- 667 1,046 (127)
Long-term borrowings 71,565 920 -- 1,200
Repayments of long-term borrowings (3,365) (1,500) (220) (1,115)
Proceeds from issuance of preferred stock 5,000 -- -- --
Deferred financing costs (3,750) -- -- --
Advances from The Alpine Group, Inc. -- 559 2,476 --
Promissory note borrowings -- -- -- 3,335
Net repayments of receivable from affiliates -- -- -- 1,532
Other (14) -- -- --
-------- ------- ------- -------
Cash provided by financing activities 69,436 646 3,302 4,825
-------- ------- ------- -------
Effect of exchange rate changes on cash (41) -- -- --
Increase (decrease) in cash 4,550 (124) (255) 410
Cash at beginning of period 291 415 670 260
-------- ------- ------- -------
Cash at end of period $ 4,841 $ 291 $ 415 $ 670
======== ======= ======= =======
</TABLE>
30
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(amounts in thousands)
<TABLE>
<CAPTION>
Eight months
ended Twelve months ended
December 31, April 30,
1998 1998 1997 1996
---------- -----------------------------
<S> <C> <C> <C> <C>
Supplemental disclosures:
Interest paid $ 609 $ 291 $ 245 $ 358
======= ======= ======= =======
Noncash investing and financing activities:
Conversion of The Alpine Group, Inc. indebtedness:
Preferred stock -- -- -- $ 229
======= ======= ======= =======
Acquisition of business:
Assets, net of cash acquired $95,231 -- -- --
Liabilities assumed 29,503 -- -- --
------- ------- ------- -------
Net cash paid $65,728 -- -- --
======= ======= ======= =======
Issuance of note payable for acquisition $ 8,000 -- -- --
======= ======= ======= =======
Shares issued in connection with Union agreement -- -- -- $ 487
======= ======= ======= =======
Investment advisory fee to The Alpine Group, Inc.
Issuance of common stock $ 300 -- -- --
Issuance of preferred stock 450 -- -- --
------- ------- ------- -------
$ 750 -- -- --
======= ======= ======= =======
Conversion of notes payable, accrued
dividends and preferred stock:
Preferred stock acquired $25,731 -- -- --
Issuance of preferred stock 12,398 -- -- --
Conversion of accrued dividends 5,643 -- -- --
Conversion of notes payable to The Alpine Group, Inc. 7,388 -- -- --
Issuance of common stock 7,126 -- -- --
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
31
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Nature of Business
PolyVision Corporation (the "Company") operates through its wholly-owned
subsidiaries and operating units: Greensteel, Inc. ("Greensteel"), APV, Inc.
("APV"), Posterloid Corporation ("Posterloid"), Alliance America, Alliance
Europe, Aubecq and Pentagon (collectively "Alliance"). Through Greensteel, it
manufactures and sells custom-designed and engineered writing, projection and
other visual display surfaces, custom cabinets, and workstation and conference
center casework primarily for schools and offices. Through Posterloid, it
manufactures and sells menuboard display systems to the fast food and
convenience store industries, and merchandising displays used principally by
banks.
Through Alliance, it manufactures continuous coiled ceramicsteel (a high grade,
fused, ceramic surface on light-gauge steel producing a non-porous, uniform
finish) used in writing surfaces for schools, conference rooms and other
business environments, as well as for construction projects, such as tunnel and
people moving systems. Alliance also produces proprietary projection screen
surfaces, screen printed and non-screen printed ceramicsteel surfaces used for
interior and exterior architectural applications and high endurance signage.
In May 1995, the Company (then named Information Display Technology, Inc.
("IDT") and consisting only of Greensteel) acquired by merger (the "Merger") the
information display group, consisting of Posterloid and APV, of The Alpine
Group, Inc. ("Alpine"). The Company issued approximately 7,400,000 shares of
Common Stock and 1,000,000 shares of its Series A Preferred Stock (liquidation
preference $25.00 per share) to Alpine in connection with the Merger, increasing
Alpine's beneficial stock ownership percentage in the Company to approximately
90% at that time. Alpine had previously acquired, in a separate stock
transaction, control of the Company's principal shareholder, Adience, Inc.
("Adience") (currently known as Premier Refractories Inc.), a manufacturer of
refractory products, which then owned approximately 80% of such outstanding
shares. Shortly following the Merger, in June 1995, Alpine distributed
approximately 73% of the outstanding shares of Common Stock as a one-time
dividend to its stockholders and retained approximately 17% of the shares of
Common Stock.
In April 1997, the Company discontinued its research and development efforts and
began to market its PolyVision display technology solely through third-party
licensing agreements. This decision resulted in a restructuring charge of
$650,000 in 1997 representing severance pay and benefits and the write-down of
assets to net realizable value. All of the costs were paid as of December 31,
1998.
2. Summary of Significant Accounting Policies
Change in Fiscal Year
Effective December 23, 1998, the Company changed its fiscal year-end from April
30 to December 31. The eight month transition period from May 1, 1998 to
December 31, 1998 ("transition period") precedes the start of the new fiscal
year. See Note 3 for a comparative consolidated income statement.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the prior period financial
statements to present them in a manner consistent with the current year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
32
<PAGE>
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of trade receivables. Greensteel's concentration
of credit risk within the construction industry is somewhat mitigated by the
large number of customers comprising Greensteel's customer base. In addition, a
majority of Greensteel's revenues are derived from educational institutions in
the eastern half of the United States. Most public school projects require
performance bonds from general contractors that allow Greensteel to make bond
claims or file liens in the event of nonpayment for bonafide contract work
performed by Greensteel. Ultimately, the taxing authority of municipalities and
public school districts provides much of the funding for Greensteel's business.
Posterloid's revenues are derived from a large customer base of fast-food
restaurant chains and outfitters of municipal arenas and theater chains
throughout the United States. Retrofits of large chains may result in
significant customer concentrations of credit risk to Posterloid from time to
time, however, in management's opinion, no such concentration existed at
December 31, 1998.
Fair Value of Financial Instruments
The carrying amounts of long-term debt, including the Company's revolving credit
facility, approximate fair value based on the borrowing rates currently
available to the Company for loans with similar terms and average maturities.
Inventories
Inventories are stated at the lower of cost or market, with cost determined on
the first-in, first-out basis. Market is net realizable value for finished goods
and replacement cost for raw materials and work in process.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation and amortization are provided over the estimated useful lives of
the assets using the straight-line method. The estimated useful lives are as
follows:
Furniture and fixtures 5 - 10 years
Machinery and equipment 2 - 10 years
Buildings and improvements 2 - 40 years
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to property, plant and equipment. Upon
retirement or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income.
Goodwill
Goodwill in the accompanying consolidated balance sheets represents the excess
of cost over the fair value of net assets acquired related to the 1998
acquisition of Alliance and the previous acquisition of Posterloid and is being
amortized on a straight-line basis over 40 years. The Company reviews goodwill
to assess recoverability whenever events or changes in circumstances indicate
that its carrying value may not be recoverable. In performing such reviews, the
Company estimates the future cash flows expected to result from each entity. If
the sum of the expected future cash flows (undiscounted and without interest
charges) were to be less than the carrying amount, an impairment loss would be
recognized based on the difference between carrying values and estimated fair
market value. As a result of such reviews, no impairment loss has been
recognized. Accumulated amortization of goodwill was approximately $1,793,000,
$1,540,000 and $1,396,000 at December 31, 1998, April 30, 1998 and April 30,
1997, respectively.
Warranty Claims
Provisions for warranty claims are recorded based upon historical experience.
Workers' Compensation
The Company is partially self-insured for workers' compensation claims in the
U.S. The Company has accrued for its workers' compensation claims based on an
assessment of claims outstanding, as well as an estimate, based on experience,
of incurred workers' compensations claims which have not yet been reported.
33
<PAGE>
Excess of Net Assets Over Purchase Price of Acquisition
Negative goodwill represents the excess of the fair value of net assets acquired
over the cost of IDT and is being amortized on a straight-line basis over forty
years (See Note 1).
Revenue Recognition
Greensteel's revenues are from sales of specific products and construction of
custom installations under contracts. Revenues from sales of specific products
are recorded when title transfers, which is typically when shipment occurs.
Revenues from contracts are recorded on the percentage-of-completion method of
accounting, measured on the basis of costs incurred to estimated total costs,
which approximates contract performance to date. Approximately 46%, 42% and 57%
of Greensteel's revenues and approximately 51%, 52% and 65% of the related costs
of revenues were from contracts for the periods ended December 31, 1998, April
30, 1998 and April 30, 1997, respectively. Provisions for losses on uncompleted
contracts are made in the period in which it is determined that a contract will
ultimately result in a loss.
Alliance and Posterloid recognize revenue from sales of products when title
transfers and all conditions of the sale are complete, which is typically when
shipment occurs.
Foreign Currency Translations
The financial statements of the Company's foreign subsidiaries are translated
into United States currency in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation." Assets and
liabilities are translated to United States dollars at period-end exchange
rates. Income and expense items are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated as a
separate component of shareholders' equity. Gains and losses which result from
foreign currency transactions are included in the accompanying consolidated
statements of income.
Research and Development
Research and development costs are expensed as incurred.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in a derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. The Company will be required to adopt the new statement in
2000. The Company has not yet quantified the impact of adopting SFAS No. 133 and
has not determined the method of adoption. However, the Company believes the
effect of adoption will not be material.
Effective December 31, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires disclosures regarding the Company's
comprehensive income defined as the total of net income and all other nonowner
changes in equity, and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information, " which revises disclosure requirements
related to segment reporting (See Note 18). SFAS No. 130 and SFAS No. 131
require disclosure only; therefore, their adoption had no impact on the
Company's financial position or results of operations.
Comprehensive Income
The Company reports comprehensive income in the Consolidated Statements of
Shareholders' Equity (Deficit). The foreign currency translation adjustment is
the sole component of other comprehensive income.
34
<PAGE>
Earnings (Loss) Per Common Share
The computation, presentation and disclosure requirements for earnings per share
are presented in accordance with Financial Accounting Standards Board SFAS No.
128, "Earnings Per Share." Basic earnings per common share are computed by
dividing net income by the weighted average number of common shares outstanding
during each period. Diluted earnings per share assume exercise of outstanding
stock options, warrants and grants under the treasury stock method and the
conversion of convertible preferred stock (See Note 13) and the convertible
promissory note (See Note 9) into common stock during the periods outstanding.
As the Company had net losses before extraordinary gain applicable to common
shareholders for each of the periods presented, there would be no reconciling
dilutive securities, as all options, warrants and grants outstanding to purchase
common stock would have been antidilutive had they been exercised. In addition,
the convertible securities were antidilutive for the period ending December 31,
1998. The dilutive effect of options, grants, and warrants not included in
earnings per share because of the net loss before extraordinary gain applicable
to common shareholders for the eight months ended December 31, 1998 was
approximately 618,000 shares.
In accordance with generally accepted accounting principles, the Exchange
Transaction (See Note 7) was accounted for as a redemption of preferred stock at
a discount to the carrying value, and therefore, the excess of the carrying
amount of the preferred stock over the fair value of the consideration
transferred to the holders of the preferred stock was added to net income
attributable to common shareholders for the period ending December 31, 1998.
3. Change in Fiscal Year
Effective December 23, 1998, the Company changed its fiscal year-end from April
30 to December 31. The eight-month transition period of May 1, 1998 to December
31, 1998 precedes the start of the new fiscal year. The unaudited financial
information for the eight months ended December 31, 1997 is presented for
comparative purposes and includes any adjustments (consisting of normal,
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation (in thousands).
35
<PAGE>
3. Change in Fiscal Year (continued)
Eight months ended
December 31,
------------------------
1998 1997
NET SALES $ 33,877 $ 22,860
COST OF GOODS SOLD 23,360 16,238
-------- --------
GROSS PROFIT 10,517 6,622
Selling, general and administrative 6,939 5,238
Research and development 30 --
Amortization of goodwill 248 96
Nonrecurring expenses 1,250 --
-------- --------
INCOME FROM OPERATIONS 2,050 1,288
Interest expense, net (1,408) (533)
Other income (expense), net (201) 342
-------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN ON EARLY
EXTINGUISHMENT OF DEBT 441 1,097
INCOME TAXES 286 --
-------- --------
INCOME BEFORE EXTRAORDINARY GAIN
ON EARLY EXTINGUISHMENT OF DEBT 155 1,097
EXTRAORDINARY GAIN ON EARLY
EXTINGUISHMENT OF DEBT 436 --
-------- --------
NET INCOME 591 1,097
PREFERRED STOCK DIVIDENDS (179) 1,376
ACCRETION OF PREFERRED STOCK (312) --
GAIN ON CONVERSION 19,252 --
-------- --------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ 19,352 $ (279)
======== ========
Net income (loss) per share of common stock:
Basic and Diluted
Income before extraordinary gain $ 0.02 $ 0.13
Extraordinary gain on early extinguishment
of debt 0.05 --
Preferred stock dividends (0.02) (0.16)
Accretion of preferred stock (0.03) --
Gain on conversion 2.02 --
-------- --------
Net income (loss) per basic and diluted share
of common stock $ 2.04 $ (0.03)
======== ========
Average common shares outstanding
Basic and Diluted 9,506 8,559
======== ========
36
<PAGE>
4. Inventories
The components of inventories are as follows at December 31, 1998, April 30,
1998 and April 30, 1997 (in thousands):
December 31, April 30, April 30,
1998 1998 1997
------------------------------------------
Raw materials $ 7,035 $3,242 $2,679
Work in process 476 967 527
Finished goods 5,573 310 130
------- ------ ------
$13,084 $4,519 $3,336
======= ====== ======
5. Contracts in Progress
The status of contract costs on uncompleted construction contracts was as
follows at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Costs and Estimated Billings in Excess of
Earnings in Excess of Costs and Estimated
Billings Earnings Total
--------------------------------------------------------
<S> <C> <C> <C>
Costs and estimated earnings $ 5,022 $ 2,473 $7,495
Billings 4,184 2,976 7,160
------- ------- ------
$ 838 $ (503) $ 335
======= ======= ======
</TABLE>
The status of contract costs on uncompleted construction contracts was as
follows at April 30, 1998 (in thousands):
<TABLE>
<CAPTION>
Costs and Estimated Billings in Excess of
Earnings in Excess of Costs and Estimated
Billings Earnings Total
--------------------------------------------------------
<S> <C> <C> <C>
Costs and estimated earnings $ 4,400 $ 4,015 $8,415
Billings 3,681 4,394 8,075
------- ------- ------
$ 719 $ (379) $ 340
======= ======= ======
</TABLE>
The status of contract costs on uncompleted construction contracts was as
follows at April 30, 1997 (in thousands):
<TABLE>
<CAPTION>
Costs and Estimated Billings in Excess of
Earnings in Excess of Costs and Estimated
Billings Earnings Total
--------------------------------------------------------
<S> <C> <C> <C>
Costs and estimated earnings $ 2,779 $ 6,218 $8,997
Billings 2,089 6,477 8,566
------- ------- ------
$ 690 $ (259) $ 431
======= ======= ======
</TABLE>
Accounts receivable at December 31, 1998, April 30, 1998 and April 30, 1997
included amounts billed but not yet paid by customers under retainage provisions
of approximately $1,122,000, $1,096,000 and $1,384,000, respectively. Such
amounts are generally due within one year.
37
<PAGE>
6. Property, Plant and Equipment
Property, plant and equipment are as follows at December 31, 1998, April 30,
1998 and April 30, 1997 (in thousands):
December 31, April 30, April 30,
1998 1998 1997
------------------------------------------
Land and improvements $ 537 $ -- $ --
Buildings and improvements 8,149 604 1,507
Machinery and equipment 10,268 1,619 2,282
-------- ------- -------
18,954 2,223 3,789
Less accumulated depreciation and
amortization (1,186) (710) (2,347)
-------- ------- -------
Property, plant and equipment, net $ 17,768 $ 1,513 $ 1,442
======== ======= =======
Depreciation and amortization expense for the periods ended December 31, 1998
and April 30, 1998, 1997, and 1996 was $533, $382, $498 and $1,156,
respectively.
7. Acquisition of Alliance International Group
In November 1998, the Company acquired from Wind Point Partners III, L.P. and
certain minority stockholders all of the outstanding common stock of Alliance
for $75.8 million, consisting of $32.6 million in cash, $8.0 million in a 10%
convertible subordinated promissory note due 2007 and $35.2 million of
third-party debt which was assumed or refinanced by PolyVision. Following the
purchase, Alliance became a division of PolyVision.
The acquisition was accounted for using the purchase method, and accordingly,
the results of operations of Alliance have been included in the consolidated
financial statements on a prospective basis from the date of acquisition. The
purchase price was allocated based upon the fair values of the assets and
liabilities at the date of acquisition and is subject to adjustment. The excess
of the purchase price over the net assets acquired was approximately $57.9
million and is being amortized on a straight-line basis over 40 years.
In conjunction with the acquisition, the Company recorded a nonrecurring
restructuring charge of $500,000 related to the costs to be incurred at the
Company's existing manufacturing facilities in connection with the consolidation
of duplicative manufacturing capacity and administrative functions and a
$750,000 investment advisory fee to an affiliate. The $500,000 represented
approximately $160,000 of employee termination costs, $100,000 of unusable
inventory and supplies and $240,000 of facility costs. None of the costs have
been paid as of December 31, 1998.
In a related transaction (the "Exchange Transaction"), Alpine and another
preferred stockholder exchanged approximately $25.7 million in liquidation value
of its Series A Preferred Stock of the Company (plus accrued dividends) and
indebtedness of approximately $7.4 million due from the Company for
approximately 5.3 million shares of the Company's common stock and approximately
$12.4 million in liquidation value of its 9% Series B Convertible Preferred
Stock of the Company. As a result, Alpine owns directly approximately 48% of the
Company's current outstanding shares of Common Stock.
38
<PAGE>
Pro Forma Financial Data (Unaudited)
Unaudited condensed pro forma results of operations, which give effect to the
Alliance acquisition as if the transaction occurred on May 1, 1997, are
presented below. The pro forma amounts reflect acquisition-related purchase
accounting adjustments, including adjustments to depreciation and amortization
expense and interest expense on acquisition debt and certain other adjustments,
together with related income tax effects. The pro forma financial information
does not purport to be indicative of either the results of operations that would
have occurred had the acquisition taken place at the beginning of the periods
presented or of future results of operations.
<TABLE>
<CAPTION>
Eight months
ended Year ended
December 31, 1998 April 30, 1998
------------------------------------------
<S> <C> <C>
Net sales $ 71,987 $ 94,834
Income (loss) from continuing operations before income taxes 875 (1,589)
Loss from continuing operations (283) (1,121)
Preferred stock dividends (1,072) (1,606)
Net loss applicable to common stock $ (1,355) $ (2,727)
======== ========
Net loss per basic and diluted share of common stock
Loss from continuing operations (0.02) (0.08)
Preferred stock dividend (0.08) (0.11)
-------- --------
Net loss per share of common stock $ (0.10) $ (0.19)
======== ========
</TABLE>
The pro forma statements above do not include the nonrecurring charges or the
extraordinary gain for the eight months ended December 31, 1998. In addition,
the earnings per share calculation excludes the one time gain as a result of the
exchange transaction and the accretion of the preferred stock for the period
ended December 31, 1998.
8. Accrued Expenses
Accrued expenses are as follows for the periods indicated below (in thousands):
December 31, April 30, April 30,
1998 1998 1997
------------------------------------------
Accrued wages, salaries and
employee benefits $ 5,324 $1,633 $1,268
Accrued taxes 1,331 -- --
Accrued interest 511 -- --
Accrued warranty 758 -- --
Accrued professional fees 612 -- --
Other accrued expenses 3,247 381 576
Restructuring expenses 500 -- 650
------- ------ ------
$12,283 $2,014 $2,494
======= ====== ======
39
<PAGE>
9. Debt
Debt consists of the following at December 31, 1998, April 30, 1998 and April
30, 1997 (in thousands):
<TABLE>
<CAPTION>
December 31, April 30, April 30,
1998 1998 1997
------------------------------------------
<S> <C> <C> <C>
Revolving credit facility $ 1,557 (a) $ 2,965 (b) $ 2,298 (b)
Term Loan A (a) 24,873 -- --
Term Loan B (a) 20,000 -- --
Term loan (b) -- 400 980
Subordinated note (a) 25,000 -- --
Subordinated promissory note (a) 8,000 -- --
Other 831 -- --
-------- ------- -------
Total debt 80,261 3,365 3,278
Less short-term borrowings and
current maturities (598) (3,205) (3,278)
Less warrant valuation (5,152) -- --
-------- ------- -------
Long-term debt $ 74,511 $ 160 $ --
======== ======= =======
</TABLE>
(a) In connection with the November 1998 acquisition of Alliance and the
simultaneous refinancing of PolyVision's already existing indebtedness,
the Company entered into a $60.0 million senior secured bank loan
consisting of a $9.5 million revolving credit facility in the U.S., a $5.5
million revolving credit facility in Europe, a $25.0 million term loan A
facility of which $4.4 million was loaned in the U.S. and $20.6 million
was loaned in Europe, and a $20.0 million term loan B facility (together
"Senior Credit Facilities").
Advances under the revolving credit facility in the U.S. may not at any
time exceed an amount equal to the lesser of $9.5 million or the sum of
85% of eligible accounts receivable and 60% of eligible inventory and in
Europe may not exceed an amount equal to the lesser of $5.5 million or the
sum of 85% of eligible accounts receivable and 50% of eligible inventory.
Interest is payable at least quarterly based upon either the prime rate of
interest or the prevailing LIBOR rate plus an applicable spread. The
spread in effect is dependent upon the Company's ratio of consolidated
indebtedness to EBITDA. As of December 31, 1998, the spread was 1.75% on
the prime rate and 3.0% on the LIBOR rate (6.875%). The facility
terminates on November 20, 2004. At December 31, 1998, $1.6 million of
borrowings were outstanding under the European portion of the revolving
credit facilities and no amounts were outstanding under the U.S. portion
of the facilities.
The term loan A facility is repayable quarterly in varying amounts with
such principal installments weighted so that the majority of payments do
not come due until the later years. Interest is also payable at least
quarterly based upon either the prime rate of interest or the prevailing
LIBOR rate plus an applicable spread. The spread in effect is dependent
upon the Company's ratio of consolidated indebtedness to EBITDA. As of
December 31, 1998, the spread was 1.75% on the prime rate and 3.0% on the
LIBOR rate. The term loan A facility terminates on October 31, 2004.
The term loan B facility is repayable quarterly in varying amounts with
such principal installments weighted so that the majority of payments do
not come due until the later years. Interest is also payable at least
quarterly based upon either the prime rate of interest or the prevailing
LIBOR rate plus an applicable spread. The spread in effect is dependent
upon the Company's ratio of consolidated indebtedness to EBITDA. As of
December 31, 1998, the spread was 2.0% on the prime rate and 3.25% on the
LIBOR rate. The term loan B facility terminates on October 31, 2005. As of
December 31, 1998, the weighted-average interest rate on the term loan
facilities was approximately 8.35%.
40
<PAGE>
The Senior Credit Facilities are secured by liens and security interests
on substantially all of the Company's real and personal property,
including the assets of its subsidiaries and a pledge of the outstanding
stock of such subsidiaries, and by cross-guarantees by the Company and its
subsidiaries. The Company must comply with certain nonfinancial and
financial covenants including, among other things, a maximum ratio of
total indebtedness to EBITDA, a minimum ratio of EBITDA to interest
expense, a minimum ratio of EBITDA to fixed charges, and a maximum amount
of annual capital expenditures. The Company is also prohibited from paying
any dividends on its common stock without the lenders' prior written
consent and from paying dividends on its preferred stock until such time
as it reduces its ratio of total debt to EBITDA to certain prescribed
levels.
In addition, the Company entered into a $25.0 million senior subordinated
credit facility with interest payable quarterly at 12.5%. This facility
was refinanced in December 1998. This facility matures and is payable on
December 30, 2006. In connection with the senior subordinated credit
facility, the Company issued detachable warrants to purchase up to
2,986,467 shares of the Company's common stock at $.001 per share. The
holder may exercise the warrants at any time during their ten-year term.
The Company has valued these warrants at $1.75 per share and is amortizing
them to interest expense over the life of the facility.
The Company also entered into an $8.0 million convertible subordinated
promissory note with the previous shareholders of Alliance. Interest
accrues on this note at a rate of 10% per year. All accrued interest and
the principal amount are due on November 20, 2007. In addition, the note
may be converted at any time after May 20, 1999 into shares of the
Company's common stock at a conversion price of $3.00 per share. However,
if the note has not been repaid by November 20, 2004, the conversion price
will be reduced by $.25 to $2.75 per share, and will be reduced by another
$.25 per share on each anniversary thereafter to a final conversion price
of $2.00 per share on November 20, 2007.
(b) On April 25, 1996, Greensteel, as borrower, and the Company, as guarantor,
entered into a $5,000,000 Master Credit Agreement (the "Agreement") to
provide financing for Greensteel's general working capital requirements.
The Agreement provided for a revolving credit facility of up to $3,800,000
based upon eligible accounts receivable and inventory as defined at the
prime rate plus 1% and a $1,200,000 term loan payable in equal monthly
installments of $20,000 with interest at prime rate plus 1-1/2% beginning
June 1, 1996 through August 1, 1997, with the remaining unpaid principal
amount of $900,000 due on August 31, 1997.
On July 23, 1997, the agreement was amended to provide for a revolving
credit line of up to $3,800,000, based upon eligible accounts receivable
and inventory, at the prime rate plus a margin based on certain
performance ratios and a $920,000 term loan payable in 17 consecutive
equal monthly installments of $20,000 with interest at the prime rate plus
a margin based on certain performance ratios with the remaining unpaid
principal amount of $580,000 due on May 31, 1999. On June 25, 1998, the
revolving credit line was increased to $4,250,000. These loans were
refinanced in November 1998 when the Company acquired Alliance.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1998 are as follows:
Year ending
December 31, Amount
---------------------------------------------
1999 $ 598
2000 2,249
2001 5,017
2002 5,663
2003 6,159
Thereafter 60,575
-------
$80,261
=======
41
<PAGE>
10. Employee Benefits
Defined Contribution Plans
Greensteel maintains a 401(k) savings plan which covers substantially all
nonbargaining employees of Greensteel and Posterloid who meet minimum age and
service requirements. The Company matches employee contributions of up to 6% of
compensation at a rate of 50%. Amounts charged against income totaled $64,000,
$101,000, $164,000 and $179,000 for the eight-month period ending December 31,
1998 and the fiscal years ended April 30, 1998, 1997 and 1996, respectively.
Alliance maintains a 401(k) savings plan for its domestic employees who meet
minimum age and service requirements. The Company matches employee contributions
equal to 50% of the participant's contribution not to exceed $1,000 annually for
each union participant and $1,050 annually for each nonunion participant.
Contributions vest to the participants at a rate of 20% per year. The amount
expensed under this plan since the acquisition of Alliance was $5,000. In
addition, Alliance also has the authority to contribute profit sharing payments
for the accounts of eligible employees but did not elect to make any such
contributions in 1998.
Alliance's European operation maintains a defined contribution pension plan
covering all European employees. Contributions to the plan are paid by both the
Company and the employees. The Company's contributions are allocated on the
basis of gross salaries. Pension expense since the acquisition of Alliance
amounted to $31,000 for the eight months ended December 31, 1998.
Union Agreement
On February 28, 1996, Greensteel entered into a new three-year labor agreement
with the local bargaining unit of the Carpenters Union at its Dixonville,
Pennsylvania, facility (the "Union"), whose members voted on that date to accept
the new labor agreement. The labor agreement provides for a working partnership
between Greensteel's management and the Union whereby bargaining unit members
received an aggregate of 229,000 shares of the Company's common stock and will
share in 50% of the excess of "targeted gross profit" generated at the
Dixonville facility. In exchange for such equity participation and the
understanding of the importance of reducing Greensteel cost structure to the
future growth of the business, union members agreed to an approximate 14%
reduction in direct wages and a 6% reduction in benefits. The labor agreement
further provided for the termination of the bargaining employees' defined
benefit pension plan with any excess funding to be distributed to its
participants. The issuance of common stock and the termination of the pension
plan resulted in a fourth quarter charge of approximately $700,000 in the year
ended April 30, 1996. Subsequent to year-end, Greensteel and the Carpenters
Union ratified a new three-year collective bargaining agreement.
Alliance is also committed to a three-year labor agreement with the local
bargaining unit of the Steel Workers of America Union at its Okmulgee, Oklahoma,
facility. A renewed labor agreement with the Steel Workers of America was signed
July 17, 1998 and expires April 30, 2001. In Alliance's European operations,
most of the employees are also members of various known national unions within
each country.
Defined Benefit Pension Plan
Greensteel previously maintained a defined benefit pension plan covering
substantially all hourly employees. The plan provided pension benefits based on
the employee's years of service. Greensteel's funding policy was to make annual
contributions to the extent deductible for federal income tax purposes. In
connection with the Union agreement noted above and after required notice to
participants, benefits under the plan were curtailed and ceased to accrue on
March 31, 1996. The Company applied for and received approval for termination of
the plan from the Pension Benefit Guaranty Corporation and the Internal Revenue
Service. On March 10, 1997, benefits were paid to each plan participant in the
form of a lump-sum distribution based on each participant's accrued benefit and
the plan was terminated. During the fiscal year ended April 30, 1998, the
Company incurred a settlement loss under the defined benefit pension plan of
approximately $260,000 related to a change in the method used to calculate the
lump-sum distribution of the terminated defined benefit pension plan.
42
<PAGE>
Certain union employees of Greensteel are covered by multiemployer defined
benefit retirement plans. These employees perform services for the Company on
various contract installation projects and are employed only during the
installation period. Expenses relating to these plans amounted to $82,000,
$79,000, $68,000 and $97,000 for the periods ended December 31, 1998 and April
30, 1998, 1997, and 1996, respectively.
11. Stock Option and Stock Grant Plans
Stock option transactions during the periods ended December 31, 1998, April 30,
1998, April 30, 1997 and April 30, 1996 were as follows:
<TABLE>
<CAPTION>
April 30,
December 31, ----------------------------------------
1998 1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning options outstanding 417,500 297,500 400,000 --
Options granted 721,000 120,000 185,000 400,000
Options canceled (97,500) -- (287,500) --
---------- -------- -------- -------
Ending options outstanding 1,041,000 417,500 297,500 400,000
Ending options available for
grant 234,000 282,500 402,500 300,000
Option price ranges per share:
Granted $1.25 - 1.50 $ 1.00 $ 0.50 $ 3.86
Canceled 1.25 - 3.86 -- 0.50 - 3.86 --
Weighted average exercise price:
Granted $ 1.45 $ 1.00 $ 0.50 $ 3.86
Canceled 3.58 -- 2.11 --
</TABLE>
Information with respect to stock-based compensation plan stock options
outstanding and exercisable at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted
Average Weighted
Number of Weighted Average Contractual Number of Average
Exercise Prices Shares Exercise Price Life (Years) Shares Exercise Price
--------------- ----------- ---------------- ------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 225,000 $1.00 7.95 166,250 $1.00
1.25 141,000 1.25 9.33 -- --
1.50 575,000 1.50 9.92 -- --
3.86 100,000 3.86 6.75 75,000 3.86
</TABLE>
On November 20, 1998, the Company granted options to purchase an aggregate of
575,000 shares to key employees at an exercise price of $1.50 per share. These
shares were to be issued out of a stock option plan which was approved by the
board on January 26, 1999. Under this plan, 1,000,000 shares are reserved for
grants to key personnel, including the 575,000 shares granted above.
On May 24, 1995, the Company adopted a stock option plan under which 400,000
shares are reserved for grants to key personnel. 34,000 options are available
for grant under this plan at December 31, 1998.
During the year ended April 30, 1996, the Board of Directors adopted the 1995
Directors Stock Option Plan under which 300,000 shares are reserved for grants
to directors of the Company. At December 31, 1998, 200,000 options are available
for grant under this plan.
43
<PAGE>
During the year ended April 30, 1996, the Board of Directors also adopted the
1995 Directors Stock Grant Plan. The Company reserved for issuance 200,000
shares of the Company's common stock for the stock grant plans. In addition, the
Board of Directors approved stock grants of an aggregate of 100,000 shares for
directors and key employees. During the periods ended December 31, 1998, April
30, 1998 and April 30, 1997, 46,333, 21,000 and 10,689 shares, respectively,
were issued. For the periods ending December 31, 1998 and April 30, 1998 and
1997, charges relating to the current year vesting of these grants were $9,000,
$50,000 and $94,000 respectively. These grants and options typically vest over
three to five years.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in 1997,
and, if fully adopted, changed the method for recognition of cost on stock-based
plans similar to those of the Company. In accordance with the provisions of SFAS
No. 123, the Company elected to continue to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for its stock-based compensation plans (including options issued
under the Plans). Had the Company elected to recognize compensation expense
based on the fair value at the grant date for awards under its stock-based
compensation plans as prescribed by SFAS No. 123, the pro forma net income
(loss) for December 31, 1998 and April 30, 1998, 1997, and 1996 would have been:
<TABLE>
<CAPTION>
April 30,
December 31, ----------------------------------------------------
1998 1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $524,000 $947,000 $(5,211,000) $(5,862,000)
Basic and diluted net income
(loss) per share of common
stock $ 2.03 $ (0.07) $ (0.85) $ (0.95)
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure are not
necessarily indicative of future amounts, since the estimated fair value of
common stock options is amortized to expense over the vesting period and
additional options may be granted in future years. The fair value for these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for the periods
ending December 31, 1998 and April 30, 1998, 1997, and 1996, respectively:
dividend yield of 0% for each year; expected volatility of 50% for December 31,
1998 and 20% for each previous year; risk-free interest rate of 5.61% for
December 31, 1998, 6.13% for April 30, 1998, 6.44% for April 30, 1996; and
expected life of five years for each year. The weighted-average fair value of
options granted during the eight months ended December 31, 1998 was $1.10.
12. Royalties Payable
Connecticut Innovations, Inc. ("CII") advanced amounts to APV pursuant to a
Development Agreement to finance a portion of APV's product development costs.
The Development Agreement provided for a minimum annual royalty of $75,000 per
annum or 5% of sponsored product sales up to a cumulative royalty of $3,250,000.
Thereafter, a royalty of 1/2% on sponsored product sales was payable. The
Development Agreement contained covenants relating to technology licensing of
the sponsored product. In addition, the Development Agreement provided for an
assignment of and collateral interest in the technology, including all patents
and know-how. Included in the accompanying consolidated balance sheets as of
April 30, 1998 and 1997 is a $750,000 liability representing the aggregate
amount advanced by CII under the terms of the agreement.
With the discontinuance of the operations of APV as of April 30, 1997, the
Company entered into an agreement dated June 9, 1998, that terminated the
royalty arrangement with CII, since no product was ever developed. The agreement
provided for the Company to deliver 9,509 registered shares of Alpine common
stock and a payment of $125,000 in the form of a promissory note in exchange for
the extinguishment of the $750,000 liability currently reflected on the
Company's consolidated balance sheet. The purchase of the Alpine common stock
was financed by loans from Alpine. In connection with this agreement, the
Company recorded an extraordinary gain of $436,000. The current portion,
$62,500, is due July 1999.
44
<PAGE>
13. Preferred Stock
Series A Preferred Stock
The Company is authorized to issue up to 1,500,000 shares of Series A Preferred
Stock ("Series A Preferred"). The Series A Preferred earns quarterly cash
dividends at an annual rate of $2.00 per share and has priority as to dividends
over the common stock. In the case of the voluntary or involuntary liquidation
or dissolution of the Company, the holders of the Series A Preferred will be
entitled to receive a liquidation price of $25.00 per share ($25,731,000
aggregate liquidation value at April 30, 1998 and April 30, 1997), plus any
accrued and unpaid dividends. The holders of the Series A Preferred have no
voting rights, except as required by New York law as noted below. Effective
February 1, 1998, the Company amended its Certificate of Incorporation to cease
the accrual of dividends on the Series A Preferred Stock. As such, the
accompanying balance sheet and income statement for the year ended April 30,
1998 reflected nine months of accrued dividends.
Effective April 30, 1996, the Company agreed to issue an additional 9,177 shares
of Series A Preferred Stock to Alpine in lieu of payment of deferred interest in
the amount of $229,425 (See Note 15).
As part of the Exchange Transaction (See Note 7), all outstanding Series A
Preferred was retired.
Series B Cumulative Convertible Preferred Stock
As part of the Exchange Transaction (See Note 7), the Company issued to Alpine
and one other holder approximately 248,000 shares of its Series B Cumulative
Convertible Preferred Stock ("Series B Preferred"). In addition, the Company
issued 9,000 shares of the Series B Preferred valued at $450,000 to Alpine as
compensation for structuring and assisting the Company in completing the
acquisition of Alliance (See Note 7). The Series B Preferred earns cumulative
cash dividends at an annual rate of 9% and has priority as to dividends over the
common stock. In the case of the voluntary or involuntary liquidation or
dissolution of the Company, the holders of the Series B Preferred will be
entitled to receive a liquidation price of $50.00 per share ($12,848,000
aggregate liquidation value at December 31, 1998) plus any accrued and unpaid
dividends. These dividends are prohibited through July 2001 under the terms of
the Company's senior subordinated credit facility and thereafter are restricted
in amount and can only be paid if the Company is in compliance with specified
financial ratios. These shares have no voting rights, except for certain
significant business transactions of the Company, and have customary
antidilution provisions for stock dividends, stock splits, share combinations,
recapitalizations and other capital adjustments.
The Series B Preferred may be converted into 4,283,000 shares of common stock at
any time at a conversion price of $3.00 per share.
Series C Cumulative Convertible Preferred Stock
In November 1998, the Company sold to Alpine, for $5.0 million, 100,000 shares
of its Series C Cumulative Convertible Preferred Stock ("Series C Preferred"),
the proceeds of which were used to finance a portion of the purchase price for
Alliance. The Series C Preferred may be converted at any time into 2,500,000
shares of common stock at a conversion price of $2.00 per share. Other than the
conversion price, the terms of the Series C Preferred are identical to the terms
of the Series B Preferred and rank equally with respect to distribution rights
upon the liquidation, dissolution or winding-up of the affairs of the Company
and with respect to dividend rights.
14. Income Taxes
The Company recognizes income taxes in accordance with the provisions of SFAS
No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 utilizes the
liability method, and deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities given the provisions of enacted tax laws. The Company
and its subsidiaries will file a consolidated federal income tax return in the
U.S. and will file foreign tax returns required in each of the European
countries where it maintains a presence.
45
<PAGE>
The sources of income (loss) before income taxes and extraordinary gain for the
eight months ending December 31, 1998 and the years ended April 30, 1998, April
30, 1997 and April 30, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
April 30,
December 31, --------------------------------------
1998 1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C>
United States $(204) $1,025 $(5,109) $(5,769)
Foreign 645 -- -- --
-----------------------------------------------------
Income (loss) before income
taxes and extraordinary gain $ 441 $1,025 $(5,109) $(5,769)
=====================================================
</TABLE>
The provision for income taxes by location of the taxing jurisdiction for the
periods ending December 31, 1998 and April 30, 1998, 1997, and 1996 consisted of
the following (in thousands):
April 30,
December 31, -------------------------------------
1998 1998 1997 1996
----------------------------------------------------
Current:
United States:
Federal $ -- $15 -- --
State -- -- -- --
Foreign 92 -- -- --
----------------------------------------------------
92 15 -- --
Deferred:
United States:
Federal -- -- -- --
State -- -- -- --
Foreign 194 -- -- --
----------------------------------------------------
194 -- -- --
----------------------------------------------------
Provision for income
taxes $286 $15 -- --
====================================================
The differences between the Company's federal effective tax rate and the
statutory tax rate for the periods ended December 31, 1998 and April 30, 1998,
1997, and 1996 arises from the following:
<TABLE>
<CAPTION>
April 30,
December 31, ------------------------------
1998 1998 1997 1996
---------------------------------------------
<S> <C> <C> <C> <C>
Federal statutory rate 35% (35%) (35%) (35%)
Increase resulting from:
Goodwill amortization not deductible 19 1 1 1
Increase (reduction) in valuation
allowance (60) 34 34 34
Alternative minimum tax -- 1 -- --
Non-deductible expense 29 -- -- --
Deemed dividend 28 -- -- --
Difference in foreign and U.S. statutory
rate 12 -- -- --
--------------------------------------------
63% 1% 0% 0%
============================================
</TABLE>
46
<PAGE>
The tax effect of the primary temporary differences giving rise to the Company's
consolidated deferred tax assets and liabilities at December 31, 1998, April 30,
1998 and April 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 April 30, 1998 April 30, 1997
Current Long-Term Current Long-Term Current Long-Term
Asset Asset Asset Asset Asset Asset
(Liability) (Liability) (Liability) (Liability) (Liability) (Liability
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bad debt allowancee $ 372 $ -- $ 334 $ -- $ 425 $ --
Inventory related (60) -- 132 -- 242 --
Accrued payroll
and related costs 1,333 75 293 -- 336 --
Fixed assets -- (3,893) -- 320 -- 445
NOL carryforwards -- 9,571 -- 11,324 -- 11,654
Other -- (1,061) 72 -- 399 --
Valuation allowance (703) (10,110) (831) (11,644) (1,402) (12,099)
---------------------------------------------------------------------------------------------------
$ 942 $ (5,418) $ -- $ -- $ -- $ --
===================================================================================================
</TABLE>
As reflected in the preceding table, the Company established a valuation
allowance of approximately $10,813,000, $12,475,000 and $13,501,000 as of
December 31, 1998, April 30, 1998 and April 30, 1997, respectively, due to
uncertainty regarding the realizability of certain deferred tax assets. The
valuation primarily relates to operating loss carryforwards, which are available
to reduce future taxable income of certain entities.
In connection with the acquisition of Alliance, the U.S. entity had unused
federal net operating loss carryforwards of approximately $3,298,000, the use of
which is restricted as a result of previous ownership changes of Alliance under
Section 382 of the Internal Revenue Code.
At December 31, 1998, APV had unused federal net operating loss carryforwards of
approximately $7,819,000 that may be used to offset future taxable income. Such
carryforwards expire in various amounts from fiscal 2003 to 2009. The use of
these carryforwards may be restricted as a result of ownership changes under
Section 382 of the Internal Revenue Code and other limitations.
At December 31, 1998, APV and Posterloid had additional unused federal net
operating loss carryforwards of approximately $11,498,000 and $1,961,000,
respectively, that may be used to offset future taxable income. These
carryforwards expire in various amounts from fiscal 2009 through 2012. The use
of these carryforwards may also be restricted as a result of ownership changes
under Section 382 of the Internal Revenue Code and other limitations.
As of December 31, 1995 and December 31, 1998, IDT, on a separate-company basis,
had net operating loss carryforwards for federal income tax purposes of
approximately $2,109,000, which will expire in 2008 and 2009. Under Internal
Revenue Code Section 382 and other limitations, the use of the loss
carryforwards will be limited as a result of the December 21, 1994 ownership
change.
As a result of the transaction described further in Note 1, Posterloid's and
APV's loss carryforwards may not be available to Posterloid, APV, Greensteel or
Alliance. Based on the Company's history of prior operating losses, no assurance
can be given that sufficient taxable income will be generated for utilization of
any net operating loss carryforwards and reversal of temporary differences.
Thus, the Company did not record any current or deferred federal income tax
expense during the periods ended December 31, 1998 and April 30, 1997 and 1996
due to losses incurred during such periods and the availability of net operating
loss carryforwards. For the year ended April 30, 1998, the Company recorded a
tax expense of $15,000 for federal alternative minimum income tax.
15. Related-Party Transactions
As part of the acquisition of Alliance, the Company entered into the Exchange
Transaction with Alpine in November 1998 (See Note 7). Alpine exchanged
approximately $25.2 million in liquidation value of its Series A
47
<PAGE>
Preferred (plus accrued dividends) and indebtedness of approximately $7.4
million due from the Company for approximately 5.2 million shares of the
Company's common stock and approximately $12.3 million in liquidation value of
its 9% Series B Preferred. In addition, the Company issued to Alpine 209,790
shares of its common stock and 9,000 shares of its Series B Preferred as
compensation for structuring and assisting the Company in its acquisition of
Alliance. The Company has recognized a $750,000 charge, included in nonrecurring
expenses, for this compensation against its eight-month income as of December
31, 1998. As a result of these transactions, Alpine owns approximately 48% of
the Company's common stock.
On May 24, 1995, the Company entered into an agreement with Alpine, pursuant to
which the Company had the right to borrow prior to May 24, 1997 up to $5,000,000
from Alpine to be used by the Company to fund its working capital needs,
including research, development and commercialization activities in connection
with APV's PolyVision-TM-display technology. Borrowings under the agreement were
unsecured with interest at market rate, reflecting Alpine's cost of borrowing
such funds. For the year ended April 30, 1996, Alpine agreed to a modification
of terms pursuant to which the Company issued 9,177 shares of the Company's
Series A Preferred Stock to Alpine in lieu of the addition of approximately
$229,000 of interest to the outstanding principal amount at April 30, 1996. All
amounts were canceled in the Exchange Transaction (See Note 7).
The Company also executed a promissory note to Alpine to borrow an additional
$2,028,000, including accrued interest, to fund the Company's corporate
borrowing requirements. Borrowings under the agreement are at Alpine's cost of
borrowing such funds (8-1/2 % at April 30, 1998). As of April 30, 1998, the
Company owed Alpine a total of $7,028,000 under this note and the foregoing
agreement, including accrued interest of $658,000.
The Company's obligations to Alpine are comprised of accrued dividends and
indebtedness, which totaled $12,671,000 as of April 30, 1998. The accrued
dividends and indebtedness were converted to preferred and common stock in the
Exchange Transaction (See Note 7).
16. Commitments and Contingencies
In 1994, Reliance Insurance Company of New York (the "Plaintiff") commenced an
action in the Supreme Court of the State of New York, County of Suffolk, against
several defendants, including the Company, seeking money damages based on the
purported sale and delivery by defendants of some 860 insulated metal curtain
wall panels manufactured by the Company in 1987 and of an additional 520
replacement panels in 1991 and 1992. Plaintiff has alleged that such panels were
defective in their design and manufacture. Among the theories of liability
advanced by Plaintiff are breach of contract, breach of express warranty and
implied warranty. Pursuant to orders of the Court, the causes of action based on
the 1987 transaction were dismissed on statute of limitation grounds. However,
Plaintiff has been granted leave to serve an amended complaint to allege, among
other things, a claim under New Jersey Consumer Fraud Act (the "NJCFA") (which
might permit treble damages), while preserving the right of the defendants,
including the Company, to challenge the applicability of the NJCFA. The amended
complaint was served during April 1997, and Plaintiff currently seeks $1,405,000
in damages, from all defendants, as well as treble damages under NJCFA. The
Company has served its answer to the amended complaint substantially denying
Plaintiff's allegations of defective design and manufacture and pleading
affirmative defenses, as well as commencing third party claims against an
adhesives supplier whose product was utilized by the Company in fabricating the
subject panels. As of the date hereof, discovery is continuing but it is
premature to render an estimate of the outcome of the litigation.
48
<PAGE>
The Company is involved in other various matters of litigation incidental to the
normal conduct of its business. In management's opinion, the disposition of that
litigation will not have a material adverse impact on the Company.
Approximately 80% of the Company's hourly labor force is covered by collective
bargaining agreements. Subsequent to December 31, 1998, the Company ratified a
new three-year collective bargaining agreement representing approximately 25% of
the total hourly labor force. None of the Company's collective bargaining
agreements will expire within one year.
Certain executives of the Company have employment contracts which generally
provide minimum base salaries, cash bonuses based on the Company's achievement
of certain performance objectives, stock options, and certain retirement and
other employee benefits. Further, in the event of termination or voluntary
resignation for "good reason" accompanied by a change in control of PolyVision,
as defined, such employment agreements provide for severance payments not in
excess of two times annual cash compensation and bonus and the continuation for
stipulated periods of other benefits, as defined.
17. Lease Commitments
The Company and its subsidiaries lease property, plant and equipment under a
number of leases extending for varying periods of time. Operating lease rental
expense amounted to approximately $381,000, $569,000, $569,000, and $664,000 for
the periods ended December 31, 1998 and April 30, 1998, 1997, and 1996,
respectively.
Minimum rental commitments as of December 31, 1998, under noncancelable leases
with terms of more than one year, are as follows:
Year ending
December 31, Amount
----------------------------------------------------------------
1999 $1,010,000
2000 864,000
2001 795,000
2002 408,000
2003 34,000
----------
Total $3,111,000
==========
18. Segment Reporting
PolyVision currently conducts business in three industry segments: visual
display surfaces and casework through Greensteel, menuboard display systems
through Posterloid, and ceramicsteel surfaces through Alliance. Domestic
ceramicsteel surfaces are produced through Alliance America and foreign
ceramicsteel surfaces are produced through Alliance Europe. Included in other
are corporate expenses and expenses associated with the Company's information
display technology during the years ended April 30, 1997 and April 30, 1996. The
majority of goodwill associated with the purchase of Alliance has been
preliminarily allocated to Alliance America. The accounting policies of the
segments are the same as described in the summary of significant accounting
policies. The Company evaluates segment performance based on income from
operations. Sales for each segment are based on location of the third-party
customer. All significant intercompany transactions between segments have been
eliminated. The Company's selling, general and administrative expenses are
charged to each segment based on the region where the expenses are incurred. As
a result, the components of operating income for one segment may not be
comparable to another segment.
49
<PAGE>
The following provides information about each business segment for December 31
1998 and April 30, 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
Eight months ended December 31, 1998
Alliance Alliance
Greensteel Posterloid America Europe Other Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales: $23,058 $4,202 $ 2,792 $ 3,825 $ -- $ 33,877
Operating income (loss) 2,032 285 423 902 (1,592) 2,050
Depreciation and
amortization 143 148 317 173 -- 781
Capital expenditures 102 73 24 387 -- 586
Identifiable assets 13,891 6,021 77,248 21,550 3,498 122,208
</TABLE>
<TABLE>
<CAPTION>
Twelve months ended April 30, 1998
Greensteel Posterloid Other Consolidated
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales: $27,813 $6,354 $ -- $34,167
Operating income (loss) 1,275 552 (435) 1,392
Depreciation and
amortization 169 213 -- 382
Capital expenditures 520 19 -- 539
Identifiable assets 12,252 5,995 217 18,464
</TABLE>
<TABLE>
<CAPTION>
Twelve months ended April 30, 1997
Greensteel Posterloid Other Consolidated
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales: $ 26,152 $ 6,081 $ -- $ 32,233
Operating loss (1,227) (75) (2,987) (4,289)
Depreciation and
amortization 106 191 201 498
Capital expenditures 228 207 -- 435
Identifiable assets 10,925 5,446 530 16,901
</TABLE>
<TABLE>
<CAPTION>
Twelve months ended April 30, 1996
Greensteel Posterloid Other Consolidated
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales: $ 30,070 $ 5,557 $ -- $ 35,627
Operating loss (227) (276) (4,742) (5,245)
Depreciation and
amortization 31 221 904 1,156
Capital expenditures 714 60 -- 774
Identifiable assets 12,992 5,229 762 18,983
</TABLE>
50
<PAGE>
19. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Net Income
(Loss)
Operating Applicable Basic Diluted
Net Gross Income to Common Earnings Earnings
Sales Margin (Loss) Shareholders Per Share Per Share
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eight months ended December 31, 1998
May to July 1998 $11,021 $ 3,278 $ 1,155 $ 1,357 $ 0.16 $ 0.16
August to October 1998 10,929 3,228 1,010 709 0.08 0.08
November to December 1998 11,927 4,011 (115) 17,286 1.41 1.41
----------------------------------------------------------------------------------
$33,877 $ 10,517 $ 2,050 $ 19,352 $ 2.04 $ 2.04
==================================================================================
Twelve months ended April 30, 1998
First Quarter $ 8,499 $ 2,617 $ 657 $ (17) $ (0.00) $ (0.00)
Second Quarter 9,540 2,712 736 328 0.04 0.04
Third Quarter 7,672 2,129 37 (689) (0.08) (0.08)
Fourth Quarter 8,456 2,423 (38) (157) (0.02) (0.02)
----------------------------------------------------------------------------------
$34,167 $ 9,881 $ 1,392 $ (535) $ (0.06) $ (0.06)
==================================================================================
Twelve months ended April 30, 1997
First Quarter $ 9,642 $ 2,858 $ 257 $ (391) $ (0.05) $ (0.05)
Second Quarter 9,523 2,427 21 (680) (0.08) (0.08)
Third Quarter 5,972 1,161 (1,397) (2,120) (0.25) (0.25)
Fourth Quarter 7,096 1,032 (3,170) (3,977) (0.46) (0.46)
----------------------------------------------------------------------------------
$32,233 $ 7,478 $ (4,289) $ (7,168) $ (0.84) $ (0.84)
==================================================================================
</TABLE>
51
<PAGE>
SCHEDULE II Valuation and Qualifying Accounts (amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Purchased Balance at
Beginning Costs and Other Reserves/ End
of Period Expenses Accounts Other of Period
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eight months ended
December 31, 1998:
Allowance for doubtful accounts $ 795 $ 448 $ 411(1) $1,687 $2,519
Inventory obsolescence reserve 315 48 195 1,080 1,248
Nonrecurring reserve -- 500 -- -- 500
------ ------ ------ ------ ------
Total $1,110 $ 996 $ 606 $2,767 $4,267
====== ====== ====== ====== ======
Twelve months ended
April 30, 1998:
Allowance for doubtful accounts $1,013 $ 289 $ 507(1) $ 795
Inventory obsolescence reserve 540 -- 225(4) 315
Nonrecurring reserve 650 -- 650 --
------ ------ ------ ------
Total $2,203 $ 289 $1,382 $1,110
====== ====== ====== ======
Environmental liability $ 26 $ 26(3) $ --
====== ====== ======
Twelve months ended
April 30, 1997:
Allowance for doubtful accounts $ 575 $ 757 $ 319(1) $1,013
Inventory obsolescence reserve 270 270 -- 540
Nonrecurring reserve -- 650 -- -- 650
------ ------ ------ ------ ------
Total $ 845 $1,677 $ 319 $2,203
====== ====== ====== ======
Environmental liability $ 20 $ 6(3) $ 26
====== ====== ======
Twelve months ended
April 30, 1996:
Allowance for doubtful accounts $ 521 $ 289 $ 235(1) $ 575
Inventory obsolescence reserve 400 20 150(2) 270
------ ------ ------ ------
Total $ 921 $ 309 $ 385 $ 845
====== ====== ====== ======
Environmental liability $ 179 $ 159(3) $ 20
====== ====== ======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Disposal of obsolete inventory in connection with plant consolidations.
(3) Payments made related to the Ohio EPA Consent Order (See Note 16).
(4) Disposal of obsolete inventory and change of Greensteel's inventory
reserve policy.
52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Part III (Items 10 through 13) is omitted since PolyVision expects
to file with the Securities and Exchange Commission within 120 days after the
close of the fiscal year ended December 31, 1998, a definitive proxy statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934 which
involves the election of directors. If for any reason such a statement is not
filed within such a period, this report will be appropriately amended.
53
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(3) Exhibits:
Exhibit Number and Description
- ------------------------------
2.1 Agreement and Plan of Merger, dated as of December 21, 1994, as
amended, among PolyVision (formerly Information Display Technology,
Inc.), The Alpine Group, Inc., Alpine PolyVision, Inc. and
Posterloid Corporation. (1)
2.2 Stock Purchase Agreement, dated as of September 1, 1998, by and
among PolyVision, Alliance International Group, Inc., Wind Point
Partners III, L.P. and the other stockholders of Alliance, as
amended by letter agreement dated November 20, 1998. (8)
3.1 Restated Certificate of Incorporation of PolyVision. (1)
3.2 By-laws of PolyVision. (1)
4.4 Specimen form of Common Stock Certificate of PolyVision. (3)
4.5 Certificate of Amendment of the Certificate of Incorporation of
PolyVision.
10.15 1994 Stock Option Plan of PolyVision. (1)
10.16 Credit Commitment Letter Agreements, dated May 24, 1995, between
PolyVision and The Alpine Group, Inc. (3)
10.17 Registration Rights Agreement, dated May 24, 1995, between
PolyVision and The Alpine Group, Inc. (3)
10.18 Form of Indemnification Agreement for Directors of PolyVision. (3)
10.19 1996 Union Stock Grant Plan of PolyVision. (6)
10.20 1995 Directors Stock Grant Plan of PolyVision. (7)
10.21 1995 Directors Stock Option Plan of PolyVision. (7)
10.23 Amended and Restated Employment Agreement, dated as of May 1, 1995,
between PolyVision and Joseph A. Menniti.(7)
10.25 Articles of Agreement, dated February 28, 1996, between Greensteel,
Inc. and The Carpenters' District Council of Western
Pennsylvania.(7)
10.26 Master Credit Agreement, dated as of April 25, 1996, among Bank of
Boston Connecticut (the "Bank"), Greensteel, Inc. and PolyVision.
(7)
10.27 Security Agreement, dated as of April 25, 1996, between the Bank and
Greensteel, Inc. (7)
10.28 Pledge Agreement, dated as of April 25, 1996, between the Bank and
Greensteel, Inc. (7)
10.29 Unlimited Continuing Guaranty Agreement, dated as of April 25, 1996,
between the Bank and PolyVision. (7)
10.30 Stock Pledge Agreement, dated as of April 25, 1996, between the Bank
and PolyVision. (7)
10.31 Agreement of Transfer, dated as of January 31, 1996, between
PolyVision and Greensteel, Inc. (7).
10.32 Credit Agreement, dated as of November 20, 1998, between PolyVision,
Greensteel,
54
<PAGE>
Exhibit Number and Description
- ------------------------------
Inc. and Posterloid Corporation, as borrowers, and a syndicate of
banks, financial institutions and other institutional lenders named
therein and Fleet National Bank, as administrative agent and in
certain other capacities. (8)
10.33 Credit Facility Agreement, dated as of November 20, 1998, between
Alliance Europe N.V., Alliance Graphics N.V., Emailleries de Blanc
Misseron A. Aubecq S.A. and Alliance Pentagon A/S, as borrowers, and
KBC Bank N.V. (8)
10.34 Credit Facility Agreement, dated as of November 20, 1998, between
PolyVision Belgium N.V. and PolyVision France EURL, as borrowers,
and KBC Bank N.V. (8)
10.35 Senior Subordinated Loan Agreement, dated as of November 20, 1998,
between PolyVision and Fleet Corporate Finance, Inc. (8)
10.36 Exchange Agreement, dated as of November 16, 1998, between
PolyVision and The Alpine Group, Inc. and Kirkbi Projekt A/S. (8)
10.37 Series C Preferred Stock Purchase Agreement, dated as of November
20, 1998, between PolyVision and The Alpine Group, Inc. (8)
10.38 Employment Agreement, dated November 20, 1998, between PolyVision
and Michael H. Dunn.
10.39 Employment Agreement, dated November 20, 1998, between PolyVision
and Richard J. Still.
10.40 Amendment No. 1 to Amended and Restated Employment Agreement, dated
November 20, 1998, between PolyVision and Joseph A. Menniti.
10.41 Senior Subordinated Note and Warrant Purchase Agreement, dated as of
December 30, 1998, among PolyVision, as borrower, and John Hancock
Mutual Life Insurance Company and the other institutional investors
identified therein, and Posterloid Corporation and Greensteel, Inc.,
as guarantors.
10.42 Warrant Agreement, dated as of December 30, 1998, among PolyVision
and John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company and Hancock Mezzanine Partners, L.P.
10.43 Amendment to Master Credit Agreement, dated June 12, 1998, between
BankBoston, N.A. and Greensteel, Inc.
21.1 Subsidiaries of PolyVision.
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
- ----------
(1) Incorporated by reference to the exhibits filed with the Proxy Statement
for the Annual Meeting of Shareholders, dated May 1, 1995.
(2) Incorporated by reference to the exhibits with the Current Report on Form
8-K, dated April 24, 1990.
(3) Incorporated by reference to the exhibits with the Registration Statement
on Form S-2 (No. 33-93010), effective June 9, 1995.
(4) Incorporated by reference to the exhibits with the Annual Report on Form
10-K for the fiscal year ended December 31, 1990.
55
<PAGE>
(5) Incorporated by reference to the exhibits filed with Post-Effective
Amendment No. 1 to Registration Statement No. 33-22701 NY.
(6) Incorporated by reference to the exhibits with the Registration Statement
on Form S-8 (No. 333-3897), effective May 16, 1996.
(7) Incorporated by reference to the exhibits with the Annual Report on Form
10-K for the fiscal year ended April 30, 1996.
(8) Incorporated by reference to the exhibits filed with the Current Report on
Form 8-K, dated November 20, 1998.
(b) Reports on Form 8-K.
PolyVision filed two reports on Form 8-K for the quarter ended
December 31, 1998. The first report, filed on November 20, 1998, reported
the purchase of all of the outstanding shares of capital stock of Alliance
International Group, Inc. This report was amended on February 3, 1999 to
include required historical financial statements of Alliance and pro forma
financial statements of PolyVision. The second report, filed December 30,
1998, reported the change in PolyVision's fiscal year to December 31 from
April 30.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POLYVISION CORPORATION
Date: March 24, 1999 By: /s/Joseph A. Menniti
--------------------------
Joseph A. Menniti
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/Steven S. Elbaum Chairman of the Board and Director March 24, 1999
- --------------------------
Steven S. Elbaum
/s/Joseph A. Menniti Chief Executive Officer and Director March 24, 1999
- -------------------------- (principal executive officer)
Joseph A. Menniti
/s/Michael H. Dunn President, Chief Operating Officer and March 24, 1999
- -------------------------- Director
Michael H. Dunn
/s/Richard J. Still Chief Financial Officer (principal March 24, 1999
- -------------------------- financial and accounting officer)
Richard J. Still
/s/Ivan Berkowitz Director March 24, 1999
- --------------------------
Ivan Berkowitz
/s/Lyman C. Hamilton, Jr. Director March 24, 1999
- --------------------------
Lyman C. Hamilton, Jr.
/s/Stephen C. Knup Director March 24, 1999
- --------------------------
Stephen C. Knup
/s/Bragi F. Schut Director March 24, 1999
- --------------------------
Bragi F. Schut
</TABLE>
57
<PAGE>
EXHIBIT 4.5
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
POLYVISION CORPORATION
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
POLYVISION CORPORATION
--------------------
Under Section 805 of the Business Corporation Law
We, the undersigned, Joseph A. Menniti and Barry M. Puritz, being,
respectively, the President and Chief Executive Officer and the Vice President
of Marketing and Sales and Secretary of PolyVision Corporation (the
"Corporation"), hereby certify as follows:
1. The name of the Corporation is PolyVision Corporation. The name
under which the Corporation was formed is RT Acquisition Associates, Inc.
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State on May 11, 1987, and subsequently restated on May 24, 1995.
3. The Certificate of Incorporation of the Corporation, as heretofore
restated and amended, is hereby further amended pursuant to authority thereby
vested in the Board of Directors, as follows:
(a) to eliminate the series of Preferred Stock, par value $.01 per
share, of the Corporation designated as "Series A Preferred Stock;" and
(b) to add to paragraph (d) of Article FOURTH of the Certificate
of Incorporation provisions fixed by the Board of Directors stating the numbers,
designations, relative rights, preferences and limitations of two new series of
Preferred Stock of the Corporation.
4. (a) To effect the foregoing amendment specified in paragraph 3(a)
above, the Certificate of Incorporation is hereby amended by repealing
subsection C of section (d), Article FOURTH relating to the series of Preferred
Stock designated as "Series A Preferred Stock" contained in the restated
Certificate of Incorporation of the Corporation, dated April 28, 1995 and filed
by the Department of State on April 28, 1995. Such shares shall revert to
authorized, unissued and undesignated Preferred Stock of the Corporation.
(b) To effect the foregoing amendment specified in paragraph 3(b)
above, a new subsection C and subsection D of section (d), Article FOURTH of the
Certificate of Incorporation is hereby added to provide for 300,000 shares of
Series B Preferred Stock and 150,000 shares of Series C Preferred Stock, to read
in their entirety as set forth below:
C. Shares of Series B Preferred Stock.
1. Designation, Number and Par Value. The shares of a series of
Preferred Stock shall be designated as "Series B Preferred." The number of
shares which shall constitute Series B Preferred shall be 300,000 shares.
Shares of Series B Preferred shall have a par value of $.01 per share.
<PAGE>
2. Ranking. Shares of Series B Preferred shall, with respect to
distribution rights upon the liquidation, dissolution or winding-up of the
affairs of the Corporation and dividend rights, rank senior to all classes
or series of common stock and preferred stock of the Corporation, whether
now existing or hereafter created, other than the Series C Preferred.
Shares of Series B Preferred shall, with respect to distribution rights
upon the liquidation, dissolution or winding-up of the affairs of the
Corporation and dividend rights, rank pari passu with the Series C
Preferred.
3. Dividends.
(a) For so long as any shares of Series B Preferred shall be
outstanding and until all shares of Series B Preferred are redeemed by the
Corporation, the holders of shares of Series B Preferred shall be entitled
to receive cumulative dividends at the annual rate of $4.50 per share.
Cumulative dividends on outstanding shares of Series B Preferred shall
accrue from the date of the issuance of such shares (the "Issue Date")
through and including the date of redemption for all such shares. Such
cumulative dividends shall be payable quarterly in arrears on the first
day of the months of March, June, September and December or, in the event
such date is not a Business Day, on the first Business Day immediately
following such date. The dividend accrued for any period which is less
than a quarter shall be computed on a pro rata basis for the actual number
of days elapsed in the period for which payable, including the date of
payment. Such dividends shall be paid to the holders of record of the
Series B Preferred at the close of business on the date specified by the
Board of Directors of the Corporation at the time such dividend is
declared; provided, however, that such date shall not be more than 50 days
nor less than ten days prior to the date on which such dividend is
payable.
(b) Notwithstanding anything contained herein to the
contrary, no cash dividends on shares of Series B Preferred shall be
declared by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any financing or
working capital agreement of the Corporation specifically prohibit such
declaration, payment or setting apart for payment or if such declaration,
payment or setting apart for payment would constitute a breach thereof or
a default thereunder or if such declaration, payment or setting apart for
payment would, upon the giving of notice or passage of time or both,
constitute such a breach or default.
(c) So long as any shares of Series B Preferred shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any distribution be made, on any other class or series
of common stock or preferred stock (other than the Series C Preferred) of
the Corporation ("Junior Stock"), nor shall any shares of any Junior Stock
be purchased, redeemed or otherwise acquired for value by the Corporation
or by any subsidiary of the Corporation, directly or indirectly, unless
the holder(s) of a majority of the shares of Series B Preferred, voting as
a class, shall approve such dividend, distribution, purchase, redemption
or acquisition.
4. Liquidation, Dissolution or Winding-Up.
2
<PAGE>
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Corporation, the holders
of shares of Series B Preferred shall be entitled to receive a liquidation
value of $50.00 per share, plus accrued dividends thereon to the date
fixed for liquidation, dissolution or winding up, payable in cash, before
any payment to any holders of any Junior Stock.
(b) If such payments shall have been made in full to the
holders of shares of Series B Preferred, the remaining assets and funds of
the Corporation shall be distributed among the holders of outstanding
shares of Junior Stock, according to their respective rights and
preferences. If, upon any liquidation, dissolution or winding-up of the
affairs of the Corporation, the amounts so payable are not paid in full to
the holders of all outstanding shares of Series B Preferred, the holders
of shares of Series B Preferred shall share ratably in any distribution of
assets in proportion to the full amounts to which they would otherwise be
respectively entitled. Neither the consolidation or merger of the
Corporation, nor the sale, lease or conveyance of all or a part of its
assets, shall be deemed a liquidation, dissolution or winding-up of the
affairs of the Corporation within the meaning of this Section 4(b).
5. Voting Rights.
(a) So long as shares of Series B Preferred having an
aggregate liquidation preference of at least $6,200,000 are outstanding,
the consent of the holders of at least a majority of shares of Series B
Preferred at the time outstanding, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for such
purpose, shall be necessary for approving, adopting or ratifying:
(i) any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation or the By-laws of the
Corporation which adversely affects the rights or preferences of the
holders of the Series B Preferred or the authorization, creation or
issuance of, or the increase in the authorized amount of, any stock or any
security convertible into any stock; provided, however, that neither (x)
the amendment of the provisions of the Corporation's Certificate of
Incorporation or By-laws so as to authorize, create or increase the
authorized amount of any stock or any security convertible into any stock
ranking junior in all rights and preferences to the Series B Preferred nor
(y) the authorization, creation or issuance of, or the increase in the
authorized amount of, any stock or any security convertible into any stock
ranking junior in all rights and preferences to the Series B Preferred,
shall be deemed to adversely affect the rights of the holders of the
Series B Preferred;
(ii) the merger or consolidation of the Corporation
with or into any other corporation other than (A) the merger of a
subsidiary into the Corporation so long as (x) the Corporation is the
surviving company and (y) the rights and preferences of the Series B
Preferred remain the same and there are no classes of stock authorized or
outstanding which rank senior to the Series B Preferred in the
distribution of assets on any liquidation, dissolution or winding-up of
the affairs of the Corporation or in the payment of dividends or (B) the
merger of the Corporation or a subsidiary thereof with
3
<PAGE>
The Alpine Group, Inc., a Delaware corporation ("Alpine"), or a successor
thereto or subsidiary or subsidiaries thereof;
(iii) a sale of all or substantially all of the
assets of the Corporation;
(iv) any liquidation or dissolution of the
Corporation; and
(v) any dividends or distributions on or redemptions
or purchases of any stock other than Series A Preferred or Series B
Preferred so long as the Corporation is in arrears in the payment of
dividends on, or in the redemption of, the Series B Preferred.
(b) Holders of shares of Series B Preferred shall have no
voting rights other than as set forth in this Section 5, in the
Certificate of Incorporation or as mandated in the New York Business
Corporation Law in effect at such time, except that if the Corporation is
in arrears in the payment of dividends in an amount equal to or exceeding
four quarterly dividend payments and until all such arrearages are repaid
in full, the holders of the Series B Preferred, voting as a class, shall
be entitled to elect by a majority vote one director (who may appoint an
observer when he is unable to attend meetings) to the Board of Directors
of the Corporation.
(c) Upon and subject to the transfer of record ownership of
shares of Series B Preferred by Alpine or Kirkbi Projekt A/S to any other
person or entity (other than Alpine or an "affiliate" of Alpine, as such
term is defined in Rule 405 of Regulation C under the Securities Act of
1933, as amended), or any of their nominees, such other person or entity
owning shares of Series B Preferred shall be entitled, in addition to the
voting and other rights set forth in subsections (a) and (b) of this
Section 5, to one vote per share (as adjusted for subdivision,
combinations and reclassifications of the Common Stock (as defined below))
and shall vote together with the holders of Common Stock and of any other
class or series of stock which may similarly be entitled to vote with the
holders of Common Stock as a single class upon all matters upon which
shareholders are entitled to vote.
6. Conversion.
(a) Optional Conversion. Subject to the terms and provisions
of this Section 6, the holder of shares of Series B Preferred shall have
the right, at the holder's option, at any time and from time to time, to
convert the shares of Series B Preferred and all accrued dividends
thereon, into fully paid and nonassessable shares of the common stock of
the Corporation ("Common Stock"). The number of shares of Common Stock
into which the Series B Preferred may be converted shall be determined by
dividing the total liquidation value and accrued dividends to be converted
by the Conversion Price (as defined below) in effect at the time of such
conversion. The Conversion Price shall be equal to $3.00, subject to the
adjustments set forth in Section 7 (the "Conversion Price").
(b) Partial Conversion. Upon any partial conversion of the
Series B Preferred pursuant to Section 6(a), a new certificate for the
unconverted portion of the
4
<PAGE>
Series B Preferred bearing the date of original issue ("Original Issue
Date") and having the same rights and privileges as the Series B Preferred
shall be delivered to the holder.
(c) Mechanics and Effect of Conversion. No fractional shares
of Common Stock will be issued upon conversion of the Series B Preferred.
In lieu of any fractional share to which the holder would otherwise be
entitled, the Corporation will pay to the holder the cash value of any
fractional share. To optionally convert the Series B Preferred into Common
Stock pursuant to Section 6(a), the holder shall surrender the Series B
Preferred at the principal offices of the Corporation, together with a
written notice (the "Conversion Notice") to the Corporation of the
holder's election to convert. At its expense, the Corporation will, as
soon as practicable thereafter, issue and deliver to such holder at such
principal office, a certificate or certificates for the number of shares
of Common Stock to which such holder is entitled upon such conversion,
together with any other securities and property to which the holder is
entitled upon such conversion under the terms of the Series B Preferred,
including a check payable to the holder for any cash amounts payable as
described above in respect of fractional shares. In the event of any
optional conversion of the Series B Preferred pursuant to Section 6(a),
such conversion shall be deemed to have been made immediately prior to the
close of business on the date of the surrender and delivery of
certificates representing the Series B Preferred and the corresponding
Conversion Notice, and the holder shall be treated for all purposes as the
record holder of such shares of Common Stock as of such date.
7. Anti-Dilution and Other Provisions.
(a) Special Definitions. For purposes of this Section 7,
the following definitions shall apply:
(i) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Shares or
"Convertible Securities" (as defined below).
(ii) "Convertible Securities" shall mean any evidence
of indebtedness, shares (other than Common Shares) or other securities
convertible into or exchangeable for Common Shares.
(iii) "Additional Common Shares" shall mean all Common
Shares issued (or, pursuant to Section 7(c), deemed to be issued) by the
Corporation after the date hereof, other than Common Shares issued or
issuable:
(1) to officers, directors or employees of, or consultants
to, the Corporation pursuant to stock options
outstanding on the date hereof or stock options granted
after the date hereof on terms approved by the Board of
Directors of the Corporation including a majority of the
members of the Board of Directors of the Corporation who
are not officers or employees of the Corporation, up to
an aggregate maximum at any time equal to 10% of the
5
<PAGE>
outstanding Common Shares (including Common Shares
previously issued to such persons);
(2) for which adjustment of the Conversion Price is or was
made pursuant to Section 7(f);
(3) upon the exercise of the Common Stock Purchase Warrants
issued in connection with the Securities Purchase
Agreement between the Corporation and the purchasers
named therein;
(4) upon the exercise of the warrants issued to Fleet
Corporate Finance, Inc. and First Albany Corporation, or
their respective designees, in connection with certain
financing agreements; and
(5) pursuant to the conversion of the Series C Preferred or
any other series of convertible preferred stock issued
to Alpine or Kirkbi Projekt A/S.
(b) No Adjustment of Conversion Price. No adjustment in the
Conversion Price shall be made in respect of the issuance of Additional
Common Shares unless the consideration per share (determined pursuant to
Section 7(e) hereof) for an Additional Common Share issued or deemed to be
issued by the Corporation is less than the Conversion Price for such share
in effect on the date of, and immediately prior to, such issue.
(c) Deemed Issue of Additional Common Shares. In the event
the Corporation at any time or from time to time after the date hereof
shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities, then the
maximum number of Common Shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein designed to
protect against dilution) issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be
Additional Common Shares, subject to the limitations of Section 7(a)(iii),
issued as of the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided
that Additional Common Shares shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Section 7(e)
hereof) of such Additional Common Shares would be less than the Conversion
Price in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any
such case in which Additional Common Shares are deemed to be issued:
(i) no further adjustments in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or
Common Shares upon the exercise of such Options or conversion or exchange
of such Convertible Securities;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any
increase or decrease in the
6
<PAGE>
consideration payable to the Corporation, or decrease or increase in the
number of Common Shares issuable, upon the exercise, conversion or
exchange thereof (including any such increase or decrease under or by
reason of provisions designed to protect against dilution), the Conversion
Price computed upon the original issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities (provided, however, that no such adjustment of the Conversion
Price shall affect Common Shares previously issued upon conversion of the
Series B Preferred);
(iii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall,
upon such expiration, be recomputed as if:
(1) in the case of Convertible Securities or Options for
Common Shares, the only Additional Common Shares issued
were the Common Shares, if any, actually issued upon the
exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration
received therefor was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually
received by the Corporation upon such conversion or
exchange (provided, however, that no such adjustment of
the Conversion Price shall affect Common Shares
previously issued upon conversion of the Series B
Preferred), and
(2) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon
the exercise thereof were issued at the time of issue of
such Options, and the consideration received by the
Corporation for the Additional Common Shares deemed to
have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Corporation (determined pursuant to Section 7(e)(ii))
upon the issue of the Convertible Securities with
respect to which such Options were actually exercised
(provided, however, that no such adjustment of the
Conversion Price shall affect Common Shares previously
issued upon conversion of the Preferred Stock);
7
<PAGE>
(iv) no readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the applicable Conversion Price
to an amount which exceeds the lower of (i) such Conversion Price on the
original adjustment date, or (ii) such Conversion Price that would have
resulted from any issuance of Additional Common Shares between the
original adjustment date and such readjustment date; and
(v) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment
of a Conversion Price shall be made until the expiration or exercise of
all such Options, whereupon such adjustment shall be made in the same
manner provided in clause (iii) above.
(d) Adjustment of Conversion Price Upon Issuance of
Additional Common Shares. In the event the Corporation at any time after
the Original Issue Date shall issue Additional Common Shares (including
Additional Common Shares deemed to be issued pursuant to Section 7(c) but
subject to the limitations of Section 7(a)(iii)) without consideration or
for a consideration per share less than the Conversion Price in effect on
the date of and immediately prior to such issue, then and in such event
such Conversion Price shall be reduced, concurrently with such issue, to a
Conversion Price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, the numerator of which
shall be the number of Common Shares outstanding immediately prior to such
issue plus the number of Common Shares which the aggregate consideration
received by the Corporation for the total number of Additional Common
Shares so issued would purchase at such Conversion Price; and the
denominator of which shall be the number of Common Shares outstanding
immediately prior to such issue plus the number of such Additional Common
Shares so issued; and provided, further that, for the purposes of this
Section 7(d) all Common Shares issuable upon conversion of the Series B
Preferred and all outstanding Convertible Securities, and upon exercise of
all outstanding Options bearing an exercise price which is lower than the
price at which the Additional Common Shares were issued (or deemed to be
issued), shall be deemed to be outstanding, and immediately after any
Additional Common Shares are deemed issued pursuant to Section 7(c), such
Additional Common Shares shall be deemed to be outstanding.
(e) Determination of Consideration. For purposes of this
Section 7(e), the consideration received by the Corporation for the issue
of any Additional Common Shares shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest
or accrued dividends;
(2) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of
such issue, as reasonably determined in good faith by
the Board of Directors of the Corporation; and
8
<PAGE>
(3) in the event Additional Common Shares are issued
together with other shares or securities or other assets
of the Corporation for consideration which covers both,
be the proportion of such consideration so received,
computed as provided in clauses (i) and (ii) above, as
reasonably determined in good faith by the Board of
Directors of the Corporation.
(ii) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Common
Shares deemed to have been issued pursuant to Section 7(c), relating to
Options and Convertible Securities shall be determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without
regard to any provision contained therein designed to
protect against dilution) payable to the Corporation
upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case
of Options for Convertible Securities, the exercise of
such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(2) the maximum number of Common Shares (as set forth in the
instruments relating thereto, without regard to any
provision contained therein designed to protect against
dilution) issuable upon the exercise of such options or
conversion or exchange of such Convertible Securities.
(f) Conversion Price Adjustments for Subdivisions,
Combinations or Consolidations of Common Stock.
(i) In the event the Corporation at any time or from
time to time after the date hereof fixes a record date for the
effectuation of a split or subdivision of the outstanding Common Shares or
the determination of holders of Common Shares entitled to receive a
dividend or other distribution payable in additional Common Shares or
other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional Common Shares
(hereinafter referred to as "Common Share Equivalents"), without payment
of any consideration by such holder for the additional Common Shares or
the Common Share Equivalents (including the additional Common Shares
issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend, distribution, split or subdivision if
no record date is fixed), the Conversion Price shall be appropriately
decreased so that the number of Common Shares issuable on conversion of
the Series B Preferred shall be increased in proportion to such increase
of outstanding Common Shares and shares issuable with respect to Common
Share Equivalents.
9
<PAGE>
(ii) If the number of Common Shares outstanding at
any time after the date hereof is decreased by a combination of the
outstanding Common Shares, then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that
the number of Common Shares issuable on conversion of the Series B
Preferred shall be decreased in proportion to such decrease in outstanding
Common Shares.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other entities or persons,
evidences of indebtedness issued by the Corporation or other entities or
persons, assets (excluding cash dividends other than extraordinary or
special cash dividends) or options or rights not referred to in Section
7(f)(i), the Corporation shall make provisions for the holder to receive
upon conversion of the Series B Preferred, a proportional amount
(depending upon the extent to which the Series B Preferred is converted)
of such securities, evidences of indebtedness, assets or such other
rights, as if such holder had converted the Series B Preferred on or
before such record date.
(h) Recapitalization. If at any time or from time to time
there shall be a recapitalization of the Common Shares (other than a
subdivision, combination or merger or sale of assets transaction provided
for elsewhere in this Section 7), provision shall be made so that the
holder shall thereafter be entitled to receive upon conversion of the
Series B Preferred the number of shares of stock or other securities or
property of the Corporation to which a holder of Common Shares deliverable
upon conversion would have been entitled on such recapitalization. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 7 with respect to the rights of the holder
after the recapitalization to the end that the provisions of this Section
7 (including adjustment of the Conversion Price then in effect and the
number of shares issuable upon conversion of the Series B Preferred) shall
be applicable after that event as nearly equivalent as may be practicable.
The Corporation shall not be a party to any merger, consolidation or
recapitalization pursuant to which the holder would be required to take
(i) any voting securities which would cause the holder to violate any law,
regulation or other requirement of any governmental body applicable to the
holder or (ii) any securities convertible into voting securities which if
such conversion took place would cause the holder to violate any law,
regulation or other requirement of any governmental body applicable to the
holder, other than securities which are specifically provided to be
convertible only in the event that such conversion may occur without any
such violation.
(i) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 7
and in the taking of all such actions as may be necessary or appropriate
in order to protect the Conversion Rights of the holder against
impairment.
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(j) No Fractional Shares and Certificate as to Adjustments.
(i) In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall pay cash equal
to such fraction multiplied by the fair market value of one Common Share,
as determined in good faith by the Board of Directors of the Corporation.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 7, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish
to the holder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon the written request at any time of
the holder, furnish or cause to be furnished to the holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of Common
Shares and the amount, if any, of other property which at the time would
be received upon the conversion of the Series B Preferred.
(k) Notices of Record Date. In the event that the
Corporation shall propose at any time: (i) to declare any dividend or
distribution upon any class or series of capital stock, whether in cash,
property, stock or other securities; (ii) to effect any reclassification
or recapitalization of its Common Shares outstanding involving a change in
the Common Shares; or (iii) to merge or consolidate with or into any other
corporation, or to sell, lease or convey all or substantially all of its
property or business, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall mail to the holder:
(i) at least twenty days' prior written notice of the
date on which a record shall be taken for such dividend or distribution
(and specifying the date on which the holders of the affected class or
series of capital stock shall be entitled thereto) or for determining the
rights to vote, if any, in respect of the matters referred to in clauses
(ii) and (iii) above; and
(ii) in the case of the matters referred to in
clauses (ii) and (iii) above, written notice of such impending transaction
not later than twenty days prior to the shareholders' meeting called to
approve such transaction, or twenty days prior to the closing of such
transaction, whichever is earlier, and shall also notify the holder in
writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction (and specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon the occurrence of such event) and the
Corporation shall thereafter give the holder prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty
days after the Corporation has given the first notice provided for herein
or sooner than ten days after the Corporation has given notice of any
material changes provided for herein.
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(l) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued Common Shares solely for the purpose of effecting
the conversion of the Series B Preferred such number of its Common Shares
as shall from time to time be sufficient to effect the conversion of the
Series B Preferred; and if at any time the number of authorized but
unissued Common Shares shall not be sufficient to effect the conversion of
the Series B Preferred, in addition to such other remedies as shall be
available to the holder, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purposes.
(m) Notices. Any notice required by the provisions of this
Section 7 to be given to the holders shall be deemed given if deposited in
the United States mail, first class postage prepaid, and addressed to the
holder of record at its address appearing on the books of the Corporation.
(n) Taxes and Costs. The issue of certificates evidencing
Common Shares upon conversion of the Series B Preferred in accordance with
the terms provided herein shall be made without charge to the holders of
such shares for any issue tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion; provided, however, the
Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder.
8. No Other Rights. The shares of Series B Preferred shall not
have any relative powers, preferences or rights, nor any qualifications,
limitations or restrictions thereof, other than as set forth herein, in
the Certificate of Incorporation or pursuant to the New York Business
Corporation Law in effect at such time.
9. Business Day. The term "Business Day" shall mean any day other
than a Saturday, Sunday or other day on which banks in the State of New
York are required or authorized to be closed.
10. Notices. All notices and other correspondence to be delivered
to the holders of Series B Preferred shall be given, unless otherwise
indicated, by first-class mail, postage prepaid, to each holder of record
as its address appears in the stock register of the Corporation.
D. Shares of Series C Preferred Stock.
1. Designation, Number and Par Value. The shares of a series of
Preferred Stock shall be designated as "Series C Preferred." The number of
shares which shall constitute Series C Preferred shall be 150,000 shares.
Shares of Series C Preferred shall have a par value of $.01 per share.
2. Ranking. Shares of Series C Preferred shall, with respect to
distribution rights upon the liquidation, dissolution or winding-up of the
affairs of the Corporation and dividend rights, rank senior to all classes
or series of common stock and preferred stock of the Corporation, whether
now existing or hereafter created, other than the Series
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B Preferred. Shares of Series C Preferred shall, with respect to
distribution rights upon the liquidation, dissolution or winding-up of the
affairs of the Corporation and dividend rights, rank pari passu with the
Series B Preferred.
3. Dividends.
(a) For so long as any shares of Series C Preferred shall be
outstanding and until all shares of Series C Preferred are redeemed by the
Corporation, the holders of shares of Series C Preferred shall be entitled
to receive cumulative dividends at the annual rate of $4.50 per share.
Cumulative dividends on outstanding shares of Series C Preferred shall
accrue from the date of the issuance of such shares (the "Issue Date")
through and including the date of redemption for all such shares. Such
cumulative dividends shall be payable quarterly in arrears on the first
day of the months of March, June, September and December or, in the event
such date is not a Business Day, on the first Business Day immediately
following such date. The dividend accrued for any period which is less
than a quarter shall be computed on a pro rata basis for the actual number
of days elapsed in the period for which payable, including the date of
payment. Such dividends shall be paid to the holders of record of the
Series C Preferred at the close of business on the date specified by the
Board of Directors of the Corporation at the time such dividend is
declared; provided, however, that such date shall not be more than 50 days
nor less than ten days prior to the date on which such dividend is
payable.
(b) Notwithstanding anything contained herein to the
contrary, no cash dividends on shares of Series C Preferred shall be
declared by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any financing or
working capital agreement of the Corporation specifically prohibit such
declaration, payment or setting apart for payment or if such declaration,
payment or setting apart for payment would constitute a breach thereof or
a default thereunder or if such declaration, payment or setting apart for
payment would, upon the giving of notice or passage of time or both,
constitute such a breach or default.
(c) So long as any shares of Series C Preferred shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any distribution be made, on any other class or series
of common stock or preferred stock (other than the Series B Preferred) of
the Corporation ("Junior Stock"), nor shall any shares of any Junior Stock
be purchased, redeemed or otherwise acquired for value by the Corporation
or by any subsidiary of the Corporation, directly or indirectly, unless
the holder(s) of a majority of the shares of Series C Preferred, voting as
a class, shall approve such dividend, distribution, purchase, redemption
or acquisition.
4. Liquidation, Dissolution or Winding-Up.
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Corporation, the holders
of shares of Series C Preferred shall be entitled to receive a liquidation
value of $50.00 per share, plus accrued dividends thereon to the date
fixed for liquidation, dissolution or winding up, payable in cash, before
any payment to any holders of any Junior Stock.
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(b) If such payments shall have been made in full to the
holders of shares of Series C Preferred, the remaining assets and funds of
the Corporation shall be distributed among the holders of outstanding
shares of Junior Stock, according to their respective rights and
preferences. If, upon any liquidation, dissolution or winding-up of the
affairs of the Corporation, the amounts so payable are not paid in full to
the holders of all outstanding shares of Series C Preferred, the holders
of shares of Series C Preferred shall share ratably in any distribution of
assets in proportion to the full amounts to which they would otherwise be
respectively entitled. Neither the consolidation or merger of the
Corporation, nor the sale, lease or conveyance of all or a part of its
assets, shall be deemed a liquidation, dissolution or winding-up of the
affairs of the Corporation within the meaning of this Section 4(b).
5. Voting Rights.
(a) So long as shares of Series C Preferred having an
aggregate liquidation preference of at least $2,500,000 are outstanding,
the consent of the holders of at least a majority of shares of Series C
Preferred at the time outstanding, given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for such
purpose, shall be necessary for approving, adopting or ratifying:
(i) any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation or the By-laws of the
Corporation which adversely affects the rights or preferences of the
holders of the Series C Preferred or the authorization, creation or
issuance of, or the increase in the authorized amount of, any stock or any
security convertible into any stock; provided, however, that neither (x)
the amendment of the provisions of the Corporation's Certificate of
Incorporation or By-laws so as to authorize, create or increase the
authorized amount of any stock or any security convertible into any stock
ranking junior in all rights and preferences to the Series C Preferred nor
(y) the authorization, creation or issuance of, or the increase in the
authorized amount of, any stock or any security convertible into any stock
ranking junior in all rights and preferences to the Series C Preferred,
shall be deemed to adversely affect the rights of the holders of the
Series C Preferred;
(ii) the merger or consolidation of the Corporation
with or into any other corporation other than (A) the merger of a
subsidiary into the Corporation so long as (x) the Corporation is the
surviving company and (y) the rights and preferences of the Series C
Preferred remain the same and there are no classes of stock (other than
the Series A Preferred and the Series B Preferred) authorized or
outstanding which rank senior to the Series B Preferred in the
distribution of assets on any liquidation, dissolution or winding-up of
the affairs of the Corporation or in the payment of dividends or (B) the
merger of the Corporation or a subsidiary thereof with The Alpine Group,
Inc., a Delaware corporation ("Alpine"), or a successor thereto or
subsidiary or subsidiaries thereof;
(iii) a sale of all or substantially all of the assets
of the Corporation;
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(iv) any liquidation or dissolution of the Corporation;
and
(v) any dividends or distributions on or redemptions
or purchases of any stock other than Series A Preferred and the Series B
Preferred or Series C Preferred so long as the Corporation is in arrears
in the payment of dividends on, or in the redemption of, the Series B
Preferred.
(b) Holders of shares of Series C Preferred shall have no
voting rights other than as set forth in this Section 5, in the
Certificate of Incorporation or as mandated in the New York Business
Corporation Law in effect at such time, except that if the Corporation is
in arrears in the payment of dividends in an amount equal to or exceeding
four quarterly dividend payments and until all such arrearages are repaid
in full, the holders of the Series C Preferred, voting as a class, shall
be entitled to elect by a majority vote one director (who may appoint an
observer when he is unable to attend meetings) to the Board of Directors
of the Corporation.
(c) Upon and subject to the transfer of record ownership of
shares of Series C Preferred by Alpine or Kirkbi Projekt A/S to any other
person or entity (other than Alpine or an "affiliate" of Alpine, as such
term is defined in Rule 405 of Regulation C under the Securities Act of
1933, as amended), or any of their nominees, such other person or entity
owning shares of Series C Preferred shall be entitled, in addition to the
voting and other rights set forth in subsections (a) and (b) of this
Section 5, to one vote per share (as adjusted for subdivision,
combinations and reclassifications of the Common Stock (as defined below))
and shall vote together with the holders of Common Stock and of any other
class or series of stock which may similarly be entitled to vote with the
holders of Common Stock as a single class upon all matters upon which
shareholders are entitled to vote.
6. Conversion.
(a) Optional Conversion. Subject to the terms and provisions
of this Section 6, the holder of shares of Series C Preferred shall have
the right, at the holder's option, at any time and from time to time, to
convert the shares of Series C Preferred and all accrued dividends
thereon, into fully paid and nonassessable shares of the common stock of
the Corporation ("Common Stock"). The number of shares of Common Stock
into which the Series C Preferred may be converted shall be determined by
dividing the total liquidation value and accrued dividends to be converted
by the Conversion Price (as defined below) in effect at the time of such
conversion. The Conversion Price shall be equal to $2.00, subject to the
adjustments set forth in Section 7 (the "Conversion Price").
(b) Partial Conversion. Upon any partial conversion of the
Series C Preferred pursuant to Section 6(a), a new certificate for the
unconverted portion of the Series C Preferred bearing the date of original
issue ("Original Issue Date") and having the same rights and privileges as
the Series C Preferred shall be delivered to the holder.
(c) Mechanics and Effect of Conversion. No fractional shares
of Common Stock will be issued upon conversion of the Series C Preferred.
In lieu of any
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fractional share to which the holder would otherwise be entitled, the
Corporation will pay to the holder the cash value of any fractional share.
To optionally convert the Series C Preferred into Common Stock pursuant to
Section 6(a), the holder shall surrender the Series C Preferred at the
principal offices of the Corporation, together with a written notice (the
"Conversion Notice") to the Corporation of the holder's election to
convert. At its expense, the Corporation will, as soon as practicable
thereafter, issue and deliver to such holder at such principal office, a
certificate or certificates for the number of shares of Common Stock to
which such holder is entitled upon such conversion, together with any
other securities and property to which the holder is entitled upon such
conversion under the terms of the Series C Preferred, including a check
payable to the holder for any cash amounts payable as described above in
respect of fractional shares. In the event of any optional conversion of
the Series C Preferred pursuant to Section 6(a), such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of the surrender and delivery of certificates representing the Series
C Preferred and the corresponding Conversion Notice, and the holder shall
be treated for all purposes as the record holder of such shares of Common
Stock as of such date.
7. Anti-Dilution and Other Provisions.
(a) Special Definitions. For purposes of this Section 7,
the following definitions shall apply:
(i) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Shares or
"Convertible Securities" (as defined below).
(ii) "Convertible Securities" shall mean any evidence
of indebtedness, shares (other than Common Shares) or other securities
convertible into or exchangeable for Common Shares.
(iii) "Additional Common Shares" shall mean all Common
Shares issued (or, pursuant to Section 7(c), deemed to be issued) by the
Corporation after the date hereof, other than Common Shares issued or
issuable:
(1) to officers, directors or employees of, or consultants
to, the Corporation pursuant to stock options
outstanding on the date hereof or stock options granted
after the date hereof on terms approved by the Board of
Directors of the Corporation including a majority of the
members of the Board of Directors of the Corporation who
are not officers or employees of the Corporation, up to
an aggregate maximum at any time equal to 10% of the
outstanding Common Shares (including Common Shares
previously issued to such persons);
(2) for which adjustment of the Conversion Price is or was
made pursuant to Section 7(f);
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(3) upon the exercise of the Common Stock Purchase Warrants
issued in connection with the Securities Purchase
Agreement between the Corporation and the purchasers
named therein;
(4) upon the exercise of the warrants issued to Fleet
Corporate Finance, Inc. and First Albany Corporation, or
their respective designees, in connection with certain
financing agreements; and
(5) upon the conversion of the Series B Preferred or any
other series of convertible preferred stock issued to
Alpine or Kirkbi Projekt A/S.
(b) No Adjustment of Conversion Price. No adjustment in the
Conversion Price shall be made in respect of the issuance of Additional
Common Shares unless the consideration per share (determined pursuant to
Section 7(e) hereof) for an Additional Common Share issued or deemed to be
issued by the Corporation is less than the Conversion Price for such share
in effect on the date of, and immediately prior to, such issue.
(c) Deemed Issue of Additional Common Shares. In the event
the Corporation at any time or from time to time after the date hereof
shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities, then the
maximum number of Common Shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein designed to
protect against dilution) issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be
Additional Common Shares, subject to the limitations of Section 7(a)(iii),
issued as of the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided
that Additional Common Shares shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Section 7(e)
hereof) of such Additional Common Shares would be less than the Conversion
Price in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any
such case in which Additional Common Shares are deemed to be issued:
(i) no further adjustments in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or
Common Shares upon the exercise of such Options or conversion or exchange
of such Convertible Securities;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any
increase or decrease in the consideration payable to the Corporation, or
decrease or increase in the number of Common Shares issuable, upon the
exercise, conversion or exchange thereof (including any such increase or
decrease under or by reason of provisions designed to protect against
dilution), the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to
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reflect such increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible Securities
(provided, however, that no such adjustment of the Conversion Price shall
affect Common Shares previously issued upon conversion of the Series C
Preferred);
(iii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall,
upon such expiration, be recomputed as if:
(1) in the case of Convertible Securities or Options for
Common Shares, the only Additional Common Shares issued
were the Common Shares, if any, actually issued upon the
exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration
received therefor was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually
received by the Corporation upon such conversion or
exchange (provided, however, that no such adjustment of
the Conversion Price shall affect Common Shares
previously issued upon conversion of the Series C
Preferred), and
(2) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon
the exercise thereof were issued at the time of issue of
such Options, and the consideration received by the
Corporation for the Additional Common Shares deemed to
have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Corporation (determined pursuant to Section 7(e)(ii))
upon the issue of the Convertible Securities with
respect to which such Options were actually exercised
(provided, however, that no such adjustment of the
Conversion Price shall affect Common Shares previously
issued upon conversion of the Preferred Stock);
(iv) no readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the applicable Conversion Price
to an amount which exceeds the lower of (i) such Conversion Price on the
original adjustment date, or (ii) such Conversion Price that would have
resulted from any issuance of Additional Common Shares between the
original adjustment date and such readjustment date; and
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(v) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment
of a Conversion Price shall be made until the expiration or exercise of
all such Options, whereupon such adjustment shall be made in the same
manner provided in clause (iii) above.
(d) Adjustment of Conversion Price Upon Issuance of
Additional Common Shares. In the event the Corporation at any time after
the Original Issue Date shall issue Additional Common Shares (including
Additional Common Shares deemed to be issued pursuant to Section 7(c) but
subject to the limitations of Section 7(a)(iii)) without consideration or
for a consideration per share less than the Conversion Price in effect on
the date of and immediately prior to such issue, then and in such event
such Conversion Price shall be reduced, concurrently with such issue, to a
Conversion Price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, the numerator of which
shall be the number of Common Shares outstanding immediately prior to such
issue plus the number of Common Shares which the aggregate consideration
received by the Corporation for the total number of Additional Common
Shares so issued would purchase at such Conversion Price; and the
denominator of which shall be the number of Common Shares outstanding
immediately prior to such issue plus the number of such Additional Common
Shares so issued; and provided further that, for the purposes of this
Section 7(d) all Common Shares issuable upon conversion of the Series C
Preferred and all outstanding Convertible Securities, and upon exercise of
all outstanding Options bearing an exercise price which is lower than the
price at which the Additional Common Shares were issued (or deemed to be
issued), shall be deemed to be outstanding, and immediately after any
Additional Common Shares are deemed issued pursuant to Section 7(c), such
Additional Common Shares shall be deemed to be outstanding.
(e) Determination of Consideration. For purposes of this
Section 7(e), the consideration received by the Corporation for the issue
of any Additional Common Shares shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest
or accrued dividends;
(2) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of
such issue, as reasonably determined in good faith by
the Board of Directors of the Corporation; and
(3) in the event Additional Common Shares are issued
together with other shares or securities or other assets
of the Corporation for consideration which covers both,
be the proportion of such consideration so received,
computed as provided in clauses (i) and
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(ii) above, as reasonably determined in good faith by
the Board of Directors of the Corporation.
(ii) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Common
Shares deemed to have been issued pursuant to Section 7(c), relating to
Options and Convertible Securities shall be determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without
regard to any provision contained therein designed to
protect against dilution) payable to the Corporation
upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case
of Options for Convertible Securities, the exercise of
such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(2) the maximum number of Common Shares (as set forth in the
instruments relating thereto, without regard to any
provision contained therein designed to protect against
dilution) issuable upon the exercise of such options or
conversion or exchange of such Convertible Securities.
(f) Conversion Price Adjustments for Subdivisions,
Combinations or Consolidations of Common Stock.
(i) In the event the Corporation at any time or from
time to time after the date hereof fixes a record date for the
effectuation of a split or subdivision of the outstanding Common Shares or
the determination of holders of Common Shares entitled to receive a
dividend or other distribution payable in additional Common Shares or
other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional Common Shares
(hereinafter referred to as "Common Share Equivalents"), without payment
of any consideration by such holder for the additional Common Shares or
the Common Share Equivalents (including the additional Common Shares
issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend, distribution, split or subdivision if
no record date is fixed), the Conversion Price shall be appropriately
decreased so that the number of Common Shares issuable on conversion of
the Series C Preferred shall be increased in proportion to such increase
of outstanding Common Shares and shares issuable with respect to Common
Share Equivalents.
(ii) If the number of Common Shares outstanding at
any time after the date hereof is decreased by a combination of the
outstanding Common Shares, then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that
the number of Common Shares issuable on conversion of
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the Series C Preferred shall be decreased in proportion to such decrease
in outstanding Common Shares.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other entities or persons,
evidences of indebtedness issued by the Corporation or other entities or
persons, assets (excluding cash dividends other than extraordinary or
special cash dividends) or options or rights not referred to in Section
7(f)(i), the Corporation shall make provisions for the holder to receive
upon conversion of the Series C Preferred, a proportional amount
(depending upon the extent to which the Series C Preferred is converted)
of such securities, evidences of indebtedness, assets or such other
rights, as if such holder had converted the Series C Preferred on or
before such record date.
(h) Recapitalization. If at any time or from time to time
there shall be a recapitalization of the Common Shares (other than a
subdivision, combination or merger or sale of assets transaction provided
for elsewhere in this Section 7), provision shall be made so that the
holder shall thereafter be entitled to receive upon conversion of the
Series C Preferred the number of shares of stock or other securities or
property of the Corporation to which a holder of Common Shares deliverable
upon conversion would have been entitled on such recapitalization. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 7 with respect to the rights of the holder
after the recapitalization to the end that the provisions of this Section
7 (including adjustment of the Conversion Price then in effect and the
number of shares issuable upon conversion of the Series C Preferred) shall
be applicable after that event as nearly equivalent as may be practicable.
The Corporation shall not be a party to any merger, consolidation or
recapitalization pursuant to which the holder would be required to take
(i) any voting securities which would cause the holder to violate any law,
regulation or other requirement of any governmental body applicable to the
holder or (ii) any securities convertible into voting securities which if
such conversion took place would cause the holder to violate any law,
regulation or other requirement of any governmental body applicable to the
holder, other than securities which are specifically provided to be
convertible only in the event that such conversion may occur without any
such violation.
(i) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 7
and in the taking of all such actions as may be necessary or appropriate
in order to protect the Conversion Rights of the holder against
impairment.
(j) No Fractional Shares and Certificate as to Adjustments.
(i) In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall pay cash equal
to such fraction multiplied by
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the fair market value of one Common Share, as determined in good faith by
the Board of Directors of the Corporation.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 7, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish
to the holder a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon the written request at any time of
the holder, furnish or cause to be furnished to the holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of Common
Shares and the amount, if any, of other property which at the time would
be received upon the conversion of the Series C Preferred.
(k) Notices of Record Date. In the event that the
Corporation shall propose at any time: (i) to declare any dividend or
distribution upon any class or series of capital stock, whether in cash,
property, stock or other securities; (ii) to effect any reclassification
or recapitalization of its Common Shares outstanding involving a change in
the Common Shares; or (iii) to merge or consolidate with or into any other
corporation, or to sell, lease or convey all or substantially all of its
property or business, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall mail to the holder:
(i) at least twenty days' prior written notice of the
date on which a record shall be taken for such dividend or distribution
(and specifying the date on which the holders of the affected class or
series of capital stock shall be entitled thereto) or for determining the
rights to vote, if any, in respect of the matters referred to in clauses
(ii) and (iii) above; and
(ii) in the case of the matters referred to in
clauses (ii) and (iii) above, written notice of such impending transaction
not later than twenty days prior to the shareholders' meeting called to
approve such transaction, or twenty days prior to the closing of such
transaction, whichever is earlier, and shall also notify the holder in
writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction (and specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon the occurrence of such event) and the
Corporation shall thereafter give the holder prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty
days after the Corporation has given the first notice provided for herein
or sooner than ten days after the Corporation has given notice of any
material changes provided for herein.
(l) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued Common Shares solely for the purpose of effecting
the conversion of the Series C Preferred such number of its Common Shares
as shall from time to time be sufficient to effect the conversion of the
Series C Preferred; and if at any time the number of authorized but
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unissued Common Shares shall not be sufficient to effect the conversion of
the Series C Preferred, in addition to such other remedies as shall be
available to the holder, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purposes.
(m) Notices. Any notice required by the provisions of this
Section 7 to be given to the holders shall be deemed given if deposited in
the United States mail, first class postage prepaid, and addressed to the
holder of record at its address appearing on the books of the Corporation.
(n) Taxes and Costs. The issue of certificates evidencing
Common Shares upon conversion of the Series C Preferred in accordance with
the terms provided herein shall be made without charge to the holders of
such shares for any issue tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion; provided, however, the
Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder.
8. No Other Rights. The shares of Series C Preferred shall not
have any relative powers, preferences or rights, nor any qualifications,
limitations or restrictions thereof, other than as set forth herein, in
the Certificate of Incorporation or pursuant to the New York Business
Corporation Law in effect at such time.
9. Business Day. The term "Business Day" shall mean any day other
than a Saturday, Sunday or other day on which banks in the State of New
York are required or authorized to be closed.
10. Notices. All notices and other correspondence to be delivered
to the holders of Series C Preferred shall be given, unless otherwise
indicated, by first-class mail, postage prepaid, to each holder of record
as its address appears in the stock register of the Corporation.
5. The stated capital of the Corporation shall not be reduced as a
result of the foregoing amendments, except to the extent provided in Section
4(a) of this Certificate of Amendment.
6. The foregoing elimination of the series of Preferred Stock
designated as "Series A Preferred Stock" and the addition to subsection C and
subsection D of section (d), Article FOURTH of the restated Certificate of
Incorporation was authorized by the unanimous written consent, dated October 8,
1998, of the Board of Directors of the Corporation. There are no issued and
outstanding shares of the series of Preferred Stock eliminated by this
amendment.
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IN WITNESS WHEREOF, we have signed this Certificate on October 26, 1998,
and we affirm the statements contained therein as true under penalties of
perjury.
/s/Joseph A. Menniti
--------------------------------------
Joseph A. Menniti
President and Chief Executive Officer
/s/Barry M. Puritz
--------------------------------------
Barry M. Puritz
Vice President of Marketing and Sales
and Secretary
<PAGE>
Exhibit 10.38
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made and entered into as of November 20,
1998, between PolyVision Corporation, a New York corporation (the "Company"),
and Michael H. Dunn (the "Executive").
W I T N E S S E T H :
--------------------
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of September
1, 1998, as amended (the "Purchase Agreement"), by and among the Company,
Alliance International Group, Inc. (formerly known as AIG Holdings, Inc.)
("AIG") and the stockholders of AIG (including the Executive) (the "Sellers"),
the Company has agreed to purchase, and the Sellers have agreed to sell, all of
the outstanding capital stock of AIG (the "Acquisition");
WHEREAS, the Executive has been employed by AIG and is presently
serving as the Chairman and Chief Executive Officer of AIG;
WHEREAS, the Company recognizes that the Executive possesses an
intimate knowledge of the business and affairs of AIG and, in connection with
the Acquisition, the Company wishes to be assured that it will have the
continued benefit of the services and advice of the Executive and the
Executive's agreement to maintain the confidentiality of certain information and
not to compete with the Company as set forth herein;
WHEREAS, execution of this Agreement is a condition to the obligation
of the Company to effect the Acquisition; and
WHEREAS, the Executive is willing to be employed by the Company and,
coincident with and/or following that employment, is also willing to maintain
information as confidential and to agree not to compete on the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, but subject to the consummation of the Acquisition under
the Purchase Agreement, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
2. TERM. The Company shall employ the Executive, and the Executive
shall serve the Company during an initial three-year period (including any
extension thereof, the "Term") commencing on the day immediately following the
Closing Date (as such term is defined in the Purchase Agreement) (the
"Commencement Date"). By notice given to the Executive no sooner than 22 months
and no later than 24 months following the Commencement Date, the Company shall
have the right to offer the Executive a three-year extension to the Term of this
Agreement on substantially the same terms and conditions, but in no event at a
less favorable compensation level.
<PAGE>
The Executive shall have 60 days following the receipt of such notice to accept
the Company's extension offer. In no event, however, shall the Term of the
Executive's employment hereunder extend beyond the end of the month in which the
Executive's 65th birthday occurs.
3. POSITION AND DUTIES. The Executive shall initially serve as the
President and Chief Operating Officer of the Company with such responsibilities,
duties and authority as are customary for such a position and office and,
provided they are not inconsistent with the foregoing, as may from time to time
be assigned to the Executive by the Company's Board of Directors (the "Board")
and/or the Chief Executive Officer. The Executive shall devote all of his
working time and efforts to the business and affairs of the Company, provided
that the Executive may be involved in charitable and trade association
activities and make passive investments that do not materially detract from the
discharge of his responsibilities hereunder; PROVIDED, HOWEVER, that any such
passive investments shall not be in companies that are competitors of the
Company.
4. DIRECTOR. The Company shall cause the Executive to be nominated for
election to the Board for so long as the Executive remains the Company's
President and/or Chief Executive Officer, if so named.
5. COMPENSATION AND RELATED MATTERS.
(a) SALARY. During the term of the Executive's employment hereunder,
the Company shall pay to the Executive an annual base salary of $240,000 (the
"Base Salary"), such salary to be paid in substantially equal periodic
installments in accordance with the normal payroll practice of the Company. If
and when the Executive assumes the additional title of Chief Executive Officer,
during the Term of this Agreement, the Base Salary shall be increased to
$280,000 for the remainder of the Executive's employment hereunder. The Base
Salary for any partial year will be prorated based upon the number of days
elapsed in such year.
(b) SIGNING BONUS. The Executive shall be paid a signing bonus of
$30,000, which shall be paid in cash, less applicable withholding taxes and
other governmental requirements, within 30 days after the Commencement Date.
(c) DISCRETIONARY BONUS. The Executive will be eligible to receive
an annual bonus within 90 days after the end of each fiscal year of the Company
equal to up to 45% of the Base Salary, with the actual amount of such annual
bonus to be determined by the Board, and with such determination to be based
upon the Company's and the Executive's achievement of budgetary and other
objectives, as set by the Board and the Chief Executive Officer, and upon their
discretionary evaluation of the Executive's performance.
(d) EXPENSES. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including, but not limited to, all expenses of travel and
associated living expenses while away from home when such travel is at the
request and in the service of the Company.
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(e) CAR ALLOWANCE. During the term of the Executive's employment
hereunder, the Executive will be eligible to receive a monthly car allowance
equal to a net after-tax amount of $800 per month.
(f) STOCK OPTIONS.
(i) The Executive shall be entitled to receive stock options
(the "Stock Options") to purchase 250,000 shares of Common Stock, par value
$.001 per share, of the Company at an exercise price equal to $1.50 per share,
vesting in four equal installments of 62,500 shares on the first, second, third
and fourth annual anniversaries of the Commencement Date, and pursuant to a
customary stock option agreement, which the Executive and the Company shall
enter into by no later than the first annual anniversary of the Commencement
Date.
(ii) In the event of termination of employment (A) by the
Executive without Good Reason (as defined in Section 7(d)) or not pursuant to a
Lack of Advancement (as defined in Section 7(e)) or not pursuant to a Change of
Control (as defined in Section 7(f)), on or prior to the fourth annual
anniversary of the Commencement Date or (B) pursuant to Section 7(c), all Stock
Options not theretofore exercisable will lapse and be forfeited. In the event
the Executive's employment is terminated for any other reason on or prior to the
fourth annual anniversary of the Commencement Date, all Stock Options not
theretofore exercisable will thereupon become exercisable. Except as otherwise
provided in the following paragraph, each Stock Option will expire ten years
after it is granted.
(iii) In the event of the termination of the employment of the
Executive, all unexercised and exercisable stock options granted to him
hereunder must be exercised by him, or his estate (or heir(s)), as the case may
be, (A) within 12 months of the Date of Termination, as defined in Section 7(i),
if the termination is due to Disability, as defined in Section 7(b), (B) in the
event of death of the Executive, within 12 months of the Date of Termination, as
defined in Section 7(i), if the termination is due to death OR within three
months of the date of death if the termination was pursuant to Disability, or
(C) within three months of the Date of Termination if the termination is for any
other reason; PROVIDED, HOWEVER, that in the event the Executive's employment is
terminated with Cause, all unexercised and exercisable stock options granted to
him hereunder become null and void immediately upon termination.
(g) OTHER BENEFITS. The Executive shall be entitled to participate
in all of the fringe benefit plans and arrangements of the Company (including,
without limitation, the Company's group life insurance and accident plan,
medical and dental insurance plan, and disability plan) as are provided from
time to time to other senior executives of the Company. The Executive's life
insurance policy shall be in an amount of not less than one year's compensation
and benefits of the Executive. In addition, the Company shall obtain (as the
beneficiary) and pay the premiums of a key-man life insurance policy on the life
of the Executive for the purpose of paying to the Executive's estate the
Executive's proportionate interest in the Seller Note (as such term is defined
in the Purchase Agreement) at the time of his death.
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<PAGE>
(h) ANNUAL PHYSICAL EXAMINATION. During the term of this Agreement,
the Company shall reimburse the Executive for the reasonable expenses incurred
by the Executive in undergoing an annual physical examination by a licensed
physician.
6. ADDITIONAL OFFICES. Subject to Sections 3 and 4, the Executive
agrees to serve without additional compensation, if elected or appointed
thereto, as a director of any of of the Company's subsidiaries and in one or
more executive offices of any of the Company's subsidiaries, provided that the
Executive shall receive indemnification from any such subsidiaries (to the same
extent as indemnified by the Company) for serving in any and all such
capacities.
7. TERMINATION. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall terminate upon
his death.
(b) DISABILITY. The Company may terminate the Executive's employment
hereunder if, as a result of the Executive's incapacity due to physical or
mental illness ("Disability"), the Executive shall have been absent from his
duties hereunder on a full-time basis for 180 days during any eight-month
period.
(c) CAUSE. The Company may terminate the Executive's employment
hereunder for "Cause." For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder upon (i) the willful
and continued failure by the Executive to substantially perform his duties
hereunder (other than any such failure resulting from the Executive's
Disability) after written notice is delivered by the Company that specifically
identifies the manner in which the Company believes the Executive has not
substantially performed his duties, which failure is not cured within 30 days
after such written notice, (ii) the willful engagement by the Executive in
misconduct which is materially injurious to the Company, monetarily or otherwise
(including, but not limited to, conduct that constitutes competitive activity
pursuant to Section 8 hereof) or (iii) the determination during the period that
encompasses one full audit cycle (with such period ending after the Company's
independent public accountants render their audit opinion for the fiscal year
ending April 30, 2000) that the Representation Letter, dated September 1, 1998,
previously provided by the Executive to the Company contained any material
misrepresentations. The Company's right to terminate this Agreement pursuant to
Section 7(c)(iii) shall be the Company's sole and exclusive remedy under this
Agreement with respect to material misrepresentations contained in said
Representation Letter, provided that the foregoing shall not relieve the
Executive of any liability he may have specifically as a "Seller" for any
misrepresentation or breach of warranty made by the Executive in the Purchase
Agreement. For purposes of this paragraph, an act, or failure to act, on the
Executive's part shall not be considered "willful" if done, or omitted to be
done, by him in good faith and with reasonable belief that his action or
omission was in the best interests of the Company.
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<PAGE>
(d) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive may
terminate his employment hereunder for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean (i) a failure by the Company to comply with
any material provision of this Agreement which has not been cured within 30 days
after notice of such noncompliance has been given by the Executive to the
Company or (ii) any change in the Executive's title, except in the event that
the Executive is named Chief Executive Officer, or any substantial reduction in
the Executive's duties if such reduction is without his consent.
(e) TERMINATION BY THE EXECUTIVE PURSUANT TO LACK OF ADVANCEMENT.
The Executive may terminate his employment hereunder pursuant to "Lack of
Advancement." For purposes of this Agreement, "Lack of Advancement" shall mean a
failure by the Company to name the Executive as its Chief Executive Officer on
or before January 1, 2000, preceded by a good faith attempt, consistent with the
fiduciary obligations of the Board, to announce such intention on or about May
15, 1999.
(f) TERMINATION BY THE EXECUTIVE PURSUANT TO A CHANGE OF CONTROL.
The Executive may terminate his employment hereunder pursuant to a "Change of
Control." For purposes of this Agreement, "Change of Control" shall be deemed to
have occurred when there has been a material change in the Executive's duties
and responsibilities AND (i) a third person, including a "group," as such term
is defined in Section 13(d)(3) of the Securities Exchange Act of 1934, other
than The Alpine Group, Inc. or its affiliates (individually and collectively
referred to hereafter as "Alpine"), becomes the beneficial owner of shares of
the Company (and such beneficial ownership continues for five consecutive days)
having a larger percentage of the total number of votes that may be cast for the
election of directors of the Company than the percentage that Alpine has as a
result of Alpine's beneficial ownership of shares of the Company AND Alpine, at
such time, is beneficial owner of shares of the Company having less than 20% of
the total number of votes that may be cast for the election of directors of the
Company, or (ii) as a result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election or any combination of the foregoing transactions, the persons
who were directors of the Company before such transaction shall cease for any
reason to constitute at least a majority of the Board of Directors of the
Company or any successor.
(g) TERMINATION ELECTION.
(i) A notice to Executive by the Company will constitute an
election by the Company to terminate the Executive's employment (A) 30 days
following the date of delivery of the notice if the termination is without Cause
and (B) upon the date of delivery of the notice if the termination is with
Cause.
(ii) A notice to the Company by the Executive will constitute an
election by the Executive to terminate the Executive's employment 60 days
following the date of delivery of the notice.
(h) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to Section 7(a) hereof) shall be
5
<PAGE>
communicated by written notice to the other party hereto, in accordance with
Section 11 hereof, which shall indicate, the specific termination provision in
this Agreement relied upon and, in the case of termination pursuant to Sections
7(b), (c), (d), (e) or (f), shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated (the "Notice of Termination"). If
the Company desires to disseminate a press release that relates to any
termination of the Executive's employment by the Company or by the Executive,
the Company will review the proposed press release with the Executive prior to
its dissemination.
(i) DATE OF TERMINATION. "Date of Termination" shall mean (i) if
the Executive's employment is terminated by his death, the date of the
Executive's death, (ii) if the Executive's employment is terminated pursuant to
Section 7(b) above, 30 days after Notice of Termination is given (provided that
the Executive shall not have returned to the performance of his duties on a
full-time basis during such 30 day period and provided further that such Date of
Termination shall not be as of a date earlier than the last day of the
consecutive eight-month period described in Section 7(b) above), (iii) if the
Executive's employment is terminated by either of the elections pursuant to
Section 7(g) above, the applicable date of termination determined under Section
7(g) above, and (iv) if the Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given.
8. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) During any period that the Executive fails to perform his duties
hereunder and such failure is the result of Disability, the Executive shall
continue to receive, or receive the benefit of (as the case may be), all items
described in Section 5 hereof at the rate then in effect for such period until
his employment is terminated pursuant to Section 7(b) hereof, provided that
payments so made to the Executive during the first 180 days of the disability
period shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment, under disability benefit
plans of the Company or under the Social Security disability insurance program,
where such amounts were not previously applied to reduce any such payment.
(b) In the event of a termination due to Disability, the Company
shall maintain in full force and effect, for the remainder of the month
following the Date of Termination, all employee welfare benefit plans and
programs in which the Executive was entitled to participate in immediately prior
to the Date of Termination provided that the Executive's continued participation
is possible under the general terms and provisions of such plans and programs.
(c) If the Executive's employment is terminated as a result of his
death, for the remainder of the month after the date of his death, the Company
shall pay to the Executive's estate any amounts due to, or for the benefit of
the Executive, or which would otherwise have been paid to the Executive under
Section 5 hereof.
(d) If the Executive's employment is terminated by the Company for
Cause, or the Executive's employment is terminated by the Executive without Good
Reason, the Company shall pay all amounts under Section 5 hereof, due to, or for
the benefit of, the Executive through
6
<PAGE>
the Date of Termination at the rate in effect at the time Notice of Termination
was given, PROVIDED, HOWEVER, that such amounts shall not include any
dicretionary bonus pursuant to Section 5(c), and the Company shall have no
further obligations to the Executive under this Agreement.
(e) If the Executive's employment is terminated without Cause by the
Company or if the Executive terminates his employment for Good Reason, the
Company will pay the Executive (i) an amount equal to 100% of the balance of the
Base Salary in such increments and such manner as the Executive's salary was
paid prior to termination (at the Executive's then current compensation level on
the Date of Termination pursuant to Section 5(a)) as would have been payable to
the Executive if he had remained employed with the Company for the complete Term
and (ii) if the Date of Termination is more than six months into the fiscal year
of the Company, any discretionary bonus that the Executive may be elligible to
receive pursuant to Section 5(c) prorated in accordance with the Date of
Termination; and the Executive and the Company shall thereupon each be released
from all further obligations to each other.
(f) If the Executive shall terminate his employment pursuant to a
Change of Control or Lack of Advancement, then the Company will pay the
Executive within 30 days of the Date of Termination a lump sum amount equal to
100% of the balance of the Base Salary (at the Executive's then current
compensation level on the Date of Termination pursuant to Section 5(a)) that
would have been payable to the Executive if he had remained employed with the
Company for the complete Term, and the Executive and the Company shall thereupon
each be released from all further obligations to each other.
(g) The Company's obligation to make those payments and provide the
benefits described in this Section 8 shall cease if Executive is in violation of
the provisions of Section 9 hereof.
9. NONDISCLOSURE; NONSOLICITATION; NONCOMPETITION.
(a) The Executive agrees that he will not, either directly or
indirectly, use or divulge to any person, firm, corporation, partnership or
other legal entity, either during the term of this Agreement or thereafter, or
make known to any person, firm, corporation, partnership or other legal entity,
any Confidential Information (as hereinafter defined) of the Company. Executive
shall keep secret and confidential all matters entrusted to the Executive and
shall not use or attempt to use any such Confidential Information in any manner
which may injure or cause loss or may be calculated to injure or cause loss,
whether directly or indirectly, to the Company. For purposes of this Agreement,
"Confidential Information" shall mean and include, without limitation, any
patents, patent applications, copyrights, trademarks, trade names, service
marks, service names, "know-how," trade secrets, technology, custom computer
hardware or software, customer or client lists, details of client contracts,
pricing policies, operational methods, marketing plans or strategies, product
development techniques or plans, procurement and sales activities, promotion and
pricing techniques, credit and financial data concerning customers or suppliers,
business acquisition plans or any portion or phase of any scientific or
technical information, ideas, discoveries, designs, computer programs,
processes, procedures, formulas or
7
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improvements of the Company, whether or not in written or tangible form, and
whether or not registered, and including all memoranda, notes, plans, reports,
records, documents and other evidence thereof. The term "Confidential
Information," as used herein, does not include information which is or becomes
generally available to the public other than as a result of disclosure by the
Executive or others acting on his behalf or which is generally known in the
information display technology business.
(b) The Executive further agrees that he will not solicit, interfere
with or endeavor to entice away from the Company any customer or employee of the
Company for (i) a period of six years following the Commencement Date in the
event this Agreement is extended, pursuant to Section 2 hereof, (ii) a period of
three years following the Commencement Date in the event this Agreement is not
extended at the Company's election, pursuant to Section 2 hereof, EXCEPT in the
event of termination of the Executive by the Company without Cause, (iii) a
period of four years following the Commencement Date in the event this Agreement
is not extended at the Executive's election, pursuant to Section 2 hereof,
EXCEPT in the event of termination of the Executive by the Company without
Cause, or (iv) the period following the Commencement Date and up to the
Termination Date in the event of termination of the Executive by the Company
without Cause.
(c) The Executive agrees he will not within the United States of
America or the European Union, directly or indirectly, engage in any business or
own or control any interest in, or act as a shareholder, director, officer,
partner, trustee, employee, independent contractor, consultant or other agent of
any person, firm, corporation, partnership or other legal entity, directly or
indirectly engaged in the business conducted by the Company for (i) a period of
six years following the Commencement Date in the event this Agreement is
extended, pursuant to Section 2 hereof, (ii) a period of three years following
the Commencement Date in the event this Agreement is not extended at the
Company's election, pursuant to Section 2 hereof, EXCEPT in the event of
termination of the Executive by the Company without Cause, (iii) a period of
four years following the Commencement Date in the event this Agreement is not
extended at the Executive's election, pursuant to Section 2 hereof, EXCEPT in
the event of termination of the Executive by the Company without Cause, or (iv)
the period following the Commencement Date and up to the Termination Date in the
event of termination of the Executive by the Company without Cause. The
Executive acknowledges that the business of the Company extends beyond the
geographic area of the State of New York (and is intended to extend nationally
and internationally) and that, accordingly, it is reasonable that the
restrictive covenants set forth above are not limited by specific geographic
areas but throughout the United States of America and the European Union.
(d) The Executive acknowledges that the foregoing provisions are an
essential part of the transactions contemplated by the Purchase Agreement, and
the Executive agrees to be bound by the provisions hereof to the maximum extent
permitted by law, it being the intent and spirit of the parties that the
foregoing shall be enforceable. If any court of competent jurisdiction should
determine that the duration, reach and/or scope (geographic or otherwise) of the
agreements contained herein are unreasonable, then to the fullest extent
permitted by law, the court may prescribe a reasonable duration, reach and/or
scope (geographic or otherwise).
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10.SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of the Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in the Agreement, "Company" shall mean
the Company as previously defined and any successor to its business and/or
assets or which otherwise becomes bound by this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of, and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die at a time when amounts would
be payable to him hereunder if he were then alive, all such amounts, unless
otherwise provided for herein, shall be paid in accordance with the terms of
this Agreement, to the Executive's estate.
11. NOTICES. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: Mr. Michael H. Dunn
1963 Calder Court
Atlanta, Georgia 30338
If to the Company: PolyVision Corporation
48-62 36th Street
Long Island City, New York 11101
Attn: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party of any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar provisions or
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conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to its conflicts of law
principles.
13. RELOCATION. The Company does not currently expect that the
Executive will be required to relocate his residence from the Atlanta, Georgia
vicinity while serving as an executive officer of the Company. In the event the
Board does require the Executive to relocate his residence from the Atlanta,
Georgia vicinity, and the Executive is unwilling to do so at such time, the
Executive shall be entitled to terminate his employment hereunder and such
termination shall be considered to be for Good Reason.
14. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter hereof and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written. The Executive confirms
that the Senior Management Agreement, dated October 2, 1997, and side letter,
between the Executive and Alliance America Corporation is terminated as of the
date hereof, with no further liability or obligation on the part of the Company,
AIG, Alliance America Corporation or any of their respective affiliates.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
POLYVISION CORPORATION
By: /s/ Joseph A. Menniti
-------------------------------------------
Joseph A. Menniti
Chief Executive Officer
/c/ Michael H. Dunn
------------------------------------------
Michael H. Dunn
10
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<PAGE>
Exhibit 10.39
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made and entered into as of November
20,1998, between PolyVision Corporation, a New York corporation (the
"Company"), and Richard J. Still (the "Executive").
W I T N E S S E T H :
--------------------
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of September
1, 1998, as amended (the "Purchase Agreement"), by and among the Company,
Alliance International Group, Inc. (formerly known as AIG Holdings, Inc.)
("AIG") and the stockholders of AIG (including the Executive) (the "Sellers"),
the Company has agreed to purchase, and the Sellers have agreed to sell, all of
the outstanding capital stock of AIG (the "Acquisition");
WHEREAS, the Executive has been employed by AIG and is presently
serving as the Senior Vice President and Chief Financial Officer of AIG;
WHEREAS, the Company recognizes that the Executive possesses an
intimate knowledge of the business and affairs of AIG and, in connection with
the Acquisition, the Company wishes to be assured that it will have the
continued benefit of the services and advice of the Executive and the
Executive's agreement to maintain the confidentiality of certain information and
not to compete with the Company as set forth herein; and
WHEREAS, the Executive is willing to be employed by the Company and,
coincident with and/or following that employment, is also willing to maintain
information as confidential and to agree not to compete on the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, but subject to the closing of the Acquisition under the
Purchase Agreement, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
2. TERM. The Company shall employ the Executive, and the Executive
shall serve the Company during an initial two-year period (including any
extension thereof, the "Term") commencing on the day immediately following the
Closing Date (as such term is defined in the Purchase Agreement) (the
"Commencement Date").
3. POSITION AND DUTIES. The Executive shall serve as the Chief
Financial Officer of the Company with such responsibilities, duties and
authority as are customary for such a position and office and as may from time
to time be assigned to the Executive by the Company's Board of Directors (the
"Board") and/or its President and/or Chief Executive Officer. In the ordinary
course of his duties, the Executive shall report to the Company's Chief
Executive Officer with
<PAGE>
respect to long-range financial and budgetary matters and to the Company's Chief
Operating Officer with respect to day-to-day financial and budgetary matters.
The Executive shall devote all of his working time and efforts to the business
and affairs of the Company, provided that the Executive may be involved in
charitable and trade association activities and make passive investments that do
not materially detract from the discharge of his responsibilities hereunder,
PROVIDED, HOWEVER, that any such passive investments shall not be in companies
that are competitors of the Company.
4. COMPENSATION AND RELATED MATTERS.
(a) SALARY. During the term of the Executive's employment hereunder,
the Company shall pay to the Executive an annual base salary of $175,000 (the
"Base Salary"), such salary to be paid in substantially equal periodic
installments in accordance with the normal payroll practice of the Company. The
Base Salary for any partial year will be prorated based upon the number of days
elapsed in such year.
(b) DISCRETIONARY BONUS. The Executive will be eligible to receive
an annual bonus within 90 days after the end of each fiscal year of the Company
equal to up to 35% of the Base Salary, with the actual amount of such annual
bonus to be determined by the Board, and with such determination to be based
upon the Company's and the Executive's achievement of budgetary and other
objectives, as set by the Board and the Chief Executive Officer, and upon their
discretionary evaluation of the Executive's performance.
(c) EXPENSES. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including, but not limited to, all expenses of travel and
associated living expenses while away from home when such travel is at the
request and in the service of the Company.
(d) CAR ALLOWANCE. During the term of the Executive's employment
hereunder, the Executive will be eligible to receive a monthly car allowance
equal to a net after-tax amount of $800 per month.
(e) STOCK OPTIONS.
(i) The Executive shall be entitled to receive stock options
(the "Stock Options") to purchase 150,000 shares of Common Stock, par value
$.001 per share, of the Company at an exercise price equal to $1.50 per share,
vesting in four equal installments of 37,500 shares on the first, second, third
and fourth annual anniversaries of the Commencement Date, and pursuant to a
customary stock option agreement, which the Executive and the Company shall
enter into by no later than the first annual anniversary of the Commencement
Date.
(ii) In the event of termination of employment (A) by the
Executive without Good Reason (as defined in Section 6(d)) on or prior to the
third annual anniversary of the Commencement Date or (B) pursuant to Section
6(c), all Stock Options not theretofore exercisable
2
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will lapse and be forfeited. In the event the Executive's employment is
terminated for any other reason on or prior to the third annual anniversary of
the Commencement Date, all Stock Options not theretofore exercisable will
thereupon become exercisable. Except as otherwise provided in the following
paragraph, each Stock Option will expire ten years after it is granted.
(iii) In the event of the termination of the employment of the
Executive, all unexercised and exercisable stock options granted to him
hereunder must be exercised by him, or his estate (or heir(s)), as the case may
be, (A) within 12 months of the Date of Termination, as defined in Section 6(g),
if the termination is due to Disability, as defined in Section 6(b), (B) in the
event of death of the Executive, within 12 months of the Date of Termination, as
defined in Section 6(g), if the termination is due to death OR within three
months of the date of death if the termination was pursuant to Disability, or
(C) within three months of the Date of Termination if the termination is for any
other reason, PROVIDED, HOWEVER, that in the event the Executive's employment is
terminated with Cause, all unexercised and exercisable stock options granted to
him hereunder become null and void immediately upon termination.
(f) OTHER BENEFITS. The Executive shall be entitled to participate
in all of the fringe benefit plans and arrangements of the Company (including,
without limitation, the Company's group life insurance and accident plan,
medical and dental insurance plan, and disability plan) as are provided from
time to time to other senior executives of the Company.
(g) ANNUAL PHYSICAL EXAMINATION. During the term of this Agreement,
the Company shall reimburse the Executive for the reasonable expenses incurred
by the Executive in undergoing an annual physical examination by a licensed
physician.
5. ADDITIONAL OFFICES. Subject to Section 3, the Executive agrees to
serve without additional compensation, if elected or appointed thereto, as a
director of any of of the Company's subsidiaries and in one or more executive
offices of any of the Company's subsidiaries, provided that the Executive shall
receive indemnification from any such subsidiaries (to the same extent as
indemnified by the Company) for serving in any and all such capacities.
6. TERMINATION. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
(a) DEATH. The Executive's employment hereunder shall terminate upon
his death.
(b) DISABILITY. The Company may terminate the Executive's employment
hereunder if, as a result of the Executive's incapacity due to physical or
mental illness ("Disability"), the Executive shall have been absent from his
duties hereunder on a full-time basis for 180 days during any eight-month
period.
(c) CAUSE. The Company may terminate the Executive's employment
hereunder for "Cause." For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder upon (i) the willful
and continued failure by the
3
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Executive to substantially perform his duties hereunder (other than any such
failure resulting from the Executive's Disability) after written notice is
delivered by the Company that specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties, which
failure is not cured within 30 days after such written notice, or (ii) the
willful engagement by the Executive in misconduct which is materially injurious
to the Company, monetarily or otherwise (including, but not limited to, conduct
that constitutes competitive activity pursuant to Section 8 hereof). For
purposes of this paragraph, an act, or failure to act, on the Executive's part
shall not be considered "willful" if done, or omitted to be done, by him in good
faith and with reasonable belief that his action or omission was in the best
interests of the Company.
(d) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive may
terminate his employment hereunder for "Good Reason." For purposes of this
Agreement, "Good Reason" shall mean a failure by the Company to comply with any
material provision of this Agreement which has not been cured within 30 days
after notice of such noncompliance has been given by the Executive to the
Company.
(e) TERMINATION ELECTION.
(i) A notice to Executive by the Company will constitute an
election by the Company to terminate the Executive's employment (A) 30 days
following the date of delivery of the notice if the termination is without Cause
and (B) upon the date of delivery of the notice if the termination is with
Cause.
(ii) A notice to the Company by the Executive will constitute an
election by the Executive to terminate the Executive's employment 60 days
following the date of delivery of the notice.
(f) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to Section 6(a) hereof) shall be communicated by written notice to the other
party hereto, in accordance with Section 10 hereof, which shall indicate, the
specific termination provision in this Agreement relied upon and, in the case of
termination pursuant to Sections 6(b), (c) or (d), shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated (the "Notice of
Termination").
(g) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by his death, the date of the Executive's
death, (ii) if the Executive's employment is terminated pursuant to Section 6(b)
above, 30 days after Notice of Termination is given (provided that the Executive
shall not have returned to the performance of his duties on a full-time basis
during such 30 day period and provided further that such Date of Termination
shall not be as of a date earlier than the last day of the consecutive
eight-month period described in Section 6(b) above), (iii) if the Executive's
employment is terminated by either of the elections pursuant to Section 6(e)
above, the applicable date of termination determined
4
<PAGE>
under Section 6(e) above, and (iv) if the Executive's employment is terminated
for any other reason, the date on which a Notice of Termination is given.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) During any period that the Executive fails to perform his duties
hereunder and such failure is the result of Disability, the Executive shall
continue to receive, or receive the benefit of (as the case may be), all items
described in Section 4 hereof at the rate then in effect for such period until
his employment is terminated pursuant to Section 6(b) hereof, provided that
payments so made to the Executive during the first 180 days of the disability
period shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment, under disability benefit
plans of the Company or under the Social Security disability insurance program,
where such amounts were not previously applied to reduce any such payment.
(b) In the event of a termination due to Disability, the Company
shall maintain in full force and effect, for the remainder of the month
following the Date of Termination, all employee welfare benefit plans and
programs in which the Executive was entitled to participate in immediately prior
to the Date of Termination provided that the Executive's continued participation
is possible under the general terms and provisions of such plans and programs.
(c) If the Executive's employment is terminated as a result of his
death, for the remainder of the month after the date of his death, the Company
shall pay to the Executive's estate any amounts due to, or for the benefit of
the Executive, or which would otherwise have been paid to the Executive under
Section 4 hereof.
(d) If the Executive's employment is terminated by the Company for
Cause, or the Executive's employment is terminated by the Executive without Good
Reason, the Company shall pay all amounts under Section 4 hereof, due to, or for
the benefit of, the Executive through the Date of Termination at the rate in
effect at the time Notice of Termination was given, PROVIDED, HOWEVER, that such
amounts shall not include any dicretionary bonus pursuant to Section 4(b), and
the Company shall have no further obligations to the Executive under this
Agreement.
(e) If the Executive's employment is terminated without Cause by the
Company or if the Executive terminates his employment for Good Reason, the
Company will pay the Executive (i) an amount equal to 100% of the balance of the
Base Salary in such increments and such manner as the Executive's salary was
paid prior to termination (at the Executive's then current compensation level on
the Date of Termination pursuant to Section 4(a)) as would have been payable to
the Executive if he had remained employed with the Company for the complete Term
(or if the Date of Termination under this paragraph is within the last three
months of the initial Term, the Executive's salary shall continue for three
months after such Date of Termination) and (ii) if the Date of Termination is
more than six months into the fiscal year of the Company, any discretionary
bonus that the Executive may be elligible to receive pursuant to Section 4(b)
with respect to such fiscal year prorated in accordance with the Date of
Termination; and the
5
<PAGE>
Executive and the Company shall thereupon each be released from all further
obligations to each other.
(f) If this Agreement is not extended or renewed after the initial
two-year Term, the Company shall pay to the Executive as severance an amount
equal to three times the monthly base salary in effect immediately prior to the
end of such initial Term.
(g) The Company's obligation to make the payments and provide the
benefits described in this Section 7 shall cease if the Executive is in
violation of the provisions of Section 8 hereof.
8. NONDISCLOSURE; NONSOLICITATION; NONCOMPETITION.
(a) The Executive agrees that he will not, either directly or
indirectly, use or divulge to any person, firm, corporation, partnership or
other legal entity, either during the term of this Agreement or thereafter, or
make known to any person, firm, corporation, partnership or other legal entity,
any Confidential Information (as hereinafter defined) of the Company. The
Executive shall keep secret and confidential all matters entrusted to the
Executive and shall not use or attempt to use any such Confidential Information
in any manner which may injure or cause loss or may be calculated to injure or
cause loss, whether directly or indirectly, to the Company. For purposes of this
Agreement, "Confidential Information" shall mean and include, without
limitation, any patents, patent applications, copyrights, trademarks, trade
names, service marks, service names, "know-how," trade secrets, technology,
custom computer hardware or software, customer or client lists, details of
client contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, procurement and sales
activities, promotion and pricing techniques, credit and financial data
concerning customers or suppliers, business acquisition plans or any portion or
phase of any scientific or technical information, ideas, discoveries, designs,
computer programs, processes, procedures, formulas or improvements of the
Company, whether or not in written or tangible form, and whether or not
registered, and including all memoranda, notes, plans, reports, records,
documents and other evidence thereof. The term "Confidential Information," as
used herein, does not include information which is or becomes generally
available to the public other than as a result of disclosure by the Executive or
others acting on his behalf or which is generally known in the information
display technology business.
(b) The Executive further agrees that he will not solicit, interfere
with or endeavor to entice away from the Company any customer or employee of the
Company for the Term of this Agreement and for a period of one year following
the expiration of this Agreement or the Date of Termination.
(c) The Executive agrees he will not within the United States of
America or the European Union, directly or indirectly, engage in any business or
own or control any interest in, or act as a shareholder, director, officer,
partner, trustee, employee, independent contractor, consultant or other agent of
any person, firm, corporation, partnership or other legal entity, directly or
indirectly engaged in the business conducted by the Company for the Term of this
Agreement and for a period of one year following the expiration of this
Agreement or the date of
6
<PAGE>
Termination. The Executive acknowledges that the business of the Company extends
beyond the geographic area of the State of New York (and is intended to extend
nationally and internationally) and that, accordingly, it is reasonable that the
restrictive covenants set forth above are not limited by specific geographic
areas but throughout the United States of America and the European Union.
(d) The Executive acknowledges that the foregoing provisions are an
essential part of the transactions contemplated by the Purchase Agreement, and
the Executive agrees to be bound by the provisions hereof to the maximum extent
permitted by law, it being the intent and spirit of the parties that the
foregoing shall be enforceable. If any court of competent jurisdiction should
determine that the duration, reach and/or scope (geographic or otherwise) of the
agreements contained herein are unreasonable, then to the fullest extent
permitted by law, the court may prescribe a reasonable duration, reach and/or
scope (geographic or otherwise).
9. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of the Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in the Agreement, "Company" shall mean
the Company as previously defined and any successor to its business and/or
assets or which otherwise becomes bound by this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of, and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die at a time when amounts would
be payable to him hereunder if he were then alive, all such amounts, unless
otherwise provided for herein, shall be paid in accordance with the terms of
this Agreement, to the Executive's estate.
10. NOTICES. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: Mr. Richard J. Still
1705 Redbourne Drive
Atlanta, Georgia 30350
7
<PAGE>
If to the Company: PolyVision Corporation
48-62 36th Street
Long Island City, New York 11101
Attn: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party of any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to its conflicts of law
principles.
12. RELOCATION. The Company does not currently expect that the
Executive will be required to relocate his residence from the Atlanta, Georgia
vicinity while serving as an executive officer of the Company. In the event the
Board does require the Executive to relocate his residence from the Atlanta,
Georgia vicinity, and the Executive is unwilling to do so at such time, the
Executive shall be entitled to terminate his employment hereunder and such
termination shall be considered to be for Good Reason.
13. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
8
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15. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter hereof and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written. The Executive confirms
that the Senior Managment Agreement, dated December 29, 1997, between the
Executive and AIG is terminated as of the date hereof, with no further liability
or obligation on the part of the Company, AIG or any of their respective
affiliates.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
POLYVISION CORPORATION
By: /s/ Joseph A. Menniti
------------------------------
Joseph A. Menniti
Chief Executive Officer
/s/ Richard J. Still
------------------------------
Richard J. Still
9
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<PAGE>
Exhibit 10.40
AMENDMENT NO. 1 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDMENT is made and entered into as of November 20, 1998 (the
"Amendment"), between POLYVISION COPRPORATION, a New York corporation (the
"Company"), and JOSEPH A. MENNITI (the "Executive").
W I T N E S S E T H:
WHEREAS, the parties hereto have heretofore entered into an Amended and
Restated Employment Agreement, dated as of May 1, 1995 (the "Agreement");
WHEREAS, the Company and the Executive wish to amend the Agreement to
reflect their understandings following the closing (the "Closing") of the
Company's acquisition of all of the outstanding capital stock of Alliance
International Group, Inc. ("AIG") pursuant to the Stock Purchase Agreement,
dated as of September 1, 1998, as amended, by and among the Company, AIG, Wind
Point Partners III, L.P. and the other stockholders of AIG named therein.
NOW, THEREFORE, the parties hereto hereby agree that the Agreement be
amended as follows:
1. DEFINITIONS; REFERENCES; CONTINUATION OF AGREEMENT. Unless otherwise
specified herein, each term used herein that is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof," "hereunder," "herein," and "hereby" and each other similar reference,
and each reference to "this Agreement" and each other similar reference,
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby. Except as amended hereby, all terms and provisions
of the Agreement shall continue and remain in full force and effect.
2. TITLE. The first sentence of Section 3 and subsection 6(d)(vi) of
the Agreement shall be revised to reflect the Executive's new title as Chief
Executive Officer of the Company.
3. SALARY. Effective upon the Closing, the annual base salary stated in
Section 4(a) of the Agreement shall be increased during the remaining term of
the Executive's employment to $260,000.
4. ANNUAL BONUS. Effective upon the Closing, the percentage of the
Executive's annual base salary which may be paid as an Annual Bonus pursuant to
Section 4(b) of the Agreement shall be increased to up to 50%.
5. STOCK OPTIONS. In addition to the Stock Options granted to the
Executive pursuant to Section 4(c) of the Agreement, effective upon the Closing,
the Executive shall be entitled to receive additional stock options (the "1998
Stock Options") to purchase 175,000 shares of
<PAGE>
Company Stock, at an exercise price equal to $1.50 per share, vesting in four
equal installments of 43,750 shares on the first, second, third and fourth
annual anniversaries of the Closing Date, and pursuant to a customary stock
option agreement, which the Executive and the Company shall enter into by no
later than the first annual anniversary of the Closing Date. The 1998 Stock
Options shall be subject to the same terms set forth in the Agreement as they
relate to the Stock Options.
6. DEFINITION OF "GOOD REASON." Subsections 6(d)(iii) and 6(d)(v) of
the Agreement are hereby deleted, and it is hereby confirmed that the issuance
of Company Stock to The Alpine Group, Inc. ("Alpine") in connection with the
Exchange Agreement, dated as of November 16, 1998, between the Company and
Alpine shall not be deemed to constitute a Change of Control.
7. MITIGATION. Section 10 of the Agreement is hereby deleted in its
entirety.
8. NOTICES. The addresses of the parties for purposes of Section 14 of
the Agreement are as follows:
If to the Executive: Mr. Joseph A. Menniti
1912 Merrimac Drive
Toms River, New Jersey 08753
If to the Company: PolyVision Corporation
48-62 36th Street
Long Island City, New York 11101
9. COUNTERPARTS. This Amendment may be executed in counterparts.
10. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
POLYVISION CORPORATION
By: /s/ Steven S. Elbaum
------------------------------------
Name: Steven S. Elbaum
Title: Chairman of the Board
/s/ Joseph A. Menniti
----------------------------------------
Joseph A. Menniti
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Exhibit 10.41
EXECUTION DRAFT
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POLYVISION CORPORATION
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SENIOR SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT
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DATED AS OF DECEMBER 30, 1998
$25,000,000 12.5% SENIOR SUBORDINATED NOTES DUE DECEMBER 30, 2006
PPN: 731805 A* 8
AND
WARRANT TO PURCHASE COMMON STOCK
PPN: 731805 2# 3
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SECTION 1 AMOUNT AND TERMS OF NOTES; PAYMENTS; WARRANTS...................................................1
1.1 Notes and Warrants..............................................................................1
1.2 Purchase and Sale of Securities.................................................................2
1.3 Interest on the Notes...........................................................................2
1.4 Optional Principal Payments.....................................................................3
1.5 Offer to Pay Upon Change in Control.............................................................4
1.6 Issuance of Warrants; Delivery of Notes in Payment of Warrant Purchase Price....................5
1.7 Application of Payments; Payments Among Holders.................................................6
1.8 Notation of Payments on Notes...................................................................6
1.9 No Other Payments of Principal..................................................................7
1.10 Manner of Payments..............................................................................7
1.11 Use of Proceeds. ..............................................................................8
SECTION 2 EXCHANGE; SUBSTITUTION OF NOTES; TAXES..........................................................8
2.1 Exchange of Notes...............................................................................8
2.2 Replacement of Notes............................................................................9
2.3 Taxes..........................................................................................10
SECTION 3 GENERAL COVENANTS..............................................................................12
3.1 Payment of Taxes and Claims....................................................................12
3.2 Maintenance of Properties; Corporate Existence; etc............................................12
3.3 Payment of Notes and Maintenance of Office.....................................................13
3.4 Pension Plans..................................................................................13
3.5 Subsidiary Guaranties; Inactive Subsidiaries...................................................14
3.6 Year 2000 Compatibility........................................................................15
3.7 Increase in Authorized Capital Stock...........................................................15
3.8 Debt to Foreign Subsidiaries; Agreement to Grant Collateral Security...........................15
3.9 Opinion of Belgian Counsel.....................................................................16
SECTION 4 NEGATIVE AND FINANCIAL COVENANTS...............................................................16
4.1 Mergers and Consolidations.....................................................................16
4.2 Asset Sales; Subsidiary Stock..................................................................17
4.3 Liens..........................................................................................20
4.4 Capital Expenditures...........................................................................22
4.5 Incurrence of Debt and Issuance of Preferred Stock.............................................23
4.6 Restricted Payments, Restricted Repurchases and Restricted Investments.........................25
4.7 Seniority to Junior Subordinated Debt..........................................................26
4.8 Line of Business...............................................................................26
4.9 Transactions with Affiliates...................................................................26
4.10 Management Fees................................................................................27
4.11 Seller Documents...............................................................................27
4.12 Financial Covenants............................................................................27
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4.13 Limitations on Operating Leases. .............................................................30
SECTION 5 REPORTING COVENANTS............................................................................31
5.1 Financial and Business Information.............................................................31
5.2 Extension of Time to File SEC Reports..........................................................34
5.3 Officer's Certificates.........................................................................34
5.4 Accountants'Certificates.......................................................................35
5.5 Inspection.....................................................................................35
5.6 Confidential Information.......................................................................36
5.7 Board Materials................................................................................37
SECTION 6 EVENTS OF DEFAULT..............................................................................37
6.1 Events of Default..............................................................................37
6.2 Default Remedies...............................................................................41
6.3 Annulment of Acceleration of Notes.............................................................42
SECTION 7 SUBORDINATION..................................................................................43
7.1 General........................................................................................43
7.2 Insolvency.....................................................................................44
7.3 Proofs of Claim................................................................................44
7.4 Payment Default in Respect of Senior Debt......................................................45
7.5 Significant Nonpayment Default in Respect of Senior Debt.......................................45
7.6 Enforcement Notice.............................................................................46
7.7 Standstill.....................................................................................47
7.8 Turnover of Payments...........................................................................48
7.9 Subordination Unaffected by Certain Events.....................................................49
7.10 Waiver and Consent.............................................................................50
7.11 Reinstatement of Subordination.................................................................50
7.12 Obligations Not Impaired.......................................................................50
7.13 Payment of Senior Debt; Subrogation............................................................50
7.14 Reliance of Holders of Senior Debt.............................................................51
7.15 Identity of Holders of Senior Debt.............................................................51
7.16 Amendments to Senior Debt Documents............................................................51
SECTION 8 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................52
8.1 Nature of Business.............................................................................52
8.2 Financial Statements; Debt; Material Adverse Change............................................53
8.3 Subsidiaries and Affiliates....................................................................54
8.4 Title to Properties............................................................................55
8.5 Taxes..........................................................................................55
8.6 Pending Litigation.............................................................................56
8.7 Corporate Organization and Authority...........................................................56
8.8 Charter Instruments, Other Agreements..........................................................57
8.9 Restrictions on the Company....................................................................57
8.10 Compliance with Law............................................................................57
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8.11 Pension Plans..................................................................................58
8.12 Environmental Compliance.......................................................................59
8.13 Due Authorization; Enforceability..............................................................60
8.14 Governmental Consent to Issuance of Notes and Warrants.........................................61
8.15 Hart-Scott-Rodino Compliance...................................................................61
8.16 No Defaults....................................................................................62
8.17 Use of Proceeds................................................................................62
8.18 Capitalization.................................................................................62
8.19 Solvency.......................................................................................63
8.20 Full Disclosure................................................................................63
8.21 Offering of Securities.........................................................................63
8.22 Consummation of AIG Acquisition................................................................64
SECTION 9 CLOSING CONDITIONS.............................................................................64
9.1 Conditions to Notes............................................................................64
SECTION 10 INTERPRETATION OF THIS AGREEMENT...................................................................69
10.1 Terms Defined..................................................................................69
10.2 Other Definitions..............................................................................97
10.3 Accounting Principles..........................................................................97
10.4 Directly or Indirectly.........................................................................98
10.5 Section Headings and Table of Contents and Construction........................................98
10.6 Governing Law..................................................................................98
10.7 General Interest Provisions....................................................................99
SECTION 11 GUARANTEES........................................................................................100
11.1 Guarantees....................................................................................100
11.2 Subordination.................................................................................101
11.3 Relative Rights...............................................................................102
11.4 Notice by a Guarantor.........................................................................102
11.5 Subordination May Not Be Impaired by Guarantor................................................102
11.6 Amendments....................................................................................102
11.7 Limitations of Guarantor's Liability..........................................................102
SECTION 12 MISCELLANEOUS.....................................................................................103
12.1 Communications................................................................................103
12.2 Reproduction of Documents.....................................................................103
12.3 Survival, Entire Agreement....................................................................104
12.4 Successors and Assigns; Participations; Purchasing Holders....................................104
12.5 Amendment and Waiver..........................................................................105
12.6 Costs and Expenses............................................................................106
12.7 Waiver of Jury Trial; Consent to Jurisdiction, etc............................................108
12.8 Execution in Counterpart......................................................................109
12.9 Compliance by Subsidiaries....................................................................110
12.10 Severability..................................................................................110
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12.11 Termination...................................................................................110
SECTION 13 REPRESENTATIONS OF THE PURCHASERS.................................................................110
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Annex 1 - Allocations and Addresses of Purchasers; Payment Instructions
Annex 2 - Address of Company and Guarantors
Annex 3 - Schedules
Annex 4 - Other Definitions
Attachment A - Form of Note
Attachment B - Form of Warrant Agreement
Attachment C - Form of Registration Agreement
Attachment D - Form of Intracompany Subordination Agreement
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SENIOR SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT
SENIOR SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT, dated as of
December 30, 1998, among POLYVISION CORPORATION, a New York corporation
(together with its successors and assigns, the "COMPANY"), the institutional
investors identified on ANNEX 1 (whether one or more, the "PURCHASERS"),
POSTERLOID CORPORATION, a Delaware corporation ("POSTERLOID"), and GREENSTEEL,
INC. a Delaware corporation (Posterloid and Greensteel being individually
referred to herein as a "GUARANTOR" and collectively herein as the
"GUARANTORS").
RECITALS
WHEREAS, the Company wishes to sell to the Purchasers and the
Purchasers are willing to purchase upon and subject to the terms and conditions
of this Agreement, Twenty-Five Million ($25,000,000) Dollars in aggregate
original principal amount of the Company's 12.5% Senior Subordinated Notes to be
due December 30, 2006; and
WHEREAS, the Company and the Purchasers wish to enter into this
Agreement to govern the terms of such Notes;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties to this Agreement hereby agree as
follows:
SECTION 1 AMOUNT AND TERMS OF NOTES; PAYMENTS; WARRANTS
1.1 NOTES AND WARRANTS
(1) AUTHORIZATION OF ISSUE OF NOTES AND WARRANTS. The Company
will authorize the issue and sale of its 12.5% Senior Subordinated
Notes in the aggregate principal amount of $25,000,000, to be dated the
date of issue, to mature and to bear interest as provided herein
(individually, a "NOTE" and collectively, the "NOTES"), the issue and
sale of warrants entitling the holders thereof to purchase an aggregate
of 2,986,467 shares (the "WARRANT SHARES") of Common Stock, to be
issued pursuant to the Warrant Agreement and dated the date of issue
(the "WARRANTS"). Certain capitalized terms used in this Agreement are
defined in SECTION 10; references to an "ANNEX" or an "ATTACHMENT" are,
unless otherwise specified, to an Annex or an Attachment to this
Agreement.
(2) NOTES. The Company shall execute and deliver to each
Purchaser on the Closing Date a Note dated the Closing Date
substantially in the form of
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ATTACHMENT A, in a principal amount equal to such Purchaser's
allocation as set forth in ANNEX 1.
(3) MATURITY OF NOTES. The Notes shall mature and the Company
shall pay in full the outstanding principal amount thereof and accrued
and unpaid interest thereon, on the eighth (8th) anniversary of the
Closing Date (the "MATURITY DATE").
1.2 PURCHASE AND SALE OF SECURITIES. Subject to the terms and
conditions of this Agreement, the Company shall sell to each Purchaser and each
Purchaser shall purchase from the Company, Notes in the principal amount
specified below such Purchaser's name in ANNEX 1, at a price equal to 100% of
such principal amount, and such number of Warrants as is set forth below such
Purchaser's name in ANNEX 1, in each case registered in such Purchaser's name or
that of the Purchaser's nominee or nominees as specified in ANNEX 1.
Notwithstanding the foregoing, each Purchaser's obligations under this Agreement
are several and not joint obligations and no Purchaser shall have any obligation
or liability for the performance or non-performance by any other Purchaser of
such other Purchaser's obligations under this Agreement.
1.3 INTEREST ON THE NOTES. The Company shall pay to the Holders
interest on the unpaid principal amount of the Notes owing to each Holder at the
rates, time and manner set forth below.
(1) RATE OF INTEREST; POST-DEFAULT INTEREST. Each Note shall
bear interest on the unpaid principal amount thereof from the date made
through maturity (whether by prepayment, acceleration or otherwise) at
the rate of twelve and one-half percent (12.5%) per annum; PROVIDED, if
the Company shall fail to comply with its covenants in Section 3.7 on
or before April 30, 1999, then each Note shall bear interest on the
unpaid principal amount thereof from April 30, 1999 at the Default Rate
until the Event of Default arising from such failure shall have ceased
to exist or been waived (whether or not the Company shall have
exercised any remedies in respect of such Event of Default).
(2) INTEREST PAYMENTS. Interest shall be payable in arrears on
APRIL 30, JULY 31, OCTOBER 31 AND JANUARY 31 of each year, commencing
on the first of such dates to follow the Closing Date, upon any
prepayment of the Notes (to the extent accrued on the amount being
prepaid) and at maturity whether, by acceleration or otherwise, of the
Notes.
(3) POST-MATURITY INTEREST. Any principal payments on the
Notes not paid when due and, to the extent permitted by applicable law,
any interest payment on the Notes not paid when due, in each case
whether at stated maturity, by notice of pre-payment, by acceleration
or otherwise, shall thereafter bear interest payable upon demand at a
rate PER ANNUM (the "DEFAULT RATE") equal to the lesser of:
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(1) the highest rate allowed by applicable law;
or
(2) fourteen and fifty one-hundredths percent
(14.5%).
(4) COMPUTATION OF INTEREST. Interest on the Notes shall be
computed on the basis of a 360-day year and twelve 30-day months. In
computing interest on the Notes, the date of the issuance of the Notes
shall be included and the date of payment shall be excluded.
1.4 OPTIONAL PRINCIPAL PAYMENTS.
(1) OPTIONAL PRINCIPAL PAYMENTS WITH PREPAYMENT COMPENSATION
AMOUNT. The Company may prepay the principal amount of the Notes, in
whole or in part, in multiples of One Million Dollars ($1,000,000) (or,
if the aggregate outstanding principal amount of the Notes is less than
One Million Dollars ($1,000,000) at such time, then such principal
amount) together with (1) interest on such principal amount then being
paid accrued to the payment date and (2) the Prepayment Compensation
Amount as of the date of such prepayment.
(2) NOTICE OF OPTIONAL PAYMENT. The Company will give
irrevocable notice of any optional payment of the Notes pursuant to
this Section 1.4 to each Holder not less than thirty (30) days nor more
than sixty (60) days before the specified payment date, stating:
(1) the specified payment date;
(2) that such payment is to be made pursuant to
this Section 1.4;
(3) the principal amount of each Note to be paid
on such date;
(4) the interest to be paid on each such Note,
accrued to the specified payment date;
(5) reserved; and
(6) if such prepayment is to be made prior to
December 31, 2004, the calculation (with details) of the
estimated Prepayment Compensation Amount (calculated as if the
date of such notice was the date of payment), due in
connection with such payment; in each case, with respect to
the principal amount to be so pre-paid, if any, which is
subject to the payment of such Prepayment Compensation Amount.
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Notice of prepayment having been so given, the aggregate principal
amount of the Notes to be prepaid as stated in such notice, together with the
Prepayment Compensation Amount determined as of the specified payment date, if
any, and interest thereon accrued to the specified payment date, shall become
due and payable on the specified payment date.
Two (2) Business Days prior to the making of such payment, the Company
shall deliver to each Holder by facsimile transmission (confirmed by nationwide
overnight courier) a certificate of a Senior Financial Officer specifying the
details of the calculation of the Prepayment Compensation Amount as of the
specified payment date, and including a copy of the source of interest rate
information used in the calculation thereof.
1.5 OFFER TO PAY UPON CHANGE IN CONTROL.
(1) OFFER IN RESPECT OF A CHANGE IN CONTROL. In the event of a
Change in Control, the Company will give notice of such Change in
Control to each Holder not less than thirty (30) nor more than sixty
(60) days prior to the occurrence of a Change in Control, or if the
Company does not have knowledge that a Change in Control is to occur
until less than thirty (30) days prior thereto, or until after the
occurrence thereof, then as promptly as practicable, but in no event
more than seven (7) Business Days after the Company first acquires
knowledge that a Change in Control is to occur or has occurred. Such
notice shall contain an irrevocable separate offer to each Holder to
prepay all, but not less than all, of the Notes held by such Holder on
a date (the "CHANGE IN CONTROL PAYMENT DATE") specified in such notice
that is not later than the effective date of the Change in Control if
such notice is given not less than thirty (30) days prior to the
effective date of such Change in Control, otherwise thirty (30) days
after the date of such notice, at a prepayment price equal to one
hundred one percent (101%) of the aggregate principal amount thereof
and all interest accrued and unpaid on the principal amount thereof to
the Change in Control Payment Date. Each such notice shall:
(1) be dated the date of the sending of such
notice;
(2) be executed by a Senior Officer;
(3) specify, in reasonable detail, the nature
and proposed or actual date of the Change in Control;
(4) specify the Change in Control Payment Date;
(5) specify the principal amount of each Note
outstanding;
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(6) specify the interest that would be due on
each Note offered to be prepaid, accrued to the Change in
Control Payment Date; and
(7) specify that the Notes shall be prepaid at a
prepayment price equal to one hundred one percent (101%) of
the aggregate principal amount thereof and all interest
accrued and unpaid on the principal amount thereof to the
Change in Control Payment Date.
If the Company shall not have received a written response to such
notice from any Holder within ten (10) Business Days after the date of
posting of such notice to such Holder, then the Company shall
immediately send a second notice to each such Holder.
(2) ACCEPTANCE, REJECTION. Each Holder shall have the option
to accept or reject such offered prepayment. In order to accept such
offered prepayment, a Holder shall cause a notice of such acceptance to
be delivered to the Company not more than twenty (20) days after the
date of the notice under Section 1.5(a). A failure to accept in writing
such written offer of prepayment as provided in this Section 1.5(b), or
a written rejection of such offered prepayment, shall be deemed to
constitute a rejection of such offer.
(3) PAYMENT. The offered prepayment shall be made at one
hundred one percent (101%) of the principal amount of the Notes to be
prepaid, together with interest accrued to and determined as of the
Change in Control Payment Date.
(d) CHANGE IN TERMS. If the proposed terms of a Change in
Control change substantially, or if any other event which may result in
a Change in Control may or has occurred prior to the expected Change in
Control Payment Date, the Company shall give each Holder a revised
notice in compliance with Section 1.5(a) and each Holder shall then
have another opportunity to accept prepayment of its Notes under
Section 1.5(b), not later than twenty (20) days following the date such
revised notice is given.
(e) NO OBLIGATION TO PREPAY. Notwithstanding the foregoing or
any notice given under this Section 1.5, no prepayment shall be
required pursuant to this Section 1.5 unless a Change in Control occurs
or has occurred.
(f) CONTINUING OBLIGATION. If the Company fails to give proper
notice of a Change in Control, any Holder may, at any time after the
occurrence of such Change in Control, without waiver of any right on
the part of the Holder to accelerate its Notes pursuant to Section 6.2,
require the Company, on demand, to prepay all of such Holder's Notes at
101% of the principal amount thereof in accordance with Section 1.5(c).
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1.6 ISSUANCE OF WARRANTS; DELIVERY OF NOTES IN PAYMENT OF WARRANT
PURCHASE PRICE.
(1) ISSUANCE OF WARRANTS. On the Closing Date, Warrants to
purchase 12.5% of the Common Stock, on a fully diluted basis, shall be
issued pursuant to and on the terms contained in the Warrant Agreement.
(2) TENDER OF NOTES. The Warrant Agreement provides that a
Holder may tender Notes to the Company in partial or complete payment
of the purchase price for the shares of Common Stock issuable upon
exercise of the Warrants. Promptly following the receipt of any Note so
tendered, the Company shall immediately cancel and retire the same (and
no such Note shall be reissued), and shall issue to the Holder thereof
a new Note in the principal amount of such tendered Note remaining
after deduction of the principal amount thereof applied to payment of
the purchase price for the shares of Common Stock. For purposes of Rule
144 under the Securities Act, 17 C.F.R. Sections 230.144, and for
purposes of applicable subordination provisions, the Company and
each Holder agree that a tender of Notes in payment of the exercise
price in respect of the Warrants shall not be deemed a prepayment of
the Notes, but rather a conversion of such Notes, pursuant to the
terms of the Warrant Agreement and the Warrants, into Common Stock.
1.7 APPLICATION OF PAYMENTS; PAYMENTS AMONG HOLDERS.
(1) EFFECT OF PARTIAL PAYMENTS ON PRINCIPAL PAYMENTS. Each
payment of principal of any Notes made pursuant to Section 1.4, Section
1.5 or Section 1.6 shall be applied, with respect to any Note being
prepaid, to reduce the outstanding principal amount of such Note.
(2) APPLICATION AMONG HOLDERS. If at the time any partial
prepayment of the principal of the Notes under Section 1.4 is due,
there is more than one Note outstanding, the aggregate principal amount
of each such partial prepayment of the Notes shall be allocated among
the Notes at the time outstanding pro rata in proportion to the
respective unpaid principal amounts of all such outstanding Notes. If,
at the time prepayment or conversion of the principal of the Notes
pursuant to Section 1.5 or 1.6 is due, there is more than one Note
outstanding, the aggregate principal amount of each such prepayment or
conversion of the Notes shall be allocated solely to the Note or Notes
so being prepaid.
1.8 NOTATION OF PAYMENTS ON NOTES.
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(1) Upon any partial prepayment or conversion of a Note, the
Holder may (but shall not be required to), at its option:
(1) surrender such Note to the Company pursuant
to Section 2.1 in exchange for a new Note in a principal
amount equal to the principal amount remaining unpaid on the
surrendered Note;
(2) make such Note available to the Company for
notation thereon of the portion of the principal so paid or so
added to the principal amount thereof in respect of
capitalized interest; or
(3) mark such Note with a notation thereon of
the portion of the principal so paid or so added to the
principal amount thereof in respect of capitalized interest.
(2) In case the entire principal amount of any Note, together
with any interest accrued and unpaid thereon, is paid in full, such
Note shall be surrendered to the Company for cancellation and shall not
be reissued, and no Note shall be issued in lieu of the paid principal
amount of any Note.
1.9 NO OTHER PAYMENTS OF PRINCIPAL.
Except for payments of principal made in accordance with this Section 1
or upon any acceleration thereof pursuant to Section 6.2, the Company may not,
and shall not permit any Affiliate to, make any payment of principal in respect
of the Notes or purchase or otherwise acquire, directly or indirectly, any Note
held by any Holder unless the Company or such Affiliate shall have offered to
prepay or otherwise retire, purchase, redeem or otherwise acquire, as the case
may be, the same proportion of the aggregate outstanding principal amount of
Notes held by each Holder at the time outstanding upon the same terms and
conditions. No Notes retired or purchased or otherwise acquired by the Company
or any of its Affiliates shall thereafter be reissued or deemed to be
outstanding for any purpose under this Agreement.
1.10 MANNER OF PAYMENTS.
(1) MANNER OF PAYMENT. The Company shall pay all amounts
payable with respect to each Note (without any presentment of such
Notes and without any notation of such payment being made thereon) by
crediting, by federal funds bank wire transfer, the account of the
Holder thereof in any bank in the United States of America as may be
designated in writing by such Holder, or in such other manner as may be
reasonably directed or to such other address in the United States of
America as may be reasonably designated in writing by such Holder (and
as to which (absent subsequent notice from such Holder pursuant to this
Section 1.10(a)) the Company may conclusively rely). ANNEX 1 shall be
deemed to constitute notice,
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direction or designation (as appropriate) by the Purchasers to the
Company with respect to payments to be made to the Purchasers as
aforesaid. In the absence of such written direction, all amounts
payable with respect to each Note shall be paid by check mailed and
addressed to the applicable Holder at such Holder's Home Office. All
payments of principal and interest and fees hereunder and under the
Notes by the Company shall be made without defense, set-off or
counterclaim.
(2) PAYMENTS DUE ON HOLIDAYS. If any payment due on, or with
respect to, any Note shall fall due on a day other than a Business Day,
then such payment shall be made on the first Business Day following the
day on which such payment shall have so fallen due; provided that if
all or any portion of such payment shall consist of a payment of
interest, for purposes of calculating such interest, such payment shall
be deemed to have been originally due on such first following Business
Day, such interest shall accrue and be payable to (but not including)
the actual date of payment, and the amount of the next succeeding
interest payment shall be adjusted accordingly.
(3) PAYMENTS, WHEN RECEIVED. Any payment to be made to the
Holders hereunder or under the Notes shall be deemed to have been made
on the Business Day such payment actually becomes available at such
Holder's bank prior to the close of business of such bank, PROVIDED
that interest for one (1) day at the non-default interest rate of the
Notes shall be due on the amount of any such payment that actually
becomes available to such Holder at such Holder's bank after 1:00 pm
(local time of such bank).
1.11 USE OF PROCEEDS.
(a) NOTES. The proceeds of the Notes shall be applied by the
Company solely to repay the Bridge Loan and to the payment of
Transaction Costs.
(b) MARGIN REGULATIONS. No portion of the proceeds of any
borrowing under this Agreement shall be used by the Company in any
manner which might cause the borrowing or the application of such
proceeds to violate the applicable requirements of Regulation U,
Regulation T or Regulation X of the Board of Governors of the Federal
Reserve System or any other regulation of such Board or to violate the
Exchange Act, in each case as in effect on the date or dates of such
borrowing and such use of proceeds.
SECTION 2 EXCHANGE; SUBSTITUTION OF NOTES; TAXES
2.1 EXCHANGE OF NOTES.
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(a) REGISTRATION. The Notes are to be issued and are
transferable in whole or in part as registered Notes without coupons in
denominations of at least $1,000,000, except as may be necessary to
reflect any principal amount less than $1,000,000 and may be exchanged
for one or more Notes of any authorized denomination and like aggregate
outstanding principal amount. The Company shall keep at the principal
executive office of the Company within the United States a register
(the "REGISTER") in which the Company shall record the registrations of
the Notes and the names and addresses of the Holders from time to time
and all transfers thereof. The Company shall provide any Holder who is
an Institutional Investor, promptly upon request, a complete and
correct copy of the names and addresses of the then Holders.
(b) EXCHANGE OF NOTES. Upon surrender of any Note at the
office of the Company maintained pursuant to Section 3.3, duly endorsed
or accompanied by a written instrument of transfer duly executed by the
Holder of such Note or such Holder's attorney duly authorized in
writing, the Company will execute and deliver, at the Company's expense
(except as provided in Section 2.1(c)), a new Note or Notes in exchange
therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be
issued in the name of such Person as such Holder may request and shall
be substantially in the form of ATTACHMENT A. Each such new Note shall
be dated and bear interest from the date to which interest shall have
been paid on the surrendered Note or dated the date of the surrendered
Note if no interest shall have been paid thereon. Each such new Note
shall carry the same rights to unpaid interest and interest to accrue
that were carried by the Note so exchanged or transferred.
(c) COSTS. The Company will pay the cost of delivering to or
from such Holder's applicable Home Office or custodian bank from or to
the Company, insured to the reasonable satisfaction of such Holder, the
surrendered Note and any Note issued in substitution or replacement for
the surrendered Note. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in
respect of any such transfer of Notes.
2.2 REPLACEMENT OF NOTES.
Upon receipt by the Company from a Holder of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note (which evidence shall be, in the case of an Institutional Investor, notice
from such Institutional Investor of such loss, theft, destruction or
mutilation), and:
(1) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company; PROVIDED, HOWEVER, that if the
Holder is an Institutional Investor or a nominee of an Institutional
Investor, the unsecured agreement of
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indemnity of such Holder (but not of any nominee therefor) shall be
deemed to be satisfactory; or
(2) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense will execute and deliver, in lieu thereof, a
replacement Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
2.3 TAXES.
(1) Any and all payments by the Company hereunder or under the
Notes shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, (i)
in the case of each Holder, net income taxes that are imposed by the
United States and net income taxes (or franchise taxes imposed in lieu
thereof) that are imposed on such Holder by the state or foreign
jurisdiction under the laws of which such Holder is organized or any
political subdivision thereof, (ii) in the case of each Holder, net
income taxes (or franchise taxes imposed in lieu thereof) that are
imposed on such Holder by the state or foreign jurisdiction of such
Holder's applicable Home Office or any political subdivision thereof
and (iii) in the case of any Holder that becomes a party after the
Closing Date, any taxes imposed by the United States solely by reason
of the organization or incorporation of such Holder outside the United
States (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities in respect of payments hereunder
or under the Notes being hereinafter referred to as "TAXES"). If the
Company shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note to any Holder, (i) the
sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional
sums payable under this Section 2.3) such Holder receives an amount
equal to the sum it would have received had no such deductions been
made, (ii) the Company shall make such deductions and (iii) the Company
shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(2) In addition, the Company shall pay any present or future
stamp, documentary, excise, property or similar taxes, charges or
levies that arise from or in connection with or as a result of the
issuance of the Notes, any payment made hereunder or under the Notes or
the execution, delivery or registration of, performing under, or
otherwise with respect to, this Agreement or the Notes, or any
modification, waiver or amendment of this Agreement, the Notes or any
other Transaction Document (hereinafter referred to as "OTHER TAXES").
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(3) The Company shall indemnify each Holder for the full
amount of Taxes and Other Taxes, and for the full amount of taxes
imposed by any jurisdiction on amounts payable under this Section 2.3,
imposed on or paid by such Holder and any liability (including
penalties, additions to tax, interest and expenses) arising therefrom
or with respect thereto, except with respect to any Holder for such a
liability arising from such Holder's willful misconduct or gross
negligence. This indemnification shall be made within thirty (30) days
from the date such Holder makes written demand specifying in reasonable
detail the basis therefor.
(4) Within thirty (30) days after the date of any payment of
Taxes, the Company shall furnish to the subject Holder a copy of the
original receipt, certified as true and correct by a Senior Officer. If
the Company determines that no Taxes are payable in respect thereof,
the Company shall furnish, or shall cause such payor to furnish, to the
Company an opinion of counsel stating that such payment is exempt from
Taxes. For purposes of this subsection (d) and subsection (e), the
terms "UNITED STATES" and "UNITED STATES PERSON" shall have the
meanings specified in Section 7701 of the Internal Revenue Code.
(5) Each Holder organized under the laws of a jurisdiction
outside the United States shall, as reasonably requested in writing by
the Company (but only so long thereafter as such Holder remains
lawfully able to do so), provide the Company with two (2) original
Internal Revenue Service forms 1001 or 4224, as appropriate, or any
successor or other form prescribed by the Internal Revenue Service,
certifying that such Holder is exempt from or entitled to a reduced
rate of United States withholding tax on payments pursuant to this
Agreement or the Notes. If the forms provided by a Holder at the time
such Holder first becomes a party to this Agreement indicates a United
States interest withholding tax rate in excess of zero, withholding tax
at such rate shall be considered excluded from Taxes unless and until
such Holder provides the appropriate form certifying that a lesser rate
applies, whereupon withholding tax at such lesser rate only shall be
considered excluded from Taxes for periods governed by such form;
PROVIDED, HOWEVER, that, if at the date of the assignment and
acceptance agreement pursuant to which a Holder becomes a party to this
Agreement, the Holder assignor was entitled to payments under
subsection (a) above in respect of United States withholding tax with
respect to interest paid at such date, then, to such extent, the term
Taxes shall include (in addition to withholding taxes that may be
imposed in the future or other amounts otherwise includable in Taxes)
United States withholding tax, if any, applicable with respect to the
Holder assignee on such date. If any form or document referred to in
this subsection (e) requires the disclosure of information, other than
information necessary to compute the tax payable and information
required on the date hereof by Internal Revenue Service Form 1001 or
4224, that the Holder reasonably considers to be confidential, the
Holder shall give notice
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thereof to the Company and shall not be obligated to include in such
form or document such confidential information.
(6) For any period with respect to which a Holder has failed
to provide the Company with the appropriate form described in
subsection (e) above (other than if such failure is due to a change in
law occurring after the date on which a form originally was required to
be provided or if such form otherwise is not required under subsection
(e)), such Holder shall not be entitled to indemnification under
subsection (a) or (c) above with respect to Taxes imposed by the United
States by reason of such failure; PROVIDED, HOWEVER, that should a
Holder become subject to Taxes because of its failure to deliver a form
required hereunder, the Company shall take such steps as such Holder
shall reasonably request to assist such Holder to recover such Taxes.
SECTION 3 GENERAL COVENANTS
The Company covenants that on and after the Closing Date and so long as
any of the Notes shall be outstanding:
3.1 PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, pay before they
become delinquent:
(1) all taxes, assessments and governmental charges or levies
imposed upon it or its Property; and
(2) 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 statutory, regulatory or
common law 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 in accordance with GAAP have been
established and maintained with respect thereto.
3.2 MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC.
The Company will, and will cause each Subsidiary to:
(1) PROPERTY -- maintain its Property in good condition,
ordinary wear and tear and obsolescence excepted, and make all
necessary renewals, replacements,
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additions, betterments and improvements (as determined in each case in
the Company's judgment) thereto; PROVIDED, HOWEVER, that this Section
3.2(a) shall not prevent the Company or any Subsidiary from
discontinuing the operation and the maintenance of any of its
Properties if such discontinuance is desirable in the conduct of its
business and such discontinuance could not reasonably be expected to
have a Material Adverse Effect;
(2) 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 corporations of established
reputations engaged in the same or a similar business and similarly
situated;
(3) 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 which will permit the production of financial
statements in accordance with GAAP;
(4) CORPORATE EXISTENCE AND RIGHTS -- do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence, corporate rights (charter and statutory) and
corporate franchises except as permitted by Section 4.1;
(5) 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; and
(6) ENVIRONMENTAL LIABILITIES -- conduct its business so as
not to become subject to any liability under any Environmental
Protection Law that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
3.3 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.
The Company will punctually pay, or cause to be paid, the principal of
and interest (and Prepayment Compensation Amount, if any) on the Notes, as and
when the same shall become due according to the terms hereof and of the Notes,
and will maintain an office at the address of the Company as provided in Section
12.1 where notices, presentations and demands in respect hereof or the Notes may
be made upon it. Such office will be maintained at such address until such time
as the Company notifies the Holders of any
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change of location of such office, which will in any event be located within the
United States of America.
3.4 PENSION PLANS.
(1) COMPLIANCE. The Company will, and will cause each ERISA
Affiliate to, at all times with respect to each Plan, comply with all
applicable provisions of ERISA and the IRC, except for such failures to
comply that, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
(2) PROHIBITED ACTIONS. The Company will not, and will not
permit any ERISA Affiliate to:
(1) engage in any "PROHIBITED TRANSACTION" (as
such term is defined in section 406 of ERISA or section 4975
of the IRC) or "REPORTABLE EVENT" (as such term is defined in
section 4043 of ERISA) that could result in the imposition of
a tax or penalty in an amount in excess of $500,000;
(2) incur with respect to any Plan any
"ACCUMULATED FUNDING DEFICIENCY" (as such term is defined in
section 302 of ERISA), whether or not waived, in an amount in
excess of $500,000;
(3) terminate any Plan in a manner that could
result in the imposition of a Lien on the Property of the
Company or any Subsidiary pursuant to section 4068 of ERISA or
the creation of any liability under section 4062 of ERISA, in
an amount in excess of $500,000;
(4) fail to make any payment required by section
515 of ERISA, in an amount in excess of $500,000;
(5) incur any withdrawal liability under Title
IV of ERISA with respect to any Multiemployer Plan or any
liability as a result of the termination of any Multiemployer
Plan, in an amount in excess of $500,000; or
(6) incur any liability or suffer the existence
of any Lien on the Property of the Company pursuant to Title I
or Title IV of ERISA or pursuant to the penalty or excise tax
or security provisions of the IRC, in an amount in excess of
$500,000;
if the aggregate amount of the taxes, penalties, funding deficiencies,
interest, amounts secured by Liens, and other liabilities in respect of
any of the foregoing at
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any time exceeds the threshold stated above and could reasonably be
expected to have a Material Adverse Effect.
3.5 SUBSIDIARY GUARANTIES; INACTIVE SUBSIDIARIES.
The Company will cause each Domestic Subsidiary whether now existing or
hereafter existing (other than APV or any of its Subsidiaries) to become a
Guarantor by executing and delivering to each Holder of Notes a counterpart of
this Agreement. Such counterpart of this Agreement shall be accompanied by
copies of the organizational documents of such Domestic Subsidiary and corporate
resolutions (or equivalent) authorizing such transaction, in each case certified
as true and correct by an appropriate officer of such Domestic Subsidiary and
such opinions of counsel (which may be counsel who is an employee of the
Company) with respect thereto as the Required Holders reasonably request.
The Company will not permit APV or any of its Subsidiaries or any other
Domestic Subsidiary that is not then a party to this Agreement as a Guarantor to
engage in any business activities or to acquire any assets (other than
immaterial assets not exceeding $250,000 in the aggregate in market value) or
have any Investments or incur any Debt (other than the guaranty of APV of the
Debt under the Senior Credit Facility) or liabilities except in order to
maintain its corporate existence.
3.6 YEAR 2000 COMPATIBILITY.
The Company will, and will cause each Subsidiary to, take all action
necessary to assure that its computer-based systems, hardware and software are
able to operate and effectively receive, transmit, process, store, retrieve or
retransmit data including dates on and after January 1, 2000, and, at the
request of the Required Holders, the Company shall provide evidence to the
satisfaction of the Required Holders of such year 2000 compatibility.
3.7 INCREASE IN AUTHORIZED CAPITAL STOCK.
On or before April 30, 1999, (i) the shareholders of the Company shall
have voted to approve the issuance of the Warrants and to increase the
authorized Common Stock to an amount sufficient to permit the reservation of
shares of Common Stock for issuance upon conversion or exercise of all
securities and debt convertible into or exercisable for Common Stock; (ii) an
amendment to the Company's certificate of incorporation reflecting such increase
shall be in full force and effect; (iii) the Company shall have authorized and
reserved enough shares of Common Stock to permit the Company to comply fully
with its obligation to issue Common Stock upon exercise of the Warrants and (iv)
the Holders shall have received an opinion of counsel to the Company confirming
the matters set forth in this Section 3.7, in form and substance reasonably
satisfactory to the Required Holders.
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3.8 DEBT TO FOREIGN SUBSIDIARIES; AGREEMENT TO GRANT COLLATERAL
SECURITY.
(a) Within sixty (60) days after the Closing Date, the Company shall
cause each Foreign Subsidiary to which the Company and/or any Domestic
Subsidiary owes Debt (collectively, the "FOREIGN DEBT") to grant to KBC a first
perfected Lien in all Foreign Debt and to the Holders, or an agent on their
behalf, a second perfected Lien (subject to the Lien in favor of KBC) in all
Foreign Debt, to take all necessary action under applicable foreign, domestic or
local laws, rules or regulations to grant the and perfect such Liens in such
Foreign Debt (or a comparable interest under foreign law) and to pay all taxes,
fees and other charges payable in connection therewith. The Liens required to be
granted pursuant to this Section shall be granted pursuant to documents
reasonably satisfactory to the Company, the Required Holders and the Senior
Agent in form and substance, and shall be valid and enforceable perfected Liens
prior to the rights of all third Persons subject to no other Liens except Liens
permitted under Section 4.3 and in the case of the Lien in favor of the Holders,
the Lien in favor of KBC.
(b) The Company shall cause each Foreign Subsidiary to apply all
payments or proceeds received by it with respect to the Foreign Debt to the
reduction of Debt owed by such Foreign Subsidiary under the KBC Loan Agreements.
3.9 OPINION OF BELGIAN COUNSEL.
On or before January 9,1999, the Company shall deliver to the Holders
an opinion of the Company's Belgian counsel, reasonably satisfactory in form and
substance to the Required Holders, with respect to the formation, power, and
legal existence of those Foreign Subsidiaries a party to the Intracompany
Subordination Agreement and to the effect that the execution, delivery and
performance of the Intracompany Subordination Agreement by such Foreign
Subsidiaries has been duly authorized, does not conflict with applicable legal
requirements or material third party obligations known to such counsel and is
valid, binding and enforceable upon and against such Foreign Subsidiaries.
SECTION 4 NEGATIVE AND FINANCIAL COVENANTS
4.1 MERGERS AND CONSOLIDATIONS.
The Company will not, and will not permit any Subsidiary to, merge with
or into or consolidate with any other Person, permit any other Person to merge
or consolidate with or into it or sell all or substantially all of its Property
to any other Person; PROVIDED, HOWEVER, that the foregoing restriction does not
apply to the merger or consolidation of the Company or any Subsidiary with
another corporation or transfer of all or substantially all of the Property of
the Company to any other Person if:
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(1) the corporation that results from such merger or
consolidation or to which all or substantially all of the Property of
the Company is Transferred (the "SURVIVING CORPORATION") is organized
under the laws of, and conducts substantially all of its business and
has substantially all of its Properties within, the United States of
America or any jurisdiction or jurisdictions thereof;
(2) the due and punctual payment of the principal of and
Prepayment Compensation Amount, if any, and interest on all of the
Notes, according to their tenor, and the due and punctual performance
and observance of all the covenants in the Notes, this Agreement and
each other Transaction Document to be performed or observed by the
Company, are expressly assumed, or assumed by operation of law, by the
Surviving Corporation pursuant to such assumption agreements and
instruments in such forms as shall be reasonably acceptable to the
Required Holders, and the Company causes to be delivered to each Holder
of Notes an opinion, reasonably satisfactory in form and substance to
the Required Holders, of independent counsel to the effect that such
agreements and instruments are enforceable in accordance with their
terms;
(3) no Change in Control occurs as a result of such merger,
consolidation or Transfer; and
(4) immediately prior to, and immediately after the
consummation of the transaction, and after giving effect thereto, the
Surviving Corporation would be in compliance on a pro forma basis with
the financial covenants set forth in Section 4.12 and no Default or
Event of Default exists or would exist.
Notwithstanding the foregoing, a Subsidiary may merge with and into the Company
so long as the Company is the Surviving Corporation, and a Subsidiary may merge
with or into a Wholly-Owned Subsidiary, so long as the Wholly-Owned Subsidiary
is the Surviving Corporation.
4.2 ASSET SALES; SUBSIDIARY STOCK.
(1) (1) ASSET SALES. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale
unless (i) the Company (or the Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Holders) of the
assets or Equity Interests issued or sold or otherwise disposed of and
(ii) at least 85% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash; PROVIDED, that the amount of
(x) any liabilities (as shown on the Company's or such Subsidiary's
most recent balance sheet), of the Company or any Subsidiary (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Notes or any Guaranty) that are assumed by the
transferee
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of any such assets pursuant to a customary novation agreement that
releases the Company or such Subsidiary from further liability and (y)
any securities, notes or other obligations received by the Company or
any such Subsidiary from such transferee that are contemporaneously
(subject to ordinary settlement periods) converted by the Company or
such Subsidiary into cash (to the extent of the cash received), shall
be deemed to be cash for purposes of this provision.
(2) Within 180 days (360 days with respect to
real estate and improvements on real estate) after the receipt of any
Net Cash Proceeds from an Asset Sale, the Company or the Restricted
Subsidiary, as the case may be, shall apply such Net Cash Proceeds to
permanently reduce Senior Debt in accordance with the terms of the
Senior Credit Agreement in an amount equal to one-hundred percent
(100%) of such Net Cash Proceeds in excess of $500,000 in any fiscal
year, provided that no prepayment need to be made (A) unless the Net
Cash Proceeds from any single Asset Sale or series of related Asset
Sales exceed $500,000 (in which case a prepayment shall be made in the
amount of the entire Asset Sale) or until the cumulative Net Cash
Proceeds from all Asset Sales in any particular fiscal year exceed
$500,000 (in which case a prepayment shall be made in the amount of the
Net Cash Proceeds from the specific Asset Sale (or portion thereof)
causing the limit to be exceeded), except that the terms of this
subsection (A) shall not be applicable in respect of (B) Net Cash
Proceeds used to reinvest in fixed assets (for use in the business of
the Company or such Restricted Subsidiary, as the case may be) within
such 180 day period. Pending the final application of any such Net Cash
Proceeds, the Company may temporarily reduce revolving credit
borrowings or otherwise invest such Net Cash Proceeds in any manner
that is not prohibited by this Agreement. Any Net Cash Proceeds from
Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "EXCESS
PROCEEDS."
(3) Subject to the consent of the "REQUIRED
LENDERS" under and as defined in the Senior Credit Agreement, when the
aggregate amount of Excess Proceeds exceeds $1.0 million, the Company
will be required to make an offer to all Holders (an "ASSET SALE
OFFER") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 101% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of purchase, in accordance
with the procedures set forth in this Agreement. To the extent that any
Excess Proceeds remain after consummation of an Asset Sale Offer, the
Company may use such Excess Proceeds for any purpose not otherwise
prohibited by this Agreement. If the aggregate principal amount of
Notes tendered into such Asset Sale Offer surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Required Holders
shall select the Notes to be purchased on a ratable basis. Upon
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completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
(4) Within 180 days (360 days with respect to
real estate and improvements on real estate) after a Foreign Subsidiary
receives any Net Cash Proceeds from an Asset Sale, the Company shall
cause such Foreign Subsidiary to apply such Net Cash Proceeds to
permanently reduce its indebtedness under the KBC Loan Agreements in an
amount equal to one-hundred percent (100%) of such Net Cash Proceeds in
excess of $500,000 in any fiscal year, provided that no prepayment need
be made of Net Cash Proceeds used to reinvest in fixed assets. Pending
the final application of any such Net Cash Proceeds, the Subsidiary may
temporarily reduce revolving credit borrowings or otherwise invest such
Net Cash Proceeds in any manner that is not prohibited by this
Agreement.
(v) To the extent applicable, such Asset Sale is
not prohibited by Section 4.2(b).
(2) DISPOSITION OF SUBSIDIARY STOCK. The Company will not, and
will not permit any Subsidiary to, sell or otherwise dispose of any
shares of the Capital Stock or Rights of a Subsidiary (such Capital
Stock and Rights herein called "SUBSIDIARY STOCK"), nor will any
Subsidiary issue, sell or otherwise dispose of any shares of, or Rights
to purchase shares of, its own Subsidiary Stock; PROVIDED, HOWEVER,
that the foregoing restrictions do not apply to:
(1) transfers by the Company or a Subsidiary of
shares of Subsidiary Stock to the Company or a Wholly-Owned
Subsidiary;
(2) the issuance by a Subsidiary of shares of
its own Subsidiary Stock to the Company or a Wholly-Owned
Subsidiary;
(3) the issuance by a Subsidiary of directors'
qualifying shares;
(4) the issuance by a Subsidiary of shares of
its own Subsidiary Stock in the form of a dividend payable in
such shares, or the other issuance by a Subsidiary of shares
of its own Subsidiary Stock; PROVIDED, HOWEVER, that, in each
case, the Company's direct or indirect percentage ownership of
no class of the Voting Stock or of any other Subsidiary Stock
of such Subsidiary is decreased as a result of such issuance;
or
(5) the transfer of all of the Subsidiary Stock
of a Subsidiary owned by the Company and its other
Subsidiaries if:
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(1) such transfer satisfies the requirements
of Section 4.2(a);
(2) in connection with such transfer, the
entire Investment (whether represented by stock,
Debt, claims or otherwise) of the Company and its
other Subsidiaries in such Subsidiary is transferred
to a Person other than the Company or a Subsidiary
not being simultaneously disposed of; and
(3) the Subsidiary being disposed of has no
continuing Investment in any other Subsidiary not
being simultaneously disposed of or in the Company.
The foregoing notwithstanding, in no event shall the Company or any Domestic
Subsidiary issue, sell or otherwise dispose of any Subsidiary Stock to any
Foreign Subsidiary.
4.3 LIENS.
(1) NEGATIVE PLEDGE. The Company will not, and will not permit
any Subsidiary to, cause or permit, or agree or consent to cause or
permit in the future (upon the happening of a contingency or
otherwise), any of their Property, whether now owned or hereafter
acquired, at any time to be subject to a Lien except:
(1) CLOSING DATE LIENS -- Liens in existence on
the Closing Date and described in PART 8.2(C) OF ANNEX 3;
(2) ORDINARY COURSE OF BUSINESS LIENS --
(1) PERFORMANCE BONDS -- Liens incurred or
deposits made in the ordinary course of business:
(1) in connection with workers'
compensation, unemployment insurance, social
security and other like laws; and
(2) to secure the performance of
letters of credit, bids, tenders, sales
contracts, leases, statutory obligations,
surety and performance bonds (of a type
other than set forth in SECTION 4.3(A)(III))
and other similar obligations not incurred
in connection with the borrowing of money,
the obtaining of advances or the payment of
the deferred purchase price of Property;
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(2) REAL ESTATE -- Liens in the nature of
reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions,
leases and other similar title exceptions or
encumbrances affecting real property; PROVIDED,
HOWEVER, that such exceptions and encumbrances do not
in the aggregate materially detract from the value of
said Properties or materially interfere with the use
of such Properties in the ordinary conduct of the
business of the Company and the Subsidiaries; and
(3) TAXES, ETC. -- Liens securing taxes,
assessments or governmental charges or levies or the
claims or demands of materialmen, mechanics,
carriers, warehousemen, vendors, landlords and other
like Persons; PROVIDED, HOWEVER, that the payment
thereof is not required by Section 3.1;
(3) JUDICIAL LIENS -- Liens arising from
judicial attachments and judgments not otherwise constituting
a Default or Event of Default, securing appeal bonds or
supersedeas bonds, and arising in connection with court
proceedings (including, without limitation, surety bonds and
letters of credit or any other instrument serving a similar
purpose); PROVIDED, HOWEVER, that the execution or other
enforcement of such Liens is effectively stayed, that the
claims secured thereby are being actively contested in good
faith and by appropriate proceedings, and that adequate
reserves have been made against such claims;
(4) INTERGROUP LIENS -- Liens on Property of a
Subsidiary; PROVIDED, HOWEVER, that such Liens secure only
obligations owing to the Company or a Wholly-Owned Subsidiary,
and PROVIDED, FURTHER, that in no event shall any such Lien on
the Property of a Domestic Subsidiary secure obligations owing
to a Foreign Subsidiary;
(5) ACQUISITION/PURCHASE MONEY LIENS -- any Lien
(x) on Property acquired or constructed by the Company or any
Subsidiary or leased by the Company or any Subsidiary as
lessee under any Capital Lease; or (y) existing on Property
owned by any Person at the time such Person became a
Subsidiary or merges or consolidates with the Company
(including, without limitation, by means of a Capital Lease);
PROVIDED, HOWEVER, that such Lien:
(1) (I) secures Debt incurred to pay all or
a portion of the related purchase price or
construction costs of such Property or the
Capital Stock of any acquired Subsidiary and
no other Debt; PROVIDED, FURTHER, that such
purchase price or construction costs shall
not exceed the Fair Market Value of
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such Property or such Capital Stock,
determined at the time of the creation of
such Lien;
(II) is created contemporaneously
with, or within one hundred twenty (120)
days of, such acquisition or construction;
(III) encumbers only Property so
purchased, constructed or acquired after the
Closing Date; and
(IV) is not, after the creation
thereof, extended to any other Property; or
(2) (I) existed on Property of any Person at
the time of acquisition thereof by the
Company or a Subsidiary or at the time such
Person is merged or consolidated into or
with the Company or a Subsidiary (whether or
not the Debt secured thereby is assumed by
the Company or such Subsidiary); PROVIDED,
FURTHER, that such Debt does not exceed the
lesser of the acquisition cost or the Fair
Market Value of such Property, as determined
at the date of the acquisition thereof; and
(II) shall not extend to or cover
any Property other than the Property subject
to such Lien at the time of any such
acquisition;
and PROVIDED FURTHER that, in the case of each of clause (A)
and clause (B) above, immediately prior to the incurrence of,
and after giving effect to the incurrence of, any Debt secured
by the Liens referred to in such clauses, no Default or Event
of Default exists or would exist; and
(6) LIENS SECURING SENIOR DEBT -- Liens securing
Senior Debt and on assets of Foreign Subsidiaries securing
Debt of Foreign Subsidiaries under the KBC Loan Agreements,
not otherwise permitted by clauses (i) through (v), inclusive,
of this Section 4.3(a).
(2) CONSTRUCTION. Nothing in this Section 4.3 shall be
construed to permit the incurrence or existence of any Debt not
otherwise permitted by this Agreement. Nothing in this Agreement that
permits the incurrence or existence of any Debt shall be construed to
permit the incurrence or existence of a Lien securing such Debt unless
such Lien is permitted by Section 4.3(a).
4.4 CAPITAL EXPENDITURES. The Company shall not, and shall not permit
any of its Subsidiaries to, make any Capital Expenditures that would cause the
aggregate of all
22
<PAGE>
such Capital Expenditures made by the Company and its Subsidiaries in any period
set forth below to exceed the amount set forth below for such period.
<TABLE>
<CAPTION>
PERIOD AMOUNT
------ ------
<S> <C>
November 20, 1998 through and including April 30, 1999 $1,560,000
May 1, 1999 through and including April 30, 2000 $2,400,000
Each fiscal year thereafter $3,600,000
</TABLE>
PROVIDED, HOWEVER, (a) that amounts permitted to be expended in a Fiscal Year
that are not expended in such Fiscal Year, but not in excess of fifty (50%)
percent of such prior year's unused amount (not including any amount permitted
to be carried forward from a prior year) shall be permitted to be expended in
(but only in) the subsequent Fiscal Year; (b) amounts comprising Excess Cash
Flow permitted to be expended as permitted under Section 6.17(b) of the Senior
Credit Agreement as such section is in effect on the date hereof after giving
effect to the prepayments required under Section 2.6 of the Senior Credit
Agreement shall be permitted to be expended for Capital Expenditures (over and
above the amounts set forth above) in the twelve months following the date of
required prepayment in any year; and (c) if an acquisition otherwise prohibited
hereunder is consented to by the Required Holders, then such permitted
acquisition and amounts representing Capital Expenditures paid or incurred with
respect thereto in the ordinary course of its business prior to consummation of
a permitted acquisition shall not be deemed included in the calculation of the
aggregate amount of Capital Expenditures for purposes of determining the maximum
annual Capital Expenditures permitted to be made hereunder, so long as such
amounts representing Capital Expenditures paid prior to a permitted acquisition
were incurred prior to the date of consummation of such permitted acquisition
and were not incurred in anticipation of such permitted acquisition, and
otherwise conform with the terms and conditions of Section 6.2 of the Senior
Credit Agreement.
4.5 INCURRENCE OF DEBT AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Domestic Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "INCUR") any Debt and the Company will
not issue any Disqualified Stock and the Company will not permit any of its
Subsidiaries to issue any shares of Preferred Stock.
The foregoing provisions shall not apply to:
23
<PAGE>
(1) the incurrence by the Company or any
Subsidiary of term Debt under Credit Facilities; PROVIDED that the aggregate
principal amount of all term Debt outstanding under all Credit Facilities after
giving effect to such incurrence does not exceed an amount equal to $45.0
million less the sum of all principal payments in respect of term Debt under
Credit Facilities that have actually been made (whether optional or mandatory)
since the date of this Agreement;
(2) the incurrence by the Company or any
Subsidiary of revolving credit Debt and letters of credit pursuant to Credit
Facilities; PROVIDED that the aggregate principal amount of all revolving credit
Debt and letters of credit (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company or any
Subsidiary thereunder) of the Company or any Subsidiary outstanding under all
Credit Facilities (other than the European Letters of Credit) after giving
effect to such incurrence does not exceed $15.0 million less the sum of all
permanent commitment reductions under Credit Facilities that have been made
since the date of this Agreement;
(3) the European Letters of Credit provided the
face amount thereof shall not at any time exceed 71.298% of the principal Debt
outstanding under the KBC Loan Agreements and draws thereunder may be used
solely to pay Debt outstanding under the KBC Loan Agreements;
(4) the incurrence by the Company of Debt
represented by the Notes and this Agreement, and the incurrence by the
Subsidiaries of Debt represented by the Guaranties and this Agreement, in each
case, as required or permitted to be incurred under this Agreement;
(5) so long as no Default or Event of Default
has occurred and is continuing at the time of incurrence thereof, the incurrence
by the Company or any of its Subsidiaries of Debt represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in each case
incurred for the purpose of financing all or any part of the purchase price or
cost of construction or improvement of property, plant or equipment used in the
business of the Company or such Subsidiary, in an aggregate principal amount not
to exceed $1,000,000 at any time outstanding;
(60 the incurrence by the Company or any of its
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace Debt (other than
intercompany Debt) that is permitted by this Agreement to be incurred under the
first paragraph of this Section 4.5 or clauses (i), (ii), (iii), (v) or (ix) of
this paragraph;
(70 the incurrence by the Company or any of its
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging (x) interest rate risk with respect to any floating rate Debt that is
permitted by the terms of this Agreement
24
<PAGE>
to be outstanding or (y) foreign currency exchange rate risk with respect to any
foreign currency exchange agreements entered into in the ordinary course of
business of the Company or such Subsidiary consistent with prudent business
practices;
(80 the Existing Debt owed by the Company and/or
Domestic Subsidiaries to certain Foreign Subsidiaries, and other unsecured Debt
owed by the Company and/or Domestic Subsidiaries to Foreign Subsidiaries who
have entered into the Intracompany Subordination Agreement, which Debt has been
subjected to a Lien in favor of KBC and the Holders in accordance with Section
3.8, and which Debt in the aggregate, when taken together with the Existing
Debt, shall in principal amount not be reduced so as to be less than $12,000,000
or increased so as to be in excess of $14,000,000 at any one time outstanding;
(90 so long as no Default or Event of Default
has occurred and is continuing at the time of any such borrowing, the incurrence
by the Company or any Domestic Subsidiaries of up to $20,000,000 in principal
amount of additional term debt under the Senior Credit Facility; PROVIDED,
however, that in connection with any such incurrence, (A) the proceeds of such
borrowings are used solely to fund the purchase price of additional Domestic
Subsidiaries, and (B) the incurrence qualifies as a De-leveraging Transaction
for the Company on a consolidated basis;
(100 so long as no Default or Event of Default
has occurred and is continuing, the incurrence by the Company or any
Subsidiaries of Acquired Debt in an aggregate principal amount not to exceed
$5,000,000 in connection with acquisitions referred to in (ix)(A) above;
(110 the Guaranty by the Company or any of the
Guarantors of Debt of the Company or a Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant.
For purposes of determining compliance with this Section, in
the event that an item of Debt meets the criteria of more than one of the
categories of debt permitted to be incurred pursuant to clauses (i) through (xi)
above (collectively, "PERMITTED DEBT") or is entitled to be incurred pursuant to
the first paragraph of this Section, the Company shall, in its sole discretion,
classify such item of Debt in any manner that complies with this Section.
Accrual of interest, accretion or amortization of original issue discount, the
payment of interest on any Debt in the form of additional Debt with the same
terms, and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be deemed to
be an incurrence of Debt or an issuance of Disqualified Stock for purposes of
this Section 4.5; PROVIDED, in each such case, that the amount thereof is
included in Fixed Charges of the Company as accrued.
4.6 RESTRICTED PAYMENTS, RESTRICTED REPURCHASES AND RESTRICTED
INVESTMENTS.
25
<PAGE>
The Company will not, nor will it permit any Subsidiary to, at
any time declare or make or incur any liability to declare or make any
Restricted Payment or any Restricted Repurchase, or make or authorize, or permit
any Subsidiary to make or authorize, any Restricted Investment. Notwithstanding
the foregoing, after July 31, 2000 the Company may declare and pay quarterly
cash dividends on its Series B and Series C Preferred Stock, at an annual rate
not exceeding nine percent (9%) of the liquidation value thereof, provided that:
(10 no Default or an Event of Default would exist at
the time of or after giving effect to the payment of any such dividend;
(20 the ratio of Consolidated Debt to EBITDA for the
Company and its Subsidiaries for the preceding four fiscal quarters as at the
last day of the fiscal quarter most recently ended prior to the date of such
dividend payments shall not exceed 4.0 to 1;
(30 such dividends shall not exceed $450,000 in the
aggregate in any Fiscal Year and the aggregate amount paid during any calendar
quarter shall not exceed $112,500;
(40 no such dividend shall be declared or paid except
quarterly within thirty (30) days after delivery of required quarterly financial
statements; and
(50 the Company shall have delivered to the Holders,
at least five (5) Business Days prior to the date of the proposed dividend
payment, a certificate of a senior financial officer setting forth computations
in reasonable detail demonstrating satisfaction of the foregoing conditions as
at the date of such certificate.
4.7 SENIORITY TO JUNIOR SUBORDINATED DEBT.
The Company will not, and will not permit any Domestic Subsidiary to,
incur, assume or Guaranty any Debt which is subordinated in right of payment to
any other Debt of the Company or any Subsidiary unless such Debt is also
subordinated in right of payment to the obligations of the Company in respect of
the Notes and this Agreement on terms reasonably acceptable to the Required
Holders in their discretion. The Company will not, and will not permit any
Domestic Subsidiary to, incur or create any Debt in favor of an Affiliate or
another Subsidiary (other than Debt in favor of the Company or a Wholly-Owned
Subsidiary which is a Guarantor) unless such Debt is also subordinated in right
of payment to the obligations of the Company in respect of the Notes and this
Agreement on terms reasonably acceptable to the Required Holders in their
discretion. THE COMPANY AND THE GUARANTORS EXPRESSLY ACKNOWLEDGE AND AGREE THAT
DEBT EVIDENCED BY THE SELLER NOTE, AND ALL DEBT OWED BY THE COMPANY OR ANY
DOMESTIC SUBSIDIARY TO ANY FOREIGN
26
<PAGE>
SUBSIDIARY, IS AND SHALL BE SUBORDINATE IN RIGHT OF PAYMENT TO THE OBLIGATIONS
OF THE COMPANY AND THE GUARANTORS IN RESPECT OF THIS AGREEMENT AND THE NOTES.
4.8 LINE OF BUSINESS.
The Company will not, and will not permit any Subsidiary to, engage in
any business if, as a result, the general nature of the business in which the
Company and the Subsidiaries, taken as a whole, would then be engaged would be
substantially changed from the general nature of the business in which the
Company and the Subsidiaries, taken as a whole, are engaged on the Closing Date.
4.9 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Subsidiary to, enter into
any transaction or group of transactions, including, without limitation, the
purchase, sale, lease 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 Company's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would obtain in a comparable arm's-length transaction with a Person not an
Affiliate.
4.10 MANAGEMENT FEES.
The Company will not, pay, or be or become obligated to pay, any
Management Fees, or any interest on any deferred obligation therefor. The
Company will not permit any Subsidiary to pay, or become obligated to pay, any
Management Fees except to the Company or Wholly Owned Subsidiaries of the
Company (except that Domestic Subsidiaries shall not pay Management Fees to
Foreign Subsidiaries).
4.11 SELLER DOCUMENTS.
The Company will not and will not permit any Subsidiary to amend in any
material respect any of the Seller Documents without the consent of the Required
Holders.
4.12 FINANCIAL COVENANTS.
Until payment in full of the Notes, each of the Company and
its Subsidiaries shall:
(10 CONSOLIDATED DEBT TO EBITDA RATIO. Maintain as of the end
of each fiscal quarter of the Company and its Subsidiaries a Consolidated Debt
to EBITDA Ratio of not more than the ratio set forth below:
27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------
Date of Determination: Maximum Ratio
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
<S> <C>
January 31, 1999 6.3 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
April 30, 1999 6.3 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
July 31, 1999 6.05 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
October 31, 1999 5.8 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
January 31, 2000 5.55 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
April 30, 2000 5.55 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
July 31, 2000 5.55 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
October 31, 2000 5.3 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
January 31, 2001 5.3 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
April 30, 2001 5.0 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
July 31, 2001 5.0 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
October 31, 2001 5.0 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
January 31, 2002 5.0 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
April 30, 2002 through (and including) the maturity 4.5 to 1.0
of the Notes
- ------------------------------------------------------- -----------------------------
</TABLE>
PROVIDED, HOWEVER, that for purposes of calculating EBITDA for the most recently
completed four fiscal quarters of the Company and its Subsidiaries ending on
each of the following dates, there shall be added to such EBITDA the amounts set
forth next to such dates (representing in each case estimated cost savings
resulting from the AIG Acquisition):
<TABLE>
<CAPTION>
- ------------------------------------------------------- ----------------------------
Date Amount
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
<S> <C>
January 31, 1999 $2,000,000
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
April 30, 1999 $1,750,000
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
July 31, 1999 $1,250,000
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
October 31, 1999 $ 500,000
- ------------------------------------------------------- ----------------------------
</TABLE>
28
<PAGE>
(20 INTEREST COVERAGE RATIO. Maintain as of each date
set forth below, a ratio of (i) EBITDA for the most recently completed four
fiscal quarters of the Company and its Subsidiaries to (ii) Consolidated
Interest Expense (to the extent paid in cash during such period) for such period
of not less than the ratio set forth below for such period:
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------
Date of Determination: Minimum Ratio
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
<S> <C>
January 31, 1999 1.40 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
April 30, 1999 1.40 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
July 31, 1999 1.40 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
October 31, 1999 1.55 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
January 31, 2000 1.55 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
April 30, 2000 1.70 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
July 31, 2000 1.70 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
October 31, 2000 1.70 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
January 31, 2001 1.70 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
April 30, 2001 1.95 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
July 31, 2001 1.95 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
October 31, 2001 1.95 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
January 31, 2002 1.95 to 1.0
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
April 30, 2002 through (and including) the maturity 2.0 to 1.0
of the Notes
- ------------------------------------------------------- -----------------------------
</TABLE>
PROVIDED, HOWEVER, that for purposes of calculating EBITDA for the most recently
completed four fiscal quarters of the Company and its Subsidiaries ending on
each of the following dates, there shall be added to such EBITDA the amounts set
forth next to such dates (representing in each case estimated cost savings
resulting from the AIG Acquisition):
<TABLE>
<CAPTION>
- ------------------------------------------------------- ----------------------------
Date Amount
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
<S> <C>
January 31, 1999 $2,000,000
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
April 30, 1999 $1,750,000
</TABLE>
29
<PAGE>
<TABLE>
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
<S> <C>
July 31, 1999 $1,250,000
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
October 31, 1999 $ 500,000
- ------------------------------------------------------- ----------------------------
</TABLE>
(30 FIXED CHARGE COVERAGE RATIO. Maintain as of the
end of each fiscal quarter of the Company and its Subsidiaries a Fixed Charge
Coverage Ratio for the most recently completed four fiscal quarters of the
Company and its Subsidiaries of not less than the following ratios for the
requisite periods set forth below (except that in respect of the first three
testing periods referred to below, EBITDA and Fixed Charges shall be computed
only for the one, two and three fiscal quarterly periods respectively described
below, provided that Capital Expenditures shall be computed within fixed charges
in an amount equal to the greater of one-quarter of the Capital Expenditures
permitted during the twelve month period during which a testing period ends and
actual Capital Expenditures made during the testing period specified below):
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------
Four Fiscal Quarters ending on:
- ------------------------------------------------------- -----------------------------
- ------------------------------------------------------- -----------------------------
<S> <C>
Each October 31, January 31, April 30 and July 31 1.00 to 1.0
after the Closing Date and continuing through (and
including) the maturity of the Notes.
- ------------------------------------------------------- -----------------------------
</TABLE>
PROVIDED, HOWEVER, that for purposes of calculating EBITDA for the most recently
completed four fiscal quarters of the Company and its Subsidiaries ending on
each of the following dates, there shall be added to such EBITDA the amounts set
forth next to such dates (representing in each case estimated cost savings
resulting from the AIG Acquisition):
<TABLE>
<CAPTION>
- ------------------------------------------------------- ----------------------------
Date Amount
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
<S> <C>
January 31, 1999 $2,000,000
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
April 30, 1999 $1,750,000
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
July 31, 1999 $1,250,000
- ------------------------------------------------------- ----------------------------
- ------------------------------------------------------- ----------------------------
October 31, 1999 $ 500,000
- ------------------------------------------------------- ----------------------------
</TABLE>
4.13 LIMITATIONS ON OPERATING LEASES.
The Company shall not, and shall not permit any of its
Subsidiaries to, become a lessee under any operating lease (other than a lease
which any Subsidiary is
30
<PAGE>
lessor) of Property, including, without limitation, real estate operating
leases, if the aggregate Rentals (estimated in good faith by the Company with
respect to amounts payable pursuant to escalation clauses) payable during any
current or future period of 12 consecutive months under the lease in question
and all other leases under which the Company or any of its Subsidiaries is then
lessee would exceed One Million ($1,000,000.00) Dollars, including the Dollar
Equivalent (as defined in the Senior Credit Agreement) of amounts denominated in
non-U.S. currencies (the term "RENTALS" meaning, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease; the term "PROPERTY" meaning any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible).
SECTION 5 REPORTING COVENANTS
5.1 FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each Holder:
(10 QUARTERLY FINANCIAL STATEMENTS -- as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of
the Company (other than the last quarterly fiscal period of each such
fiscal year), and in any event within forty-five (45) days thereafter:
(10 an unaudited consolidated balance sheet as
at the end of such quarter; and
(20 unaudited consolidated statements of income
and cash flows for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with such quarter;
for the Company and the Subsidiaries, setting forth in each case, in
comparative form, the financial statements for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared
in accordance with GAAP applicable to quarterly financial statements
generally, and certified as complete and correct by a Senior Financial
Officer, and accompanied by the certificate required by Section 5.3;
PROVIDED, that timely delivery of copies of the Company's Quarterly
Report on Form 10-Q filed with the SEC shall be deemed to satisfy the
requirements of this Section 5.1(a) so long as such Quarterly Report
contains or is accompanied by the information specified in this Section
5.1(a);
(20 ANNUAL FINANCIAL STATEMENTS -- as soon as practicable
after the end of each fiscal year of the Company, and in any event
within ninety (90) days thereafter:
31
<PAGE>
(10 a consolidated balance sheet as at the end
of such year; and
(20 consolidated statements of income,
stockholders' equity and cash flows for such year;
for the Company and the Subsidiaries, setting forth, in comparative
form, the financial statements for the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP, and accompanied
by:
(10 an audit report thereon of independent
certified public accountants of recognized national
standing, which report shall state without
qualification (including, without limitation,
qualifications related to the scope of the audit, the
compliance of the audit with generally accepted
auditing standards, or the ability of the Company or
a material subsidiary thereof to continue as a going
concern), that such financial statements have been
prepared and are in conformity with GAAP; and
(20 the certificates required by Section 5.3
and Section 5.4;
PROVIDED, that timely delivery of the Company's Annual Report on Form
10-K for such fiscal year filed with the SEC shall be deemed to satisfy
the requirements of this Section 5.1(b) so long as such Annual Report
contains or is accompanied by the reports and other information
otherwise specified in this Section 5.1(b);
(30 SEC AND OTHER REPORTS -- promptly upon their becoming
available, and in any event within fifteen (15) days thereafter:
(10 each financial statement, report, notice or
proxy statement sent by the Company to stockholders generally;
(20 each regular or periodic report (including,
without limitation, each Form 10-K, Form 10-Q and Form 8-K),
any registration statement which shall have become effective,
and each final prospectus and all amendments thereto filed by
the Company or any Subsidiary with the SEC; and
(30 all press releases and other statements made
available by the Company or any Subsidiary to the public
concerning material developments in the business of the
Company or the Subsidiaries;
(40 NOTICE OF DEFAULT OR EVENT OF DEFAULT -- within two (2)
Business Days of becoming aware:
32
<PAGE>
(10 of the existence of any condition or event
which constitutes a Default or an Event of Default; or
(20 that any Holder or the holder of any other
Debt, in a principal amount, individually or in the aggregate,
of $500,000 or more, shall have given notice or taken any
other action with respect to a claimed Default, Event of
Default or default or event of default;
a notice specifying the nature of the claimed Default, Event of Default
or default or event of default and the notice given or action taken (if
any) by such Holder or holder and what action the Company has taken, is
taking or proposes to take with respect thereto;
(50 ERISA --
(10 within twenty (20) 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 DOL or
"PROHIBITED TRANSACTION" (as such term is defined in section
406 of ERISA or section 4975 of the IRC) in connection with
any Plan or any trust created thereunder, a notice specifying
the nature thereof, what action the Company has taken, is
taking or proposes to take with respect thereto, and, when
known, any action taken by the Internal Revenue Service, the
DOL or the PBGC with respect thereto; and
(20 prompt notice of and, where applicable, a
description of:
(10 any notice from the PBGC in respect of
the commencement of any proceedings pursuant to
section 4042 of ERISA to terminate any Plan or for
the appointment of a trustee to administer any Plan,
and any distress termination notice delivered to the
PBGC under section 4041 of ERISA in respect of any
Plan, and any determination of the PBGC in respect
thereof;
(20 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
(30 the occurrence of any event, transaction
or condition that could result in the incurrence of
any liability of the Company or
33
<PAGE>
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 IRC;
PROVIDED, HOWEVER, that the Company shall not be required to deliver
any such notice at any time when the aggregate amount of the actual or
potential liability of the Company and the Subsidiaries in respect of
all such events at such time could not reasonably be expected to exceed
$500,000 and have a Material Adverse Effect;
(60 AUDITOR'S REPORTS -- promptly upon receipt thereof, a copy
of each report or management letter submitted to the Company or any
Subsidiary by independent accountants in connection with any annual,
interim or special audit made of the books of the Company or any
Subsidiary;
(70 ACTIONS, PROCEEDINGS -- promptly after the commencement of
any action or proceeding relating to the Company or any 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, could reasonably be
expected to have a Material Adverse Effect, a notice specifying the
nature and period of existence thereof and what action the Company has
taken, is taking or proposes to take with respect thereto;
(80 OTHER CREDITORS -- promptly upon the reasonable request of
any Holder, copies of any statement, report or certificate furnished to
any holder of Debt to the extent that the information contained in such
statement, report or certificate has not already been delivered to each
Holder;
(90 REQUESTED INFORMATION -- with reasonable promptness, such
other data and information as from time to time may be reasonably
requested by any Holder.
5.2 EXTENSION OF TIME TO FILE SEC REPORTS.
If the rules and regulations of the SEC under the Exchange Act and the
rules and regulations of the AMEX or the NASDAQ National Market, as applicable,
are amended to extend the deadline for delivery to the SEC and the AMEX or the
NASDAQ National Market of Quarterly Reports, as applicable, on Form 10-Q (or any
successor form) beyond the forty-five (45) days following the end of each fiscal
quarter of the Company (other than its last fiscal quarter) as currently
required, then the forty-five (45) day period within which quarterly financial
statements are required to be delivered in accordance with the provisions of
Section 5.1(a) shall be similarly extended. If the rules and regulations of the
SEC under the Exchange Act and the rules and regulations of the AMEX or the
NASDAQ
34
<PAGE>
National Market, as applicable, are amended to extend the deadline for delivery
to the SEC and the AMEX or the NASDAQ National Market, as applicable, of Annual
Reports on Form 10-K (or any successor form) beyond the ninety (90) days
following the end of the Company's fiscal year as currently required, then the
ninety (90) day period within which annual financial statements are required to
be delivered in accordance with the provisions of Section 5.1(b) shall be
similarly extended.
5.3 OFFICER'S CERTIFICATES.
Each set of financial statements delivered to each Holder pursuant to
Section 5.1(a) or Section 5.1(b) shall be accompanied by a certificate signed on
behalf of the Company by a Senior Financial Officer, setting forth:
(10 COVENANT COMPLIANCE -- the financial information
(including detailed calculations and a detailed computation of EBITDA
for the relevant period) required in order to establish whether the
Company was in compliance with the requirements of Section 4 (in each
case where such Section imposes numerical financial requirements) as of
the end of the period covered by the financial statements then being
furnished (including with respect to such Section, where applicable,
the calculations of the maximum or minimum amount, ratio or percentage,
as the case may be, permissible under the terms of such Section, and
the calculation of the amount, ratio or percentage then in existence);
and
(20 EVENT OF DEFAULT -- a statement that the signer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision or authority, a review of the transactions
and conditions of the Company and the Subsidiaries from the beginning
of the accounting period covered by the income statements being
delivered therewith to the date of the certificate and that such review
shall not have disclosed the existence during such period of any
condition or event that constitutes a Default or an Event of Default
or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action the Company has
taken, is taking or proposes to take with respect thereto.
5.4 ACCOUNTANTS' CERTIFICATES.
Each set of annual financial statements delivered pursuant to
Section 5.1(b) shall be accompanied by a certificate of the accountants who were
engaged to audit such financial statements, stating that they have reviewed this
Agreement and stating further, whether, in making their audit, such accountants
have become aware of any condition or event that then constitutes a Default or
an Event of Default, and, if such accountants are aware that any such condition
or event then exists, specifying the nature and period of existence thereof.
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5.5 INSPECTION.
The Company will permit the representatives of any Holder to visit and
inspect any of the Properties of the Company or any of the Subsidiaries, to
examine all their respective books of account, records, reports and other
papers, to make copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss the finances and affairs of the Company and the
Subsidiaries) all at such reasonable times and as often as may be reasonably
requested. At all times during which there exists a Default or Event of Default,
any reasonable out-of-pocket expenses incurred by the Holders in connection with
this Section 5.5 shall be paid in accordance with Section 12.6(b).
5.6 CONFIDENTIAL INFORMATION.
Each Holder agrees that it will maintain the confidentiality of all
Confidential Information in accordance with procedures adopted by such Holder in
good faith to protect confidential information of third parties delivered to
such Holder; PROVIDED, HOWEVER, that any Holder may deliver or disclose
Confidential Information to:
(10 such Holder's directors, officers, trustees, employees,
agents, attorneys and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented
by the Notes held by such Holder, which Persons shall be instructed to
maintain the confidentiality of all Confidential Information);
(20 such Holder's financial advisors and other professional
advisors who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 5.6;
(30 any other Holder;
(40 any financial institution or Institutional Investor to
which such Holder assigns or transfers such Note or any part thereof or
any participation therein (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the
provisions of this Section 5.6);
(50 any Person from which such Holder offers to purchase any
security of the Company (if such Person has agreed in writing prior to
its receipt of such Confidential Information to be bound by the
provisions of this Section 5.6);
(60 any federal, state or local regulatory authority having
jurisdiction over such Holder;
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(70 the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that
requires access to information about the investment portfolio of such
Holder; or
(80 any other Person to which such delivery or disclosure may
be necessary or appropriate:
(10 to effect compliance with any law, rule,
regulation or order applicable to such Holder; or
(20 in response to any subpoena or other legal
process; PROVIDED, HOWEVER, that each Holder agrees to use its
reasonable best efforts to inform the Company of the service
upon it of such subpoena or legal process, and to reasonably
cooperate with the Company should the Company wish (at the
Company's expense) to seek a protective order or similar
relief relating to such disclosure; or
(30 in connection with any litigation to which
such Holder and the Company or any Subsidiary are parties;
PROVIDED, HOWEVER, that such Holder shall use its reasonable
efforts to preserve the confidentiality of the Confidential
Information to the extent not necessary to prosecute or defend
such litigation; or
(40 if an Event of Default has occurred and is
continuing, to the extent such Holder may reasonably determine
such delivery and disclosure to be necessary or appropriate in
the enforcement or for the protection of the rights and
remedies of such Holder in respect of such Holder's Notes and
this Agreement.
Each Holder, 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 Section 5.6 as though
it were a party to this Agreement. On reasonable request by the Company in
connection with the delivery to any Holder of information required to be
delivered to such Holder under this Agreement or requested by such Holder (other
than a Purchaser or its nominee), such Holder will enter into an agreement with
the Company embodying the provisions of this Section 5.6.
5.7 BOARD MATERIALS.
The Company shall provide the Holders all written materials
and other information related to each meeting of the Board of Directors of each
Subsidiary of the Company (including copies of all minutes and all resolutions
adopted by the Board of Directors of the Company and by the Board of Directors
of each Subsidiary) promptly upon the approval or adoption thereof at the same
time and in the same manner as notice and
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such written materials and other information is given to members of the Board of
Directors of the Company and of the Board of Directors of each Subsidiary of the
Company.
SECTION 6 EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" exists at any time if any of the following both
occurs and is 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):
(10 PAYMENTS ON NOTES --
(10 PRINCIPAL OR PREPAYMENT COMPENSATION AMOUNT
PAYMENTS -- the Company fails to make any payment of principal
or Prepayment Compensation Amount on any Note on or before the
date such payment is due; or
(20 INTEREST PAYMENTS -- the Company fails to
make any payment of interest on any Note on or before five (5)
Business Days after the date such payment is due; or
(20 OTHER DEFAULTS --
(10 COVENANT DEFAULTS -- the Company or any
Subsidiary fails to comply with Section 3.7 or any provision
of Section 4; or
(20 OTHER DEFAULTS -- the Company or any
Subsidiary fails to comply with any other provision hereof,
other than Section 3.9, and such failure continues for more
than thirty (30) days after the earlier of the date on which
(a) a Senior Officer obtains actual knowledge of such failure
or (b) written notice thereof shall have been given to the
Company by any Holder; or
(iii) OPINION DEFAULT -- the Company fails to
comply with its covenant set forth in Section 3.9 and the
Senior Agent, on behalf of the lenders under the Senior Debt,
shall have consented to such failure constituting an Event of
Default hereunder.
(30 WARRANTIES OR REPRESENTATIONS -- any warranty,
representation or other statement by or on behalf of the Company or any
Guarantor contained in this Agreement, the Notes, and any other
agreement, certificate or instrument executed pursuant to the terms of
each of the foregoing, or in any written amendment,
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supplement, modification or waiver with respect to any such agreement
or document or in any instrument furnished in compliance herewith or
therewith or in reference hereto or thereto, shall have been false or
misleading in any material respect when made; or
(40 ACCELERATION OF DEBT -- any event shall occur or any
condition shall exist in respect of Debt of the Company or any
Subsidiary, or under any agreement securing or relating to such Debt,
and in either case, as a result thereof:
(10 the maturity of such Debt, or a portion
thereof, is accelerated; or
(20 any one or more of the holders thereof
or a trustee therefor is permitted to require the
Company or any Subsidiary to repurchase or redeem
such Debt or a portion thereof from the holders
thereof, and any such trustee or holder exercises
such option;
PROVIDED that the aggregate amount of all obligations in
respect of all such defaulted Debt exceeds at such time Three
Million Dollars ($3,000,000); or
(50 INSOLVENCY --
(10 INVOLUNTARY BANKRUPTCY PROCEEDINGS --
(10 a receiver, liquidator, custodian or
trustee of the Company or any Subsidiary, or of all
or any substantial part of the Property of either, is
appointed by court order and such order remains in
effect for more than sixty (60) days; or an order for
relief is entered with respect to the Company or any
Subsidiary, or the Company or any Subsidiary is
adjudicated a bankrupt or insolvent;
(20 all or any substantial part of the
Property of the Company or any Subsidiary is
sequestered by court order and such order remains in
effect for more than sixty (60) days; or
(30 a petition is filed against the Company
or any Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and
is not dismissed within sixty (60) days after such
filing;
(20 VOLUNTARY PETITIONS -- the Company or any
Subsidiary files a petition in voluntary bankruptcy or seeks
relief under any provision of any
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bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, or consents
to the filing of any petition against it under any such law;
or
(30 .ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC.
-- the Company or a Subsidiary makes an assignment for the
benefit of its creditors, or admits in writing its inability,
or fails, to pay its debts generally as they become due. or
consents to the appointment of a receiver, liquidator or
trustee of the Company or a Subsidiary or of all or a
substantial part of its Property; or
(60 UNDISCHARGED FINAL JUDGMENTS -- a final, non-appealable
judgment or final, non-appealable judgments for the payment of money
aggregating an uninsured amount(s) in excess of One Million Dollars
($1,000,000) is or are outstanding against one or more of the Company
and the Subsidiaries and any one of such judgments shall have been
outstanding for more than sixty (60) days from the date of its entry
and shall not have been discharged in full or stayed; or
(70 GUARANTY -- (i) the Guaranty set forth in Article XI shall
cease to be in full force and effect or shall be declared by a court or
other Governmental Authority of competent jurisdiction to be void,
voidable or unenforceable against any Guarantor,
(ii) the validity or enforceability of the
Guaranty set forth in Article XI against any Guarantor shall
be contested by such Guarantor, the Company or any Affiliate,
or
(iii) any Guarantor, the Company or any Affiliate
shall deny that such Guarantor has any further liability or
obligation under the Guaranty; or
(h) ENVIRONMENTAL MATTERS -- The Company and its Subsidiaries
shall make aggregate net cash expenditures (net of amounts collected as
reimbursement, indemnification, contribution or otherwise from
unaffiliated third parties) that exceed $5,000,000 between November 20,
1998 and April 29, 2001 in respect of environmental remediation of (a)
the real property and improvements formerly owned by Alliance America
in Port Carbon, Pennsylvania, and/or (b) the real property and
improvements now owned by Aubecq in Crespin, France; or
(i) INTRACOMPANY SUBORDINATION AGREEMENT -- (i) the
Intracompany Subordination Agreement shall cease to be in full force
and effect or shall be declared by a court or other Governmental
Authority of competent jurisdiction to be void, voidable or
unenforceable against the Company or any Subsidiary a party thereto,
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(ii) the validity or enforceability of the
Intracompany Subordination Agreement against the Company or
any Subsidiary a party thereto shall be contested in writing
by the Company, any Subsidiary or any other Person, or
(iii) any Person (other than the Senior Agent or
KBC in connection with its exercise of its rights under the
Lien referred to in Section 3.8), including any Foreign
Subsidiary, shall take any action to obtain payment on any
Foreign Debt in contravention of the terms of the Intracompany
Subordination Agreement (whether or not the terms thereof are
enforceable against such Person or any party thereto), or
(iv) any Person shall make any payment on the
Foreign Debt in contravention of the terms of the Intracompany
Subordination Agreement (whether or not the terms thereof are
enforceable against such Person or any party thereto).
6.2 DEFAULT REMEDIES.
(10 ACCELERATION OF MATURITY OF NOTES.
(10 ACCELERATION ON EVENT OF DEFAULT.
(10 AUTOMATIC. If any Event of Default
specified in Section 6.1(e) shall exist, all of the
Notes at the time outstanding shall automatically
become immediately due and payable together with
interest accrued thereon and, to the extent permitted
by law, the Prepayment Compensation Amount at such
time with respect to the principal amount of such
Notes, without presentment, demand, protest or notice
of any kind, all of which are hereby expressly
waived.
(20 BY ACTION OF HOLDERS. Subject to Section
6.3, 7.6 and Section 7.7, if any Event of Default
other than those specified in Section 6.1(e) shall
exist, the Required Holders may exercise any right,
power or Remedy permitted to such Holder or Holders
by law, and shall have, in particular, without
limiting the generality of the foregoing, the right,
upon written notice to the Company to declare the
entire principal of, and all interest accrued on, all
the Notes then outstanding to be, and such Notes
shall thereupon become, forthwith due and payable,
without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly
waived, and the Company shall forthwith pay to the
Holders the entire outstanding
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principal of, and interest accrued on, the Notes and,
to the extent permitted by law, the Prepayment
Compensation Amount at such time with respect to such
principal amount of such Notes.
(2) ACCELERATION ON PAYMENT DEFAULT. Subject to
Section 7.6 and Section 7.7, during the existence of an Event
of Default described in Section 6.1(a), and irrespective of
whether the Notes then outstanding shall have become due and
payable pursuant to Section 6.2(a)(i)(B), any Holder who or
which shall have not consented to any waiver with respect to
such Event of Default may, at his or its option, by notice in
writing to the Company, declare the Notes then held by such
Holder to be, and such Notes shall thereupon become, forthwith
due and payable together with all interest accrued thereon,
without any presentment, demand, protest or other notice of
any kind, all of which are hereby expressly waived, and the
Company shall forthwith pay to such Holder the entire
principal of and interest accrued on such Notes and, to the
extent permitted by law, the Prepayment Compensation Amount at
such time with respect to such principal amount of such Notes.
(2) VALUABLE RIGHTS. The Company acknowledges, and the parties
hereto agree, that the right of each Holder to maintain its investment
in the Notes free from repayment by the Company (except as herein
specifically provided for) is a valuable right and that the provision
for payment of a Prepayment Compensation Amount by the Company in the
event that the Notes are prepaid or are accelerated as a result of an
Event of Default is intended to provide compensation for the
deprivation of such right under such circumstances.
(3) OTHER REMEDIES. During the existence of an Event of
Default and irrespective of whether the Notes then outstanding shall
become due and payable pursuant to Section 6.2(a), and irrespective of
whether any Holder of Notes then outstanding shall otherwise have
pursued or be pursuing any other rights or Remedies, subject to Section
7.6 and Section 7.7, any Holder of Notes may proceed to protect and
enforce its rights hereunder and under such Notes 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 agreement contained herein or
in aid of the exercise of any power granted herein; PROVIDED, HOWEVER,
that the maturity of such Holder's Notes may be accelerated only in
accordance with Section 6.2(a).
(4) NONWAIVER; REMEDIES CUMULATIVE. No course of dealing on
the part of any Holder nor any delay or failure on the part of any
Holder to exercise any right shall operate as a waiver of such right or
otherwise prejudice such Holder's rights, powers and Remedies. All
rights and Remedies of each Holder hereunder
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and under applicable law are cumulative to, and not exclusive of, any
other rights or Remedies any such Holder would otherwise have.
(5) SUBORDINATION. The rights of the Holders to receive
payments in respect of this Agreement and the Notes, and to exercise
any Remedies, solely as between the Holders of the Notes and the
holders of the Senior Debt, shall be subject in all respects to the
provisions of Section 7; PROVIDED, HOWEVER, that all such rights shall
remain unconditional and absolute as between the Holders and the
Company.
6.3 ANNULMENT OF ACCELERATION OF NOTES.
(1) ANNULMENT AT HOLDERS' OPTION. If a declaration is made
pursuant to Section 6.2(a)(i)(B), then and in every such case, the
Holders of sixty-six and two-thirds percent (66-2/3%) in principal
amount of the Notes at the time outstanding (exclusive of Notes then
owned by any one or more of the Company, any Subsidiary or any
Affiliate) may, by written instrument filed with the Company, rescind
and annul such declaration, and the consequences thereof; PROVIDED,
HOWEVER, that at the time such declaration is annulled and rescinded:
(1) no judgment or decree shall have been
entered for the payment of any moneys due on or pursuant
hereto or the Notes;
(2) all arrears of interest upon all of the
Notes and all of the other sums payable hereunder and under
the Notes (except any principal of, or interest or Prepayment
Compensation Amount on, the Notes which shall have become due
and payable by reason of such declaration under Section
6.2(a)(i)(B)) shall have been duly paid; and
(3) each and every other Default and Event of
Default shall have been waived pursuant to Section 12.5 or
otherwise made good or cured;
and; PROVIDED, FURTHER that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
(2) REQUIRED ANNULMENT. If a declaration is made pursuant to
Section 6.2(a)(i)(B) arising solely out of an Event of Default
described in Section 6.1(d) regarding the Senior Debt, then and in
every such case, if the holders of the Senior Debt waive such default
in respect of the Senior Debt or such default is cured, and the holders
of the Senior Debt rescind or annul any and all accelerations of the
maturity of all or any portion of the Senior Debt and any required or
demanded repurchase of all or any portion thereof, then, upon written
notice to the Holders of such events with respect to the Senior Debt,
any declaration made pursuant to
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Section 6.2(a)(i)(B), and the consequences thereof, shall automatically
and without any further action on the part of the Holders, be annulled
and rescinded; PROVIDED, HOWEVER, that at the time such declaration is
deemed annulled and rescinded:
(1) no judgment or decree shall have been
entered for the payment of any moneys due on or pursuant
hereto or the Notes;
(2) no other Default and Event of Default shall
be continuing;
and, PROVIDED, FURTHER that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
SECTION 7 SUBORDINATION
7.1 GENERAL
The Subordinated Debt is subordinate and junior in right of payment to
all Senior Debt to the extent provided in this Section 7. Without the prior
written consent of the holders of Senior Debt or their Agent, there shall be no
prepayment of principal of the Subordinated Debt.
7.2 INSOLVENCY.
In the event of:
(1) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to any Loan Party, their creditors or their Property;
(2) any proceeding for the liquidation, dissolution or other
winding-up of any Loan Party, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings;
(3) any assignment by any Loan Party for the benefit of
creditors; or
(4) any other marshaling of the assets of any Loan Party;
all Senior Debt shall first be paid in full, in cash or cash equivalents, before
any payment or distribution, whether in cash, Securities or other Property,
shall be made to any holder of any Subordinated Debt on account of any
Subordinated Debt. Any payment or distribution, whether in cash, Securities or
other Property (other than Securities of such Loan Party or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinated, at least to the extent provided in this
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Section 7 with respect to Subordinated Debt, to the payment of all Senior Debt
at the time outstanding and to any Securities issued in respect thereof under
any such plan of reorganization or readjustment), which would otherwise (but for
this Section 7) be payable or deliverable in respect of Subordinated Debt shall
be paid or delivered directly to the holders of Senior Debt in accordance with
the priorities then existing among such holders until all Senior Debt shall have
been paid in full, in cash or cash equivalents.
7.3 PROOFS OF CLAIM.
If any holder of Subordinated Debt does not file a proper claim or
proof of debt therefor prior to twenty (20) days before the expiration of the
time to file such claim or proof, then the Senior Agent is hereby authorized and
empowered (but not obligated) as the agent and attorney-in-fact for such holder
for the specific and limited purpose set forth in this Section 7.3 to file such
claim or proof for or on behalf of such holder; PROVIDED, HOWEVER, that the
Senior Agent shall have, prior to taking any such action, given fifteen (15)
days prior written notice (which notice may be given up to sixty (60) days prior
to the expiration of the time to file such claim) to such holder of Subordinated
Debt that it intends to file such claim or proof of debt. In no event may the
Senior Agent or any holder of the Senior Debt vote any claim on behalf of any
holder of the Subordinated Debt, and such agency and appointment of
attorney-in-fact shall not extend to any such right to vote any such claim.
7.4 PAYMENT DEFAULT IN RESPECT OF SENIOR DEBT.
If:
(1) the Company shall default in the payment of any principal
of or premium, if any, or interest on any Senior Debt (a "SENIOR
PAYMENT DEFAULT") when the same becomes due and payable, whether at
maturity, at a date fixed for prepayment, by declaration of
acceleration or otherwise; and
(2) the Company receives from the Senior Agent written notice
(a "PAYMENT DEFAULT NOTICE") of the happening of such Senior Payment
Default, stating that such notice is a payment blockage notice pursuant
to this Section 7.4;
then no direct or indirect payment (in cash, Property or Securities or by
set-off or otherwise) shall be made or agreed to be made on account of any
Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect
of any redemption, retirement, purchase, prepayment or other acquisition or
payment of any Subordinated Debt, unless and until such Senior Payment Default
shall have been cured or waived or otherwise shall have ceased to exist.
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The Company shall give prompt written notice to each holder of
Subordinated Debt of its receipt of any Payment Default Notice under this
Section 7.4 such notice to be delivered in any event no later than 2 Business
Days after receipt of any such Payment Default Notice.
7.5 SIGNIFICANT NONPAYMENT DEFAULT IN RESPECT OF SENIOR DEBT.
If:
(1) any Significant Nonpayment Default shall have occurred;
and
(2) the Company receives from the Senior Agent written notice
(a "NONPAYMENT DEFAULT NOTICE") of the happening of such Significant
Nonpayment Default, stating that such notice is a payment blockage
notice pursuant to this Section 7.5;
then no direct or indirect payment (in cash, property or Securities or by
set-off or otherwise) shall be made or agreed to be made for or on account of
any Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in
respect of any redemption, retirement, repurchase, prepayment, purchase or other
acquisition or payment of any Subordinated Debt (a "PAYMENT BLOCKAGE"), for a
period (each, a "PAYMENT BLOCKAGE PERIOD") commencing on the date the Nonpayment
Default Notice is delivered to the Company and ending on the Payment Blockage
Period Termination Date; PROVIDED, HOWEVER, that:
(1) not more than three (3) separate Payment
Blockage Periods may exist in any period of three hundred
sixty-five (365) consecutive days;
(2) Payment Blockages may not be in effect for
more than one hundred eighty (180) days (whether or not such
days are or were consecutive) during any period of three
hundred sixty-five (365) consecutive days (whether or not less
than three (3) Payment Blockage Periods have been in effect
during such period), and on the one hundred eightieth (180th)
day (whether or not such days are or were consecutive) on
which Payment Blockage Periods have been in effect in any
period of three hundred sixty-five (365) consecutive days,
such Payment Blockage Period shall terminate immediately;
(3) no Payment Blockage may be imposed as a
result of any Significant Nonpayment Default which served as
the basis for or was continuing during a previous Payment
Blockage; and
(4) no more than four (4) separate Payment
Blockage Periods may arise in the aggregate.
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All payments in respect of Subordinated Debt postponed during any
Payment Blockage Period shall be immediately due and payable upon the Payment
Blockage Period Termination Date thereof (together with such additional interest
as is provided for herein and in the Notes for late payment of principal,
Prepayment Compensation Amount and interest).
The Company shall give prompt written notice to each holder of
Subordinated Debt of its receipt of any Nonpayment Default Notice under this
Section 7.5 such notice to be delivered in any event, no later than 2 Business
Days after receipt of any such payment Default Notice.
7.6 ENFORCEMENT NOTICE.
If, at any time during which the Senior Credit Facility is in effect,
any Holder or the Holders elect to exercise any Remedies in respect of any Event
of Default, such Holder or Holders shall deliver to the Company and to the
Senior Agent written notice (an "ENFORCEMENT NOTICE") specifying the Event or
Events of Default which are the basis for the exercise of such Remedies and
stating the Holder or such Holders intend to exercise Remedies; PROVIDED,
HOWEVER, that the failure to deliver such Enforcement Notice to the Senior Agent
shall not affect the validity of the Enforcement Notice as between such Holder
or Holders and the Company.
7.7 STANDSTILL.
(a) Except as provided in Section 7.7(b) and notwithstanding
anything contained in this Agreement or any other Transaction Document
to the contrary, for so long as any Senior Debt is outstanding under
the Senior Credit Facility, no holder of any Subordinated Debt may
exercise any Remedies in respect thereof (and no acceleration or
purported acceleration pursuant to Section 6.2(a)(i)(B) or Section
6.2(a)(ii) shall become effective) during any period (a "STANDSTILL
PERIOD") commencing on the first date the holders of the Subordinated
Debt, but for the provisions of this Section 7, would have been
entitled to accelerate the maturity of the Subordinated Debt pursuant
to Section 6.2(a)(i)(B) or Section 6.2(a)(ii) and ending upon the
earliest of:
(i) the date which is ten (10) days after the
Enforcement Notice is delivered to the Company and the Senior
Agent pursuant to Section 7.6; provided however that if a
Payment Blockage Period is in effect on such tenth (10th) day,
as the case may be, after the Enforcement Notice is so
delivered or there shall be any prohibition on payment of any
Subordinated Debt pursuant to Section 7.4 then in effect, this
clause (i) shall be ineffective to terminate such Standstill
Period;
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(ii) in the event that a Payment Blockage is in
effect on the date which is ten (10) days after the
Enforcement Notice is delivered to the Company and the Senior
Agent pursuant to Section 7.6, the Payment Blockage Period
Termination Date relating to the Significant Nonpayment
Default giving rise to such Payment Blockage Period;
(iii) the date that any holder of any Senior Debt
commences the exercise of any Remedies in respect of such
Debt; or
(v) the first date upon which any of the Events
of Default described in Section 6.1(e) shall have occurred and
be continuing beyond any period of grace specified therein;
and, in such event, the automatic acceleration of the Notes
contemplated in respect of such Event of Default pursuant to
Section 6.2(a)(i)(A) shall occur immediately upon the
termination of the Standstill Period.
(b) If any holder of Subordinated Debt shall specify in an
Enforcement Notice an Event of Default under Section 6.1(i), and as of
the date such Enforcement Notice is given, KBC is not then taking
action to realize upon its Lien on the Foreign Debt granted in its
favor pursuant to Section 3.8 (or if such Lien has not been granted)
and neither the Senior Agent nor KBC is then taking any action to
enjoin any payment by the Company or any Domestic Subsidiary on any
Foreign Debt to any Person other than a holder of Senior Debt or KBC
and/or the Senior Agent shall thereafter cease to take such action,
such holder of Subordinated Debt shall be entitled, without regard to
any Standstill Period which would otherwise be in effect under Section
7.7(a) in respect of such Enforcement Notice, to accelerate its
Subordinated Debt and to exercise such Remedies (including realization
on the Lien on the Foreign Debt required to be granted to the Holders
under Section 3.8) to the extent such action is determined by such
holder of Subordinated Debt to be reasonably necessary or desirable to
enjoin any payment by the Company or any Domestic Subsidiary on any
Foreign Debt to any Person other than a holder of Senior Debt or to
otherwise enforce the provisions of the Intracompany Subordination
Agreement. If any holder of Subordinated Debt commences taking any such
Remedies and thereafter the Senior Agent or KBC, as applicable,
commences, and continues, taking action to realize upon its Lien on the
Foreign Debt granted in its favor pursuant to Section 3.8 or to enjoin
any payment by the Company or any Domestic Subsidiary on the Foreign
Debt to any Person other than a holder of Senior Debt, such holder of
Subordinated Debt shall cease to exercise any such Remedies for the
remainder of the Standstill Period that would otherwise be in effect
under Section 7.7(b) as a result of the giving of such Enforcement
Notice, PROVIDED that if ceasing to exercise such Remedies would
prejudice the rights of such holder of Subordinated Debt to recommence
exercising such
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Remedies after the expiration of the Standstill Period or otherwise
prejudice its rights to receive payment on its Subordinated Debt at a
time when it would otherwise be permitted to receive such payments
under this Section 7, such holder shall be entitled to continue to
exercise such Remedies to the limited extent necessary to avoid such
prejudice for so long as such holder cooperates with the Senior Agent
or KBC, as applicable, in the actions being taken by it to enforce its
Lien or enjoin payments on the Foreign Debt.
7.8 TURNOVER OF PAYMENTS.
If:
(1) any payment or distribution shall be paid to or collected
or received by any holders of Subordinated Debt in contravention of any
of the terms of this Section 7; and
(2) the Senior Agent shall have notified the holders of
Subordinated Debt in writing, within thirty (30) days after the date
such payment or distribution is made, of the facts by reason of which
such payment or collection or receipt so contravenes this Section 7 or
constituted a Significant Nonpayment Default;
then such holders of Subordinated Debt will deliver such payment or
distribution, to the extent necessary to pay all such Senior Debt in full, in
cash or cash equivalents, to the Senior Agent, on behalf of the holders of the
Senior Debt, and, until so delivered, the same shall be held in trust by such
holders of Subordinated Debt as the property of the holders of such Senior Debt.
If any amount is delivered to the Senior Agent pursuant to this Section 7.8,
whether or not such amounts have been applied to the payment of Senior Debt, and
the outstanding Senior Debt shall thereafter be paid in full, in cash or cash
equivalents, by the Company or otherwise other than pursuant to this Section
7.8, the holders of Senior Debt shall return to such holders of Subordinated
Debt an amount equal to the amount delivered to such holders of Senior Debt
pursuant to this Section 7.8, so long as after the return of such amounts the
Senior Debt shall remain paid in full, in cash or cash equivalents.
7.9 SUBORDINATION UNAFFECTED BY CERTAIN EVENTS.
The rights set forth in this Section 7 of the holders of the Senior
Debt as against each Holder of Subordinated Debt shall remain in full force and
effect without regard to, and shall not be impaired by:
(1) any act or failure to act on the part of any Loan Party;
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(2) any extension or indulgence in respect of any payment or
prepayment of the Senior Debt or any part therefor in respect of any
other amount payable to any holder of Senior Debt;
(3) any amendment, modification, restatement, refinancing or
waiver of, or addition or supplement to, or deletion from, or
compromise, release, consent or other action in respect of, any of the
terms of any Senior Debt or any other agreement which may be relating
to any Senior Debt, other than such as would cause all or any portion
of such Debt to fail to meet the definition of "SENIOR DEBT" or which
is not binding on the holders of the Subordinated Debt pursuant to
Section 7.16;
(4) any exercise or non-exercise by any holder of Senior Debt
of any right, power, privilege or remedy under or in respect of any
Senior Debt or any waiver of any such right, power, privilege or remedy
or any default in respect of any Senior Debt, any dealing with or
action against any collateral security therefor or any receipt by any
holder of Senior Debt of any security, or any failure by any holder of
Senior Debt to perfect a security interest in, or any release by any
such holder of Senior Debt of, any security for the payment of any
Senior Debt;
(5) any merger or consolidation of the Company or any of the
Subsidiaries into or with any of the Subsidiaries or into or with any
Person, or any transfer of any or all of the Property of the Company or
any of the Subsidiaries to any other Person; or
(6) the absence of any notice to, or knowledge by, any holder
of Subordinated Debt of the existence or occurrence of any of the
matters or events set forth in the foregoing clauses (a) through (e).
7.10 WAIVER AND CONSENT.
Each holder of Subordinated Debt waives any and all notices of the
acceptance of the provisions of this Section 7 or of the creation, renewal,
extension or accrual, now or at any time in the future, of any Senior Debt.
7.11 REINSTATEMENT OF SUBORDINATION.
The obligations of each holder of Subordinated Debt under the
provisions set forth in this Section 7 shall continue to be effective, or be
reinstated, as the case may be, as to any payment in respect of any Senior Debt
that is rescinded or must otherwise be returned by the holder of such Senior
Debt upon the occurrence or as a result of any bankruptcy or judicial
proceeding, all as though such payment had not been made.
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7.12 OBLIGATIONS NOT IMPAIRED.
Nothing contained in this Section 7 shall impair, as between any Loan
Party and any holder of Subordinated Debt, the obligation of such Loan Party to
pay to such holder the principal thereof and Prepayment Compensation Amount, if
any, and interest thereon as and when the same shall become due and payable in
accordance with the terms thereof and to comply with each and every provision of
the Notes and this Agreement or prevent any holder of any Subordinated Debt from
exercising all rights, powers and remedies otherwise permitted by applicable law
or under this Agreement, all subject to the rights of the holders of the Senior
Debt to receive cash, Securities or other Property otherwise payable or
deliverable to the holders of Subordinated Debt.
7.13 PAYMENT OF SENIOR DEBT; SUBROGATION.
Upon the payment in full of all Senior Debt, the holders of
Subordinated Debt shall be subrogated to all rights of any holder of Senior Debt
to receive any further payments or distributions applicable to the Senior Debt
until the Subordinated Debt shall have been paid in full, and such payments or
distributions received by the holders of Subordinated Debt by reason of such
subrogation, of cash, Securities or other Property which otherwise would be paid
or distributed to the holders of Senior Debt, shall, as between the Loan Parties
and their creditors other than the holders of Senior Debt, on the one hand, and
the holders of Subordinated Debt, on the other hand, be deemed to be a payment
by any Loan Party on account of Senior Debt and not on account of Subordinated
Debt.
7.14 RELIANCE OF HOLDERS OF SENIOR DEBT.
Each holder of Subordinated Debt by its acceptance thereof shall be
deemed to acknowledge and agree that the foregoing subordination provisions are,
and are intended to be, an inducement to and a consideration of each holder of
any Senior Debt, whether such Senior Debt was created or acquired before or
after the creation of Subordinated Debt, to acquire and hold, or to continue to
hold, such Senior Debt, and such holder of Senior Debt shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
holding, or in continuing to hold, such Senior Debt. Each such holder of Senior
Debt is intended to be, and is, a third party beneficiary of this Section 7.
Each holder of Subordinated Debt acknowledges and agrees that the provisions set
forth in this Section 7 shall be enforceable against such Persons by the holders
of the Senior Debt. Notwithstanding anything contained in this Agreement or any
other Transaction Document to the contrary, none of the provisions of this
Section 7 (including, without limitation, this Section 7.14) may, directly or
indirectly, be amended, modified, supplemented or waived without the prior
written consent of the Senior Agent, on behalf of the holders of the Senior
Debt.
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7.15 IDENTITY OF HOLDERS OF SENIOR DEBT.
Upon the request of any holder of Subordinated Debt, the Company shall
deliver to such holder a list of all holders of Senior Debt outstanding at such
time, providing the name and address of each such holder of Senior Debt and the
principal amount of Senior Debt held by each such holder; PROVIDED, HOWEVER,
that if any holder of Senior Debt shall have appointed an agent or other
representative with respect to the Senior Debt held by it, the Company may
provide the name and address of such agent or representative in lieu of the name
and address of such holder of Senior Debt.
7.16 AMENDMENTS TO SENIOR DEBT DOCUMENTS.
Notwithstanding the other provisions of this Section 7, (a) no
amendment to any Senior Debt Document or Refinancing of the Senior Debt shall be
effective as to the holders of the Subordinated Debt, nor shall any Debt
thereunder which would otherwise be Senior Debt hereunder be entitled to the
benefits of this Section 7, if such amendment or the terms of such Refinancing
would prohibit directly the Company or any Subsidiary from making scheduled
payments of principal or interest in respect of the Subordinated Debt in any
manner which is not specifically set forth in this Agreement as in effect on the
date hereof and (b) no amendment to any Senior Debt Document or Refinancing of
the Senior Debt shall be effective as to the holders of the Subordinated Debt to
the extent such amendment or the terms of such Refinancing would (i) cause the
terms and conditions of any financial covenant corresponding to Section 4.4 or
4.12 hereof in such Senior Debt Document to be less favorable to the holders of
the Subordinated Debt than those set forth in the Senior Credit Agreement as of
the hereof or provide for new financial covenants which do not correspond to the
financial covenants set forth in Section 4.4 or 4.12 or (ii) would cause the
permitted uses of the proceeds of Asset Sales as set forth in such Senior Debt
Documents to be materially different from those set forth in the Senior Credit
Agreement as of the hereof, unless prior to such amendment or Refinancing taking
effect, the Holders are given written notice describing such less favorable, new
or different terms and at the option of the Required Holders, exercised within
five (5) Business Days of the Holders' receipt of the notice describing such
less favorable, new or different terms, conforming amendments to this Agreement
are made contemporaneously with such amendment or Refinancing.
Notwithstanding clause (b), above, the holders of Senior Debt shall be
entitled to the benefits of this Section 7 whether or not the notice required in
clause (b) is given PROVIDED, the Senior Agent shall not be entitled to send a
Nonpayment Default Notice in respect any Significant Nonpayment Default arising
as a result of the Company or any Subsidiary having failed to comply with such
less favorable, new or materially different terms unless, and until, five (5)
Business Days after written notice describing such less favorable, new or
different terms has been given to the Holders and at the option of the Required
Holders, exercised within such five (5) Business Day period, conforming
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amendments have been made to this Agreement effective as of the date such
amendments to the Senior Debt Documents or Refinancing of Senior Debt were
effective.
As used in this Section 7.16, a "conforming amendment" means (i) in the
case of an existing financial covenant being made less favorable, the financial
covenants set forth herein will be made less favorable by the same percentage as
the financial covenants set forth in the Senior Debt Documents are being made
less favorable, (ii) in the case of a new financial covenant, such financial
covenant will be included in this Agreement but at a threshold that is 5% more
favorable to the Company than such financial covenant in the applicable Senior
Debt Document and (iii) in the case of a materially different term relating to
the use of proceeds of Asset Sales, substantively comparable changes will be
made to this Agreement.
SECTION 8 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce the Purchasers to enter into this Agreement and to issue the
Notes, the Company represents and warrants to the Purchasers, as of the Closing
Date, as follows:
8.1 NATURE OF BUSINESS.
The Memorandum describes correctly in all material respects the general
nature of the business and principal Properties and assets of the Company.
8.2 FINANCIAL STATEMENTS; DEBT; MATERIAL ADVERSE CHANGE.
(1) FINANCIAL STATEMENTS. The Company has provided each
Purchaser with the historical financial statements of the Company
contained in the 10-K and the 10-Qs and of the Acquired Business
described on PART 8.2(A) OF ANNEX 3 (collectively, the "HISTORICAL
FINANCIAL STATEMENTS"). Such financial statements present fairly in all
material respects the financial position of the Company and the
Subsidiaries on a consolidated basis as of the respective dates
specified therein and the results of their consolidated operations and
cash flows for the respective periods so specified in conformity with
GAAP applied on a consistent basis throughout the periods involved.
(2) DEBT. PART 8.2(B) OF ANNEX 3 lists all Debt of the Company
and the Subsidiaries as of the Closing Date, and provides the following
information with respect to each item of such Debt: the obligor, each
guarantor thereof and each other Person similarly liable in respect
thereof, the holder thereof, the aggregate amount of all commitments
thereunder (and the allocation of such commitments, if any, as among
revolving credit Debt, term notes or similar Debt and other credits
such as letter of credit or banker's acceptance facilities), the
approximate outstanding amount thereunder and under each individual
facility thereunder, the
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approximate current portion of the outstanding amount, the final
maturity, required sinking fund payments, and a description of the
collateral securing such Debt.
(3) LIENS. PART 8.2(C) OF ANNEX 3 lists all Liens securing
Debt of the Company and the Subsidiaries in existence as of the Closing
Date, and provides the following information with respect to each Lien:
the holder thereof, the approximate outstanding amount of the Debt
secured by such Lien and a description of the collateral.
(4) CONTINGENT OBLIGATIONS. Other than (i) Guaranties by the
Company or Subsidiaries of obligations of other Domestic Subsidiaries
and (ii) Guaranties by the Company and Domestic Subsidiaries of
indebtedness of Foreign Subsidiaries to KBC, there are no Guaranties or
other contingent obligations in respect of which disclosure is
required, or for which provisions are required to be made in the
consolidated financial statements of the Company and the Subsidiaries
in accordance with GAAP, other than those so disclosed, and for which
such provision has been made, in the Historical Financial Statements.
(5) MATERIAL ADVERSE CHANGE. Since April 30, 1998, there has
been no change in the business, operations, profits, financial
condition, Properties or business prospects of the Company and the
Subsidiaries, except changes that, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(6) PROJECTIONS. The Company has delivered to the Purchasers
projected financial statements of the Company contained in PART 8.2(F)
OF ANNEX 3 attached hereto (collectively, the "PROJECTIONS"). The
assumptions used in preparation of the Projections were reasonable when
made and continue to be reasonable. Such Projections have been prepared
by the executive and financial personnel of the Company and the
Subsidiaries in the light of the business of the Company and the
Subsidiaries. Such Projections have been prepared in good faith, have a
reasonable basis and represent the good faith opinion of the Company as
to the projected results of the operations of the Company and the
Subsidiaries. No material facts have occurred since the preparation of
the Projections that, if the Company were to prepare new projections on
the Closing Date, would cause such new projections, taken as a whole,
to be materially different from the Projections, and the Company and
the Subsidiaries do not have, on the Closing Date, any material
obligations (whether accrued, matured, absolute, actual, contingent or
otherwise) that are not reflected in the Projections.
(7) INVESTMENTS. PART 8.2(G) OF ANNEX 3 lists all Investments
of the Company and the Subsidiaries outstanding on the Closing Date
which, but for clause (h) of the definition of Restricted Investments,
would be classified as Restricted Investments in accordance with the
provisions of this Agreement.
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(h) PRO FORMA FINANCIAL STATEMENTS. The Company has delivered
to each Purchaser PRO FORMA financial statements for the combined
operations of the Company and its Subsidiaries and the Acquired
Business contained in PART 8.2(H) OF ANNEX 3 (collectively the "PRO
FORMA FINANCIAL STATEMENTS"). The Pro Forma Financial Statements were
prepared on a basis consistent with the Historical Financial Statements
and present fairly in all material respects the financial position on a
pro forma basis of the combined operations of the Company and its
Subsidiaries and the Acquired Business as of such date after giving
effect to the AIG Acquisition.
8.3 SUBSIDIARIES AND AFFILIATES.
(1) OWNERSHIP OF THE COMPANY AND ITS SUBSIDIARIES. PART 8.3(A)
OF ANNEX 3 sets forth for the Company and each Subsidiary:
(1) its full legal name;
(2) its jurisdiction of incorporation or
organization; and
(3) in the case of the Subsidiaries, the
percentage of the Voting Stock of which is held by the Company
and each other Subsidiary.
(2) AFFILIATES. PART 8.3(B) OF ANNEX 3 sets forth the name of
each Affiliate (other than members of the families of officers and
directors of the Company) and the nature of the affiliation of such
Affiliate.
8.4 TITLE TO PROPERTIES.
(1) GENERAL. Each of the Company and the Subsidiaries has good
and marketable title to all of the Property reflected in the Memorandum
and the Pro Forma Financial Statements (except as sold or otherwise
disposed of in the ordinary course of business), free from Liens not
otherwise permitted by provisions of this Agreement. Each of the
Company and the Subsidiaries has maintained and kept, or caused to be
maintained and kept, its respective properties in good repair, working
order and condition (ordinary wear and tear excepted).
(2) LEASES. All leases necessary for the conduct of the
business of the Company and the Subsidiaries are valid and subsisting
and are in full force and effect, except for such failures to be valid
and subsisting that, in the aggregate for all such failures, could not
reasonably be expected to have a Material Adverse Effect. Each such
lease grants to the Company or the Subsidiary party thereto the
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right to the quiet enjoyment of the premises leased thereunder during
the term thereof.
(3) INTELLECTUAL PROPERTY. Each of the Company and the
Subsidiaries owns, possesses or has the right to use all of the
intellectual property, licenses, patents, copyrights, trademarks,
service marks and trade names necessary for the present and currently
planned future conduct of its business, without any known conflict with
the rights of others, except for such failures to own, possess, or have
the right to use, that, in the aggregate for all such failures, could
not reasonably be expected to have a Material Adverse Effect.
8.5 TAXES.
(1) RETURNS FILED; TAXES PAID. All tax returns required to be
filed by the Company, any Subsidiary and each other Person with which
the Company or any Subsidiary files or has filed a consolidated return
in any jurisdiction have in fact been filed on a timely basis. All
taxes, assessments, fees and other governmental charges upon the
Company and any such Person, and upon any of their respective
Properties, income or franchises, that are due and payable have been
paid, except for such failures to pay that, in the aggregate for all
such Persons, could not reasonably be expected to have a Material
Adverse Effect. The Company knows of no proposed additional tax
assessment against it or any such Person that could reasonably be
expected to have a Material Adverse Effect.
(2) BOOK PROVISIONS ADEQUATE. The amount of the liability for
taxes reflected in each of the balance sheets referred to in Section
8.2(a) is in each case an adequate provision in all material respects
for taxes as of the dates of such balance sheets (including, without
limitation, any payment due pursuant to any tax sharing agreement) as
are or may become payable by any one or more of the Company and the
other Persons consolidated with the Company in such financial
statements in respect of all tax periods ending on or prior to such
dates.
8.6 PENDING LITIGATION.
(1) PENDING LITIGATION. There are no proceedings, actions or
investigations pending or, to the Company's knowledge, threatened,
against or affecting the Company or any of the Subsidiaries in any
court or before any Governmental Authority or arbitration board or
tribunal that, in the aggregate for all such proceedings, actions and
investigations, could reasonably be expected to have a Material Adverse
Effect.
(2) NO VIOLATIONS. Neither the Company nor any Subsidiary is
in violation of any judgment, order, writ, injunction or decree of any
court,
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Governmental Authority, arbitration board or tribunal that, in the
aggregate for all such violations, could reasonably be expected to have
a Material Adverse Effect.
8.7 CORPORATE ORGANIZATION AND AUTHORITY.
Each of the Company and each Subsidiary:
(1) is a corporation duly incorporated, validly existing and
in good standing under the laws of its state of incorporation;
(2) has all corporate power and authority necessary to own and
operate its Properties and to carry on its business as now conducted
and as presently proposed to be conducted;
(3) has all licenses, certificates, permits, franchises and
other governmental authorizations necessary to own and operate its
Properties and to carry on its business as now conducted and as
presently proposed to be conducted, except where the failure to have
such licenses, certificates, permits, franchises and other governmental
authorizations, in the aggregate for all such failures, could not
reasonably be expected to have a Material Adverse Effect; and
(4) has duly qualified or has been duly licensed, and is
authorized to do business and is in good standing, as a foreign
corporation, in each state in the United States of America and in each
other jurisdiction where it is required to do so, except where the
failure to be so qualified or licensed and authorized and in good
standing, in the aggregate for all such failures, could not reasonably
be expected to have a Material Adverse Effect.
8.8 CHARTER INSTRUMENTS, OTHER AGREEMENTS.
Neither the Company nor any Subsidiary is in violation in any respect
of:
(1) any term of its certificate of incorporation or bylaws; or
(2) any term in any agreement or other instrument to which it
is a party or by which it or any of its Property may be bound, except
for such violations that, in the aggregate for all such violations,
could not reasonably be expected to have a Material Adverse Effect.
8.9 RESTRICTIONS ON THE COMPANY.
Neither the Company nor any Subsidiary:
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(1) is a party to any contract or agreement that restricts its
right or ability to incur Debt or to issue Rights of the Company, as
the case may be, other than the Transaction Documents and the
agreements listed on PART 8.9(A) OF ANNEX 3, none of which, except as
disclosed in PART 8.9(A) OF ANNEX 3, restricts the issuance of the
Notes or the Warrants by the Company or the execution and delivery by
the Company and the Guarantors of, or compliance with, the other
Transaction Documents to which each is a party; or
(2) has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its Property,
whether now owned or hereafter acquired, to be subject to a Lien not
permitted by the provisions of this Agreement.
True, correct and complete copies of each of the agreements, if any, listed on
PART 8.9(A) OF ANNEX 3 have been provided to the Purchasers.
8.10 COMPLIANCE WITH LAW.
Except as disclosed in PART 8.12(B) OF ANNEX 3, neither the Company nor
any Subsidiary is in violation of any law, ordinance, governmental rule or
regulation to which it is subject, except for such violations that, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
8.11 PENSION PLANS.
(1) OPERATION OF PLANS; LIABILITIES. The Company and each
ERISA Affiliate have operated and administered each Plan in compliance
with all applicable laws except for such instances of noncompliance as
have not resulted in and could not reasonably be expected to result in
a Material Adverse Effect. Neither the Company nor any ERISA Affiliate
has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the IRC relating to employee
benefit plans (as defined in section 3 of ERISA), and no event,
transaction or condition has occurred or exists that could reasonably
be expected to result in the incurrence of any such liability by the
Company or any ERISA Affiliate, or in the imposition of any Lien on any
of the rights, Properties or assets of the Company or any ERISA
Affiliate, in either case pursuant to Title I or IV of ERISA or to such
penalty or excise tax provisions or to section 401 (a)(29) or 412 of
the IRC, other than such liabilities or Liens as individually or in the
aggregate would not have a Material Adverse Effect.
(2) RELATIONSHIP OF BENEFIT LIABILITIES TO PLAN ASSETS. The
present value of the aggregate benefit liabilities under each of the
Plans (other than Multiemployer Plans), determined as of the end of
such Plan's most recently ended
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plan year on the basis of the actuarial assumptions specified for
funding purposes in such Plan's most recent actuarial valuation report,
did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term "BENEFIT LIABILITIES"
has the meaning specified in section 4001 of ERISA and the terms
"CURRENT VALUE" AND "PRESENT VALUE" have the meaning specified in
section 3 of ERISA.
(3) WITHDRAWAL LIABILITIES. The Company and its ERISA
Affiliates have not incurred withdrawal liabilities (and are not
subject to contingent withdrawal liabilities) under section 4201 or
4204 of ERISA in respect of Multiemployer Plans, other than such
liabilities as individually or in the aggregate would not have a
Material Adverse Effect.
(4) POSTRETIREMENT BENEFIT OBLIGATIONS. The expected
postretirement benefit obligation (determined as of the last day of the
Company's most recently ended fiscal year in accordance with Financial
Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section
4980B of the IRC) of the Company will not have a Material Adverse
Effect.
(5) PROHIBITED TRANSACTIONS. The execution and delivery of the
Transaction Documents and the issuance of the Notes and Warrants
hereunder and under the other Transaction Documents will not involve
any transaction that is subject to the prohibitions of section 406 of
ERISA or in connection with which a tax could be imposed pursuant to
section 4975(c)(1)(A)-(D) of the IRC.
(6) FOREIGN PENSION PLANS. The Company does not have or
maintain, and is not required to contribute to, any foreign pension
plan.
8.12 ENVIRONMENTAL COMPLIANCE.
(1) COMPLIANCE -- Except as disclosed on PART 8.12(A) OF ANNEX
3, each of the Company and the Subsidiaries is in compliance with all
Environmental Protection Laws in effect in each jurisdiction where it
is presently doing business or is located, other than any
non-compliance which could not reasonably be expected to have a
Material Adverse Effect.
(2) LIABILITY -- Except as disclosed on PART 8.12(B) OF ANNEX
3, neither the Company nor any Subsidiary is subject to any liability
under any Environmental Protection Law that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect.
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(3) NOTICES -- Except as disclosed on PART 8.12(C) OF ANNEX 3,
neither the Company nor any Subsidiary has received any:
(1) written notice from any Governmental
Authority by which any of its present or previously-owned,
operated or leased real Properties has been designated,
listed, or identified in any manner by any Governmental
Authority charged with administering or enforcing any
Environmental Protection Law as a hazardous substance disposal
or removal site, "SUPER Fund" clean-up site, or candidate for
removal or closure pursuant to any Environmental Protection
Law;
(2) written notice of any Lien arising under or
in connection with any Environmental Protection Law that has
attached to any revenues of, or to, any of its owned or leased
real Properties; or
(3) summons, citation, notice, directive,
letter, or other written communication from any Governmental
Authority or other Person concerning or claiming any
intentional or unintentional action or omission by the Company
or any Subsidiary in connection with its ownership, operation
or leasing of any real Property resulting in the releasing,
spilling, leaking, pumping, pouring, emitting, emptying,
dumping, or otherwise disposing of any hazardous substance
into the environment resulting in any material violation of
any Environmental Protection Law;
which, in any such case, relates to or makes reference to an event or condition
which could reasonably be expected to have a Material Adverse Effect.
(4) SENIOR CREDIT AGREEMENT -- Except as disclosed on PART
8.12(D) of ANNEX 3, each of the representations made in Section 4.13 of
the Senior Credit Agreement were true and correct when made and are
true and correct as of the date hereof.
8.13 DUE AUTHORIZATION; ENFORCEABILITY.
(1) ISSUE OF NOTES, WARRANTS. The issuance of the Notes and
the Warrants by the Company, the execution and delivery by each Loan
Party of the Transaction Documents to which it is a party and
compliance by each Loan Party with all of the provisions of such
Transaction Documents:
(1) are within the corporate powers of such Loan
Party; and
(2) do not conflict with, result in any breach
of any of the provisions of, constitute a default under, or
result in the creation of any Lien
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upon any Property of the Company or any Subsidiary under the
provisions of:
(A) any agreement, charter instrument, bylaw
or other instrument to which the Company or any
Subsidiary is a party or by which the Company or any
Subsidiary is or may be bound;
(B) any order, judgment, decree, or ruling
of any court, arbitrator or Governmental Authority
applicable to the Company, any Subsidiary, or any of
their Property; or
(C) any statute or other rule or regulation
of any Governmental Authority applicable to the
Company, any Subsidiary or any of their Property.
(2) OBLIGATIONS ARE ENFORCEABLE. Each Loan Party has duly
authorized by all necessary action on its part each of the Transaction
Documents to which it is a party. Each of such Transaction Documents
has been executed and delivered by one or more duly authorized officers
of such Loan Party, and constitutes a legal, valid and binding
obligation of such Loan Party, enforceable in accordance with its
terms, except that:
(1) the enforceability thereof may be limited by
applicable bankruptcy, reorganization, arrangement,
insolvency, moratorium, or other similar laws affecting the
enforceability of creditors' rights generally and subject to
the availability of equitable remedies; and
(2) waivers of statutes of limitations, and
rights to indemnity and contribution contained therein, may be
limited by applicable law or public policy.
8.14 GOVERNMENTAL CONSENT TO ISSUANCE OF NOTES AND WARRANTS.
(1) Neither the issuance of the Notes or the Warrants, nor the
execution and delivery of any Transaction Document by any Loan Party,
nor the performance of the obligations of such Loan Party thereunder,
requires a consent, approval or authorization of, or pre-filing,
registration or qualification with, any Governmental Authority on the
part of such Loan Party as a condition thereto, except for such
consents, approvals, authorizations, pre-filings, registrations and
qualifications described on PART 8.14(A) OF ANNEX 3, all of which have
been obtained on or prior to the Closing Date.
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(2) Neither the issuance of the Notes and the Warrants, nor
the incurrence of the Debt and the other obligations represented
thereby, nor the execution and delivery by any Loan Party of the
Transaction Documents to which it is a party or the performance of its
obligations hereunder and thereunder:
(1) is subject to regulation under the
Investment Company Act of 1940, as amended, the Public Utility
Holding Company Act of 1935, as amended, the Transportation
Acts of the United States of America (49 U.S.C.), as amended,
or the Federal Power Act, as amended; or
(2) violates any provision of any statute or
other rule or regulation of any Governmental Authority
applicable to the Company or such Subsidiary.
8.15 HART-SCOTT-RODINO COMPLIANCE.
The Warrants are "CONVERTIBLE VOTING SECURITIES" as such term is
defined in 16 C.F.R. Section 801.1 (f)(2) which do not entitle the holders
thereof to presently vote in respect of the election of directors of the
Company. Assuming that, notwithstanding the fact that the Warrants are not
currently exercisable on the Closing Date, the Warrants were all exercised on
the Closing Date, the holders thereof would not hold (as such term is defined
in 16 C.F.R. Section 801.1 (c)) on the Closing Date either:
(1) fifteen percent (15%) or more of the total number of
shares of the Common Stock of the Company; or
(2) Common Stock having a Fair Market Value of Fifteen Million
Dollars ($15,000,000) or more.
8.16 NO DEFAULTS.
No event has occurred and no condition exists that, upon the execution
and delivery of the Transaction Documents and the issuance of the Notes and
Warrants, would constitute a Default or an Event of Default.
8.17 USE OF PROCEEDS.
(1) USE OF PROCEEDS. The Company shall apply the proceeds from
the Notes as specified in Section 1.11.
(2) MARGIN REGULATIONS. None of the transactions contemplated
in any of the Transaction Documents (including, without limitation, the
use of the proceeds from the Notes) violates, will violate or will
result in a violation of section 7 of the Exchange Act, or any
regulation issued pursuant thereto, including, without
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limitation, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter 11.
(3) ABSENCE OF FOREIGN OR ENEMY STATUS. Neither the issuance
of the Notes, nor the use of proceeds from the Notes will result in a
violation of any of the foreign assets control regulations of the
United States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended), or any ruling issued thereunder or any enabling legislation
or Presidential Executive Order in connection therewith.
8.18 CAPITALIZATION.
(1) CAPITALIZATION. PART 8.18(A) OF ANNEX 3 correctly sets
forth, after giving effect to the issuance of the Notes and the
consummation of all other transactions contemplated hereby and by the
Transaction Documents on the Closing Date:
(1) the authorized and outstanding shares of the
Capital Stock, Rights and other Securities of the Company and
each Subsidiary (specifying the type, class or series of all
such Capital Stock and other Securities and whether such
Capital Stock and other Securities are voting or non-voting)
and, in the case of any Rights, the number of shares of Common
Stock into which such Rights are currently exercisable or
convertible;
(2) for all such shares of Capital Stock, Rights
and other Securities of the Company and each Subsidiary,
descriptions of the terms thereof; and
(3) all obligations (contingent or otherwise) of
the Company and each Subsidiary to repurchase or otherwise
acquire or retire any shares of Capital Stock or Rights of the
Company or such Subsidiary.
All such outstanding shares of Capital Stock have been duly authorized and
validly issued and are fully paid and non-assessable. There are no preemptive
rights, subscription rights, or other contractual rights similar in nature to
preemptive rights with respect to any Capital Stock of the Company or any
Subsidiary.
(2) RESERVATION OF COMMON STOCK. Subject to shareholder
approval of a charter amendment to authorize additional Common Stock,
the Company will have authorized and unissued, and reserved for
issuance, a sufficient number of shares of Common Stock to permit,
after giving effect to the transactions contemplated by the Transaction
Documents, the exercise of all of the Warrants and all other Rights
exercisable or convertible into Common Stock. Each share of Common
Stock reserved for issuance upon exercise of the Warrants, when issued,
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will be fully paid and nonassessable, free and clear of any Lien
created by the Company and not subject to any preemptive rights.
(3) STOCKHOLDERS AGREEMENTS. Other than the Warrant Agreement
and as specified on PART 8.18(C) OF ANNEX 3, there is no other
agreement or understanding known to the Company between or among any
Holders of the Capital Stock or Rights of the Company regarding the
Capital Stock of the Company. The Company has provided the Purchasers
with true, accurate and complete copies of all agreements referred to
in PART 8.19(C) OF ANNEX 3.
8.19 SOLVENCY; INTENT.
(1) SOLVENCY. Each Loan Party, in each case individually and
together with its Subsidiaries taken as a whole, is Solvent.
(2) INTENT. No Loan Party is entering into the Transaction
Documents with any intent to hinder, delay, or defraud either current
creditors or future creditors of such Loan Party.
8.20 FULL DISCLOSURE.
Neither the statements made in this Agreement, the Memorandum, the
financial statements referred to in Section 8.2, nor any other written statement
furnished by or on behalf of the Company to the Purchasers in connection with
any of the Transactions or the negotiation of any of the Transaction Documents,
taken as a whole, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein and herein,
taken as a whole, not misleading. There is no fact known to the Company that the
Company has not disclosed to the Purchasers in writing that has had or, so far
as the Company can now reasonably foresee, could reasonably be expected to have,
a Material Adverse Effect.
8.21 OFFERING OF SECURITIES.
Neither the Company nor any agent acting on its behalf has, directly or
indirectly, offered the Notes or Warrants or any similar security of the Company
for sale to, or solicited any offers to buy any of the Notes or Warrants or any
similar security of the Company or otherwise approached or negotiated with
respect thereto with, any Person other than the Purchasers. 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 or the Warrants to the provisions of
Section 5 of the Securities Act or to the registration provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8.22 CONSUMMATION OF AIG ACQUISITION.
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The AIG Acquisition has been consummated in accordance with the terms
of the AIG Acquisition Documents; the Company and its Subsidiaries, and to the
present actual knowledge of the Company, each other party thereto, have complied
in all material respects with all agreements and conditions required to have
been performed by such party under the AIG Acquisition Documents and the Company
has no present actual knowledge of any material breach by any party of any of
such party's representations or warranties made thereunder and no claims for
indemnity under the AIG Acquisition Documents are pending, or to the Company's
present actual knowledge, are threatened and to the Company's present actual
knowledge, no basis for any such claim exists.
SECTION 9 CLOSING CONDITIONS
9.1 CONDITIONS TO NOTES.
The obligation of the Purchasers to purchase the Notes is
subject to prior or concurrent satisfaction of each of the following conditions:
(1) On or before the Closing Date, all corporate and other
proceedings taken or to be taken in connection with the Transactions
and all documents incidental hereto and thereto shall be reasonably
satisfactory in form and substance to the Purchasers, and the
Purchasers shall have received the following items, each of which shall
be in form and substance reasonably satisfactory to the Purchasers and,
unless otherwise noted, dated the Closing Date, and in sufficient
copies (except for the Notes), for each Purchaser:
(1) Certified copies of resolutions of the board
of directors of each Loan Party approving this Agreement, the
Notes, and other Transaction Documents to which it is or is to
be a party, and of all documents evidencing other necessary
corporate action and governmental and other third party
approvals and consents, if any, with respect to this
Agreement, the Notes, and each other Transaction Document.
(2) A copy of the charter of each Loan Party and
each amendment thereto, certified (as of a date reasonably
near the date of the Closing Date) by the Secretary of State
of the jurisdiction of its incorporation as being a true and
correct copy thereof.
(3) A copy of a certificate of the Secretary of
State of the jurisdiction of its incorporation, dated within
ten (10) Business Days prior to the date of the Closing Date
listing the charter of each Loan Party and each amendment
thereto on file in its office and certifying that (A) such
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amendments are the only amendments to such Loan Party's
charter on file in its office, (B) such Loan Party has paid
all franchise taxes to the date of such certificate and (C)
such Loan Party is duly incorporated and in good standing
under the laws of the State of the jurisdiction of its
incorporation.
(4) A copy of a certificate of the Secretary of
State of each State listed on PART 8.3(A) OF ANNEX 3 dated
reasonably near the date of the Closing Date, stating that
each applicable Loan Party is duly qualified and in good
standing as a foreign corporation in such State and has filed
all annual reports required to be filed to the date of such
certificate.
(5) A certificate of each Loan Party signed on
behalf of such Loan Party by a Senior Officer and the
Secretary or an Assistant Secretary of such Loan Party, dated
the date of the Closing Date (and the statements made in such
certificate shall be true on and as of the date of the Closing
Date) certifying as to (A) the absence of any amendments to
the charter of such Loan Party since the date of the Secretary
of State's certificate referred to in clause (4) above, (B) a
true and correct copy of the by-laws of such Loan Party as in
effect on the date of the Closing Date, (C) the absence of any
proceeding for the dissolution or liquidation of such Loan
Party, (D) as to the matters set forth in Section 9.1(h), and
(E) the absence of any event occurring and continuing, or
resulting from the Closing Date, that constitutes a Default or
an Event of Default.
(6) A certificate of the Secretary or an
Assistant Secretary of each Loan Party certifying the names
and true signatures of the officers of such Loan Party
authorized to sign this Agreement, the Notes, each other
Transaction Document to which they are or are to be parties
and the other documents to be delivered hereunder and
thereunder.
(7) Originals of this Agreement, the Notes and
the Warrants to be issued to each Purchaser in the respective
principal amounts set forth below such Purchaser's name on
ANNEX 1 executed by a Senior Officer.
(8) An original Warrant Agreement executed on
behalf of the Company by a Senior Officer in substantially the
form of ATTACHMENT B.
(9) An original Registration Agreement executed
on behalf of the Company by a Senior Officer substantially in
the form of ATTACHMENT C (the "REGISTRATION AGREEMENT").
(10) An original Intracompany Subordination
Agreement executed on behalf of the Company by a Senior
Officer and authorized officers of each
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Subsidiary a party thereto substantially in the form of
ATTACHMENT D (the "INTRACOMPANY SUBORDINATION AGREEMENT").
(11) Originally executed copies of one or more
favorable written opinions of special counsel for the Company
and the Guarantors, in a form reasonably acceptable to the
Purchasers and as to such matters as Purchasers may reasonably
request, and addressed to the Purchasers.
(12) A certificate signed on behalf of the Company
and each Guarantor by a Senior Officer, in form and substance
reasonably satisfactory to the Purchasers, attesting to the
Solvency of the Company and each Guarantor, as the case may
be, in each case individually and together with its
Subsidiaries, taken as a whole, immediately before and
immediately after giving effect to consummation of the
Transactions.
(13) True and correct copies of each Senior Debt
Document which shall be (i) in full force and effect, (ii)
satisfactory to the Purchasers in their sole discretion and
(iii) certified by a Senior Officer as being true and correct
copies thereof as of the Closing Date.
(14) An Officers' Certificate dated as of the
Closing Date certifying that the Company and its Subsidiaries
have each performed or complied in all material respects with
all agreements and conditions contained in the Senior Debt
Documents and any agreements or documents referred to therein
required to be performed or complied with by such party on or
before the Closing Date, and the Company and its Subsidiaries
are not in default in the performance or compliance with any
of the terms or provisions thereof.
(15) All such counterpart originals or certified
copies of such documents, instruments, certificates and
opinions relating to the AIG Acquisition as the Purchasers may
reasonably request.
(b) The Purchasers shall have received reports and other
information in form, scope and substance satisfactory to the Purchasers
concerning environmental liabilities of the Company, the Subsidiaries
and the Acquired Business, and the Company shall have demonstrated to
the Purchasers' satisfaction that (i) the operations of the Company and
its Subsidiaries comply in all material respects with applicable
environmental, health and safety statutes and regulations, including,
without limitation, regulations promulgated under the Federal Resource
Conservation and Recovery Act; (ii) such operations are not the subject
of any federal, state or local investigation evaluating the need for
remedial action involving an expenditure to respond to a release or
threatened release of any toxic or hazardous waste or substance into
the environment; (iii) neither the Company nor any of its Subsidiaries
has or could reasonably be expected to have any contingent
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liability in connection with any release of any toxic or hazardous
waste or substance into the environment; and (iv) the Company has
completed such environmental audits and investigations (including
"PHASE I" and "PHASE II" environmental audits), as the Purchasers may
request with respect to the operations of the Company and its
Subsidiaries, and such audits and investigations have not uncovered any
condition or conditions which could have a Material Adverse Effect.
(c) On or before the Closing Date, all authorizations,
consents and approvals necessary in connection with the transactions
contemplated hereby, including those identified in PARTS 8.9(A) AND
8.12(B) OF ANNEX 3, shall have been obtained in form and substance
acceptable to the Purchasers in their sole discretion and shall remain
in full force and effect.
(d) The offering, issuance, purchase and sale of, and payment
for, the Notes and Warrants on the Closing Date on the terms and
conditions of this Agreement (including the use of the proceeds of such
sale) shall be permitted by the laws and regulations of each
jurisdiction to which a Purchaser is subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law)
permitting limited investments by life insurance companies without
restriction as to the character of the particular investment, 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 any Purchaser to any tax (other than taxes generally
imposed on the investment income of the Holders), penalty, liability or
other condition adverse to it under or pursuant to any applicable law
or governmental regulation, and the Purchasers shall have received such
certificates or other evidence as to matters of fact as they may
reasonably request to enable them to determine whether such purchase is
so permitted.
(e) Private Placement Numbers shall have been assigned to the
Notes and Warrants by Standard & Poor's CUSIP Service Bureau.
(f) The Company shall have sold to each other Purchaser, and
each other Purchaser shall have purchased, the Notes and Warrants to be
purchased by it as set forth in ANNEX 1.
(g) Simultaneously with the purchase of the Notes and Warrants
on the Closing Date, the Bridge Loan shall be repaid in full and all
commitments thereunder terminated and the Bridge Warrants and the
Bridge Registration Agreement shall be terminated on terms and
conditions satisfactory to the Purchasers in their sole discretion.
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(h) The representations and warranties of each Loan Party
contained in this Agreement and any other Transaction Document shall be
true and correct on and as of the Closing Date after giving effect to
the Transactions and the Company and its Subsidiaries shall have
performed and complied in all material respects with all agreements and
conditions which this Agreement and each of the other Transaction
Documents require to be performed or complied with by such party on or
before the Closing Date.
(i) Without limiting the conditions set forth in Section
9.1(c), the Senior Agent and any other holder of Senior Debt under the
Senior Credit Agreement shall have executed and delivered to the
Purchasers an agreement, in form and substance acceptable to the
Purchasers, consenting to the transactions contemplated by the
Transaction Documents, permitting the Company to incur and have
outstanding the Debt, and subject to Section 7, make all payments
required hereunder in respect thereof, and all other obligations in
respect of this Agreement, and the Notes or other Transaction
Documents, the issuance of the Notes and the Warrants and the issuance
of the Warrant Shares upon exercise of the Warrants, permitting each
Guarantor to enter into this Agreement, and waiving any default or
event of default under the Senior Debt Documents which might have
occurred by virtue of the execution and delivery of this Agreement and
the other Transaction Documents.
(j) The Purchasers shall have received copies, certified as
true and complete by a Senior Officer of the Company, of the Seller
Note and any and all other notes, documents, agreements, instruments or
other writings (collectively, the "SELLER DOCUMENTS") setting forth or
evidencing the terms and conditions of any obligation due from the
Company, Alpine, AIG or any of their respective subsidiaries to Wind
Point Partners, or to any other Person who shall be a seller with
respect to the AIG Acquisition (each, a "SELLER"), and all such
obligations shall be subordinated to the Notes on terms satisfactory to
the Purchasers in their sole discretion.
(k) The Purchasers shall have received from Alpine, in form
and substance satisfactory to them in their sole discretion, an
agreement to vote all of its shares of the Company in favor of the
amendment required by Section 3.8.
(l) Fleet Corporate Finance, Inc. shall have paid to the
Purchasers commitment fees of $250,000 in the aggregate and shall have
paid all fees and expenses of the Purchasers (including the fees and
expenses of counsel for the Purchasers) incurred in connection with the
consideration, negotiation, preparation and execution of this Agreement
and the other Transaction Documents as provided in the separate
agreement between Fleet Corporate Finance, Inc. and John Hancock Mutual
Life Insurance Company.
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SECTION 10 INTERPRETATION OF THIS AGREEMENT
10.1 TERMS DEFINED.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
ACCEPTABLE REVOLVING CREDIT FACILITY - means and includes a revolving
credit agreement or similar agreement, including, without limitation, the Senior
Credit Agreement:
(a) pursuant to which the lender commits to permit the
Company, subject to the conditions therein, to obtain from time to time
thereunder loans or advances of cash, letters of credit or bankers
acceptances and periodically repay the same;
(b) the obligations under which are secured by a Lien upon
(among any other Property subject to such Lien) all or substantially
all Inventory and Receivables of the Company and the Subsidiaries which
are included in calculating the Borrowing Base;
(c) in the case of any replacement facility, having terms no
less favorable (taken as a whole and in all material respects) to the
Company than the revolving credit facility available to the Company
under the Senior Credit Agreement; and
(d) having an aggregate commitment thereunder of $15,000,000
or less.
ACQUIRED BUSINESS - means AIG, together with all of the issued and
outstanding capital stock of its Subsidiaries and the assets thereof, as
described in the AIG Acquisition Documents.
ACQUIRED DEBT - means, with respect to any specified Person, (i) Debt
of any other Person existing at the time such other Person is merged with or
into or becomes a Subsidiary of such specified Person, including, without
limitation, Debt incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Debt secured by a Lien encumbering any assets acquired by such
specified Person.
AFFILIATE - means and includes, at any time, each Person (other than a
Subsidiary):
(a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Company;
(b) that beneficially owns or holds five percent (5%) or more
of any class of the Voting Stock of the Company;
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(c) five percent (5%) or more of the Voting Stock (or in the
case of a Person that is not a corporation, five percent (5%) or more
of the equity interest) of which is beneficially owned or held by the
Company; or
(d) that is an officer or director of the Company;
at such time; PROVIDED, HOWEVER, that none of the Purchasers nor any of their
affiliates shall be deemed to be an "AFFILIATE,", no Person holding any one or
more of the Notes or Warrants shall be deemed to be an "AFFILIATE" solely by
virtue of the ownership of such securities; and Alpine, for so long as it owns
any Capital Stock of the Company, shall be deemed an Affiliate of the Company
and its Subsidiaries. As used in this definition:
CONTROL - means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise.
AGREEMENT, THIS - and references thereto shall mean this Senior
Subordinated Note and Warrant Purchase Agreement as it may from time to time be
amended or supplemented or otherwise modified.
AIG - means Alliance International Group, Inc.
AIG ACQUISITION - means the acquisition by the Company of all of the
issued and outstanding shares of common stock of AIG, the acquisition by
PolyVision Belgium of all of the issued and outstanding common stock (other than
directors' qualifying shares) of Alliance Europe and the acquisition by
PolyVision France of all of the issued and outstanding common stock (other than
directors' qualifying shares) of Aubecq; pursuant to a Stock Purchase Agreement,
dated September 1, 1998 and thereafter amended to November 20, 1998 by and
between the Company, AIG and the stockholders of AIG (the "AIG ACQUISITION
AGREEMENT)."
AIG ACQUISITION AGREEMENT - has the meaning set forth in the definition
of AIG Acquisition.
AIG ACQUISITION DOCUMENTS - means the AIG Acquisition Agreement, the
Seller Note and each of the other agreements and instruments executed and
delivered pursuant thereto or in connection therewith, and all schedules and
exhibits related to each such agreement.
ALLIANCE GRAPHICS - means Alliance Graphics N.V., a limited liability
company incorporated under the laws of Belgium, having an office at Zuiderring
St. 3600 Genk, Belgium, a wholly-owned subsidiary of Alliance Europe.
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ALLIANCE EUROPE - means Alliance Europe N.V., a wholly-owned subsidiary
of PolyVision Belgium.
ALPINE - means The Alpine Group, Inc., a Delaware corporation.
AMEX - means the American Stock Exchange or any successor thereto.
ANNEX 3 - means Annex 3 to this Agreement.
APPLICABLE INTEREST LAW - means any present or future law (including,
without limitation, the laws of the State of New York and the United States of
America) which has application to the interest and other charges pursuant to
this Agreement and the Notes.
APV - means APV, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company.
ASSET SALE - means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) by the Company or any Subsidiary other than sales of inventory or
disposition of obsolete machinery and equipment in the ordinary course of
business consistent with past practices (PROVIDED that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the provisions
of this Agreement in Section 4.1 and not by the provisions of Section 4.2) and
(ii) the issue or sale by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause (i)
or (ii), whether in a single transaction or a series of related transactions (a)
that have a Fair Market Value in excess of $500,000 or (b) for net proceeds in
excess of $500,000. Notwithstanding the foregoing, the following shall not be
deemed to be an Asset Sale: (i) a transfer of assets by the Company to a Wholly
Owned Restricted Subsidiary that is a Guarantor or by a Wholly Owned Restricted
Subsidiary to the Company or to another Subsidiary that is a Guarantor, (ii) an
issuance of Equity Interests by a Subsidiary to the Company or to another Wholly
Owned Restricted Subsidiary that is a Guarantor and (iii) a Restricted Payment
that is permitted in Section 4.6.
ASSET SALE OFFER - has the meaning specified in Section 4.2(a).
AUBECQ - means Emailleries de Blanc Misseron A. Aubecq, a limited
liability company incorporated as a "SOCIETE ANONYME" under the laws of France,
having an office at Rue des Deports 70, 59154 Crespin France, and a wholly owned
subsidiary of PolyVision France.
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BOARD OF DIRECTORS - means, at any time, the board of directors of the
Company or any of its Subsidiaries or any committee thereof that, in the
instance, shall have the lawful power to exercise the power and authority of
such board of directors.
BRIDGE LOAN - means the $25,000,000 loan made pursuant to the Senior
Subordinated Loan Agreement dated as of November 20, 1998 between the Company
and Fleet Corporate Finance, Inc.
BRIDGE LOAN REGISTRATION RIGHTS AGREEMENT - means the Registration
Agreement dated as of November 20, 1998 between the Company and Fleet Corporate
Finance, Inc.
BRIDGE LOAN WARRANT - means the Warrant for 12.5% of the Common Stock
issued by the Company to Fleet Corporate Finance, Inc. pursuant to a Warrant
Agreement dated as of November 20, 1998 between the Company and Fleet Corporate
Finance, Inc.
BUSINESS DAY - means a day other than a Saturday, a Sunday or a day on
which banks in the State of New York are required or permitted by law (other
than a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
CAPITAL EXPENDITURES - means, for any Person for any period, the sum of
all expenditures made, directly or indirectly, by such Person or any of its
subsidiaries during such period for equipment, fixed assets, real property or
improvements, or for replacements or substitutions therefor or additions
thereto, that have been or should be, in accordance with GAAP, reflected as
additions to property, plant or equipment on a consolidated balance sheet of
such Person.
CAPITAL LEASE - means, at any time, a lease of any Property with
respect to which the lessee is required to recognize the acquisition of an asset
and the incurrence of a liability in accordance with GAAP.
CAPITAL LEASE OBLIGATION - means, at the time any determination thereof
is to be made, the amount of the liability in respect of a Capital Lease.
CAPITAL STOCK - means any class of preferred, common or other capital
stock, share capital or similar equity interest of a Person including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
CHANGE IN CONTROL - means any of the following events: (a) Alpine shall
at any time cease to own and control (directly or through a Wholly-Owned
Subsidiary) at least 30% of the outstanding capital stock or voting power of the
Company (other than by reason of the
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conversion thereof into Common Stock), or Alpine sells or otherwise disposes of
more than 33% of its Common Stock or more than 33% of its holdings of any other
class of Capital Stock of the Company; or (b) the Company shall at any time
cease to own directly or indirectly one hundred (100%) percent of the
outstanding capital stock or voting power of any of its Subsidiaries (other than
directors' qualifying shares); or (c) with respect to Alpine, a change of
control of Alpine or the Company that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A, as in effect on the
date hereof, promulgated under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") shall occur; provided that, without limitation, such a
Change of Control shall be deemed to occur if: (i) any "PERSON" (as such term is
used in ss.13(d) and ss.14(d) of the Exchange Act), (except for (with respect to
the Company or iTS Subsidiaries) Alpine, Steven Elbaum or any employee benefit
plan of Alpine or any Borrower or any Subsidiary or related corporation, or any
entity holding voting securities of Alpine or the Company or any Subsidiary for
or pursuant to the terms of any such plan), shall become the beneficial owner,
directly or indirectly, of securities of Alpine representing 30% or more of the
combined voting power of Alpine's then outstanding securities or of securities
of the Company representing 30% or more (excluding, in respect of ownership of
the Company, Alpine in this clause and the following clause (ii)) of the
combined voting power of the Company's then outstanding securities; (ii) there
shall occur a contested proxy solicitation of Alpine's or the Company's
shareholders that results in the contesting party obtaining the ability to vote
securities representing 30% or more of the combined voting power of Alpine's or
the Company's then outstanding securities; (iii) there shall occur: (A) a sale,
lease, exchange, transfer or other disposition in one or a series of related
transactions of all or substantially all of the assets of Alpine or the Company
to another Person or entity or group (as such term is defined in Section
13(d)(3) of the Securities Act as amended), (B) a merger or consolidation in
which Alpine or the Company or any Subsidiary is a constituent unless the
surviving entity is controlled directly or indirectly by the same Persons (as
defined in this Agreement) that controlled Alpine or the Company or any
Subsidiary immediately prior to such merger or consolidation or (C) the adoption
of a plan of liquidation or dissolution of Alpine other than pursuant to
bankruptcy or insolvency laws; or (iv) during any period of twelve (12) calendar
months, individuals who at the beginning of such period constituted the Board of
Directors of Alpine or the Company shall cease for any reason to constitute at
least a majority thereof unless the election, or the nomination for election by
Alpine's shareholders or by the Company's shareholders, as applicable, of each
new director shall be approved by a vote of at least two-thirds (_) of the
directors then still in office who were directors at the beginning of the
period. For purposes of this definition "CONTROL", when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract, by family relationship or otherwise; and the terms
"CONTROLLING" and "CONTROLLED" have the meanings correlative to the foregoing.
CLOSING DATE - means the date on which the Notes are issued and the
conditions set forth in Section 9.1 are satisfied.
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COMMON STOCK - means the Common Stock, par value $.01 per share, of the
Company.
COMPANY - has the meaning specified in the introductory paragraph.
CONFIDENTIAL INFORMATION - means information delivered to any Holder by
or on behalf of the Company or any Subsidiary in connection with the
transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by such Holder as being confidential
information of the Company or such Subsidiary; PROVIDED, HOWEVER, that such term
does not include information that:
(a) was publicly known or otherwise known to such Holder prior
to the time of such disclosure;
(b) subsequently becomes publicly known through no act or
omission by such Holder or any Person acting on behalf of such Holder;
(c) otherwise becomes known to such Holder other than through:
(i) disclosure by the Company or any Subsidiary;
or
(ii) disclosure to such Holder which, to such
Holder's actual knowledge, was made to such Holder by any
Person in violation of a duty of confidentiality to the
Company or any Subsidiary; or
(d) constitutes financial statements delivered to such Holder
under Section 5.1 that are otherwise publicly available.
CONSOLIDATED DEBT - means all Debt of the Company and its Subsidiaries
on a consolidated basis in accordance with GAAP.
CREDIT FACILITIES - means, with respect to the Company or its
Subsidiaries, one or more Debt facilities (including, without limitation, the
Senior Credit Agreement) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit notes, term notes,
receivables financing (including, through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded or replaced or refinanced in whole or in
part from time to time. Debt under Credit Facilities outstanding on the date on
which Notes are first issued shall be deemed to have been incurred on such date
in reliance on the exception provided by clauses (i) and (ii) of the definition
of Permitted Debt (as defined in Section 4.5).
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DEBT - with respect to any Person, means, without duplication, the
liabilities of such Person with respect to:
(a) BORROWED MONEY - borrowed money;
(b) DEFERRED PURCHASE PRICE OF PROPERTY - the deferred
purchase price of Property acquired by such Person (excluding accounts
payable arising in the ordinary course of business but including all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such Property);
(c) SECURED LIABILITIES - borrowed money secured by any Lien
existing on Property owned by such Person (whether or not such
liabilities have been assumed);
(d) CAPITAL LEASES - Capital Leases of such Person;
(e) LETTERS OF CREDIT - letters of credit, bankers acceptances
or similar instruments serving a similar function issued or accepted by
banks and other financial institutions for the account of such Person
(whether or not representing obligations for borrowed money), other
than undrawn trade letters of credit in the ordinary course of
business;
(f) HEDGING OBLIGATIONS - Hedging Obligations of such Person;
and
(g) GUARANTEES - any Guaranty by such Person of any obligation
or liability of another Person of obligations of the type listed in
clause (a) through clause (f) of this definition of Debt;
PROVIDED that, with respect to the Company, Debt shall not include any unfunded
obligations which may now or hereafter exist with respect to the Company's
Plans.
Unless the context otherwise requires, "DEBT" means Debt of the Company or of a
Subsidiary.
DEBT ISSUANCE - means any issuance or sale or other incurrence by the
Company or any its Subsidiaries of any Debt.
DEFAULT - means any event which, with the giving of notice or the
passage of time, or both, would become an Event of Default.
DEFAULT RATE - has the meaning specified in Section 1.3(c).
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DE-LEVERAGING TRANSACTION - means any transaction of a Person, the
result of which (when calculated giving pro forma effect to such transaction as
if it had occurred at the beginning of the applicable four-quarter reference
period) shall be (i) to lower the ratio of the aggregate Debt of such Person to
the EBITDA of such Person and (ii) to increase the Fixed Charge Coverage Ratio
of such Person.
DISQUALIFIED STOCK - means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 180 days after the date on
which the Notes mature.
DOL - means the United States Department of Labor and any successor
agency.
DOMESTIC SUBSIDIARY - means any Subsidiary organized or formed under
the laws of the United States or any State or commonwealth thereof.
ENFORCEMENT NOTICE - has the meaning specified in Section 7.6.
ENVIRONMENTAL PROTECTION LAW - means any law, statute or regulation
enacted by any Governmental Authority in connection with or relating to the
protection or regulation of the environment, including, without limitation,
those laws, statutes and regulations regulating the disposal, removal,
production, storing, refining, handling, transferring, processing or
transporting of Hazardous Materials and any applicable orders, decrees or
judgments issued by any court of competent jurisdiction in connection with any
of the foregoing.
EQUIPMENT - means all of the Company's and/or its Subsidiaries'
machinery and equipment in all its forms, whether now owned or hereafter arising
or acquired wherever located, now or hereafter existing, all fixtures and all
parts thereof and all accessories thereto.
EQUITY INTEREST - means, in any Person, any and all shares, interests,
participations, rights or other equivalents (however designated) of any Capital
Stock or other ownership of any profit interest, and any and all warrants,
rights, options, obligations or other equity securities of or in such Person,
and rights to acquire any of the foregoing, including, without limitation,
partnership interests and joint venture (whether general or limited) and any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, such
partnership or joint venture, but excluding debt for borrowed money and
excluding any debt security that is convertible into, or exchangeable for, any
of the foregoing equity interests.
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EQUITY ISSUANCE - means any issuance or sale by the Company or any of
its Subsidiaries of its Capital Stock or other equity securities or any
obligations convertible into or exchangeable for, or giving any Person a right,
option or warrant to acquire, such securities or such convertible or
exchangeable obligations.
ERISA - means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA AFFILIATE - means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the IRC.
EUROPEAN LETTER OF CREDIT AGREEMENT(S) - means each of the Letter of
Credit Agreements by and between Fleet National Bank and KBC of even date with
the Senior Credit Agreement as amended from time to time relating to any
European Letter(s) of Credit.
EUROPEAN LETTER(S) OF CREDIT - means those certain standby letters of
credit issued by Fleet National Bank for the account of the Company and its
Subsidiaries to secure repayment of loans made by KBC to Alliance Europe,
Aubecq, Pentagon, Alliance Graphics, PolyVision Belgium and PolyVision France
under the KBC Loan Agreements, as the same are issued pursuant to, and from time
to time extended or amended in accordance with, the terms hereof and of the
European Letter of Credit Agreements; provided the aggregate face amount of such
letters of credit shall not exceed in the aggregate 640,240,847 BEF.
EVENT OF DEFAULT - has the meaning specified in Section 6.1.
EXCESS PROCEEDS - has the meaning specified in Section 4.2(a)(ii).
EXCHANGE ACT - means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC thereunder.
EXISTING DEBT - Means Debt of the Company and its Subsidiaries LISTED
PART 8.2(B) OF ANNEX 3.
EXTRAORDINARY RECEIPT - means any cash received by or paid to or for
the account of any Person not in the ordinary course of business (other than
by sale, lease or transfer), including, without limitation, tax refunds,
pension plan reversions, proceeds of insurance (other than proceeds of
business interruption insurance to the extent such proceeds constitute
compensation for lost earnings), condemnation awards (and payments in lieu
thereof) and indemnity payments; PROVIDED, HOWEVER, that an Extraordinary
Receipt shall not include cash receipts of less than $500,000 per occurrence
or $1,000,000 in the aggregate received from proceeds of insurance,
condemnation awards (and payments in
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lieu thereof) or indemnity payments to the extent that such proceeds, awards or
payments (a) in respect of loss or damage to Equipment, fixed assets or real
property are applied (or in respect of which expenditures were previously
incurred) in accordance with the terms of the Transaction Documents, to
replace or repair the Equipment, fixed assets or real property in respect of
which such proceeds, awards or payments were received so long as (i) such
application is made within one hundred eighty (180) days (or three hundred
sixty (360) days, with respect to real estate or improvements on real
estate), after such Person's receipt of such proceeds, awards or payments and
(ii) such proceeds, awards or payments are received by such Person within
fifteen (15) months after the occurrence of such damage or loss; or (b) are
received by any Person in respect of any third party claim against such
Person and applied to pay (or to reimburse such Person for its prior payment
of) such claim and the costs and expenses of such Person with respect thereto.
FAIR MARKET VALUE - means, 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.
FEDERAL FUNDS RATE - means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day for such
transactions received by the Purchasers from three Federal funds brokers of
recognized standing selected by them.
FIXED CHARGES - means the sum, for the Company and its Subsidiaries on
a Consolidated basis for any period, of (i) cash Interest Expense, PLUS (ii) in
determining whether a Transaction is a De-leveraging Transaction, current
maturities of Debt, and otherwise, scheduled amortization of Debt payable during
such period, plus (iii) income taxes and other taxes payable in respect of such
period, plus (iv) Capital Expenditures (net of new purchase money financing in
order to avoid double counting of any such new financing committed to but not
yet expended and subsequently expended in cash) during such period to the extent
permitted by the Senior Credit Agreement.
FIXED CHARGE COVERAGE RATIO - means, for the four consecutive fiscal
quarters of the Company and its Subsidiaries ending on the date of
determination, the ratio of (a) EBITDA of the Company and its Subsidiaries for
such four fiscal quarters (or other period specified in Section 4.12(c)), to (b)
Fixed Charges for such four fiscal quarters (or other period specified in
Section 4.12(c)).
FOREIGN DEBT - has the meaning specified in Section 3.8.
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FOREIGN SUBSIDIARY - means any Subsidiary other than a Domestic
Subsidiary.
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.
GOVERNMENTAL AUTHORITY - means:
(a) the government of:
(i) the United States of America and any state
or other political subdivision thereof; or
(ii) any other jurisdiction in which the Company
or any Subsidiary conducts all or any part of its business, or
that asserts any jurisdiction over the conduct of the affairs
of, or the Property of, the Company or any such Subsidiary;
and
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
GUARANTOR - has the meaning specified in the preamble to this
Agreement, together with any Domestic Subsidiary of the Company that becomes a
Guarantor pursuant to Section 3.5.
GUARANTY - means 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 debt, 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:
(a) to purchase such debt or obligation or any Property
constituting security therefor;
(b) to advance or supply funds
(i) for the purchase or payment of such debt,
dividend or obligation; or
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(ii) 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 debt, dividend or
obligation;
(c) to lease Property or to purchase securities or other
Property or services primarily for the purpose of assuring the owner of
such debt or obligation of the ability of the Primary Obligor to make
payment of the debt or obligation; or
(d) otherwise to assure the owner of the debt or obligation of
the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty, in connection with any
computation of debt or other liability:
(i) in each case where the obligation that is
the subject of such Guaranty is in the nature of debt for
money borrowed it shall be assumed (unless otherwise limited
in the agreement or instrument evidencing such Guaranty) that
the amount of the Guaranty is the amount of the direct
obligation then outstanding; and
(ii) in each case where the obligation that is
the subject of such Guaranty is not in the nature of debt for
money borrowed it shall be assumed that the amount of the
Guaranty is the amount (if any) of the direct obligation that
is then due.
HAZARDOUS MATERIAL - means all or any of the following:
(a) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable Environmental Protection Laws as
"HAZARDOUS SUBSTANCES", "HAZARDOUS MATERIALS", "HAZARDOUS WASTES",
"TOXIC SUBSTANCES" or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive
toxicity, "TLCP TOXICITY" or "EP TOXICITY";
(b) oil, petroleum or petroleum derived substances, natural
gas, natural gas liquids or synthetic gas and drilling fluids, produced
waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources;
(c) any flammable substances or explosives or any radioactive
materials;
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(d) asbestos or urea formaldehyde in any form; and
(e) dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million.
HEDGING OBLIGATIONS - means, with respect to any Person, the
obligations of such Person under any one or more of the following agreements
entered into by such Person with one or more financial institutions: interest
rate protection agreements, interest rate swaps and/or other types of interest
rate hedging agreements obligating such Person to make payments, whether
periodically or upon the happening of a contingency except that, if any
agreement relating to such obligations of such Person provides for the netting
of amounts payable by and to such Person thereunder or if any such agreement
provides for the simultaneous payment of amounts by and to such Person, then in
each such case, the amount of a Person's Hedging Obligations thereunder shall be
the net amount thereof. The aggregate net Hedging Obligations of a Person at any
time shall be the aggregate amount thereof assuming all such Hedging Obligations
had been terminated by such Person as of the end of its then most recently ended
fiscal quarter; provided if such net aggregate obligation shall be an amount
owing to such Person, then the amount shall be deemed to be Zero ($0) Dollars.
HISTORICAL FINANCIAL STATEMENTS - has the meaning specified in Section
8.2(a).
HOLDER - means any Person at the time shown as the holder of a Note on
the register referred to in Section 2.1.
HOME OFFICE - means, with respect to any Holder, the office of such
Holder specified as its Home Office on ANNEX 1, or such other office of such
Holder as such Holder may from time to time specify to the Company.
INDEMNIFIED PARTY - has the meaning specified in Section 12.6(d).
INSTITUTIONAL INVESTOR - means any bank, savings institution, trust
company, insurance company, investment company, pension or profit sharing trust
or other financial institution or institutional buyer, regardless of legal form.
INTRACOMPANY SUBORDINATION AGREEMENT - means the Intracompany
Subordination Agreement dated as of the date hereof among the Purchasers, the
Company and certain foreign Subsidiaries, as amended, modified or supplemented
from time to time.
INVESTMENTS - means all investments, made in cash or by delivery of
Property, by the Company and the Subsidiaries:
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(a) in any Person, whether by acquisition of stock, Debt or
other obligation or Security, or by loan, Guaranty, advance or capital
contribution, or otherwise; or
(b) in any Property.
IRC - means the Internal Revenue Code of 1986, together with all rules
and regulations promulgated pursuant thereto, as amended from time to time.
JUNIOR SUBORDINATED DEBT - means any Debt of the Company or any
Subsidiary which is:
(a) issued on or after the date of this Agreement and which is
expressly subordinated in right of payment to any Debt of the Company
including, the Seller Note and any Debt owed to a Foreign Subsidiary;
or
(b) owing to any Subsidiary or any Affiliate.
KBC - means KBC Bank NV, a Belgium limited liability company.
KBC LOAN AGREEMENT(S) - means individually or collectively as the
context may require (a) the Credit Facility Agreement of even date with the
Senior Credit Agreement by and among KBC, Alliance Europe, Alliance Graphics,
Aubecq and Pentagon amending and restating that certain Credit Facility
Agreement dated as of October 2, 1997, as it was amended on January 27, 1998,
and (b) the Credit Facility Agreement by and among KBC, PolyVision Belgium and
PolyVision France of even date with the Senior Credit Agreement, in respect of
each of the foregoing, as amended from time to time in accordance with the terms
thereof and the Senior Credit Agreement.
LIEN - means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property (for purposes of
this definition, the "OWNER"), whether such interest is based on the common law,
statute or contract, and includes but is not limited to:
(a) the security interest or lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes, and the filing of any
financing statement under the Uniform Commercial Code of any
jurisdiction, or an agreement to give any of the foregoing;
(b) reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting real Property;
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(c) stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements affecting the Owner's rights in
stock owned by the Owner; and
(d) any interest in any Property held by the Owner evidenced
by a conditional sale agreement, Capital Lease or other arrangement
pursuant to which title to such Property has been retained by or vested
in some other Person for security purposes.
The term "LIEN" does not include negative pledge clauses in loan agreements and
equal and ratable security clauses in loan agreements.
LOAN PARTY - means each of the Company and each Subsidiary Guarantor.
MANAGEMENT FEES - for any period, all fees, emoluments or similar
compensation paid or incurred by any Person (other than any such fees,
emoluments or similar compensation paid to or incurred and payable to the
Company or any of its Subsidiaries) to any of its Affiliates in respect of
services rendered in connection with the management or supervision of the
management of such Person, other than salaries, bonuses and other compensation
paid to any full-time executive employee in respect of such full-time
employment.
MATERIAL ADVERSE EFFECT - means (a) a material adverse effect on the
business, condition (financial or otherwise), results of operations,
performance, prospects or properties of the Company and its Subsidiaries (taken
as a whole), (b) unless such event is not material, an adverse effect on the
ability of any Loan Party to perform its obligations under the Transaction
Documents to which it is a party, or (c) an adverse effect on the rights and
remedies of the Holders under any of the Transaction Documents. In determining
whether any individual event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such effect, a Material
Adverse Effect shall be deemed to have occurred if the cumulative effect of such
event and all other existing events would result in a Material Adverse Effect.
MATURITY DATE - has the meaning specified in Section 1.1(c).
MAXIMUM LEGAL RATE OF INTEREST - means the maximum rate of interest
that a Holder may from time to time legally charge the Company by agreement and
in regard to which the Company would be prevented successfully from raising the
claim or defense of usury under the Applicable Interest Law as now or hereafter
construed by courts having appropriate jurisdiction.
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MEMORANDUM - means the Confidential Private Placement Memorandum dated
December, 1998 prepared by Fleet Corporate Finance, Inc. with the advice and
consent of the Company.
MODIFIED PREPAYMENT COMPENSATION AMOUNT - means, with respect to
Prepaid Principal and the date the payment thereof is due, an amount equal to
the applicable percentage set out below of the Prepaid Principal:
<TABLE>
<CAPTION>
- ------------------------------------------------------------- ------------------------------------------------------
- ------------------------------------------------------------- ------------------------------------------------------
If Prepayment Occurs During the Period
Specified Below Percentage of Prepaid Principal:
- ------------------------------------------------------------- ------------------------------------------------------
- ------------------------------------------------------------- ------------------------------------------------------
<S> <C>
From and including December 31, 2001 up to and including 5%
December 30, 2002
- ------------------------------------------------------------- ------------------------------------------------------
- ------------------------------------------------------------- ------------------------------------------------------
From and including December 31, 2002 up to and including 4%
December 30, 2003
- ------------------------------------------------------------- ------------------------------------------------------
- ------------------------------------------------------------- ------------------------------------------------------
From and including December 31, 2003 up to and including 3%
December 30, 2004
- ------------------------------------------------------------- ------------------------------------------------------
- ------------------------------------------------------------- ------------------------------------------------------
after December 30, 2004 0%
- ------------------------------------------------------------- ------------------------------------------------------
- ------------------------------------------------------------- ------------------------------------------------------
</TABLE>
MULTIEMPLOYER PLAN - means any "MULTIEMPLOYER PLAN" (as defined in
section 3(37) of ERISA) in respect of which the Company or any ERISA Affiliate
is an "EMPLOYER" (as such term is defined in section 3 of ERISA).
NASDAQ - means the NASDAQ Stock Market, Inc., a subsidiary of the NASD,
or any successor thereto.
NASDAQ NATIONAL MARKET - has the meaning ascribed thereto in Rule
4200(r) of NASDAQ.
NET CASH PROCEEDS - means, with respect to any sale, lease, transfer or
other disposition of any asset or any Debt Issuance or Equity Issuance by any
Person, or any Extraordinary Receipt received by or paid to or for the account
of any Person, the aggregate amount of cash received from time to time (whether
as initial consideration or through payment or disposition of deferred
consideration) by or on behalf of such Person in connection with such
transaction after deducting therefrom only (without duplication) (a) reasonable
and customary brokerage commissions, underwriting fees and discounts, legal and
accounting fees, finder's fees, printing costs and other similar out-of-pocket
costs, (b) the amount of taxes payable in connection with or as a result of such
transaction and (c) with respect to any asset, the amount of any Debt secured by
a Lien on such asset that, by the terms of such transaction or the terms of such
Debt, is required to be repaid upon
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such disposition, in each case to the extent, but only to the extent, that the
amounts so deducted are, at the time of receipt of such cash, actually paid or
due and payable or set aside for payment (because due and payable) within ten
(10) Business Days after receipt by the applicable Loan Party to a Person that
is not an Affiliate of such Person or any Loan Party or any Affiliate of any
Loan Party and are properly attributable to such transaction or to the asset
that is the subject thereof.
NONPAYMENT DEFAULT NOTICE - has the meaning specified in Section
7.5(b).
NOTES - has the meaning specified in Section 1.1(a).
OFFICERS' CERTIFICATE - means a certificate signed on behalf of the
Company by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that includes: (1) a statement that
the Person making such certificate or opinion has read such covenant or
condition; (2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based; (3) a statement that, in the opinion of such
person, he or she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not such
covenant or condition has been satisfied; and (4) a statement as to whether or
not, in the opinion of such Person, such condition or covenant has been
satisfied.
OTHER TAXES - has the meaning specified in Section 2.3(b).
PAYMENT BLOCKAGE - has the meaning specified in Section 7.5.
PAYMENT BLOCKAGE PERIOD - has the meaning specified in Section 7.5.
PAYMENT BLOCKAGE PERIOD TERMINATION DATE - means, with respect to any
Significant Nonpayment Default, the earliest of:
(1) the last day of the period equal to the difference of:
(i) one hundred eighty (180) days; MINUS
(ii) the aggregate number of days during the
three hundred sixty-five (365) calendar days
immediately preceding the date upon which the
Nonpayment Default Notice relating to such
Significant Nonpayment Default during which a Payment
Blockage has been in effect with respect to any other
Significant Nonpayment Default;
commencing with the earlier of:
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(A) the date upon which the
Nonpayment Default Notice was given; and
(B) if any Standstill Period was
existing on the date the Nonpayment Default
Notice was given, the date such Standstill
Period commenced;
(2) the date on which such Significant Nonpayment Default
shall have been cured or waived in writing (whether by amendment of any
provision of the Senior Credit Agreement or otherwise) or shall have
ceased to exist;
(3) the date such Payment Blockage Period shall have been
terminated by written notice to the Company from the Senior Agent; and
(4) the date of the repayment in full in cash or cash
equivalents of the Senior Debt and the termination of any commitment to
make any further loans or advances in respect of the Senior Debt.
PAYMENT DATE - has the meaning specified in the definition "STANDARD
PREPAYMENT COMPENSATION AMOUNT".
PAYMENT DEFAULT NOTICE - has the meaning specified in Section 7.4.
PBGC - means the Pension Benefit Guaranty Corporation, or any other
Person succeeding to the duties thereof.
PENTAGON - means Alliance Pentagon A/S, a limited liability corporation
incorporated under the laws of Denmark having an office at Krogagervej 2 5340
Odense No, Denmark, and a wholly-owned Subsidiary of Alliance Europe.
PERMITTED DEBT - as defined in Section 4.5.
PERMITTED REFINANCING INDEBTEDNESS - means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Debt of the Company or any of its Subsidiaries (other than intercompany Debt);
PROVIDED, that (i) the maximum principal amount (or accreted value, if
applicable) permitted to be outstanding under such Permitted Refinancing
Indebtedness does not exceed the principal amount (or accreted value, if
applicable) then permitted to be outstanding under the Debt so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the maturity date
of, and has a Weighted Average Life to Maturity
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equal to or greater than the Weighted Average Life to Maturity of the debt being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Debt
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Debt being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Debt is incurred either by the Company or by the
Subsidiary who is the obligor on the Debt being extended, refinanced, renewed,
replaced, defeased or refunded.
PERSON - means an individual, partnership, corporation, limited
liability company, joint venture, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
PLAN - means an "EMPLOYEE BENEFIT PLAN" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
POLYVISION BELGIUM - means PolyVision Belgium, N.V., a Belgium
corporation (a limited liability company).
POLYVISION FRANCE - means PolyVision France, a French E.U.R.L.
PREFERRED STOCK - means as to any Person, any class or series of Equity
Interest of such Person that has a priority as to the payment of any dividends
or distributions or profits over the holders of the most junior class of Equity
Interest of such Person.
PREPAID PRINCIPAL - means any portion of the principal amount of any
Note being paid for any reason (including, without limitation, optional payment
or mandatory payment required because of the occurrence of a contingency) prior
to its regularly scheduled maturity date.
PREPAYMENT COMPENSATION AMOUNT - at any time, means:
(1) if such time is after the Closing Date but prior to
December 31, 2001, the Standard Prepayment Compensation Amount; and
(2) if such time is on or after December 31, 2001, the
Modified Prepayment Compensation Amount.
PRIME RATE - means a fluctuating interest rate per annum in effect from
time to time, equal to the rate of interest announced publicly by Fleet National
Bank in Boston,
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Massachusetts, from time to time, as Fleet National Bank's prime rate, which is
not necessarily the lowest rate made available by Fleet National Bank.
PRO FORMA FINANCIAL STATEMENTS - has the meaning specified in Section
8.2(h).
PROJECTIONS - has the meaning specified in Section 8.2(f).
PROPERTY - means any ownership interest in any kind of property or
asset, whether real, personal or mixed, and whether tangible or intangible.
PURCHASER - has the meaning specified in the introductory paragraph.
REFINANCING - means and includes, with respect to any Debt, any
renewal, extension, replacement, refinancing or refunding of such Debt; and the
terms "REFINANCE" and "REFINANCED" have correlative meanings.
REGISTER - has the meaning specified in Section 2.1.
REGISTRATION AGREEMENT - means the Registration Agreement dated as of
the date hereof among the Purchasers and the Company.
REMEDIES - means and includes, with respect to any Debt (including,
without limitation, the Senior Debt and the Subordinated Debt):
(a) the acceleration of the maturity of any of such Debt;
(b) the exercise of any put right or other similar right to
require the Company or any Subsidiary to repurchase any of such Debt
prior to the stated maturity thereof;
(c) the commencement of proceedings against the Company, any
Subsidiary or any other Person obligated on such Debt or any of their
respective Property, to enforce or collect any of such Debt;
(d) taking possession of or foreclosing upon (whether by
judicial proceedings or otherwise) any Liens or other collateral
security for such Debt; or causing a marshaling of any Property of the
Company or any Subsidiary in connection with any collection of such
Debt;
(e) the making of a demand in respect of any Guaranty given by
the Company or any Subsidiary of such Debt; or
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(f) exercising any other remedies with respect to such Debt or
any claim with respect thereto.
REQUIRED HOLDERS - means, at any time, the Holders of more than fifty
(50%) percent in principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by any one or more of the Company, any Subsidiary
or any Affiliate).
RESTRICTED INVESTMENT - means, at any time, all Investments except the
following:
(a) Property (including, without limitation, real Property and
interests therein) to be used in the ordinary course of business and
current assets arising from the sale of goods and services in the
ordinary course of business of the Company and the Subsidiaries;
(b) Investments in one or more Subsidiaries or any corporation
that concurrently with such Investment becomes a Subsidiary;
(c) Investments in direct obligations of the United States of
America, any agency thereof or obligations guaranteed by the United
States of America, so long as such obligations are backed by the full
faith and credit of the United States of America; PROVIDED that such
obligations mature within three (3) years from the date of acquisition
thereof;
(d) Investments in any obligation of any state or municipality
thereof given either of the two (2) highest ratings by at least one
credit rating agency of recognized national standing and maturing
within three (3) years from the date of acquisition;
(e) Investments in certificates of deposit or banker's
acceptances given one (1) of the two (2) highest ratings by at least
one credit rating agency of recognized national standing, issued by a
bank or trust company organized under the laws of the United States of
America or any state thereof having capital, surplus and undivided
profits aggregating at least One Hundred Million Dollars ($100,000,000)
and maturing within one (1) year from the date of acquisition;
(f) Investments in money market mutual funds that invest
solely in so-called "MONEY MARKET" instruments maturing not more than
one year after the acquisition thereof and given one of the two (2)
highest ratings by at least one credit rating agency of recognized
national standing;
(g) Investments in commercial paper given either of the two
(2) highest ratings by at least one credit rating agency of recognized
national standing and
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maturing not more than two hundred seventy (270) days from the date of
creation thereof; and
(h) Investments outstanding on the Closing Date and listed on
PART 8.1(G) OF ANNEX 3.
Investments shall be valued at cost less any net return of capital
through the sale or liquidation thereof or other return of capital
thereon.
RESTRICTED PAYMENT - means and includes:
(a) any dividend or other distribution, direct or indirect, on
account of any shares of Capital Stock (including, without limitation,
the Common Stock) or Rights of the Company, now or hereafter
outstanding, except a dividend payable solely in shares of Common
Stock; or
(b) any dividend or other distribution, direct or indirect, on
account of any shares of Capital Stock or Rights of any Subsidiary, now
or hereafter outstanding, except:
(i) a dividend payable solely in shares of
common stock of such Subsidiary; or
(ii) to the extent that such dividend or
distribution is, directly or indirectly, payable to the
Company or a Domestic Wholly-Owned Subsidiary or by a Foreign
Subsidiary to another Foreign Subsidiary; and
(c) any payment, whether in respect of principal, premium,
interest, fees, expenses or otherwise, in respect of, or any
redemption, retirement, purchase or other acquisition, direct or
indirect, of, any Junior Subordinated Debt.
RESTRICTED REPURCHASE -- means and includes:
(a) any redemption, retirement, purchase or other acquisition,
direct or indirect, of any shares of Capital Stock or Rights of the
Company now or hereafter outstanding, except in the case of Rights, the
retirement of such Rights by virtue of the exercise or conversion
thereof into Common Stock; or
(b) any redemption, retirement, purchase or other acquisition,
direct or indirect, of any shares of Capital Stock or Rights of any
Subsidiary now or hereafter outstanding, except to the extent that such
redemption, retirement, purchase or other acquisition is made from, and
the payment in respect of such redemption, retirement, purchase or
other acquisition is paid, directly or indirectly, to the Company.
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RESTRICTED SUBSIDIARY - means and includes any Subsidiary that is or
becomes a Guarantor.
RIGHT - with respect to any class of Capital Stock (including, without
limitation, Common Stock) of the Company or any Subsidiary, means and includes:
(a) any warrant (including, without limitation, any Warrant)
or any option (including, without limitation, employee stock options)
to acquire any such Capital Stock;
(b) any right issued to holders of such Capital Stock,
permitting such holders to subscribe to shares of any such Capital
Stock or Rights (pursuant to a rights offering or otherwise);
(c) any right to acquire such Capital Stock pursuant to the
provisions of any Security (including, without limitation, any Series A
Preferred Stock, as and when issued) convertible or exchangeable into
such Capital Stock; and
(d) any similar right permitting the holder thereof to
subscribe for or purchase shares of such Capital Stock.
SEC - means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
SECURITIES ACT - means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
SECURITY - means "SECURITY" as defined by section 2(1) of the
Securities Act.
SELLER - has the meaning specified in Section 9.1(j).
SELLER DOCUMENTS - has the meaning specified in Section 9.1(j).
SELLER NOTE - means the 10% Convertible Subordinated Note, in the
original principal amount of $8,000,000, issued on November 20, 1998 by the
Borrower to Wind Point Partners III, L.P., as agent, pursuant to the AIG
Acquisition Agreement.
SENIOR AGENT - means, for so long as the Senior Credit Agreement
remains outstanding, Fleet National Bank, as agent in respect of the Senior
Credit Agreement, and thereafter, any one agent or lender in respect of the
Senior Credit Facility, or representative of either, designated in writing to
each Holder by the predecessor Senior Agent and the Company as being the "SENIOR
AGENT".
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SENIOR CREDIT AGREEMENT - means the Credit Agreement, dated November
20, 1998, among the Company, the banks, financial institutions and other
institutional lenders named therein, and Fleet National Bank, as
Administrative Agent, as Initial Issuing Bank and as Swing Line Bank, as
thereafter amended in compliance with the provisions of Section 7.16.
SENIOR CREDIT FACILITY - means and includes:
(a) the Senior Credit Agreement; and
(b) any Acceptable Revolving Credit Facility and/or other
Credit Facilities incurred in compliance with Section 4.5, which
Refinance the Senior Credit Agreement, which Acceptable Revolving
Credit Facility or other Credit Facilities has Refinanced the Senior
Debt governed by the terms of a Senior Credit Facility which both the
Company and the Senior Agent under the predecessor Senior Credit
Facility (or, if no such other agreement is then in effect, the
Company) have designated in writing to each Holder as being the "SENIOR
CREDIT FACILITY;" PROVIDED, HOWEVER, that, by making such designation,
the predecessor Senior Credit Facility shall cease to be the Senior
Credit Facility (but any Debt outstanding or incurred thereunder shall
continue to be Senior Debt for so long as such Debt meets the
definition thereof).
SENIOR DEBT - means and includes all obligations, liabilities and debt
of the Company now or hereafter existing, whether fixed or contingent, and
whether for principal, interest (including interest accruing after the filing of
a petition under the Bankruptcy Code, whether or not allowed), fees, expenses,
indemnification or otherwise, in respect of:
(a) the Senior Credit Facility; and
(b) the KBC Loan Agreements;
provided the maximum aggregate principal amount of Senior Debt shall not, at
any time, exceed Sixty Million Dollars ($60,000,000) (provided aggregate
amount of Senior Debt may exceed $60,000,000 as a result, and solely to the
extent that, conversion of the face amount of European Letters of Credit into
United States dollars causes the principal amount thereof to exceed
$18,630,608) less (i) the sum of all principal payments in respect of term
Debt under the Credit Facilities described in clauses (a) and (b) above that
at any time are actually made, and less (ii) the sum of all permanent
commitment reductions with respect to revolving credit Debt under the Credit
Facilities described in clauses (a) and (b) above. If at any time the
aggregate amount of Debt outstanding under the Credit Facilities described in
clauses (a) and (b) above exceeds Sixty Million Dollars ($60,000,000)
(provided aggregate amount of Senior Debt may exceed $60,000,000 as a result,
and solely to the extent that, conversion of the face amount of European
Letters of Credit into
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United States dollars causes the principal amount thereof to exceed
$18,630,608), the amount of Debt under each such Credit Facility which shall
constitute "Senior Debt" shall be allocated among such Credit Facilities pro
rata according to the aggregate amount of Debt outstanding under each such
Credit Facility, and any payments made or received in respect of such Credit
Facilities at a time when no payments may be made or received in respect of
the Subordinated Debt pursuant to Section 7, shall be first applied to the
Senior Debt outstanding under such Credit Facilities.
Notwithstanding the foregoing, in no event shall "SENIOR DEBT" include
any Junior Subordinated Debt.
SENIOR DEBT DOCUMENTS - means all instruments, documents and agreements
representing or otherwise governing the terms of the Senior Debt.
SENIOR FINANCIAL OFFICER - means any one of the chief financial
officer, the treasurer and the principal accounting officer of the Company.
SENIOR OFFICER - means any one of the chairman of the board of
directors, the chief executive officer, the chief operating officer, chief
financial officer, and the president, of the Company.
SENIOR PAYMENT DEFAULT - Section 7.4(a).
SIGNIFICANT NONPAYMENT DEFAULT - means and includes:
(a) an event of default under the Senior Credit Facility in
respect of the failure of the Company to comply with any material
covenant or agreement in respect of the Senior Credit Facility (it
being understood that the provisions of Articles 6 and 8 of the Senior
Credit Agreement, as in effect on the date hereof, are "MATERIAL
COVENANTS" for such purpose); and
(b) an event of default in respect of the Senior Credit
Facility arising out of any Event of Default in respect of this
Agreement.
SOLVENT - means with respect to any Person (i) the fair value of the
property of such Person exceeds its total liabilities (including, without
limitation, contingent liabilities), (ii) the present fair saleable value of the
assets of such Person is not less than the amount that will be required to pay
its probable liability on its debts as they become absolute and matured, (iii)
such Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond its ability to pay as such debts and liabilities mature
and (iv) such Person is not engaged, and is not about to engage, in business or
a transaction for which its property would constitute an unreasonably small
capital.
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STANDARD PREPAYMENT COMPENSATION AMOUNT - means, with respect to
Prepaid Principal and the date the payment thereof is due (for purposes of this
definition, the "PAYMENT DATE"), an amount equal to the excess (if any) of the
Present Value of the Prepaid Cash Flows over the amount of, an amount equal to
such Prepaid Principal, determined in respect of such Prepaid Principal as of
such Payment Date. As used in this definition:
Present Value of the Prepaid Cash Flows means the sum of the present values of
the then remaining scheduled payments of principal and interest that would have
been payable in respect of such Prepaid Principal but that are no longer payable
as a result of the early payment of such Prepaid Principal, and in determining
such present values:
(i) the amount of interest accrued through and including the day immediately
preceding such Payment Date on such Prepaid Principal since the scheduled
interest payment date immediately preceding such Payment Date shall be deducted
from the first of such payments of interest; and
(ii) a discount rate per annum equal to the Make Whole Discount Rate determined
with respect to such Prepaid Principal and such Payment Date divided by four
(4), and a discount period of one (1) quarter, shall be used.
Make Whole Discount Rate means the sum of:
(i) one percent (1.00%) per annum; plus the per annum percentage rate (rounded
to the nearest three (3) decimal places) equal to the bond equivalent yield to
maturity derived from the Bloomberg Rate, or if the Bloomberg Rate is not then
available, the Applicable H.15 Rate, determined as of the date that is two (2)
Business Days prior to such Payment Date.
APPLICABLE H. 15 - means, at any time, the United States
Federal Reserve Statistical Release H.15(519) then most recently
published and available to the public, or if such publication is not
available, then any other source of current information in respect of
interest rates on securities of the United States of America that is
generally available and, in the reasonable judgment of the Required
Holders, provides information reasonably comparable to the H.15(519)
report.
APPLICABLE H. 15 RATE - means, at any time, the then most
current annual yield to maturity of the hypothetical United States
Treasury obligation listed in the Applicable H. 15 with a Treasury
Constant Maturity (as such term is defined in such Applicable H.15)
equal to the Weighted Average Life to Maturity of such Prepaid
Principal. If no such United States Treasury obligation with a Treasury
Constant Maturity corresponding exactly to such Weighted Average Life
to Maturity is listed,
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then the yields for the two (2) then most current hypothetical United
States Treasury obligations with Treasury Constant Maturities most
closely corresponding to such Weighted Average Life to Maturity (one
(1) with a longer maturity and one (1) with a shorter maturity, if
available) shall be calculated pursuant to the immediately preceding
sentence and the Make-Whole Discount Rate shall be interpolated or
extrapolated from such yields on a straight-line basis.
BLOOMBERG RATE - means the per annum yield reported on the
Bloomberg Financial Markets System at 10:00 a.m. (New York time) on the
second (2nd) Business Day preceding such Payment Date for United States
government securities having a maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Maturity of such Prepaid
Principal. Page USD shall be used as the source of such yields, or if
not then available, such other screen available on the Bloomberg
Financial Markets System as shall, in the opinion of the Required
Holders, provide equivalent information.
TREASURY CONSTANT MATURITY - has the meaning specified in the
definition Applicable H.15.
WEIGHTED AVERAGE LIFE TO MATURITY - means the number of years
(calculated to the nearest one-twelfth (1/12th)) obtained by dividing
the Remaining Dollar-Years of such Prepaid Principal by such Prepaid
Principal, determined as of such Payment Date.
REMAINING DOLLAR-YEARS - means the result obtained by:
(a) multiplying, in the case of each then
remaining scheduled payment of principal that would have been
payable in respect of Prepaid Principal but is no longer
payable as a result of the payment of such Prepaid Principal;
(i) an amount equal to such scheduled
payment of principal; by
(ii) the number of years (calculated to the
nearest one-twelfth) that will elapse between such
Payment Date and the date such scheduled principal
payment would be due if such Prepaid Principal had
not been so prepaid; and
(b) calculating the sum of each of the products obtained in
the preceding subsection (a).
STANDSTILL PERIOD - has the meaning specified in Section 7.7.
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SUBORDINATED DEBT - means and includes all obligations, liabilities and
debt of any Loan Party now or hereafter existing, whether fixed or contingent,
and whether for principal, interest (including interest accruing after the
filing of a petition under the Bankruptcy Code, to the extent allowed), fees,
expenses, indemnification or otherwise, in respect of this Agreement and the
Notes.
SUBSIDIARY - means (i) a corporation of which the Company owns,
directly or indirectly, more than fifty percent (50%) (by number of votes) of
each class of Voting Stock, or (ii) any other entity of which the Company owns,
directly or indirectly, more than fifty percent (50%) of the rights to profits
and losses.
SUBSIDIARY STOCK - has the meaning specified in Section 4.2(b).
SURVIVING CORPORATION - has the meaning specified Section 4.1(a).
TAXES- has the meaning specified in Section 2.3(a).
TRANSACTIONS - shall mean, collectively, (i) the execution and delivery
of this Agreement and the other Transaction Documents, (ii) the issuance of the
Notes and Warrants on the Closing Date, (iii) the repayment of the Bridge Loan,
(iv) any other transaction on the Closing Date contemplated in relation to the
foregoing and (v) the payment of Transaction Costs.
TRANSACTION COSTS - means the fees, costs and expenses payable by the
Company pursuant hereto and other fees, costs and expenses payable by the
Company or a Subsidiary of the Company in connection with the Transactions.
TRANSACTION DOCUMENTS - means and includes this Agreement, the Notes,
the Warrant Agreement, the Warrant, the Registration Agreement, the Intracompany
Subordination Agreement and the other agreements, certificates and instruments
to be executed pursuant to the terms of each of the foregoing, as each may be
amended, restated or otherwise modified from time to time.
10-K - means the Form 10-K of the Company for the fiscal year ended
April 30, 1998.
10-QS - means the Form 10-Qs of the Company for the fiscal quarters
ended July 31, 1998 and October 31, 1998.
VOTING STOCK - means, 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 any stock of any other class or classes
shall have or might have voting power by reason of the
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happening of any contingency), and, in the case of the Company, shall include
the Common Stock. Except as otherwise provided, references herein to "VOTING
STOCK" shall mean Voting Stock of the Company.
WARRANT - means each warrant to purchase Common Stock (or, at the
option of the Purchasers non-voting common stock) issued or which may be issued
pursuant to the Warrant Agreement.
WARRANT AGREEMENT - means the Warrant Agreement, dated as of the date
hereof, between the Company and the Purchasers, pursuant to which the Warrants
may be issued, as it may be amended, restated or otherwise modified from time to
time.
WHOLLY-OWNED SUBSIDIARY - means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity Securities (except directors'
qualifying shares) and Voting Stock (except directors' qualifying shares) of
which are owned by any one or more of the Company and the Company's other
Wholly-Owned Subsidiaries at such time.
10.2 OTHER DEFINITIONS.
The following terms shall have the respective meanings ascribed to such
terms in the Senior Credit Agreement, as in effect on the Closing Date and
WITHOUT GIVING EFFECT TO ANY AMENDMENT TO the Senior Credit Agreement subsequent
to the date thereof:
Consolidated
Consolidated Debt to EBITDA Ratio
EBITDA
Interest Expense
Inventory
Receivables
A copy of such defined terms is attached as Annex 4.
10.3 ACCOUNTING PRINCIPLES.
(1) GENERALLY. Unless otherwise provided herein, all financial
statements delivered in connection herewith will be prepared in
accordance with GAAP. 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; 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.
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(2) CONSOLIDATION. Whenever accounting amounts of a group of
Persons are to be determined "ON A CONSOLIDATED BASIS" it shall mean
that, as to balance sheet amounts to be determined as of a specific
time, the amount that would appear on a consolidated balance sheet of
such Persons prepared as of such time, and as to income statement
amounts to be determined for a specific period, the amount that would
appear on a consolidated income statement of such Persons prepared in
respect of such period, in each case with all transactions among such
Persons eliminated, and prepared in accordance with GAAP except as
otherwise required hereby.
(3) CURRENCY. With respect to any determination, consolidation
or accounting computation required hereby, any amounts not denominated
in the currency in which this Agreement specifies shall be converted to
such currency in accordance with the requirements of GAAP (as such
requirements relate to such determination, consolidation or
computation) and, if no such requirements shall exist, converted to
such currency in accordance with normal banking procedures, at the
closing rate as reported in The Wall Street Journal published most
recently as of the date of such determination, consolidation or
computation or, if no such quotation shall then be available, as quoted
on such date by any bank or trust company reasonably acceptable to the
Required Holders.
10.4 DIRECTLY OR INDIRECTLY.
Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person,
including actions taken by or on behalf of any partnership in which such Person
is a general partner.
10.5 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION.
(1) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of
the Sections of this Agreement and the Table of Contents of this
Agreement appear as a matter of convenience only, do not constitute a
part hereof and shall not affect the construction hereof. The words
"HEREIN," "HEREOF," "HEREUNDER" and "HERETO" refer to this Agreement as
a whole and not to any particular Section or other subdivision.
References to Sections are, unless otherwise specified, references to
Sections of this Agreement. References to Annexes and Exhibits are,
unless otherwise specified, references to Annexes and Exhibits attached
to this Agreement.
(2) CONSTRUCTION. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being
independent of each other covenant contained herein, and compliance
with any one covenant shall not (absent
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such an express contrary provision) be deemed to excuse compliance with
one or more other covenants.
10.6 GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF
ANY OTHER JURISDICTION. IN ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT
THEY MAY LAWFULLY DO SO, THE INTERNAL LAWS OF THE STATE OF NEW YORK AS THE
APPLICABLE INTEREST LAW.
10.7 GENERAL INTEREST PROVISIONS.
(1) INTEREST IN RESPECT OF THE NOTES. It is the intention of
the Company and the Purchasers to conform strictly to the Applicable
Interest Law. Accordingly, it is agreed that, notwithstanding any
provisions to the contrary in this Agreement or in the Notes, the
aggregate of all interest, and any other charges or consideration
constituting interest under the Applicable Interest Law that is taken,
reserved, contracted for, charged or received pursuant to this
Agreement or the Notes shall under no circumstances exceed the maximum
amount of interest allowed by the Applicable Interest Law. If any such
excess interest is ever charged, received or collected on account of or
relating to this Agreement and the Notes (including any charge or
amount which is not denominated as "INTEREST" but is legally deemed to
be interest under Applicable Interest Law), then in such event:
(1) the provisions of this Section 10.7 shall
govern and control;
(2) the Company shall not be obligated to pay
the amount of such interest to the extent that it is in excess
of the maximum amount of interest allowed by the Applicable
Interest Law;
(3) any excess shall be deemed a mistake and
canceled automatically and, if theretofore paid, shall be
promptly repaid to the Company; and
(4) the effective rate of interest shall be
automatically subject to reduction to the Maximum Legal Rate
of Interest.
If at any time thereafter, the Maximum Legal Rate of Interest is increased,
then, to the extent that it shall be permissible under the Applicable Interest
Law, the Company shall forthwith pay to the Holders, on a pro rata basis, all
amounts of such excess interest that
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the Holders would have been entitled to receive pursuant to the terms of this
Agreement and the Notes had such increased Maximum Legal Rate of Interest been
in effect at all times when such excess interest accrued. To the extent
permitted by the Applicable Interest Law, all sums paid or agreed to be paid to
the Holders for the use, forbearance or detention of the debt evidenced thereby
shall be amortized, prorated, allocated and spread throughout the full term of
the Notes.
(2) EFFECT OF ISSUANCE OF NOTES TOGETHER WITH WARRANTS.
Having considered all facts relevant to a determination of the
value of the Notes and the Warrants being acquired by the Purchasers, the
Company and the Purchasers have concluded and do hereby agree that the present
value of all scheduled payments of principal of and interest on the Notes is
$25,000,000, based on yields of comparable debt instruments of comparable
issuers. Accordingly, the Company and the Purchasers agree that for purposes of
the IRC, and for purposes of determining any issue discount with respect to the
Notes thereunder, the "ISSUE PRICE" of the Notes is $25,000,000. Neither the
Company nor any of the Purchasers shall take a position on any income tax
return, before any governmental agency charged with the collection of any income
tax or in any judicial proceeding that is inconsistent with the terms of this
Section 10.7(b).
SECTION 11 GUARANTEES
11.1 GUARANTEES.
Each Domestic Subsidiary which, in accordance with Section 3.5, is
required to guarantee the obligations of the Company under the Notes, upon
execution of a counterpart of this Agreement, hereby jointly and severally
unconditionally guarantees to each Holder of any Note and its successors and
assigns, irrespective of the validity or enforceability of this Agreement, the
Notes or the obligations of the Company under this Agreement or the Notes, that:
(i) the principal of, Prepayment Compensation Amount and interest on the Notes
will be paid in full when due, whether at the maturity or interest payment date
by acceleration, mandatory prepayment or otherwise, and interest on the overdue
principal of, or interest on the Notes and all other obligations of the Company
under the Notes and this Agreement to the Holders will be promptly paid in full
or performed, all in accordance with the terms of this Agreement and the Notes;
and (ii) in case of any extension of time of payment or renewal of any Notes or
any of such other obligations, they will be paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at maturity,
by acceleration, mandatory prepayment or otherwise. Failing payment when due of
any amount so guaranteed for whatever reason, each Guarantor will be obligated
to pay the same whether or not such failure to pay has become an Event of
Default which could cause acceleration pursuant to Section
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6.2 hereof. Each Guarantor agrees that this is a guarantee of payment and not a
guarantee of collection.
Each Guarantor hereby agrees that its obligations with regard to this
Guarantee shall be joint and several and unconditional, irrespective of the
validity or enforceability of the Notes or the obligations of the Company under
this Agreement, the absence of any action to enforce the same, the recovery of
any judgment against the Company or any other obligor (including any other
Guarantor) with respect to this Agreement, the Notes or the obligations of the
Company under this Agreement or the Notes, any action to enforce the same or any
other circumstances (other than complete performance) which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor. Each
Guarantor further, to the extent permitted by law, waives and relinquishes all
claims, rights and remedies accorded by applicable law to guarantors and agrees
not to assert or take advantage of any such claims, rights or remedies,
including but not limited to: (a) any right to require any Holder or the Company
(each, a "BENEFITTED PARTY") to proceed against the Company or any other Person
or to proceed against or exhaust any security held by a Benefitted Party at any
time or to pursue any other remedy in any Benefitted Party's power before
proceeding against such Guarantor; (b) the defense of the statute of limitations
in any action hereunder or in any action for the collection of any Debt or the
performance of any obligation hereby Guaranteed; (c) any defense that may arise
by reason of the incapacity, lack of authority, death or disability of any other
Person or the failure of a Benefitted Party to file or enforce a claim against
the estate (in administration, bankruptcy or any other proceeding) of any other
Person; (d) demand, protest and notice of any kind including but not limited to
notice of the existence, creation or incurring of any new or additional Debt or
obligation or of any action or non-action on the part of such Guarantor, the
Company, any Benefitted Party, any creditor of such Guarantor, the Company or on
the part of any other Person whomsoever in connection with any Debt or
obligations hereby guaranteed; (e) any defense based upon an election of
remedies by a Benefitted Party, including but not limited to an election to
proceed against such Guarantor for reimbursements; (f) any defense based upon
any statute or rule of law which provides that the obligation of a surety must
be neither larger in amount nor in other respects more burdensome than that of
the principal; (g) any defense arising because of a Benefitted Party's election,
in any proceeding instituted under Bankruptcy Law, of the application of 11
U.S.C. Section 1111(b)(2); or (h) any defense based on any borrowing or grant of
a security interest under 11 U.S.C. Section 364. Each Guarantor hereby covenants
that its Guaranty hereunder will not be discharged except by waiver, release or
complete performance of the obligations guaranteed in this Guaranty.
If any Holder is required by any court or otherwise to return to either
the Company or any Guarantor, or any custodian or trustee in bankruptcy acting
in relation to either the Company or such Guarantor, any amount paid by the
Company or such Guarantor to such Holder, the applicable Guaranty, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor agrees that it will not be entitled to any right of
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subrogation in relation to the Holders of the Notes in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby.
Each Guarantor further agrees that, as between such Guarantor, on the
one hand, and the Holders, on the other hand, (i) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Section 6.2
hereof for the purposes of this Guaranty, notwithstanding any stay, injunction
or other prohibition preventing such acceleration as to the Company or any other
obligor on the Notes or the obligations guaranteed hereby, and (ii) in the event
of any declaration of acceleration of those obligations as provided in Section
6.2 hereof, those obligations (whether or not due and payable) will forthwith
become due and payable by such Guarantor for the purpose of this Guaranty.
11.2 SUBORDINATION.
The obligations of the Guarantors under this Agreement are subordinate
and subject in right of payment in full in cash to any guarantee by the
Guarantors in respect of the Senior Debt to the same extent and in the same
manner as set forth in Section 7 with respect to the subordination of the
Subordinated Debt to such Senior Debt.
11.3 RELATIVE RIGHTS. No right of any present or future holder of the
obligations guaranteed in this Section 11 will at any time in any way be
prejudiced or impaired by any act or failure to act on the part of any Guarantor
or by any act (other than a waiver signed by the Required Holders) or failure to
act by any such holders, or by any noncompliance by any Guarantor with the terms
hereof, regardless of any knowledge thereof which any such holders may have or
otherwise be charged with. The holders of the obligations guaranteed in this
Section 11 may increase (to the extent otherwise permitted hereunder) extend,
renew, modify or amend the terms of such guaranteed obligations or any security
therefor and release, sell or exchange such security and otherwise deal freely
with the obligations guaranteed under this Section 11, all without affecting the
liabilities and obligations of the Guarantors under this Section 11.
11.4 NOTICE BY A GUARANTOR.
Each Guarantor shall promptly notify the holders of the Senior Debt of
any facts known to such Guarantor that would causes a payment of any obligations
with respect to the Notes or its Guaranty to violate this Article 11, but
failure to give such notice shall not affect the subordination of its Guaranty
or of the Notes to the Senior Debt as provided in Section 7.
11.5 SUBORDINATION MAY NOT BE IMPAIRED BY GUARANTOR.
No right of any holder of Senior Debt to enforce the subordination of
the Debt evidenced by a Guaranty shall be impaired by any act or failure to act
by the Guarantor or
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any holder of any Subordinated Debt or by the failure of the Guarantor or any
holder of any Subordinated Debt to comply with this Agreement.
11.6 AMENDMENTS.
With respect to any Guarantor, the provisions of this Section 11 shall
not be amended or modified without the prior written consent of the Senior
Agent, on behalf of the holders of the Senior Debt.
11.7 LIMITATIONS OF GUARANTOR'S LIABILITY.
Each Guarantor and by its acceptance hereof, each beneficiary hereof,
hereby confirms that it is its intention that the Guaranty of such Guarantor not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state law to the extent applicable to any Guarantee.
To effectuate the foregoing intention, each such Person hereby irrevocably
agrees that the obligation of such Guarantor under its Guaranty under this
Section 11 shall be limited to the maximum amount as will, after giving effect
to such maximum amount and all other (contingent or otherwise) liabilities of
such Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under this Section 11, result in the obligations of such Guarantor in
respect of such maximum amount not constituting a fraudulent conveyance. Each
beneficiary under the Guaranties, by accepting the benefits hereof, confirms its
intention that, in the event of a bankruptcy, reorganization or other similar
proceeding of the Company or any Guarantor in which concurrent claims are made
upon such Guarantor hereunder, to the extent such claims will not be fully
satisfied, each such claimant with a valid claim against the Company shall be
entitled to a ratable share of all payments by such Guarantor in respect of such
concurrent claims.
SECTION 12 MISCELLANEOUS
12.1 COMMUNICATIONS.
(1) METHOD; ADDRESS. All communications hereunder or under the
Notes shall be in writing and shall be delivered either by nationwide
overnight courier or by facsimile transmission (confirmed by delivery
by nationwide overnight courier sent on the day of the sending of such
facsimile transmission). Communications to the Company or a Guarantor
shall be addressed as set forth on ANNEX 2, or at such other address of
which the Company or such Guarantor shall have notified each Holder.
Communications to the Holders shall be addressed as set forth on ANNEX
1 by such Holder, or at such other address of which such Holder shall
have notified the Company.
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(2) WHEN GIVEN. Any communication addressed and delivered as
herein provided shall be deemed to be received when actually delivered
to the address of the addressee (whether or not delivery is accepted)
or received by the telecopy machine of the recipient. Any communication
not so addressed and delivered shall be ineffective.
(3) SERVICE OF PROCESS. Notwithstanding the foregoing
provisions of this Section 12.1, service of process in any suit, action
or proceeding arising out of or relating to this Agreement or any
document, agreement or transaction contemplated hereby, or any action
or proceeding to execute or otherwise enforce any judgment in respect
of any breach hereunder or under any document or agreement contemplated
hereby, shall be delivered in the manner provided in Section 12.7(c).
12.2 REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by the Holders on the Closing Date (except the Notes
themselves), and financial statements, certificates and other information
previously or hereafter furnished to any Holder, may be reproduced by the
Company or any Holder by means of any photographic, photostatic, microfilm,
micro-card, miniature photographic, digital or other similar process and each
Holder may destroy any original document so reproduced. Any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Company or such Holder in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Nothing in this Section 12.2 shall prohibit the Company or any Holder from
contesting the accuracy or validity of any such reproduction.
12.3 SURVIVAL, ENTIRE AGREEMENT.
All warranties, representations, certifications and covenants contained
herein, or in any certificate or other instrument delivered hereunder shall be
considered to have been relied upon by the other parties hereto and shall
survive the delivery to the Purchasers of the Notes regardless of any
investigation made by or on behalf of any party hereto. All obligations
hereunder (other than payment of the Notes, but including, without limitation,
reimbursement obligations in respect of costs, expenses and fees) and including
the agreements and obligations of the Company contained in Sections 2.3 and
Section 12.6 shall survive the payment in full of principal and interest on the
Notes and all other amounts payable hereunder and under any of the other
Transaction Documents. Subject to the preceding sentence, this Agreement, the
Notes and the other Transaction Documents embody the entire agreement and
understanding between the Company and the
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Purchaser, and supersede all prior agreements and understandings relating to the
subject matter hereof.
12.4 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING HOLDERS.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company, the Purchasers, all future Holders and their respective successors
and assigns (including without limitation any receiver, trustee or
debtor-in-possession), except that the Company may not assign or transfer any of
its rights or obligations under this Agreement without the prior written consent
of each Purchaser.
(b) Any Holder may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("PARTICIPANTS") participating interests in any portion of any Note of
such Holder, or any other interest of such Holder hereunder. In the event of any
such sale by a Holder of participating interests to a Participant, such Holder's
obligations under this Agreement to the other parties to this Agreement shall
remain unchanged.
(c) The Company authorizes each Holder to disclose to any Participant
or any prospective purchaser of its Notes any and all financial information in
such Holder's possession concerning the Company and its Affiliates which has
been delivered to such Holder by or on behalf of the Company pursuant to this
Agreement or which has been delivered to such Holder by or on behalf of the
Company in connection with such Holder's credit evaluation of the Company and
its Affiliates prior to becoming a party to this Agreement, PROVIDED any such
Participant or prospective Transferee agrees to be bound by the provisions of
Section 5.6 hereof.
12.5 AMENDMENT AND WAIVER.
(1) REQUIREMENTS. This Agreement may be amended, and the
observance of any term hereof may be waived, with (and only with) the written
consent of the Company and the Required Holders; provided, however, that no such
amendment or waiver shall, without the written consent of all Holders (exclusive
of Notes held by the Company, any Subsidiary or any Affiliate) at the time
outstanding:
(1) change the amount or time of any prepayment
or payment of principal or Prepayment Compensation Amount or
the rate or time of payment of interest;
(2) amend or waive the provisions of Section
6.1, Section 6.2, Section 6.3 or Section 7, or amend or waive
any defined term to the extent used therein;
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(3) amend or waive the definition of "REQUIRED
HOLDERS" or otherwise amend the percentage of Notes required
to be held by Holders consenting to any action under this
Agreement; or
(4) amend or waive this Section 12.5 or amend or
waive any defined term to the extent used herein.
Any Holder may specify that any such written consent executed by it shall be
effective only with respect to a portion of the Notes held by it (in which case
it shall specify, by dollar amount, the aggregate principal amount of Notes with
respect to which such consent shall be effective) and in the event of any such
specification such Holder shall be deemed to have executed such written consent
only with respect to the portion of the Notes so specified.
No amendment, supplement or modification of the provisions of Section
7, or any defined term to the extent used therein, shall be effective to any
holder of Senior Debt who has not consented to such amendment, supplement or
modification.
(2) SOLICITATION OF HOLDERS.
(1) SOLICITATION. Each Holder (irrespective of
the amount of Notes then owned by it) shall be provided by the
Company with all material information provided by the Company
to any other Holder with respect to any proposed waiver or
amendment of any of the provisions hereof or the Notes.
Executed or true and correct copies of any amendment or waiver
effected pursuant to the provisions of this Section 12.5 shall
be delivered by the Company to each Holder forthwith following
the date on which such amendment or waiver becomes effective.
(2) PAYMENT. The Company shall not, nor shall
any Subsidiary or Affiliate, directly or indirectly, pay or
cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or
grant any security, to any Holder as consideration for or as
an inducement to the entering into by any Holder of any waiver
or amendment of any of the provisions hereof or of the Notes
unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to the
Holders.
(3) SCOPE OF CONSENT. Any amendment or waiver
made pursuant to this Section 12.5 by a Holder of Notes that
has transferred or has agreed to transfer its Notes to the
Company, any Subsidiary or any Affiliate and has provided or
has agreed to provide such amendment or waiver as a condition
to such transfer shall be void and of no force and effect
except solely as to
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such Holder, and any amendments effected or waivers granted
that would not have been or would not be so effected or
granted but for such amendment or waiver (and the amendments
or waivers of all other Holders that were acquired under the
same or similar conditions) shall be void and of no force and
effect, retroactive to the date such amendment or waiver
initially took or takes effect, except solely as to such
Holder.
(3) BINDING EFFECT. Except as provided in Section
12.5(b)(iii), any amendment or waiver consented to as provided in this
Section 12.5 shall apply equally to all Holders and shall be binding
upon them and upon each future Holder and upon the Company whether or
not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any
obligation, covenant, agreement, Default or Event of Default not
expressly amended or waived or impair any right consequent thereon.
12.6 COSTS AND EXPENSES.
(1) TRANSACTION DOCUMENTS. The Company shall pay on demand the
reasonable costs and expenses (including reasonable attorneys' fees)
incurred by the Purchasers in connection with the consideration,
negotiation, preparation or execution of this Agreement, the other
Transaction Documents, any amendments, waivers, consents, standstill
agreements and other similar agreements with respect to this Agreement
or any other Transaction Document (whether or not any such amendments,
waivers, consents, standstill agreements or other similar agreements
are executed), including, without limitation, the reasonable costs of
all due diligence investigations, syndication (including the costs of
printing, distribution and meetings), transportation, computer,
duplication, appraisal, audit, insurance, consultant, lien search,
filing and recording fees and all other reasonable out-of pocket
expenses.
(2) RESTRUCTURING AND WORKOUT, INSPECTIONS. At any time when
the Company and the Holders are conducting restructuring or workout
negotiations in respect hereof, or a Default or Event of Default
exists, the Company shall pay when billed the reasonable costs and
expenses (including reasonable attorneys' fees and the fees of
professional advisors) incurred by the Holders in connection with the
assessment, analysis or enforcement of any rights or remedies that are
or may be available to the Holders, including, without limitation, in
connection with inspections made pursuant to Section 5.5; PROVIDED,
HOWEVER, that at all other times inspections will be at the expense of
the inspecting Holder.
(3) COLLECTION. If the Company shall fail to pay when due any
principal of, or Prepayment Compensation Amount or interest on, any
Note, the Company shall pay to each Holder, to the extent permitted by
law, such amounts as shall be
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sufficient to cover the reasonable costs and expenses, including but
not limited to reasonable attorneys' fees, incurred by such Holder in
collecting any sums due on such Note.
(4) INDEMNIFICATION. The Company agrees to indemnify and hold
harmless each Holder and each of their respective Affiliates and their
respective officers, directors, employees, agents and advisors (each,
an "INDEMNIFIED PARTY") from and against any and all claims, damages,
losses, liabilities and expenses (including, without limitation,
reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising
out of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or
proceeding arising out of, related to or in connection with (i) the
Transactions and any other transactions contemplated by this Agreement,
(ii) any acquisition or proposed business acquisition or similar
business combination or proposed combination by the Company or any of
its Subsidiaries of all or any portion of the shares of capital stock
or substantially all of the property and assets of any other Person,
(iii) the Notes, the actual or proposed use of the proceeds of the
Notes by the Company or any of its Subsidiaries or other Affiliates,
the Transactions and any of the other transactions contemplated by the
Transaction Documents, (iv) misrepresentation or breach of warranty by
the Company in this Agreement, or any untrue statements made or omitted
to be made, whether written or oral, in connection with the Notes or
any resale of the Notes or (v) the actual or alleged presence of
Hazardous Materials on any Property of the Company or any of its
Subsidiaries or any environmental action relating in any way to the
Company or any of its Subsidiaries or any of their respective
Properties, in each case whether or not such investigation, litigation
or proceeding is brought by any Loan Party, its directors, officers,
employees, stockholders or creditors or an Indemnified Party or any
Indemnified Party is otherwise a party thereto and whether or not the
Transactions or any other transactions contemplated by this Agreement
are consummated, except to the extent such claim, damage, loss,
liability or expense is found in a final, non-appealable judgment by a
court of competent jurisdiction to have resulted from any Indemnified
Party's gross negligence or willful misconduct. The Company also agrees
that no Indemnified Party shall have any liability (whether direct or
indirect, in contract, tort or otherwise) to the Company or any of its
Subsidiaries or to their respective securityholders or creditors for
special, indirect, consequential or punitive damages arising out of or
otherwise relating to the Notes, the actual or proposed use of the
proceeds of the Notes, the Transaction Documents or any of the
Transactions or any other transactions contemplated by this Agreement,
other than claims for direct, as opposed to consequential, damages
resulting from such Indemnified Party's gross negligence or willful
misconduct as determined by a court of competent jurisdiction after
final judgement no longer subject to appeal.
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12.7 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION, ETC.
(1) WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT, THE NOTES, THE OTHER TRANSACTION DOCUMENTS OR ANY
OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY.
(2) CONSENT TO JURISDICTION. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES, THE OTHER
TRANSACTION DOCUMENTS OR ANY OF THE DOCUMENTS, AGREEMENTS OR
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE
OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS
AGREEMENT, THE NOTES, THE OTHER TRANSACTION DOCUMENTS OR ANY DOCUMENT
OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT BY SUCH PARTY IN ANY
FEDERAL DISTRICT COURT LOCATED IN NEW YORK COUNTY, NEW YORK, OR ANY NEW
YORK STATE COURT LOCATED IN NEW YORK COUNTY, NEW YORK AS SUCH PARTY MAY
IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO
THE NON-EXCLUSIVE PERSONAL JURISDICTION OF EACH SUCH COURT, AND EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY
PROCEEDING BEFORE ANY SUCH TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE IN PERSONAM
JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE NOTES, THE OTHER TRANSACTION DOCUMENTS OR ANY DOCUMENT,
AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT,
AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(3) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY AGREES
THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT
PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES, THE
OTHER
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TRANSACTION DOCUMENTS OR ANY DOCUMENT, AGREEMENT OR TRANSACTION
CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR
OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR
UNDER THE NOTES, THE OTHER TRANSACTION DOCUMENTS OR ANY DOCUMENT OR
AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL BE
CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED
BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY
SERVICE.
(4) OTHER FORUMS. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF ANY HOLDER TO SERVE ANY WRITS, PROCESS OR
SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN
JURISDICTION OVER THE COMPANY IN SUCH OTHER JURISDICTION, AND IN SUCH
OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
12.8 EXECUTION IN COUNTERPART.
This Agreement may be executed in one or more counterparts and shall be
effective when at least one counterpart shall have been executed by each party
hereto, and each set of counterparts that, collectively, show execution by each
party hereto shall constitute one duplicate original.
12.9 COMPLIANCE BY SUBSIDIARIES.
The Company, as the shareholder of its Subsidiaries, shall cause such
meetings to be held, votes to be cast, resolutions to be passed, by-laws to be
made and confirmed, documents to be executed and all other things and acts to be
done to ensure that, at all times, the provisions of this Agreement relating to
the Company and the Subsidiaries are complied with.
12.10 SEVERABILITY.
If any provision of this Agreement shall be held or deemed to be, or
shall in fact be, invalid, inoperative, illegal or unenforceable as applied to
any particular case in any jurisdiction because of the conflict of such
provision with any constitution or statute or rule of public policy or for any
other reason, such circumstance shall not have the effect of rendering the
provision or provisions in question invalid, inoperative, illegal or
unenforceable in any other jurisdiction or in any other case or circumstance or
of rendering any other provision or provisions herein contained invalid,
inoperative, illegal or unenforceable to the extent that such other provisions
are not themselves actually in conflict with such constitution, statute or rule
of public policy, but this Agreement shall be
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reformed and construed in any such jurisdiction or case as if such invalid,
inoperative, illegal or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
12.11 TERMINATION.
This Agreement and the Notes and the rights of the Holders and the
obligations of the Company hereunder and thereunder shall not terminate until
each of the Notes, including all principal, interest, including (to the extent
legally permitted) interest on overdue interest, and Prepayment Compensation
Amount has been paid in full and all expenses and all other amounts then owed to
any Purchaser or any Holder pursuant to the terms of any Transaction Document
has been paid in full. If any amount so paid is required by any court, or
otherwise to be returned to the Company or any Guarantor, or any custodian or
trustee in bankruptcy acting in relation to either the Company or such
Guarantor, such amount and all obligations of the Company under this Agreement
and the Notes, to the extent theretofore discharged, shall be reinstated in full
force and effect.
SECTION 13 REPRESENTATIONS OF THE PURCHASERS
Each Purchaser represents that:
(i) It is an Institutional Investor and is purchasing its
Notes for its own account or for one or more separate accounts maintained by it
or for the account of one or more pension or trust funds, in each case for
investment and not with a view to the distribution thereof or with any present
intention of distributing or selling any of its Notes, provided that the
disposition of such Purchaser's property shall at all times be within its
control, subject to compliance with applicable law. The Company acknowledges
that a Purchaser's sale of all or a portion of its Notes in compliance with Rule
144A under the Securities Act would not be a breach of this representation.
(ii) With respect to each source of funds to be used by it to
pay the purchase price of its Notes (respectively, the "SOURCE"), at least one
of the following statements is accurate as of the Closing Date:
(a) the Source is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction Exemption
("PTE") 95-60 (issued July 12, 1995) and there is no "employee benefit plan"
(within the meaning of section 3(3) or ERISA or section 4975(e)(1) of the IRC
and treating as a single plan all plans maintained by the same employer or
employee organization) with respect to which the amount of the general account
reserves and liabilities for all contracts held by or on behalf of such plan
exceed 10% of the total reserves and liabilities of such general account
(exclusive of separate account liabilities) plus surplus, as set forth in the
NAIC Annual
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Statement filed with the state of domicile of the Purchaser and, as a result,
the purchase is within the terms of such exemption;
(b) the Source is either (i) an insurance company pooled
separate account and the purchase is exempt in accordance with PTE 90-1 (issued
January 29, 1990), or (ii) a bank collective investment fund, within the meaning
of PTE 91-38 (issued July 21, 1991) and, except as such Purchaser has disclosed
to the Company in writing pursuant to this CLAUSE (B), no employee benefit plan
or group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund and, as a result, the purchase is within
the terms of one of such exemptions; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the Prohibited Transaction Class Exemption
84-14 issued by the DOL (the "QPAM EXEMPTION") managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM
Exemption), no employee benefit plan's assets that are included in such
investment fund, when combined with the assets of all other employee benefit
plans established or maintained by the same employer or by an affiliate (within
the meaning of section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of the total
client assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling or
controlled by the QPAM (applying the definition of "control" in section V(e) of
the QPAM Exemption) owns a 5% or more interest in the Company and (i) the
identity of such QPAM and (ii) the names of all employee benefit plans whose
assets are included in such investment fund have been disclosed to the Company
in writing pursuant to this clause (c); or
(d) the Source is a "governmental plan" as defined in Title I,
section 3(32) of ERISA; or
(e) the Source is one or more plans or a separate account or
trust fund comprised of one or more plans each of which has been identified to
the Company in writing pursuant to this CLAUSE (E); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this SECTION 13, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in section 3 of ERISA.
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[Signature page follows.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered by one of its duly authorized
officers or representatives.
The Company: POLYVISION CORPORATION
By: /s/ Joseph A. Menniti
----------------------------------
Name: Joseph A. Menniti
Title: Chief Executive Officer
Guarantors: POSTERLOID CORPORATION
By: /s/ Joseph A. Menniti
----------------------------------
Name: Joseph A. Menniti
Title: President
GREENSTEEL, INC.
By: /s/ Joseph A. Menniti
----------------------------------
Name: Joseph A. Menniti
Title: President
Purchasers: JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: /s/ Stacey P. Agretelis
----------------------------------
Name: Stacey P. Agretelis
Title: Assistant Investment Officer
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HANCOCK MEZZANINE PARTNERS L.P.
By: HANCOCK MEZZANINE INVESTMENTS
LLC, its General Partner
By: John Hancock Mutual Life Insurance
Company, as Investment Manager
By: /s/ Stacey P. Agretelis
----------------------------------
Name: Stacey P. Agretelis
Title: Assistant Investment Officer
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By: /s/ Anthony C. Urick
----------------------------------
Name: Anthony C. Urick
Title: Vice President, Investments
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Exhibit 10.42
EXECUTION DRAFT
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of December 30, 1998 among POLYVISION
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of New York (the "ISSUER"), and JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY ("HANCOCK,"), JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY ("VARIABLE")
and HANCOCK MEZZANINE PARTNERS L.P. ("MEZZANINE" and together with Hancock and
Variable and their respective successors and assigns, the "INVESTORS").
W I T N E S S E T H
-------------------
WHEREAS, the Issuer and the Investors have entered into a Senior
Subordinated Note and Warrant Purchase Agreement of even date herewith (as
amended, modified, supplemented or restated and as in effect from time to time,
the "NOTE AGREEMENT"), pursuant to which the Investors have agreed, subject to
the terms and conditions thereof, to purchase from the Issuer $25,000,000 in
aggregate principal amount of the Issuer's 12.5% Senior Subordinated Notes due
2006 (the "NOTES"); and
WHEREAS, to induce the Investors to enter into the Note Agreement and
purchase the Notes pursuant to the terms thereof, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Issuer has agreed to issue the Warrants (as hereinafter
defined) to the Investors providing for the purchase of shares of Common Stock
(as hereinafter defined) of the Issuer in the manner hereinafter provided.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; ACCOUNTING TERMS AND DETERMINATIONS.
1.01 DEFINITIONS. As used herein, the following terms shall have the
following meanings (all terms defined in this Section 1 or in other provisions
of this Agreement in the singular to have the same meanings when used in the
plural and vice versa):
"AFFILIATE" shall mean, as to any Person (the "RELEVANT PERSON"), any
other Person that directly or indirectly controls, or is under common control
with, or is controlled by, the Relevant Person and, if such Person is an
individual, any member of the immediate family (including parents, spouse and
children) of such individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any Person who is
controlled by any such member or trust. As used in this Agreement, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of
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the power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), PROVIDED THAT, in any event, any Person that owns or has
the right to acquire directly or indirectly (including as part of a group) 10%
or more of the Voting Capital Stock in a corporation or 10% or more of
partnership or other ownership interests of any other Person, other than as a
limited partner or nonmanaging member of such other Person, will be deemed to
control such corporation or other Person. Notwithstanding the foregoing, (a) no
individual shall be deemed to be an Affiliate of a Relevant Person solely by
reason of his or her being an employee of such Relevant Person or any
Subsidiary, and (b) neither the Investors nor any bank, bank holding company or
subsidiary shall be an Affiliate of the Issuer or any Subsidiary.
"ARTICLES OF INCORPORATION" shall mean the Issuer's certificate of
incorporation as amended and restated from time to time to the extent permitted
under this Agreement.
"BOARD" shall mean the Board of Directors of the Issuer.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other similar or successor agency of the Federal government administering the
Securities Act and/or the Exchange Act.
"COMMON STOCK" shall mean the Issuer's authorized Common Stock, par
value $.001 per share, as constituted on the Issue Date and any stock into which
such Common Stock may thereafter be converted or changed, and also shall include
any other stock of the Issuer of any other class, which is not preferred as to
dividends or assets over any other class of any other stock of the Issuer.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, shares
of stock or other securities or rights which are exchangeable for or exercisable
or convertible into a specified security of the Issuer either immediately or
upon the occurrence of a specified date or event.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"EXPIRATION DATE" shall have the meaning assigned to such term in the
Warrants.
"GAAP" shall mean generally accepted accounting principles,
consistently applied throughout the specified period.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned
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or controlled (whether through ownership of securities or other ownership
interests, by contract or otherwise) by any of the foregoing.
"HOLDER" shall mean any Person who acquires Warrants or Warrant Stock
pursuant to the provisions of this Agreement, including any transferees of
Warrants or Warrant Stock; PROVIDED, HOWEVER, that a holder of Warrant Stock
purchased pursuant to an effective registration statement or in an ordinary
brokerage transaction pursuant to Rule 144 shall not be deemed a Holder.
"INCLUDE" and "INCLUDING" shall be construed as if followed by the
phrase "without being limited to."
"INDEBTEDNESS" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business; (c) Indebtedness of others secured
by a Lien on the property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for the account of such Person; (e)
capital lease obligations of such Person; and (f) Indebtedness of others
guaranteed by such Person.
"INVESTORS" shall have the meaning assigned to such term in the
preamble of this Agreement.
"ISSUER" shall have the meaning assigned to such term in the preamble
of this Agreement.
"ISSUE DATE" shall mean the date hereof which date shall be the date of
the original issuance of the Warrants hereunder.
"LIEN" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For purposes of this Agreement, a Person shall be deemed to own subject
to a Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"MAJORITY WARRANT STOCKHOLDERS" shall mean the Holders of a majority of
the Warrant Stock issued or issuable upon exercise of the Warrants.
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"MANAGEMENT FEES" shall mean for any period, all fees, emoluments or
similar compensation paid or incurred by any Person (other than any such fees,
emoluments or similar compensation paid to or incurred and payable to the Issuer
or any of the Subsidiaries) in respect of services rendered in connection with
the management or supervision of the management of such Person, other than
salaries, bonuses and other compensation paid to any full-time executive
employee in respect of such full-time employment.
"NOTE AGREEMENT" shall have the meaning assigned to such term in the
first recital of this Agreement.
"NOTES" shall have the meaning assigned to such term in the first
recital of this Agreement.
"OPTION" shall mean any warrant, option or other right to subscribe for
or purchase a specified security of the Issuer.
"PERSON" shall mean a corporation, an association, a limited liability
company, a partnership, a joint venture, an organization, a business, an
individual or a Governmental Authority.
"QUALIFIED PUBLIC OFFERING" shall mean a primary public offering of
Common Stock under the Securities Act resulting in aggregate net cash proceeds
to the Company of not less than Ten Million ($10,000,000) Dollars.
"REGISTRATION AGREEMENT" shall mean the Registration Agreement, dated
as of the date hereof, between the Issuer and the Investors relating to the
registration of the Registrable Securities (as defined therein) under and
pursuant to the Securities Act, as the same shall be modified and supplemented
and in effect from time to time.
"RESTRICTED SECURITIES" shall mean Restricted Stock and Restricted
Warrants.
"RESTRICTED STOCK" shall mean Warrant Stock evidenced by a certificate
bearing or required to bear the restrictive legend set forth in Section 3.03
hereof.
"RESTRICTED WARRANTS" shall mean Warrants evidenced by a certificate
bearing or required to bear the restrictive legend set forth in Section 3.03
hereof.
"RULE 144" shall mean Rule 144 promulgated by the Commission under the
Securities Act (or any successor or similar rule then in force).
"RULE 144A" shall mean Rule 144A promulgated by the Commission under
the Securities Act (or any successor or similar rule then in force).
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"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLER NOTE" shall mean the Issuer's 10% Convertible Subordinated
Promissory Note in the amount of $8,000,000 payable to Wind Point Partners III.
"STOCKHOLDER" shall mean any Person who directly or indirectly owns any
shares of Common Stock (including Warrant Stock).
"STOCK UNIT" shall have the meaning assigned to such term in the
Warrants.
"SUBSIDIARY" shall mean any Person in which the Issuer, directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than 50% of
either the equity interests in or the Voting Capital Stock of such Person.
"THIRD PARTY" shall mean a Person or entity not otherwise an Affiliate
of the Issuer.
"TRANSFER" shall mean any sale, transfer, assignment, pledge or other
disposal, whether direct or indirect, by any Holder of all or any portion of its
beneficial interest in its Warrant or the related Warrant Stock.
"VOTING CAPITAL STOCK" with respect to any corporation shall mean its
capital stock entitled to vote generally for the election of directors. In the
case of a corporation with more than one class of capital stock entitled to vote
generally for the election of directors, references to "a majority of the Voting
Capital Stock" or to a specific percentage of Voting Capital Stock shall be
deemed to be references to a number of shares of Voting Capital Stock entitling
the holders thereof, in the aggregate, to vote the requisite percentage of total
votes available to all classes of Voting Capital Stock.
"WARRANT STOCK" shall mean (a) the shares of Common Stock purchased or
purchasable by the Holders of the Warrants upon the exercise thereof, and (b)
any additional shares of Common Stock issued or distributed by way of a
dividend, stock split or other distribution in respect of the Common Stock
referred to in clause (a) above, or acquired by way of any rights offering or
similar offering made in respect of the Common Stock referred to in said
clause (a). Any Warrant Stock purchased by the Issuer shall, upon such
purchase, cease to be Warrant Stock, cease to be outstanding and the Issuer,
upon such purchase, shall not be deemed a Holder.
"WARRANTS" shall mean each warrant certificate covering the purchase of
shares of Common Stock in the form of ANNEX I hereto, and all warrant
certificates covering such stock issued upon transfer, division or combination
of, or in substitution for, any thereof.
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1.02 ACCOUNTING TERMS AND DETERMINATION. Except as otherwise may be
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Holders hereunder and under
the Warrants shall be prepared, in accordance with GAAP. All calculations made
for the purposes of determining compliance with the terms of this Agreement and
the Warrants shall (except as otherwise may be expressly provided herein) be
made by application of GAAP.
1.03 REFERENCE TO NOTE AGREEMENT. Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Note
Agreement.
SECTION 2. PURCHASE AND SALE OF WARRANTS.
2.01 AUTHORIZATION AND ISSUANCE OF SHARES AND WARRANTS. The Issuer has
authorized the issuance of (a) the Warrants to the Investors pursuant to this
Agreement, and (b) such number of shares of Common Stock as shall be necessary
to permit the Issuer to comply with its obligations to issue Common Stock
pursuant to the Warrants.
2.02 ISSUANCE OF WARRANTS. On the date hereof, the Issuer shall (a)
issue to the Investors Warrants representing, in the aggregate, 2,986,467 shares
of the Common Stock (such number subject to adjustment after the Issue Date in
accordance with Sections 4 and 5 of the Warrants) allocated among the Investors
in accordance with Annex 1 to the Note Agreement, (b) deliver to each Investor a
certificate for the Warrant to be acquired by such Investor pursuant to this
Section 2.02, registered in the name of such Investor, except that, if such
Investor shall notify the Issuer in writing prior to such issuance that it
desires certificates for warrants to be issued in other denominations or
registered in the name or names of any Affiliate, nominee or nominees of such
Investor for its or their benefit, then the certificate for the Warrant shall be
issued to such Investor in the denominations and registered in the name or names
specified in such notice, and (c) deliver to the Investors a legal opinion from
counsel to the Issuer in form and substance satisfactory to the Investors.
2.03 RESERVED.
2.04 PURCHASE FOR THE INVESTORS' ACCOUNT. Each Investor jointly and not
severally represents and warrants to the Issuer as follows:
(a) Such Investor is purchasing and shall purchase its Warrant for its
own account, without a view to the distribution thereof, all without prejudice,
however, to the right of such Investor at any time, in accordance with this
Agreement or the Registration Agreement, lawfully to sell or otherwise to
dispose of all or any part of the Warrant or the Warrant Stock held by it.
(b) Such Investor is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
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2.05 SECURITIES ACT COMPLIANCE. Each Investor understands that the
Issuer has not registered the Warrants or the Warrant Stock under the Securities
Act, and the Investors agree that neither the Warrants nor the Warrant Stock
shall be sold or transferred or offered for sale or transfer without
registration under the Securities Act or the availability of an exemption
therefrom, all as more fully provided in Section 3 hereof and in the
Registration Agreement.
SECTION 3. RESTRICTIONS ON TRANSFERABILITY.
3.01 TRANSFERS GENERALLY. The Restricted Securities shall be
transferable only upon the conditions specified in this Section 3 and in the
Registration Agreement.
3.02 TRANSFERS OF RESTRICTED SECURITIES PURSUANT TO REGISTRATION
STATEMENT RULE 144 AND RULE
144A.
The Restricted Securities may be offered or sold by the Holder thereof
pursuant to:
(i) an effective registration statement under the Securities Act;
(ii) Rule 144 or Rule 144A, to the extent applicable; or
(iii) any other legally available means of transfer; PROVIDED, such
Holder shall deliver, at such Holder's expense, to the Issuer a notice with
respect to the proposed transfer, together with an opinion of counsel reasonably
satisfactory to the Issuer (which may be a licensed attorney employed by an
Investor), to the effect that an exemption from registration under the
Securities Act is available.
(c) In the event of any proposed permitted transfer of Warrants or
Warrant Stock hereunder, the Issuer shall assist such Holder in disposing of its
Warrants and Warrant Stock in a prompt and orderly manner and, at the request of
such Holder, the Issuer shall provide (and authorize such Holder to provide)
financial and other information concerning the Issuer to any prospective
purchaser of the Warrants or Warrant Stock owned by such Holder as such
purchaser may reasonably request; PROVIDED THAT, upon request of the Issuer,
such purchaser shall enter into a confidentiality agreement with respect to any
such non-public information in the form of Section 5.6 of the Note Agreement.
3.03 RESTRICTIVE LEGENDS. Unless and until otherwise permitted by this
Section 3, each certificate for Warrants issued under this Agreement, each
certificate for any Warrants issued to any subsequent transferee of any such
certificate, each certificate for any Warrant Stock issued upon exercise of any
Warrant and each certificate for any Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
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"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO THE CONDITIONS SPECIFIED IN THAT CERTAIN WARRANT AGREEMENT DATED AS OF
DECEMBER 30, 1998 (AS AMENDED, MODIFIED AND SUPPLEMENTED, THE "WARRANT
AGREEMENT") AMONG POLYVISION CORPORATION, A NEW YORK CORPORATION ("ISSUER"),
AND JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY AND HANCOCK MEZZANINE PARTNERS L.P. ("INVESTORS") AND THE
REGISTRATION AGREEMENT DATED AS OF DECEMBER 30, 1998 (AS AMENDED, MODIFIED
AND SUPPLEMENTED, THE "REGISTRATION AGREEMENT") AMONG THE ISSUER AND THE
INVESTORS, AS EACH OF THE WARRANT AGREEMENT AND THE REGISTRATION AGREEMENT
MAY BE AMENDED, MODIFIED AND SUPPLEMENTED AND IN EFFECT FROM TIME TO TIME,
AND NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE SHALL BE
VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. A COPY OF THE
FORM OF EACH OF THE WARRANT AGREEMENT AND THE REGISTRATION AGREEMENT IS ON
FILE AND MAY BE INSPECTED AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER.
THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO
BE BOUND BY THE PROVISIONS OF THE WARRANT AGREEMENT AND THE REGISTRATION
AGREEMENT."
3.04 TERMINATION OF RIGHTS AND RESTRICTIONS. All the restrictions
imposed by this Section 3 upon the transferability of the Restricted Securities
and all rights under this Agreement with respect to Restricted Securities shall
cease and terminate as to any particular Restricted Security when such
Restricted Security shall have been effectively registered under the Securities
Act and applicable state securities laws and sold by the Holder thereof in
accordance with such registration or sold under and pursuant to Rule 144 or is
eligible to be sold under and pursuant to paragraph (k) of Rule 144. Whenever
the restrictions imposed by this Section 3 shall terminate as to any Restricted
Security as hereinabove provided, the Holder thereof shall be entitled to
receive from the Issuer, without expense, a new certificate evidencing such
Restricted Security not bearing the restrictive legend otherwise required to be
borne by a certificate evidencing such Restricted Security.
3.05 CANCELLATION AND ISSUANCE. Upon any transfer of any Warrant in
compliance with the terms hereof, the transferring Holder may request (upon 10
days' prior notice to the Issuer) that (a) a number of Warrants held by such
Holder be canceled on the date of such assignment and transfer and (b) a like
number of Warrants be issued by the Issuer to the Person to whom such Warrant is
being assigned or otherwise transferred, and upon the date specified in such
request:
(i) the Issuer will deliver to each Person that receives a certificate
for Warrants a favorable legal opinion from counsel to the Issuer acceptable to
such Person, covering the matters set forth in the opinion of counsel delivered
to the Issuer pursuant to Section 3.02 hereof in form and substance satisfactory
to such Person;
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(ii) each Person that receives a certificate for Warrants will execute
and deliver to the Issuer (x) a certificate to the Issuer affirming the
representations and warranties contained in Section 2.03 hereof as of such date,
and (y) a counterpart of this Agreement; and
(iii) the Issuer will deliver a certificate to each Person that
receives a certificate for Warrants affirming the representations and warranties
contained in the Note Agreement as of such date, subject to any updates and
disclosures made by the Issuer at such time.
SECTION 4. RESERVED
SECTION 5. RESERVED
SECTION 6. HOLDERS' RIGHTS.
6.01 DELIVERY EXPENSES. If a Holder surrenders any certificate for
Warrants or Warrant Stock to the Issuer (or a transfer agent of the Issuer) in
exchange for certificates of other denominations or registration in another name
or names, the Issuer shall (provided such Holder is in compliance with the terms
of this Agreement) cause such new certificates to be issued to such Holder and
any transferees, as may be appropriate, and shall pay all delivery costs
(including the cost of insurance) associated therewith (including any costs
incurred by the Holder).
6.02 TAXES. Subject to Section 9 of the Warrants, the Issuer shall pay
all taxes (other than Federal, state or local income taxes) which may be payable
in connection with the execution and delivery of this Agreement or the
Registration Agreement or the issuance of any Warrant and Warrant Stock
hereunder or in connection with any modification of this Agreement, the
Registration Agreement or the Warrants and shall hold each Holder harmless
without limitation as to time against any and all liabilities with respect to
all such taxes. The obligations of the Issuer under this Section 6.02 shall
survive any redemption, repurchase or acquisition of Warrants or Warrant Stock
by the Issuer, any termination of this Agreement or the Registration Agreement,
and any cancellation or termination of the Warrants.
6.03 REPLACEMENT OF INSTRUMENTS. Upon receipt by the Issuer of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate or instrument evidencing any
Warrants or Warrant Stock, and
(a) in the case of loss, theft or destruction, an indemnity reasonably
satisfactory to it, PROVIDED that, if the owner of the same is an Investor or an
Institutional Investor, its own agreement of indemnity shall be deemed to be
satisfactory, or
(b) in the case of mutilation, upon surrender or cancellation thereof,
the Issuer, at its expense, shall execute, register and deliver a new
certificate or instrument for (or covering the purchase of) an equal number of
Warrants or Warrant Stock.
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6.04 INDEMNIFICATION. The Issuer shall indemnify and hold harmless each
of the Investors and the Holders and each of their respective directors,
officers, employees, stockholders, Affiliates and agents (each, an "INDEMNIFIED
PERSON") from and against any and all losses, claims, damages, liabilities (or
actions or other proceedings commenced or threatened in respect thereof) and
expenses that arise out of, result from, or in any way relate to, this
Agreement, the Warrants, the Warrant Stock, or the Registration Agreement, or in
connection with the other transactions contemplated hereby and thereby,
including any legal or other expenses incurred in connection with investigating,
defending or participating in the defense of any such loss, claim, damage,
liability, action or other proceeding (whether or not such Indemnified Person is
a party to any action or proceeding out of which any such expenses arise),
except to the extent incurred by reason of the gross negligence or willful
misconduct of such Indemnified Person or such Indemnified Person's willful and
material breach of this Agreement, the Warrants or the Registration Agreement.
No Indemnified Person shall be responsible or liable to Issuer for any damages
which may be alleged as a result of or relating to this Agreement, the Warrants
or the Registration Agreement, or in connection with the other transactions
contemplated hereby and thereby, other than to the extent incurred by reason of
the gross negligence or willful misconduct of such Indemnified Person or such
Indemnified Person's willful and material breach of this Agreement, the Warrants
or the Registration Agreement. The provisions of this Section 6.04 shall survive
the issuance of the Warrant Stock, the termination of this Agreement, and the
Expiration Date.
6.05 BOARD OBSERVER. The Issuer shall give the Holders all written
materials and other information related thereto (including copies of all minutes
and all resolutions adopted by the Board and by the board of directors of each
Subsidiary) promptly upon the approval or adoption thereof, at the same time and
in the same manner as such written materials and other information are given to
members of the Board and of the board of directors of each Subsidiary of the
Issuer.
SECTION 7. OTHER COVENANTS OF ISSUER. The Issuer agrees with each
Holder that, so long as any of the Warrants and/or Warrant Stock shall be
outstanding:
7.01 FINANCIAL STATEMENTS, ETC. The Issuer shall deliver the
information specified below to each Holder or holder of Warrant Stock:
(a) as soon as practicable after the end of each quarterly fiscal
period in each fiscal year of the Issuer (other than the last quarterly fiscal
period of each such fiscal year), and in any event within forty-five (45) days
thereafter:
(i) a consolidated balance sheet as at the end of such quarter; and
(ii) consolidated statements of income and cash flows for such quarter
and (in the case of the second and third quarters) for the portion of the fiscal
year ending with such quarter;
for the Issuer and its Subsidiaries, setting forth in each case, in comparative
form, the financial statements for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared
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in accordance with GAAP applicable to quarterly financial statements generally,
and certified as complete and correct by a senior financial officer and
accompanied by an officer's certificate in accordance with Section 5.3 of the
Note Agreement; PROVIDED, that timely delivery of copies of the Issuer's
Quarterly Report on Form 10-Q filed with the Commission shall be deemed to
satisfy the requirements of this Section 7.01(a) so long as such Quarterly
Report contains or is accompanied by the information specified in this Section
7.01(a);
(b) as soon as practicable after the end of each fiscal year of the
Issuer, and in any event within ninety (90) days thereafter:
(i) a consolidated balance sheet as at the end of such year; and
(ii) consolidated statements of income, stockholders' equity and cash
flows for such year;
for the Issuer and its Subsidiaries, setting forth, in comparative form, the
financial statements for the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP, and accompanied by an (1) an audit report
thereon of independent certified public accountants of recognized national
standing, which report shall state without qualification (including, without
limitation, qualifications related to the scope of the audit, the compliance of
the audit with generally accepted auditing standards, or the ability of the
Issuer or a material Subsidiary thereof to continue as a going concern), that
such financial statements have been prepared and are in conformity with GAAP;
and (2) an officer's certificate in accordance with Section 5.3 of the Note
Agreement;
(c) promptly upon their becoming available, and in any event within
fifteen (15) days thereafter:
(i) each financial statement, report, notice or proxy statement sent by
the Issuer to stockholders generally;
(ii) each regular or periodic report (including, without limitation,
each Form 10-K, Form 10-Q and Form 8-K), any registration statement which shall
have become effective, and each final prospectus and all amendments thereto
filed by the Issuer or any of its Subsidiaries with the Commission; and
(d) from time to time such other information regarding the financial
condition, operations, business or prospects of the Issuer or any of its
Subsidiaries as any Holder may reasonably request.
7.02 ACCOUNTANTS; SHAREHOLDER MEETINGS. The Issuer shall, (a) retain a
nationally recognized independent accounting firm as its auditors, and (b)
afford each Holder and its authorized agents the right to attend all meetings of
stockholders of the Issuer and/or its Subsidiaries.
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7.03 ARMS LENGTH TRANSACTIONS. The Issuer will not engage in any
transaction with a stockholder or any Affiliate of a stockholder which is not on
an arms length basis or which is on terms which are more favorable to such
stockholder or Affiliate than could be obtained by the Issuer from an
unaffiliated third party, including, without limitation, the purchase of Issuer
securities, or receipt of fees or other compensation from the Issuer.
7.04 RESTRICTIONS ON PERFORMANCE. The Issuer shall not enter into an
agreement or other instrument limiting in any manner its ability to perform its
obligations under this Agreement, the Registration Agreement or the Warrants, or
making such performance or the issuance of shares of Common Stock upon the
exercise of any Warrant a default under any such agreement or instrument other
than the Note Agreement and the Senior Credit Facility.
7.05 MODIFICATION OF ARTICLES OF INCORPORATION. Without the prior
written consent of the Majority Warrant Stockholders, the Issuer shall not amend
its Articles of Incorporation in any respect relating to the Common Stock other
than (a) to increase or decrease the number of shares of authorized capital
stock (subject to the first sentence of Section 7 of the Warrants), (b) to
decrease the par value of any shares of Common Stock, or (c) in connection with
a Qualified Public Offering.
7.06 MANAGEMENT FEES. Except as and to the extent permitted by the Note
Agreement, the Issuer shall not pay, or be or become obligated to pay, any
Management Fees to any Person, or any interest on any deferred obligation
therefor, including, without limitation, to any shareholder, director, officer
or employee of the Issuer.
SECTION 8 MISCELLANEOUS.
8.01 HOME OFFICE PAYMENT. The Issuer shall punctually pay all amounts
which become due and payable to the Investors with respect to any Warrant or
Warrant Stock to the Investors at the address registered on the books of the
Issuer maintained for such purpose, or at such other place and in such manner as
the Investors may designate by notice to the Issuer, without presentation or
surrender of such Warrant or the making of any notation thereon. The Investors
agree that prior to the sale, transfer or other disposition of a part of any
Warrant, it will make notation thereon of the number of Stock Units covered by
the part of the Warrant sold, transferred or disposed, or surrender the same in
exchange for a Warrant covering the number of Stock Units remaining on the
Warrant so surrendered. The Issuer agrees that the provisions of this Section
8.01 shall inure to the benefit of any other Holder registered on the books of
the Issuer.
8.02 WAIVER. No failure on the part of the Investors to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement, the Warrants or the Registration Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement, the Warrants or the
Registration Agreement preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
12
<PAGE>
8.03 NOTICES.
(a) All notices, requests and other communications provided for herein
and the Warrants (including any waivers or consents under this Agreement and in
the Warrants) shall be given or made in writing,
(i) if to the Issuer:
PolyVision Corporation
48-62 36th Street
Long Island City, New York 11101
Attention: President
Telephone: (718) 729-1050
Fax: 718-786-9310
WITH A COPY TO:
Greenberg Traurig
200 Park Avenue
New York, New York 10166-4193
Attention: Richard M. Zaroff
Spencer G. Feldman
Telephone: (212) 801-9200
Fax: (212) 801-6400
(ii) if to an Investor:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Bond and Corporate Finance Department T-57
Fax: (617) 572-1605
(iii) if to any Holder or holder of Warrant Stock, to the address for
such Holder or holder as it appears in the stock or warrant ledger of the
Issuer;
or, to any such Person at such other address as such Person may designate in a
written notice to the Issuer, the Investors and the other Holders.
(b) All such notices, requests and other communications shall be (i)
personally delivered, sent by courier guaranteeing overnight delivery or sent by
registered or certified mail,
13
<PAGE>
return receipt requested, postage prepaid, in each case given or addressed as
aforesaid and (ii) effective upon receipt.
(c) For purposes of giving notices, waivers and consents hereunder,
Holders shall be deemed holders of the Warrant Stock issued on exercise of
Warrants.
8.04 EXPENSES. ETC. The Issuer agrees to pay or reimburse the Investors
and the Holders for: (a) all reasonable out-of-pocket costs and expenses of the
Investors and the Holders (including all document production and duplication
charges and the reasonable fees and expenses of counsel to the Investors), in
connection with (i) the negotiation, preparation, execution and delivery of this
Agreement, the Warrants and the Registration Agreement and the issuance of
Warrants hereunder, and (ii) any proposed amendment, modification or waiver of
(or consents in respect of) any of the terms of this Agreement, the Registration
Agreement or the Warrants (whether or not any such amendment, modification,
waiver or consent is effected); and (b) all reasonable costs and expenses of the
Investors and the Holders (including reasonable legal fees and expenses)
incurred in connection with (i) any default by the Issuer hereunder or under the
Warrant or the Registration Agreement or any enforcement proceedings resulting
therefrom, (ii) the enforcement of this Section 8.04 or any other rights of the
Holders hereunder or under the Warrants (including the costs of determining
whether or how to enforce such rights), (iii) 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 any
Person's having acquired any Warrant, and (iv) the cost and expenses incurred in
any bankruptcy case involving the Issuer or any Subsidiary. The provisions of
this Section 8.04 shall survive the issuance of the Warrant Stock, the
termination of this Agreement, and the Expiration Date.
8.05 AMENDMENTS. ETC. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be amended or modified only by an
instrument in writing signed by the Issuer and the holders of (a) two-thirds in
number of shares of the Restricted Stock and (b) Restricted Warrants covering
two-thirds in number of the Restricted Stock issuable upon conversion of all
Restricted Warrants; PROVIDED, HOWEVER, that no such amendment or waiver shall,
without the written consent of all holders of such shares and Warrants at the
time outstanding, amend this Section 8.05.
8.06 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
8.07 SURVIVAL. All representations and warranties made by the Issuer
herein or in any certificate or other instrument delivered by it or on its
behalf under this Agreement or the Registration Agreement (and all statements in
any such certificate or other instrument so delivered shall constitute
representations and warranties by the Issuer hereunder) shall be considered to
have been relied upon by the Investors and shall survive the issuance of the
Warrants or the Warrant Stock regardless of any investigation made by or on
behalf of the Investors.
14
<PAGE>
8.08 SPECIFIC PERFORMANCE. Damages in the event of breach of this
Agreement by a Holder or the Issuer would be difficult, if not impossible, to
ascertain, and it is therefore agreed that each Holder and the Issuer, in
addition to and without limiting any other remedy or right it may have, will
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and enforcing specifically
the terms and provisions hereof, and each Holder and the Issuer hereby waives
any and all defenses it may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
The existence of this right will not preclude the Holders or the Issuer from
pursuing any other rights and remedies at law or in equity which the Holders or
the Issuer may have.
8.09 CAPTIONS. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart signature page or counterpart.
8.11 GOVERNING LAW, WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION, ETC.
THIS WARRANT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK.
THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF
THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE WARRANTS, THE REGISTRATION
AGREEMENT OR ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED
HEREBY.
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE WARRANTS, THE REGISTRATION AGREEMENT, OR ANY OF THE DOCUMENTS,
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY ACTION OR
PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH
UNDER THIS AGREEMENT, THE WARRANTS, THE REGISTRATION AGREEMENT OR ANY DOCUMENT
OR AGREEMENT CONTEMPLATED HEREBY OR THEREBY MAY BE BROUGHT BY SUCH PARTY IN ANY
FEDERAL DISTRICT COURT LOCATED IN NEW YORK COUNTY, NEW YORK, OR ANY NEW YORK
STATE COURT LOCATED IN NEW YORK COUNTY, NEW YORK AS SUCH PARTY MAY IN ITS SOLE
DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN
PERSONAM JURISDICTION OF EACH SUCH COURT, AND EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY
TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT
15
<PAGE>
SUBJECT TO THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY SUCH
COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY HERETO IRREVOCABLY AGREES THAT PROCESS PERSONALLY SERVED OR
SERVED BY U.S. REGISTERED MAIL AT THE ADDRESSES PROVIDED HEREIN FOR NOTICES
SHALL CONSTITUTE, TO THE EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
WARRANTS, THE REGISTRATION AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION
CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE
ANY JUDGEMENT IN RESPECT OF ANY BREACH HEREUNDER OR ANY DOCUMENT OR AGREEMENT
CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL BE CONCLUSIVELY PRESUMED
AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY THE UNITED STATES POSTAL SERVICE
OR ANY COMMERCIAL DELIVERY SERVICE.
NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE
PARTIES TO SERVE ANY WRITS, PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY
APPLICABLE LAW OR TO OBTAIN JURISDICTION IN SUCH OTHER JURISDICTION, AND IN SUCH
OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
8.12 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
8.13 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter hereof.
16
<PAGE>
8.14 CONFIDENTIALITY. Each Holder agrees (on behalf of itself and each
of its affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of this nature and in
accordance with safe and sound practices, any non-public information supplied to
it by the Issuer pursuant to this Agreement which is identified by the Issuer as
being confidential at the time the same is delivered to such Holder, PROVIDED
that nothing herein shall limit the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, (b) to
counsel or other agents or advisors for any of the Holders, (c) to regulatory
personnel, auditors or accountants, (d) in connection with any litigation to
which any one or more of the Holders is a party, (e) to a Subsidiary or
Affiliate of such Holder or (f) to any prospective holder of Warrants or Warrant
Stock so long as such prospective holder first executes and delivers to such
Holder and the Issuer a confidentiality agreement substantially in the form of
ANNEX I to the Registration Agreement.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Warrant
Agreement as of the date first above written.
POLYVISION CORPORATION
By: /s/ Joseph A. Menniti
---------------------------------
Name: Joseph A. Menniti
-------------------------------
Title: Chief Executive Officer
------------------------------
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: /s/ Stacey P. Agretelis
---------------------------------
Name: Stacey P. Agretelis
-------------------------------
Title: Assistant Investment Officer
------------------------------
HANCOCK MEZZANINE PARTNERS L.P.
By: Hancock Mezzanine Investments LLC, its
General Partner
By: John Hancock Mutual Life Insurance Company,
as Investment Manager
By: /s/ Stacey P. Agretelis
---------------------------------
Name: Stacey P. Agretelis
---------------------------------
Title: Assistant Investment Officer
--------------------------------
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By: /s/ Anthony C. Urick
---------------------------------
Name: Anthony C. Urick
---------------------------------
Title: Vice President, Investments
---------------------------------
<PAGE>
EXHIBIT 10.43
SECOND AMENDMENT TO
FIRST AMENDED AND RESTATED MASTER CREDIT AGREEMENT
This SECOND AMENDMENT TO FIRST AMENDED AND RESTATED MASTER CREDIT
AGREEMENT (the "Second Amendment") is made as of this 12th day of June, 1998 by
and among BANKBOSTON, N.A. (successor by merger to Bank of Boston Connecticut),
a national banking association, with an office located at 100 Pearl Street,
Hartford, Connecticut 06103 ("Bank"); GREENSTEEL, INC., a Delaware corporation,
with its chief executive office located at 29 Laing Avenue, Dixonville,
Pennsylvania 15734-0335 ("Borrower") and, to the extent of Section 4 hereof,
POLYVISION CORPORATION, a New York corporation, having its chief executive
office located at 48-62 36th Street, Long Island City, New York 11101
("Guarantor").
W I T N E S S E T H:
WHEREAS, Bank of Boston Connecticut, Borrower and Guarantor entered into a
certain First Amended and Restated Master Credit Agreement dated as of the 23rd
day of July, 1997 (the "Agreement") whereby Bank of Boston Connecticut agreed to
extend certain credit facilities to Borrower and make loans, advances and other
extensions of credit thereunder; and
WHEREAS, Borrower is a wholly-owned subsidiary of Guarantor, and Guarantor
agreed to guarantee the obligations of Borrower to Bank of Boston Connecticut
under the Agreement; and
WHEREAS, BankBoston, N.A. has succeeded to all of the rights and
obligations of Bank of Boston Connecticut under the Agreement as a result of the
merger of Bank of Boston Connecticut with and into BankBoston, N.A.; and
WHEREAS, Bank, Borrower and Guarantor amended the Agreement pursuant to a
certain First Amendment to First Amended and Restated Master Credit Agreement
dated as of January ___, 1998 (the "First Amendment"); and
WHEREAS, Bank, Borrower and Guarantor desire to further amend the
Agreement in certain respects; and
WHEREAS, Section 13.10. of the Agreement provides that no modification or
amendment of the Agreement shall be effective unless the same shall be in
writing and signed by the parties thereto;
NOW, THEREFORE, in consideration of one dollar ($1.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Bank, Borrower and Guarantor agree as follows:
1. Amendment of Agreement. Bank, Borrower and Guarantor hereby agree to
amend the Agreement as follows:
(a) Section 1.24. of the Agreement, entitled "Commitment Amount," is
hereby amended to read as follows:
Section 1.24. "Commitment Amount" means the aggregate principal amount of
FOUR MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($4,250,000.00)
or any lesser amount, including zero (0), resulting from a reduction or
termination of such amount in accordance with Section 2.1.5. or Section
12.1.
(b) Section 1.102 of the Agreement, entitled "Revolving Credit
Note", is hereby amended to read as follows:
1
<PAGE>
Section 1.102. "Revolving Credit Note" means that certain $4,250.000
Second Substitute Revolving Credit Note dated June 12, 1998, executed by
Borrower in substitution for that certain $3,800,000 Revolving Credit Note
dated July 23, 1997, which theretofore evidenced Revolving Loans.
(c) Section 1.32. of the Agreement, entitled "Disqualified Accounts
Receivable," is hereby amended to read as follows:
Section 1.32. "Disqualified Accounts Receivable" means:
a. An Account Receivable which does not arise out of a bona fide
sale of goods or rendering of services of the kind sold or rendered by
Borrower in the ordinary course of its business; or
b. An Account Receivable which remains unpaid for more than ninety
(90) days after the invoice date or sixty (60) days after the due date
unless such Account Receivable is an Eligible Progress Billing; or
c. An Account Receivable (other than an Account Receivable which is
an Eligible Progress Billing) owing by an Account Debtor if twenty percent
(20%) or more of the dollar value of all Accounts Receivable (exclusive of
Eligible Progress Billings) owed by such Account Debtor remain unpaid for
more than sixty (60) days after the due date; or
d. An Account Receivable with respect to which the Account Debtor is
a director, officer, employee or agent of Borrower or is a Subsidiary or
an Affiliate of Borrower; or
e. An Account Receivable with respect to which any covenant,
representation or warranty set forth in this Agreement has been breached;
or
f. An Account Receivable with respect to which the Account Debtor
has commenced a voluntary case in bankruptcy, or made an assignment for
the benefit of creditors, or if a decree or order for relief has been
entered by a court having jurisdiction over the Account Debtor in an
involuntary case in bankruptcy, or if any petition or other application
for relief in bankruptcy has been filed against the Account Debtor, or if
the Account Debtor has failed, ceased business operations, become
insolvent or consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or all or substantially all of its
properties or assets; or
g. An Account Receivable (other than an Account Receivable which is
an Eligible Progress Billing) with respect to which the goods giving rise
thereto have not been shipped by the Account Debtor or the services giving
rise thereto have not been performed by Borrower and accepted by the
Account Debtor or if the Account Receivable does not otherwise represent a
final sale; or
h. An Account Receivable owing by a single Account Debtor located
outside of the United States of America, Canada or Puerto Rico unless such
Account Receivable is a Secured Foreign Receivable or an Insured Foreign
Receivable; or
i. An Account Receivable with respect to which the sale giving rise
thereto is on a bill-and-hold, sale-and-return, sale on approval,
consignment or other repurchase or return basis; or
j. An Account Receivable with respect to which the Account Debtor is
the United States of America or any department, agency or office thereof
unless Borrower assigns its right to payment of such Account Receivable to
Bank in accordance with the Federal Assignment of
2
<PAGE>
Claims Act of 1940 or Bank otherwise consents in writing to the inclusion
thereof in the Borrowing Base; or
k. An Account Receivable (other than an Account Receivable which is
an Eligible Progress Billing) to the extent that the Account Debtor has
paid or advanced to Borrower any deposit or other advance in respect of
the payment thereof; or
l. An Account Receivable to the extent that the Account Debtor has
earned or accrued, or is due, any rebate, credit or other allowance by
Borrower; or
m. An Account Receivable to the extent of any amounts owed by
Borrower to such Account Debtor; or
n. An Account Receivable in which Bank does not possess a valid and
perfected first priority security interest; or
o. An Account Receivable owing by an Account Debtor located in a
jurisdiction in which Borrower has not complied with any laws, if the
result of such non-compliance might be to restrict Borrower's ability to
collect such Account Receivable; or
p. An Account Receivable which Bank, in its reasonable credit
judgment, excludes from the calculation of the Borrowing Base under
Section 2.1.4. hereof.
(d) The following is hereby inserted as a new Section 1.37.A. of the
Agreement, entitled "Eligible Progress Billing:"
Section 1.37.A. "Eligible Progress Billing" means an Account Receivable
which represents a scheduled billing under the terms of a valid contract
for goods sold or services rendered by Borrower in respect of interim or
partial performance under such contract and with respect to which the
Account Debtor thereof has not terminated or threatened to terminate such
contract or withheld or threatened to withhold payment thereunder.
(e) Section 1.109. of the Agreement, entitled "Security Value of
Accounts Receivable" is hereby amended to read as follows:
Section 1.109. "Security Value of Accounts Receivable" means, as of any
date as of which the amount thereof shall be determined, an amount equal
to (x) eighty-five percent (85%) (or such lesser percentage as Bank may
determine in its reasonable credit judgment) of the Eligible Accounts
Receivable (other than Accounts Receivable which are Eligible Progress
Billings) of Borrower as of the date of determination plus (y) the lesser
of (a) twenty-five percent (25%) (or such lesser percentage as Bank may
determine in its reasonable credit judgment) of Eligible Progress Billings
as of such date, or (b) FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($500,000.00).
(f) Section 9.1. of the Agreement, entitled "Current Ratio", is
hereby amended to read as follows:
Section 9.1. Current Ratio. The ratio of Borrower's Consolidated Current
Assets to its Consolidated Current liabilities shall not be less than 1.5
to 1.0 as of the end of each Fiscal Quarter commencing with the Fiscal
Quarter ending April 30, 1998.
(g) Section 9.4. of the Agreement, entitled "Consolidated Total
Liabilities to Consolidated Tangible Net Worth Ratio," is hereby amended to read
as follows:
Section 9.4. Consolidated Total Liabilities to Consolidated Tangible Net
Worth Ratio. The ratio of Borrower's Consolidated Total Liabilities to its
Consolidated Tangible Net Worth shall not be
3
<PAGE>
greater than 1.5 to 1.0 as of the end of each Fiscal Quarter commencing
with the Fiscal Quarter ending April 30, 1998.
(h) Exhibit A to the Agreement is hereby deleted and Exhibit A to
this Second Amendment is hereby substituted in lieu thereof.
2. Effect of Amendment. Bank, Borrower and Guarantor hereby acknowledge
and agree that except as provided in this Second Amendment, the Agreement (as
amended by the First Amendment), the Notes (as such term is defined in the
Agreement and as amended by replacement of the $3,800,000 Revolving Credit Note
by the $4,250,000 Second Substitute Revolving Credit Note) and the Other
Documents (as such term is defined in the Agreement and as amended by Second
Amendment to Open-End Mortgage Deed and Security Agreement of even date
herewith) remain in full force and effect and have not been modified or amended
in any respect, it being the intention of Bank, Borrower and Guarantor that this
Second Amendment and the Agreement (as amended by the First Amendment) be read,
construed and interpreted as one and the same instrument.
3. Confirmation of Agreements. Bank, Borrower and Guarantor hereby
acknowledge and agree that, except as provided in this Second Amendment, the
Agreement (as amended by the First Amendment), the Notes and the Other
Documents, and the grant of the liens, security interests and other encumbrances
thereunder, and their agreements, covenants, obligations, representations and
warranties thereunder and therein, are hereby expressly ratified, confirmed and
restated as of the date hereof.
4. Capitalized Terms. All capitalized terms not otherwise defined in this
Second Amendment shall have the meanings ascribed to such terms in the
Agreement (as amended by
the First Amendment.)
5. Benefit. This Second Amendment shall inure to the benefit of and bind
the parties hereto and their respective successors and assigns.
6. Amendments. This Second Amendment shall be modified only in writing,
executed by all parties hereto.
4
<PAGE>
IN WITNESS WHEREOF, Bank, Borrower and Guarantor have executed this Second
Amendment as of the date first above written.
BANKBOSTON, N.A. (successor by
merger to Bank of Boston Connecticut)
By: /s/ Roger Roach
------------------------------------
Name: Roger Roach
Title:
GREENSTEEL, INC.
By: /s/Joseph A. Menniti
------------------------------------
Name: Joseph A. Menniti
Title: President
POLYVISION CORPORATION
By: /s/Joseph A. Menniti
------------------------------------
Name: Joseph A. Menniti
Title: Chief Executive Officer
<PAGE>
EXHIBIT 21.1 Subsidiaries of Registrant
<TABLE>
<CAPTION>
100%
Subsidiary Parent Company Jurisdiction of Organization
---------- -------------- ----------------------------
<S> <C> <C>
Greensteel, Inc. PolyVision Corporation Delaware
Posterloid Corporation PolyVision Corporation Delaware
APV, Inc. PolyVision Corporation Delaware
PolyVision Belgium N.V. PolyVision Corporation Belgium
PolyVision France EURL PolyVision Corporation France
Alliance Europe N.V. PolyVision Belgium N.V Belgium
Alliance Graphics N.V. Alliance Europe N.V. Belgium
Alliance Pentagon A/S Alliance Europe N.V. Denmark
Emailleries de Blanc Misseron A. Aubecq S.A. PolyVision France EURL France
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 18, 1999 into
PolyVision Corporation's previously filed Registration Statements on Forms S-8
(File Nos. 333-03897, 333-62649 and 333-62651).
Arthur Andersen LLP
Atlanta, Georgia
March 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,841,000
<SECURITIES> 0
<RECEIVABLES> 20,402,000
<ALLOWANCES> 2,519,000
<INVENTORY> 13,084,000
<CURRENT-ASSETS> 39,120,000
<PP&E> 18,954,000
<DEPRECIATION> 1,186,000
<TOTAL-ASSETS> 122,208,000
<CURRENT-LIABILITIES> 20,607,000
<BONDS> 74,511,000
0
17,848,000
<COMMON> 14,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 122,208,000
<SALES> 33,877,000
<TOTAL-REVENUES> 33,877,000
<CGS> 23,360,000
<TOTAL-COSTS> 23,360,000
<OTHER-EXPENSES> 8,467,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,408,000
<INCOME-PRETAX> 441,000
<INCOME-TAX> 286,000
<INCOME-CONTINUING> 155,000
<DISCONTINUED> 0
<EXTRAORDINARY> 436,000
<CHANGES> 0
<NET-INCOME> 591,000
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
</TABLE>
