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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended NOVEMBER 30, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-17276
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FSI INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1223238
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
322 LAKE HAZELTINE DRIVE, CHASKA, MINNESOTA 55318
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(Address of principal executive offices) (Zip Code)
612-448-5440
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
/X/ YES / / NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date:
COMMON STOCK, NO PAR VALUE - 22,382,090 SHARES OUTSTANDING AS OF DECEMBER 27,
1996
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FSI INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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<S> <C> <C>
Item 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets as of
November 30, 1996 ( unaudited) and August 31, 1996 3
Consolidated Condensed Statements of Operations
(Unaudited) for the quarters ended November 30, 1996
and November 25, 1995 5
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the quarters ended November 30, 1996 and November 25, 1995 6
Notes to the Consolidated Condensed Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION 15
SIGNATURES 16
</TABLE>
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PART I. Item 1. FINANCIAL INFORMATION
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
NOVEMBER 30, 1996 AND AUGUST 31, 1996
ASSETS
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
(Unaudited) (Audited)
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 44,393,987 $ 48,804,158
Marketable securities 26,354,445 23,116,484
Trade accounts receivable, net of allowance for
doubtful accounts of $1,937,400 and
$1,843,000, respectively 57,888,713 60,532,701
Trade accounts receivable from affiliates 10,568,768 20,228,673
Inventories 58,313,107 64,075,294
Deferred income tax benefit 8,262,861 8,262,861
Prepaid expenses and current assets 3,508,288 4,974,079
------------ ------------
Total current assets 209,290,169 229,994,250
------------ ------------
Property, plant and equipment, at cost 76,230,866 68,227,403
Less accumulated depreciation and amortization (24,827,508) (22,632,786)
------------ ------------
51,403,358 45,594,617
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Investment in affiliates 13,788,989 12,765,401
Deposits and other assets 3,960,157 4,395,595
Deferred income tax benefit 533,518 533,518
------------ ------------
$278,976,191 $293,283,381
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
NOVEMBER 30, 1996 AND AUGUST 31, 1996
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
(Unaudited) (Audited)
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<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 194,300 $ 207,000
Trade accounts payable 14,932,030 30,834,470
Accrued expenses 24,409,819 29,069,279
Customer deposits 3,736,484 3,710,547
Deferred revenue 11,797,517 9,824,693
------------ ------------
Total current liabilities 55,070,150 73,645,989
------------ ------------
Long-term debt, less current maturities 246,146 290,948
Deferred income taxes 92,932 92,021
Minority interest 1,279,498 1,127,058
Stockholders' Equity:
Preferred stock, no par value; 10,000,000 shares
authorized, none issued and outstanding - -
Common stock; no par value, 50,000,000 shares
authorized, issued and outstanding; 22,374,056
and 22,362,056 shares at November 30, 1996
and August 31, 1996, respectively 157,813,325 157,731,828
Retained earnings 64,386,232 60,345,308
Cumulative translation adjustment 87,908 50,229
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Total stockholders' equity 222,287,465 218,127,365
------------ ------------
$278,976,191 $293,283,381
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED NOVEMBER 30, 1996 AND NOVEMBER 25, 1995
(Unaudited)
<TABLE>
<CAPTION>
November 30, November 25,
1996 1995
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<S> <C> <C>
Sales (including sales to affiliates of
$21,840,000 and $13,834,000, respectively) $66,990,995 $70,343,725
Cost of goods sold 40,226,170 40,543,368
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Gross profit 26,764,825 29,800,357
Selling, general and administrative expenses 13,218,839 12,753,801
Research and development expenses 9,677,913 8,531,908
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Operating income 3,868,073 8,514,648
Interest expense (35,808) (123,115)
Interest income 731,153 1,429,072
Other income (expense), net (24,193) (63,652)
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Income before income taxes 4,539,225 9,756,953
Income tax expense 1,407,126 3,426,065
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Income before minority interest
and equity in earnings of affiliates 3,132,099 6,330,888
Minority interest (114,763) (161,830)
Equity in earnings of affiliates 1,023,588 1,556,099
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Net income $ 4,040,924 $ 7,725,157
=========== ============
Net income per common share $0.18 $0.33
Weighted average common shares
and common share equivalents 23,014,483 23,322,552
Pro forma information:
Income tax expense $ 1,407,126 $ 3,497,065
Net income $ 4,040,924 $ 7,654,157
Net income per common share $0.18 $0.33
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED NOVEMBER 30, 1996 AND NOVEMBER 25, 1995
(Unaudited)
<TABLE>
<CAPTION>
November 30, November 25,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,040,924 $ 7,725,157
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest 114,763 161,830
Provision for deferred income taxes 911 3,945
Depreciation and amortization 2,254,188 1,110,471
Equity in earnings of affiliates (1,023,588) (1,556,099)
Changes in operating assets and liabilities:
Trade accounts receivable 12,303,893 (7,103,294)
Inventories 5,762,187 (2,793,168)
Prepaid expenses and other current assets 1,465,791 684,057
Trade accounts payable (15,902,440) (2,342,242)
Accrued expenses (4,589,180) 2,299,021
Customer deposits 25,937 (108,003)
Deferred revenue 1,972,824 (173,356)
Other 75,356 (59,120)
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Net cash provided by (used in) operating activities 6,501,566 (2,150,801)
------------ ------------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (8,005,351) (9,845,534)
Purchases of marketable securities (4,845,071) (11,372,791)
Sales of marketable securities 1,007,110 1,163,100
Maturities of marketable securities 600,000 4,895,136
Decrease (increase) in deposits and other assets 377,860 (206,693)
------------ ------------
Net cash used in investing activities (10,865,452) (15,366,782)
------------ ------------
FINANCING ACTIVITIES:
Principal payments on long-term debt (57,502) (38,600)
Increase in long-term debt - 16,237
Payments on line of credit - (2,510,807)
Advances on line of credit - 3,200,000
S-Corporation distribution payments - (399,100)
Net proceeds from issuance of common stock 11,217 118,108
------------ ------------
Net cash provided by (used in)
financing activities (46,285) 385,838
------------ ------------
(Decrease) in cash and cash equivalents (4,410,171) (17,131,745)
Cash and cash equivalents at beginning of period 48,804,158 97,010,076
------------ ------------
Cash and cash equivalents at end of period $ 44,393,987 $ 79,878,331
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) RECLASSIFICATIONS
Certain fiscal 1996 amounts have been reclassified to conform to the
fiscal 1997 presentation.
(2) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements have been
prepared by the Company without audit and reflect all adjustments
(consisting only of normal and recurring adjustments) which are, in the
opinion of management, necessary to present a fair statement of the
results for the interim periods presented. The statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission but omit certain information and footnote disclosures necessary
to present the statements in accordance with generally accepted accounting
principles. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the full
fiscal year. These consolidated condensed financial statements should be
read in conjunction with the Consolidated Financial Statements and
footnotes thereto included in the Company's Annual 10-K Report for the
fiscal year ended August 31, 1996 previously filed with the Securities and
Exchange Commission.
(3) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
November 30, 1996 August 31, 1996
(Unaudited) (Audited)
----------------- ---------------
<S> <C> <C>
Finished goods $ 9,366,836 $10,715,376
Work-in-process 15,143,593 16,329,239
Subassemblies 4,303,608 4,689,549
Raw materials and purchased parts 29,499,070 32,341,130
----------- ---------------
$58,313,107 $64,075,294
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</TABLE>
(4) SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------
November 30, 1996 November 25, 1995
----------------- ------------------
<S> <C> <C>
Schedule of interest and income taxes paid:
Interest $ 35,808 $ 125,815
Income taxes $2,911,535 $1,807,774
</TABLE>
Capital leases entered into for financing purchases of equipment during
first quarter of fiscal 1997 and 1996 were $0 and $241,610, respectively.
In addition, the Company realized in first quarter 1997 and 1996, a tax
benefit from disqualifying stock options and purchases of $70,280 and
$26,802, respectively.
(5) PRIVATE DEBT PLACEMENT
On December 19, 1996, the Company completed a private debt placement for
$30.0 million of 7.15% senior unsecured notes due 2004 and $12.0
million of 7.27% senior unsecured notes due 2006. The notes are
subject to certain affirmative and negative convenants, including
financial ratio tests such as an indebtedness ratio and a tangible net
worth test.
The proceeds from the private debt placement will be used to acquire
equipment for the Company's demonstration and product and process
development laboratories, other capital expenditures and general corporate
purposes.
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(6) PRO FORMA INFORMATION
On April 4, 1996, the Company completed the acquisition of Semiconductor
Systems, Inc. (Semiconductor Systems). The acquisition of Semiconductor
Systems was accounted for as a pooling of interests. Accordingly, all
historical information for FSI International, Inc. and subsidiaries has
been restated to include the operations of Semiconductor Systems as though
the two entities have always been combined.
Pro forma data shown on the consolidated statements of operations reflect
the impact on income tax expense as if Semiconductor Systems was a C
Corporation versus an S Corporation prior to the acquisition of
Semiconductor Systems on April 4, 1996.
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FSI INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2.
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 1997 COMPARED WITH THE FIRST QUARTER OF FISCAL 1996.
The information in this discussion, except for the historical information
contained herein, contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the safe harbor created by that statute. Such statements are subject to
risks and uncertainties, several of which are discussed below. Readers are
directed to the Risk Factors discussion found in the Company's Report on Form
10-K for the year ended August 31, 1996. Readers also are cautioned not to
place undue reliance on these forward-looking statements as actual results
could differ materially. The Company assumes no obligation to publicly release
any revisions or updates to these forward-looking statements to reflect future
events or unanticipated occurrences. Such forward-looking statements are
marked with an asterisk (*).
In the first half of fiscal 1996, the microelectronics industry, primarily
semiconductor device manufacturers began a slowdown in growth. As a result,
certain of the Company's customers delayed orders and/or canceled expansion
plans. Due to the difficult industry conditions, which are expected to last at
least until the second half of calendar 1997, the Company adopted certain cost
control measures in an attempt to align spending with expected sales
decreases.*
Cost control measures, including mandatory furlough days, a reduction in
executive compensation, and a 9% reduction in the work force were implemented
in September 1996. The Company recorded a pretax charge of approximately
$300,000 in the first quarters of fiscal 1997 relating to the reduction in
force.
The following table sets forth, for the fiscal quarter indicated, certain
income and expense items as a percent of total sales.
<TABLE>
<CAPTION>
Percent of Sales
--------------------------
November 30, November 25,
First quarter ended 1996 1995
------------ ------------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of goods sold 60.0 57.6
Gross profit 40.0 42.4
Selling, general and administrative 19.7 18.2
Research and development 14.5 12.1
Operating income 5.8 12.1
Other income (expense), net 1.0 1.8
Income before income taxes 6.8 13.9
Income tax expense 2.1 4.9
Minority interest (0.2) (0.2)
Equity in earnings of affiliates 1.5 2.2
------ ------
Net income 6.0% 11.0%
====== ======
</TABLE>
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SALES:
Sales decreased to $67.0 million for the first quarter ended November 30, 1996
as compared to $70.3 million for the first quarter of fiscal 1996. The decrease
in sales occurred in the Surface Conditioning and Microlithography product
lines. The decrease in unit sales is largely due to a decreased demand for
equipment resulting from the delays and cancellations of construction of new
and the expansion of existing semiconductor manufacturing facilities by our
customers. It is anticipated that the second quarter fiscal 1997 sales and net
income levels will be lower than the first quarter fiscal 1997 sales and net
income levels.*
International sales were $22.7 million, and $28.2 million for the first quarter
of fiscal 1997 and 1996, respectively, and represented approximately 34% and
40% of sales during these periods. International sales were approximately 35%
of total sales for fiscal 1996. The decrease in international sales in first
quarter fiscal 1997 as compared to first quarter fiscal 1996 occurred in both
Europe and Asia.
In recent months, the microelectronics industry has been experiencing
volatility in product demand and pricing, which has caused semiconductor device
manufacturers to exercise caution in making capital equipment purchasing
decisions. Certain semiconductor device manufacturers announced their intent
to delay expansion of current facilities and/or the construction,
facilitization or equipping of new manufacturing facilities. The Company has
experienced some cancellations and delays of orders and delays in shipping of
orders. Based upon current industry trends, the Company is expecting a sales
decline of approximately 8% to 12% in fiscal 1997 as compared to fiscal 1996
sales of $304 million.* Further order cancellations or delays by customers are
possible and could have a further adverse effect on the Company's financial
results for fiscal 1997.*
GROSS PROFIT:
Gross profit as a percentage of sales for first quarter of fiscal 1997 was
40.0% as compared to approximately 42.4% for first quarter of fiscal 1996. The
decrease in gross profit margin was generally due to product mix and pricing
pressures. The decrease related to product mix is due to an increase in the
percentage of total sales of the Company's lower margin products.
The Company's gross profit margin may fluctuate as a result of a number of
factors, including the mix of products sold, the proportion of international
sales and competitive pricing pressures. The Company made a final payment to
the licensor and now has a fully paid up, nonexclusive, worldwide license for
its POLARIS(R) product. This should improve the Company's gross profit margin
on this product.* However, the Company expects overall gross margins to
decrease in fiscal 1997 as compared to fiscal 1996 due to the industry
slow-down, expected lower sales levels, start-up of the Company's new
manufacturing facility in Allen, Texas, lower margins on new product
introductions (primarily due to the high original equipment manufacturer
content of such products), and increased pricing pressure from competitors.*
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses were $13.2 million and $12.8
million or 19.7% and 18.2% of sales during the first quarter of fiscal 1997 and
1996, respectively. The increases in the amount of SG&A expenses in the
first quarter of fiscal 1997 was due primarily to higher costs including
severance costs relating to the reduction in workforce and costs associated
with computer systems upgrade. SG&A is expected to increase slightly in the
second quarter of fiscal 1997 on a dollar to dollar basis as the Company
implements the new computer systems and continues to strengthen its presence in
the Asia-Pacific region.* Overall, the Company expects that SG&A expenses will
increase as a percent of sales in fiscal 1997 due to continued investments in
customer support, computer systems implementation, and an expanded sales,
marketing and support focus in the Asia-Pacific regions.*
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RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses for the first quarter of fiscal 1997 were
$9.7 million, or 14.5% of sales, as compared to $8.5 million, or 12.1% of
sales, for first quarter of fiscal 1996. The increase in the amount of R&D
expenses resulted primarily from the Company's continued product and process
development efforts on new and existing products, including the ARIES(TM)
CryoKinetic(TM) cleaning system, ZETA(TM) automated surface conditioning
system, new POLARIS(R) 2100 and 2200 cluster models and certain new chemical
management products. The successful introduction of new products is important
to the long-term growth of the Company.* The Company expects R&D expenses to
increase on a dollar to dollar basis and as a percentage of sales in the coming
quarters as it accelerates certain programs in an effort to shorten the cycle
time to get new products and processes into the market.* Overall, the
Company's goal is to invest approximately 13% to 15% of sales in research and
development programs. The Company expects to be at the high end of this range
during fiscal 1997 as it continues to invest in new product and process
development programs.*
OTHER INCOME (EXPENSE), NET:
Other income (expense) was approximately $671,000 of income for first quarter
fiscal 1997 as compared to $1.2 million of income, for first quarter of fiscal
1996. The majority of the change was due to a decrease of approximately
$698,000 in interest income recognized on cash and cash equivalents, and
marketable securities. The Company's average cash and cash equivalents, and
marketable securities balances decreased due to the cash being used in
operations and purchases of property, plant and equipment. Other income
(expense), net will be impacted in future quarters by the interest expense from
the private debt placement which was completed in December, 1996.*
INCOME TAX EXPENSE:
Income tax expense for first quarter of fiscal 1997 was approximately $1.4
million or 31% of pre-tax profit compared to approximately $3.4 million or
35% of pre-tax profit for first quarter of fiscal 1996. The Company
anticipates its effective tax rate will range from 30% to 32% in fiscal 1997.*
EQUITY IN EARNINGS OF AFFILIATES:
The equity in earnings of affiliates was $1.0 million for the first quarter of
fiscal 1997, compared to $1.6 million for the first quarter of fiscal 1996.
The decrease is due to lower earnings at both affiliates (Metron Technology
B.V. and m-FSI Ltd.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities were
approximated $70.7 million as of November 30, 1996, a decrease of $1.2 million
from the end of fiscal 1996. The decrease in cash, cash equivalents and
marketable securities is a result of the continued funding of facilities
expansion offset by cash generated by operations.
The Company's accounts receivable decreased by approximately 15.2%, or $12.3
million, from the end of fiscal 1996. The decrease in accounts receivable is
mainly due to decreased sales levels.
The Company's inventory decreased approximately $5.8 million to $58.3 million
at November 30, 1996 compared to $64.1 million at the end of fiscal 1996. This
was mainly due to decreased levels of raw materials and purchased parts due to
lower sales order activity. As of November 30, 1996, the Company's current
ratio of current assets to current liabilities was 3.8 to 1.0 and working
capital was $154.2 million.
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The Company had acquisitions of property, plant and equipment of $8.0 million
and $9.8 million for the first quarter of fiscal 1997 and fiscal 1996,
respectively. The continuing acquisitions reflect the investments in computer
equipment and facilities expansions. It is anticipated the Company will invest
$45 to $50 million in fiscal 1997 in the facilities expansion projects and the
computer systems conversion.*
The Company is in the process of constructing and equipping a new
80,000-square-foot laboratory and engineering facility at a cost of
approximately $27.0 million, for the Surface Conditioning Division in Chaska,
Minn. The Company expects to move the Surface Conditioning Division into the
new facility in the middle of calendar 1997.* The laboratory facility will be
equipped with certain new advanced surface conditioning products which were
introduced in late fiscal 1996 or are expected to be introduced in fiscal 1997.
The Company is also in the process of building and equipping a
150,000-square-foot engineering, manufacturing and laboratory facility in
Allen, Texas, to expand the manufacturing and development capabilities of the
Company's Microlithography Division. The new facility will cost approximately
$21.0 million and is expected to be completed by the end of the first quarter of
calendar 1997.
The Company completed a private debt placement on December 19, 1996 for
approximately $30.0 million of 7.15% senior unsecured notes due 2004 and $12.0
million of 7.27% senior unsecured notes due 2006. The proceeds from the
private debt placement will be used to acquire equipment for the Company's
demonstration and product and process development laboratories, other capital
expenditures and general corporate purposes. The Company believes that with
existing cash, cash equivalents, marketable securities, internally generated
funds and proceeds from the private debt placement, there will be sufficient
funds to meet the Company's currently projected working capital and other cash
requirements through at least mid-fiscal 1998.*
The Company believes that success in its industry requires substantial capital
to maintain the flexibility to take advantage of opportunities as they may
arise. The Company may, from time to time, as market and business conditions
warrant, invest in or acquire complementary businesses, products or
technologies. The Company may fund such activities with additional equity or
debt financings. The sale of additional equity or debt securities could result
in additional dilution to the Company's shareholders.
RISK FACTORS
Due to the nature of business and the industry in which the Company operates,
the following risk factors should be considered in addition to others described
above.
CURRENT SLOWDOWN AND VOLATILITY IN THE MICROELECTRONICS INDUSTRY:
The Company's business depends upon the capital equipment expenditures of
microelectronics manufacturers, which in turn depend on the current and
anticipated market demand for semiconductor devices and products utilizing
semiconductor devices. The microelectronic industry has been cyclical in
nature and historically experienced periodic downturns. The semiconductor
device manufacturers are presently experiencing a slowdown in terms of product
demand and volatility in terms of product pricing. During 1995 many of the
semiconductor device manufacturers announced plans to expand existing or build
new semiconductor device manufacturing facilities. In early 1996, the average
selling price of memory chips and certain other semiconductor devices
significantly decreased. This has resulted in semiconductor device
manufacturers announcing delays in their expansion plans. This slowdown and
volatility has caused the semiconductor device manufacturers to reduce their
demand for semiconductor processing equipment and, in some instances, to delay
capital equipment decisions. In some cases this has resulted in order
cancellations or delays of orders and delays of delivery dates for the
Company's products. No assurance can be given that the Company's sales and
operating results will not be adversely affected during this and possible
future downturns in the semiconductor industry. In addition, the need for
continued investments in research and development, substantial capital
equipment requirements and extensive ongoing worldwide customer service and
support capability will limit the Company's ability to reduce expenses.
Accordingly, there is no assurance that the Company will be able to remain
profitable in the future.
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RISK OF DELAYS IN INTRODUCING NEW PRODUCTS AND THE MARKET'S ACCEPTANCE OF SUCH
PRODUCTS:
Microelectronics manufacturing equipment and processes are subject to rapid
technological change and new product introductions, as well as evolving
industry standards. The Company believes microelectronics manufacturers are
increasingly relying on equipment manufacturers to design and develop more
efficient equipment, to design and implement improved processes for the benefit
of microelectronics manufacturers and to integrate their equipment with that of
other equipment manufacturers. The Company must continue to develop,
manufacture and market new products which conform to evolving industry
standards. The success of the Company in developing, introducing and selling
new and enhanced equipment depends upon a variety of factors including product
selection, timely and efficient completion of product design and development,
timely and efficient implementation of manufacturing and assembly processes,
product performance in the field, and effective sales and marketing. The
Company must also manage product transitions successfully, as introductions of
new products could adversely affect the sales of existing products. The
Company's failure to develop and successfully introduce new products or
enhancements to its existing products and processes or achieve market
acceptance of the new products or enhancements could adversely affect the
Company's business and results of operations.
NEW FACILITIES CONSTRUCTION:
The Company is adding manufacturing capacity during fiscal 1997. This
additional manufacturing capacity will have a negative impact on gross profit
margins if the Company's anticipated revenue levels are not met. The potential
impact of idle manufacturing capacity on gross margins could have an adverse
impact on the Company's future financial results.
SUCCESSFUL INTEGRATION OF SEMICONDUCTOR SYSTEMS:
The Company's acquisition of Semiconductor Systems requires the integration of
its personnel, products and operations. If this integration is not successful,
there may be an adverse impact on the Company's 1997 business and financial
operations and the long-term growth of the Company.
VOLATILITY OF STOCK PRICE:
The Company's common stock has experienced in the past, and could experience in
the future, substantial price volatility as a result of a number of factors,
including quarter-to-quarter variations in the actual or anticipated financial
results of the Company, announcements by the Company, its competitors or
customers, government regulations and developments in the industry. In
addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many technology companies
in particular and which have at times been unrelated to the operating
performance of the specific companies whose stock is traded. Broad market
fluctuations, as well as economic conditions generally and, in the
microelectronics industry specifically, may adversely affect the market price
of the Company's common stock.
SUCCESSFUL IMPLEMENTATION OF NEW BUSINESS SYSTEM:
The Company is in the process of defining and testing a new Company-wide
integrated business system for implementation during fiscal 1997. If the
implementation of the new system is not successful, there may be an adverse
impact on the Company's business and results of operations.
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HIGHLY COMPETITIVE INDUSTRY:
The microelectronics processing equipment industry is highly competitive. The
Company faces substantial competition throughout the world. The Company
believes that to remain competitive, it will require significant financial
resources to offer a broad range of products, to maintain customer service and
support centers worldwide, and to invest in product and process research and
development. The Company believes that the microelectronics industry is
becoming increasingly dominated by large manufactures who have the resources to
support customers on a worldwide basis. Certain of the Company's competitors
have substantially greater financial, marketing, and customer service and
support capabilities than the Company. In addition, there are smaller emerging
microelectronics equipment companies that provide innovative technology. The
Company expects its competitors to continue to improve the design and
performance of their current products and processes and to introduce new
products and processes with improved price and performance characteristics. No
assurance can be given that the Company will continue to compete successfully
in the United States or elsewhere.
14
<PAGE> 15
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
15
<PAGE> 16
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a)(3) Exhibits
* An asterisk next to a listed Exhibit indicates it is an executive
compensation plan or arrangement.
2.1 Agreement and Plan of Reorganization dated December 23, 1994 by and
among the Company, ACS Acquisition Corp., Applied Chemical Solutions,
and certain significant shareholders of Applied Chemical Solutions. (1)
2.2 Share Purchase Agreement dated December 14, 1994 by and among the
Company, Metron Semiconductors Europa B.V., Christopher Springall,
Anthony Springall, Roger Springall, David Springall and Michael
Springall. (2)
2.3 Agreement and Plan of Reorganization by and Among FSI International,
Inc., Spectre Acquisition Corp., and Semiconductor Systems, Inc. (14)
3.1 Restated Articles of Incorporation of the Company. (3)
3.2 Restated By-Laws. (4)
3.3 Amendment to Restated By-Laws. (5)
4.1 FSI Corporation Stock Purchase Agreement dated March 20, 1981. (4)
4.2 Stock Purchase Agreement dated September 15, 1982. (4)
4.3 Common Stock and Common Stock Purchase Warrants Agreement dated October
15, 1985. (4)
4.4 Second Amendment, dated as of January 9, 1989, to Common Stock and
Common Stock Warrants Purchase Agreement dated as of October 15, 1985.
(5)
4.5 Registration and Preemptive Rights Agreement dated October 15, 1985. (4)
4.6 Note Purchase Agreement between FSI International, Inc. and Metropolitan
Life Insurance Company and other certain purchasers. (Schedule A
omitted)
*10.1 1983 Incentive Stock Option Plan. (4)
*10.2 1982 Nonqualified Stock Option Plan. (4)
*10.3 Split Dollar Insurance Agreement and Collateral Assignment Agreement
dated December 28, 1989, between the Company and Joel A. Elftmann.
(Similar agreements between the Company and each of Robert E. Cavins,
Benjamin J. Sloan, Dale A. Courtney, Peter A. Pope, Benno G. Sand, J.
Wayne Stewart and Timothy D. Krieg have been omitted, but will be filed
upon the request of the Commission). (4)
10.4 Lease dated June 27, 1985, between the Company and Lake Hazeltine
Properties. (7)
10.5 Lease dated September 1, 1985, between the Company and Elftmann, Wyers,
Blackwood Partnership. (7)
10.6 Lease dated September 1, 1985, between the Company and Elftmann, Wyers
Partnership. (7)
*10.7 1989 Stock Option Plan. (5)
*10.8 Amended and Restated Employees Stock Purchase Plan. (3)
10.9 Omitted
10.10 Shareholders Agreement among FSI International, Inc. and Mitsui & Co.,
Ltd. and Chlorine Engineers Corp. Ltd. dated as of August 14, 1991. (8)
10.11 FSI Exclusive Distributorship Agreement dated as of August 14, 1991
between FSI International, Inc. and m-FSI, Ltd. (8)
10.12 FSI Licensing Agreement dated as of August 14, 1991, between FSI
International, Inc.
16
<PAGE> 17
and m-FSI, Ltd. (8)
10.13 License Agreement, dated October 15, 1991, between the Company and
Texas Instruments Incorporated. (9)
10.14 Amendment No. 1, dated April 10, 1992, to the License Agreement,
dated October 15, 1991, between the Company and Texas Instruments
Incorporated. (9)
10.15 Amendment effective October 1, 1993 to the License Agreement, dated
October 15, 1991 between the Company and Texas Instruments
Incorporated. (10)
*10.16 Amended and Restated Directors' Nonstatutory Stock Option Plan. (11)
*10.17 Management Agreement between FSI International, Inc. and Robert E.
Cavins, effective as of March 28, 1994. (11)
*10.18 Management Agreement between FSI International, Inc. and Dale A.
Courtney, effective as of March 28, 1994. (11)
*10.19 Management Agreement between FSI International, Inc. and Joel A.
Elftmann, effective as of March 28, 1994. (11)
*10.20 Management Agreement between FSI International, Inc. and Timothy D.
Krieg, effective as of March 28, 1994. (11)
*10.21 Management Agreement between FSI International, Inc. and Peter A.
Pope, effective as of March 28, 1994. (11)
*10.22 Management Agreement between FSI International, Inc. and Benno G.
Sand, effective as of March 31, 1994. (11)
*10.23 Management Agreement between FSI International, Inc. and Benjamin
J. Sloan, effective as of March 28, 1994. (11)
*10.24 Management Agreement between FSI International, Inc. and J. Wayne
Stewart, effective as of March 28, 1994. (11)
*10.25 Management Agreement between FSI International, Inc. and Charles R.
Wofford effective as of February 5, 1996. (15)
*10.26 FSI International, Inc. 1994 Omnibus Stock Plan. (12)
*10.27 FSI International, Inc. 1996 Incentive Plan (13)
10.28 First Amendment to Lease made and entered into October 31, 1995 by
and between Lake Hazeltine Properties and FSI International, Inc. (13)
10.29 Distribution Agreement made and entered into as of July 6, 1995 by
and between FSI International, Inc. and Metron Semiconductors
Europa B.V. (Exhibits to Agreement omitted) (13)
10.30 Lease dated August 9, 1995 between Skyline Builders, Inc. and FSI
International, Inc. (13)
10.31 Lease Rider dated August 9, 1995 between Skyline Builders, Inc. and
FSI International, Inc. (13)
10.32 Lease Amendment dated November, 1995 between Roland A. Stinski and
FSI International, Inc. (Exhibits to Amendment omitted) (13)
11.1 Computation of Per Share Earnings of FSI International, Inc.
27.0 Financial Data Schedule
- -------------------
(1) Filed as an Exhibit to the Company's Report on Form 8-K dated January 5,
1995, as amended, File No. 0-17276, and incorporated by reference.
(2) Filed as an Exhibit to the Company's Registration Statement on Form S-3
dated January 5, 1995, SEC File No. 33-88250 and incorporated by
reference.
(3) Filed as an Exhibit to the Company's Report on Form 10-Q for the quarter
ended February 24, 1990, SEC File No. 0-17276, and incorporated by
reference.
17
<PAGE> 18
(4) Filed as an Exhibit to the Company's Registration Statement on Form S-1,
SEC File No. 33-25035, and incorporated by reference.
(5) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 26, 1989, SEC File No. 0-17276, and incorporated by
reference.
(6) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 25, 1990, as amended by Form 8 dated December 20, 1990,
and by Form 8 dated February 5, 1991, SEC File No. 0-17276, and
incorporated by reference. Similar agreements between the Company and
each of Robert E. Cavins, J. Wayne Stewart, Benjamin J. Sloan, Dale A.
Courtney, Peter A. Pope, Benno G. Sand and Timothy D. Krieg have been
omitted, but will be filed upon the request of the Commission.
(7) Filed as an Exhibit to the Company's Registration Statement on Form S-1,
SEC File No. 33-25035, and incorporated by reference.
(8) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 31, 1991, as amended by Form 8 dated January 7, 1992,
SEC File No. 0-17276, and incorporated by reference.
(9) Filed as an Exhibit to the Company's Report on Form 10-Q for the fiscal
quarter ended February 29, 1992, File No. 0-17276, and incorporated by
reference.
(10) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 27, 1993, SEC File No. 0-17276, and incorporated by
reference.
(11) Filed as an Exhibit to the Company's Report on Form 10-Q for the fiscal
quarter ended May 28, 1994, SEC File No. 0-17276, and incorporated by
reference.
(12) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 27, 1994, SEC File No. 0-17276, and incorporated by
reference.
(13) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 26, 1995, SEC File No. 0-17276 and incorporated by
reference.
(14) Filed as an Exhibit to the Company's Registration Statement on Form S-4
(as amended) dated March 21, 1996, SEC File No. 333-1509 and incorporated
by reference.
(15) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 31, 1996, SEC File No. 0-17276 and incorporated by
reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ending
November 30, 1996.
18
<PAGE> 19
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FSI INTERNATIONAL, INC.
. . . . . . . . . . . . . .
[Registrant]
DATE: January 10, 1997
By: /s/Benno Sand
-------------------------
Benno Sand
Executive Vice President and
Chief Financial Officer
on behalf of the
Registrant and as
Principal Financial Officer
19
<PAGE> 1
EXHIBIT 4.6
CONFORMED COPY
FSI International, Inc.
$30,000,000 Principal Amount
7.15% Series A Senior Notes
Due December 19, 2004
$12,000,000 Principal Amount
7.27% Series B Senior Notes
Due December 19, 2006
NOTE PURCHASE AGREEMENT
Dated as of December 19, 1996
Series A PPN: 302633 A* 3
Series B PPN: 302633 A@ 1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- -------- ----
<S> <C> <C>
1. AUTHORIZATION OF NOTES.......................................................................... 1
2. SALE AND PURCHASE OF NOTES...................................................................... 1
3. CLOSING......................................................................................... 2
4. CONDITIONS TO CLOSING........................................................................... 2
4.1. Representations and Warranties........................................................ 2
4.2. Performance; No Default............................................................... 2
4.3. Compliance Certificates............................................................... 3
4.4. Opinions of Counsel................................................................... 3
4.5. Purchase Permitted By Applicable Law, etc............................................. 3
4.6. Sale of Other Notes................................................................... 3
4.7. Payment of Special Counsel Fees....................................................... 4
4.8. Private Placement Number.............................................................. 4
4.9. Changes in Corporate Structure........................................................ 4
4.10. Proceedings and Documents............................................................. 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................... 4
5.1. Organization; Power and Authority..................................................... 4
5.2. Authorization, etc.................................................................... 5
5.3. Disclosure............................................................................ 5
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates...................... 5
5.5. Financial Statements.................................................................. 6
5.6. Compliance with Laws, Other Instruments, etc.......................................... 6
5.7. Governmental Authorizations, etc...................................................... 7
5.8. Litigation; Observance of Agreements, Statutes and Orders............................. 7
5.9. Taxes................................................................................. 7
5.10. Title to Property; Leases............................................................. 8
5.11. Licenses, Permits, etc................................................................ 8
5.12. Compliance with ERISA................................................................. 8
5.13. Private Offering by the Company....................................................... 9
5.14. Use of Proceeds; Margin Regulations................................................... 10
5.15. Existing Indebtedness; Future Liens................................................... 10
5.16. Foreign Assets Control Regulations, etc............................................... 10
5.17. Status under Certain Statutes......................................................... 11
5.18. Environmental Matters................................................................. 11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- -------- ----
<S> <C> <C>
6. REPRESENTATIONS OF THE PURCHASER................................................................ 12
6.1. Purchase for Investment............................................................... 12
6.2. Source of Funds....................................................................... 12
7. INFORMATION AS TO COMPANY....................................................................... 13
7.1. Financial and Business Information.................................................... 13
7.2. Officer's Certificate................................................................. 16
7.3. Inspection............................................................................ 17
8. PREPAYMENT OF THE NOTES......................................................................... 18
8.1. Required Prepayments.................................................................. 18
8.2. Optional Prepayments with Make-Whole Amount........................................... 18
8.3. Allocation of Partial Prepayments..................................................... 18
8.4. Maturity; Surrender, etc.............................................................. 19
8.5. Purchase of Notes..................................................................... 19
8.6. Make-Whole Amount..................................................................... 19
9. AFFIRMATIVE COVENANTS........................................................................... 21
9.1. Compliance with Law................................................................... 21
9.2. Insurance............................................................................. 21
9.3. Maintenance of Properties............................................................. 21
9.4. Payment of Taxes and Claims........................................................... 21
9.5. Corporate Existence, etc.............................................................. 22
10. NEGATIVE COVENANTS.............................................................................. 22
10.1. Transactions with Affiliates.......................................................... 22
10.2. Merger, Consolidation, etc............................................................ 22
10.3. Indebtedness Ratio.................................................................... 23
10.4. Indebtedness of Restricted Subsidiaries............................................... 23
10.5. Tangible Net Worth.................................................................... 24
10.6. Liens................................................................................. 24
10.7. Limitation of Payments and Investments................................................ 25
10.8. Sale of Assets........................................................................ 26
10.9. Disposition of Stock of Restricted Subsidiaries....................................... 26
10.10. Designation of Unrestricted Subsidiaries.............................................. 27
10.11. Nature of Business.................................................................... 27
11. EVENTS OF DEFAULT............................................................................... 27
12. REMEDIES ON DEFAULT, ETC........................................................................ 30
12.1. Acceleration.......................................................................... 30
12.2. Other Remedies........................................................................ 30
12.3. Rescission............................................................................ 31
12.4. No Waivers or Election of Remedies, Expenses, etc..................................... 31
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- -------- ----
<S> <C> <C>
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES 31
13.1. Registration of Notes................................................................. 31
13.2. Transfer and Exchange of Notes........................................................ 32
13.3. Replacement of Notes.................................................................. 32
14. PAYMENTS ON NOTES............................................................................... 33
14.1. Place of Payment...................................................................... 33
14.2. Home Office Payment................................................................... 33
15. EXPENSES, ETC................................................................................... 33
15.1. Transaction Expenses.................................................................. 33
15.2. Survival.............................................................................. 34
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.................................... 34
17. AMENDMENT AND WAIVER............................................................................ 34
17.1. Requirements.......................................................................... 34
17.2. Solicitation of Holders of Notes...................................................... 35
17.3. Binding Effect, etc................................................................... 35
17.4. Notes held by Company, etc............................................................ 35
18. NOTICES......................................................................................... 36
19. REPRODUCTION OF DOCUMENTS....................................................................... 36
20. CONFIDENTIAL INFORMATION ....................................................................... 37
21. SUBSTITUTION OF PURCHASER....................................................................... 38
22. MISCELLANEOUS................................................................................... 38
22.1. Successors and Assigns................................................................ 38
22.2. Payments Due on Non-Business Days..................................................... 38
22.3. Severability.......................................................................... 38
22.4. Construction.......................................................................... 38
22.5. Counterparts.......................................................................... 39
22.6. Governing Law......................................................................... 39
</TABLE>
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE B-1 -- EXISTING INVESTMENTS
iii
<PAGE> 5
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure
SCHEDULE 5.4 -- Organization and Ownership of Shares of Subsidiaries;
Affiliates
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Litigation
SCHEDULE 5.11 -- Licenses, Permits, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness; Future Liens
SCHEDULE 9.2 -- Insurance
SCHEDULE 10.1 -- Transactions with Affiliates
SCHEDULE 10.6 -- Liens
EXHIBIT 1-A -- Form of 7.15% Series A Senior Note due December 19, 2004
EXHIBIT 1-B -- Form of 7.27% Series B Senior Note due December 19, 2006
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
iv
<PAGE> 6
FSI INTERNATIONAL, INC.
322 Lake Hazeltine Drive
Chaska, Minnesota 55318
(612) 448-5440
7.15% Series A Senior Notes due December 19, 2004
7.27% Series B Senior Notes due December 19, 2006
As of December 19, 1996
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
FSI International, Inc., a Minnesota corporation (the "Company"),
agrees with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $30,000,000 aggregate
principal amount of its 7.15% Series A Senior Notes due December 19, 2004 (the
"Series A Notes") and $12,000,000 aggregate principal amount of its 7.27%
Series B Senior Notes due December 19, 2006 (the "Series B Notes" and,
collectively with the Series A Notes, the "Notes", such term to include any
such notes issued in substitution therefor pursuant to Section 13 of this
Agreement or the Other Agreements (as hereinafter defined)). The Notes shall be
substantially in the form set out in Exhibit 1-A or 1-B, as appropriate, with
such changes therefrom, if any, as may be approved by you and the Company.
Certain capitalized terms used in this Agreement are defined in Schedule B;
references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to
a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes of the Series and in the principal amount
specified opposite your name in Schedule A at the purchase price of 100% of the
principal amount thereof. Contemporaneously with entering into this Agreement,
the Company is entering into separate Note Purchase Agreements (the "Other
Agreements") identical with this Agreement with each of the other purchasers
named in Schedule A (the "Other Purchasers"), providing for the sale at such
Closing to each of the Other Purchasers of Notes of the Series and in the
principal amount specified opposite its name in Schedule A. Your obligation
hereunder and the obligations of the Other
<PAGE> 7
Purchasers under the Other Agreements are several and not joint obligations and
you shall have no obligation under any Other Agreement and no liability to any
Person for the performance or non-performance by any Other Purchaser
thereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Gardner, Carton & Douglas, Quaker
Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at 9:00
a.m., Chicago time, at a closing (the "Closing") on December 19, 1996 or on
such other Business Day thereafter on or prior to December 31, 1996 as may be
agreed upon by the Company and you and the Other Purchasers. At the Closing
the Company will deliver to you the Notes to be purchased by you in the form of
a single Note (or such greater number of Notes in denominations of at least
$500,000 as you may request) dated the date of the Closing and registered in
your name (or in the name of your nominee), against delivery by you to the
Company or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer of immediately available funds for the
account of the Company to account number xxxxxxx at Harris Trust & Savings
Bank, 111 West Monroe, Chicago, Illinois 60690, ABA# xxxxxxxxx. If at the
Closing the Company shall fail to tender such Notes to you as provided above in
this Section 3, or any of the conditions specified in Section 4 shall not have
been fulfilled to your satisfaction, you shall, at your election, be relieved
of all further obligations under this Agreement, without thereby waiving any
rights you may have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at the
Closing is subject to the fulfillment to your satisfaction, prior to or at the
Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this Agreement shall
be correct when made and at the time of the Closing.
4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied
with by it prior to or at the Closing and after giving effect to the issue and
sale of the Notes (and the application of the proceeds thereof as contemplated
by Section 5.14) no Default or Event of Default shall have occurred and be
continuing. Neither the Company nor any Subsidiary shall have entered into any
transaction since the date of the Memorandum that would have been prohibited by
this Agreement had it applied since such date.
2
<PAGE> 8
4.3. COMPLIANCE CERTIFICATES.
(a) Officer's Certificate. The Company shall have delivered to you
an Officer's Certificate, dated the date of the Closing, certifying that
the conditions specified in Sections 4.1, 4.2 and 4.9 have been
fulfilled.
(b) Secretary's Certificate. The Company shall have delivered to
you a certificate certifying as to the resolutions attached thereto and
other corporate proceedings relating to the authorization, execution and
delivery of the Notes and the Agreements.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing (a) from Faegre & Benson, counsel for the
Company, covering the matters set forth in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company hereby instructs its counsel to
deliver such opinion to you) and (b) from Gardner, Carton & Douglas, your
special counsel in connection with such transactions, substantially in the form
set forth in Exhibit 4.4(b) and covering such other matters incident to such
transactions as you may reasonably request.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (i) be permitted
by the laws and regulations of each jurisdiction to which you are subject,
without recourse to provisions (such as Section 1405(a)(8) of the New York
Insurance Law) permitting limited investments by insurance companies without
restriction as to the character of the particular investment, (ii) not violate
any applicable law or regulation (including, without limitation, Regulation G,
T or X of the Board of Governors of the Federal Reserve System) and (iii) not
subject you to any tax, penalty or liability under or pursuant to any
applicable law or regulation, which law or regulation was not in effect on the
date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
4.6. SALE OF OTHER NOTES.
Contemporaneously with the Closing the Company shall sell to the Other
Purchasers and the Other Purchasers shall purchase the Notes to be purchased by
them at the Closing as specified in Schedule A.
3
<PAGE> 9
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
A Private Placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes
by Gardner, Carton & Douglas.
4.9. CHANGES IN CORPORATE STRUCTURE.
Except as specified in Schedule 4.9, the Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part of
the liabilities of any other entity, at any time following the date of the most
recent financial statements referred to in Schedule 5.5.
4.10. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel, and
you and your special counsel shall have received all such counterpart originals
or certified or other copies of such documents as you or they may reasonably
request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or
hold under lease the properties it purports to own or hold under lease, to
transact the business it transacts and
4
<PAGE> 10
proposes to transact, to execute and deliver this Agreement and the Other
Agreements and the Notes and to perform the provisions hereof and thereof.
5.2. AUTHORIZATION, ETC.
This Agreement and the Other Agreements and the Notes have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement constitutes, and upon execution and delivery thereof each Note
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
5.3. DISCLOSURE.
The Company, through its agent, BA Securities, Inc., has delivered to you
or your investment advisor and each Other Purchaser or its investment advisor a
copy of an undated Private Placement Memorandum (the "MEMORANDUM"), relating to
the transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this
Agreement, the Memorandum, the documents, certificates or other writings
delivered to you by or on behalf of the Company in connection with the
transactions contemplated hereby and the financial statements listed in
Schedule 5.5, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which
they were made. Except as disclosed in the Memorandum or as expressly
described in Schedule 5.3, or in one of the documents, certificates or other
writings identified therein, or in the financial statements listed in Schedule
5.5, since August 26, 1996, there has been no change in the financial
condition, operations, business, properties or prospects of the Company or any
Subsidiary except changes that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect. There is no fact
known to the Company that could reasonably be expected to have a Material
Adverse Effect that has not been set forth herein or in the Memorandum or in
the other documents, certificates and other writings delivered to you by or on
behalf of the Company specifically for use in connection with the transactions
contemplated hereby.
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein) complete and
correct lists (i) of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, the percentage of shares of each class of its
5
<PAGE> 11
capital stock or similar equity interests outstanding owned by the
Company and each other Subsidiary and whether such Subsidiary is a
Restricted Subsidiary, (ii) of the Company's Affiliates, other than
Subsidiaries, and (iii) of the Company's directors and senior officers.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by the
Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and
clear of any Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and is duly qualified
as a foreign corporation or other legal entity and is in good standing in
each jurisdiction in which such qualification is required by law, other
than those jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each such Subsidiary has the
corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the
business it transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any legal
restriction or any agreement (other than this Agreement, the agreements
listed on Schedule 5.4 and customary limitations imposed by corporate law
statutes) restricting the ability of such Subsidiary to pay dividends out
of profits or make any other similar distributions of profits to the
Company or any of its Subsidiaries that owns outstanding shares of
capital stock or similar equity interests of such Subsidiary.
5.5. FINANCIAL STATEMENTS.
The Company has delivered to each Purchaser or its investment advisor
copies of the financial statements of the Company and its Subsidiaries listed
on Schedule 5.5. All of said financial statements (including in each case the
related schedules and notes) fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of the
respective dates specified in such Schedule and the consolidated results of
their operations and cash flows for the respective periods so specified and
have been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments).
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this Agreement
and the Notes will not (i) contravene, result in any breach of, or constitute a
default under, or result in
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the creation of any Lien in respect of any property of the Company or any
Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other material
agreement or instrument to which the Company or any Subsidiary is bound or by
which the Company or any Subsidiary or any of their respective properties may
be bound or affected, (ii) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling of
any court, arbitrator or Governmental Authority applicable to the Company or
any Subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Subsidiary.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes.
5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.8, there are no actions, suits
or proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any Subsidiary or any property of the
Company or any Subsidiary in any court or before any arbitrator of any
kind or before or by any Governmental Authority that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(b) Neither the Company nor any Subsidiary is in default under any
term of any agreement or instrument to which it is a party or by which it
is bound, or any order, judgment, decree or ruling of any court,
arbitrator or Governmental Authority or is in violation of any applicable
law, ordinance, rule or regulation (including without limitation
Environmental Laws) of any Governmental Authority, which default or
violation, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
5.9. TAXES.
The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments
levied upon them or their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, except for any taxes and assessments (i) the amount of
which is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which the Company or a
Subsidiary, as the case may be, has established adequate reserves in
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accordance with GAAP. The Company knows of no basis for any other tax or
assessment that could reasonably be expected to have a Material Adverse Effect.
The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of Federal, state or other taxes for all fiscal periods
are adequate. The Federal income tax liabilities of the Company and its
Subsidiaries have been determined by the Internal Revenue Service and paid for
all fiscal years up to and including the fiscal year ended August 27, 1994.
5.10. TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and sufficient title to their
respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance
sheet referred to in Section 5.5 or purported to have been acquired by the
Company or any Subsidiary after said date (except as sold or otherwise disposed
of in the ordinary course of business), in each case free and clear of Liens
prohibited by this Agreement. All leases that individually or in the aggregate
are Material are valid and subsisting and are in full force and effect in all
material respects.
5.11. LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that individually or in
the aggregate are Material, without known conflict with the rights of
others;
(b) to the best knowledge of the Company, no product of the Company
infringes in any material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or
other right owned by any other Person; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or any
of its Subsidiaries.
5.12. COMPLIANCE WITH ERISA.
(a) 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
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liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code 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 Code, other than such liabilities or Liens as
would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under
each of the Plans (other than Multiemployer Plans) which are defined
benefit plans, determined as of the end of such Plan's most recently
ended 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.
(c) 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 that individually or in the aggregate are Material.
(d) 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 Code) of the Company and its
Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the issuance
and sale of the Notes hereunder 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
Code. The representation by the Company in the first sentence of this
Section 5.12(e) is made in reliance upon and subject to the accuracy of
your representation in Section 6.2 as to the sources of the funds used to
pay the purchase price of the Notes to be purchased by you.
5.13. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has offered the Notes
or any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any
person other than you, the Other Purchasers and not more than 52 other
Institutional Investors, each of which has been offered the Notes at a
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<PAGE> 15
private sale for investment. Neither the Company nor anyone acting on its
behalf has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of Section 5 of the
Securities Act.
5.14. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes as set forth
in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder
will be used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation G of the Board of Governors of
the Federal Reserve System (12 CFR 207), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve
the Company in a violation of Regulation X of said Board (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does
not have any present intention that margin stock will constitute more than 5%
of the value of such assets. As used in this Section, the terms "margin stock"
and "purpose of buying or carrying" shall have the meanings assigned to them in
said Regulation G.
5.15. EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth a complete
and correct list of all outstanding Consolidated Indebtedness of the
Company and its Subsidiaries as of November 2, 1996, since which date
there has been no Material change in the amounts, interest rates, sinking
funds, installment payments or maturities of the Indebtedness of the
Company or its Subsidiaries. Neither the Company nor any Subsidiary is
in default and no waiver of default is currently in effect, in the
payment of any principal or interest on any Indebtedness of the Company
or such Subsidiary and no event or condition exists with respect to any
Indebtedness of the Company or any Subsidiary that would permit (or that
with notice or the lapse of time, or both, would permit) one or more
Persons to cause such Indebtedness to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company nor
any Subsidiary 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 Section 10.6.
5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its use of the
proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign
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<PAGE> 16
assets control regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.
5.17. STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Subsidiary is subject to regulation under the
Investment Company Act of 1940, as amended, the Public Utility Holding Company
Act of 1935, as amended, the Interstate Commerce Act, as amended, or the
Federal Power Act, as amended.
5.18. ENVIRONMENTAL MATTERS.
Neither the Company nor any Subsidiary has knowledge of any claim or has
received any notice of any claim, and no proceeding has been instituted raising
any claim against the Company or any of its Subsidiaries or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of
any Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as otherwise disclosed
to you in writing,
(a) neither the Company nor any Subsidiary has knowledge of
any facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment
emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by any of them
or to other assets or their use, except, in each case, such as
could not reasonably be expected to result in a Material Adverse
Effect;
(b) neither the Company nor any of its Subsidiaries has
stored any Hazardous Materials on real properties now or formerly
owned, leased or operated by any of them and has not disposed of
any Hazardous Materials in a manner contrary to any Environmental
Laws in each case in any manner that could reasonably be expected
to result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in
compliance with applicable Environmental Laws, except where failure
to comply could not reasonably be expected to result in a Material
Adverse Effect.
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<PAGE> 17
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own account or
for one or more separate accounts maintained by you or for the account of one
or more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of your or their property shall at all times be
within your or their control. You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is an accurate
representation as to each source of funds (a "Source") to be used by you to pay
the purchase price of the Notes to be purchased by you hereunder:
(a) if you are an insurance company and the Source is a separate
account, the Source does not include assets allocated to any separate
account maintained by you in which any employee benefit plan (or its
related trust) has any interest, other than a separate account that is
maintained solely in connection with your fixed contractual obligations
under which the amounts payable, or credited, to such plan and to any
participant or beneficiary of such plan (including any annuitant) are not
affected in any manner by the investment performance of the separate
account; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Exemption ("PTE")
90-1 (issued January 29, 1990), or (ii) a bank collective investment
fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and,
except as you have disclosed to the Company in writing pursuant to this
paragraph (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; or
(c) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of 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
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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 paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans,
each of which has been identified to the Company in writing pursuant to
this paragraph (e); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA; or
(g) the Source is an "insurance company general account" as such
term is defined in the Department of Labor Prohibited Transaction Class
Exemption 95-60 (issued July 12, 1995) ("PTE 95-60") and as of the date
of this Agreement there is no "employee benefit plan" with respect to
which the aggregate amount of such general account's reserves and
liabilities for the contracts held by or on behalf of such employee
benefit plan and all other employee benefit plans maintained by the same
employer (and affiliates thereof as defined in Section V(a)(1) of PTE
95-60) or by the same employee organization (in each case determined in
accordance with the provisions of PTE 95-60) exceeds 10% of the total
reserves and liabilities of such general account (as determined under PTE
95-60) (exclusive of separate account liabilities) plus surplus as set
forth in the National Association of Insurance Commissioners Annual
Statement filed with the state of domicile of such Purchaser.
As used in this Section 6.2, 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.
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION
The Company shall deliver to each holder of Notes that is an Institutional
Investor:
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(a) Quarterly Statements -- within 60 days 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), duplicate
copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity (but only if the Company begins reporting such
changes in shareholders' equity in its published quarterly
financial statements) and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such
quarter,
setting forth in each case in comparative form the figures 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 by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified
above of copies of the Company's Quarterly Report on Form 10-Q prepared
in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a);
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied
(A) by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall
state that such financial statements present fairly, in all
material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and
have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial
statements has been made in
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accordance with generally accepted auditing standards, and that
such audit provides a reasonable basis for such opinion in the
circumstances, and
(B) a certificate of such accountants stating that they have
reviewed this Agreement and stating further whether, in making
their audit, they have become aware of any condition or event that
then constitutes a Default or an Event of Default, and, if they are
aware that any such condition or event then exists, specifying the
nature and period of the existence thereof (it being understood
that such accountants shall not be liable, directly or indirectly,
for any failure to obtain knowledge of any Default or Event of
Default unless such accountants should have obtained knowledge
thereof in making an audit in accordance with generally accepted
auditing standards or did not make such an audit),
provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with
the Company's annual report to shareholders, if any, prepared pursuant to
Rule 14a-3 under the Exchange Act) prepared in accordance with the
requirements therefor and filed with the Securities and Exchange
Commission, together with the accountant's certificate described in
clause (B) above, shall be deemed to satisfy the requirements of this
Section (b);
(c) SEC and Other Reports -- within fifteen days of being filed, one
copy of (i) each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such
holder), and each prospectus and all amendments thereto filed by the
Company or any Subsidiary with the Securities and Exchange Commission and
of all press releases and other statements made available generally by
the Company or any Subsidiary to the public concerning developments that
are Material;
(d) Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer becomes aware of the
existence of any Default or Event of Default or that any Person has given
any notice or taken any action with respect to a claimed default
hereunder or that any Person has given any notice or taken any action
with respect to a claimed default of the type referred to in Section
11(f), a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto;
(e) ERISA Matters -- promptly, and in any event within five days
after a Responsible Officer becomes aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:
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(i) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for
which notice thereof has not been waived pursuant to such
regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any Plan, or the receipt by the Company or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such
Multiemployer Plan; or
(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit
plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate pursuant
to Title I or IV of ERISA or such penalty or excise tax provisions,
if such liability or Lien, taken together with any other such
liabilities or Liens then existing, could reasonably be expected to
have a Material Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in any
event within 30 days of receipt thereof, copies of any notice to the
Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material Adverse
Effect; and
(g) Requested Information -- with reasonable promptness, such other
material data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or any
of its Subsidiaries or relating to the ability of the Company to perform
its obligations hereunder and under the Notes as from time to time may be
reasonably requested in writing by any such holder of Notes.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes pursuant
to Sections 7.1(a) or 7.1(b) shall be accompanied by a certificate of a Senior
Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.2 through Section 10.9
hereof, inclusive, during the quarterly
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<PAGE> 22
or annual period covered by the statements then being furnished
(including with respect to each 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 Sections, and the
calculation of the amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that such officer has reviewed
the relevant terms hereof and has made, or caused to be made, under his
or her supervision, a review of the transactions and conditions of the
Company and its Subsidiaries from the beginning of the quarterly or
annual period covered by the statements then being furnished 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 (including, without limitation, any such event or condition
resulting from the failure of the Company or any Subsidiary to comply
with any Environmental Law), specifying the nature and period of
existence thereof and what action the Company shall have taken or
proposes to take with respect thereto.
7.3. INSPECTION.
The Company shall permit the representatives of each holder of Notes that
is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then exists, at
the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to
discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its independent
public accountants, and (with the consent of the Company, which consent
will not be unreasonably withheld) to visit the other offices and
properties of the Company and each Restricted Subsidiary, all at such
reasonable times and as often as may be reasonably requested in writing;
and
(b) Default -- if a Default or Event of Default then exists, at the
expense of the Company to visit and inspect any of the offices or
properties of the Company or any Restricted Subsidiary, 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 and
independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and accounts
of the Company and its Restricted Subsidiaries), all at such times and as
often as may be requested.
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8. PREPAYMENT OF THE NOTES
8.1. REQUIRED PREPAYMENTS.
On December 19, 2000 and on each December 19 thereafter, to and including
December 19, 2003, the Company will prepay $6,000,000 principal amount (or such
lesser principal amount as shall then be outstanding) of the Series A Notes and
on December 19, 2000 and on each December 19 thereafter, to and including
December 19, 2005, the Company will prepay $1,714,286 principal amount (or such
lesser principal amount as shall then be outstanding) of the Series B Notes, in
each case at par and without payment of the Make-Whole Amount or any premium,
provided that upon any partial prepayment of the Notes pursuant to Section 8.2
or purchase of the Notes permitted by Section 8.5 the principal amount of each
required prepayment of the Notes becoming due under this Section 8.1 on and
after the date of such prepayment or purchase shall be reduced in the same
proportion as the aggregate unpaid principal amount of the Notes is reduced as
a result of such prepayment or purchase.
8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below, prepay at
any time all, or from time to time any part of, the Notes, in an amount not
less than $1,000,000 of the aggregate principal amount of the Notes then
outstanding in the case of a partial prepayment, at 100% of the principal
amount so prepaid, plus the Make-Whole Amount determined for the prepayment
date with respect to such principal amount. The Company will give each holder
of Notes written notice of each optional prepayment under this Section 8.2 not
less than 30 days and not more than 60 days prior to the date fixed for such
prepayment. Each such notice shall specify such date, the aggregate principal
amount of the Notes to be prepaid on such date, the principal amount of each
Note held by such holder to be prepaid (determined in accordance with Section
8.3), and the interest to be paid on the prepayment date with respect to such
principal amount being prepaid, and shall be accompanied by a certificate of a
Senior Financial Officer as to the estimated Make-Whole Amount due in
connection with such prepayment (calculated as if the date of such notice were
the date of the prepayment), setting forth the details of such computation.
Two Business Days prior to such prepayment, the Company shall deliver to each
holder of Notes a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.
8.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of a required prepayment pursuant to Section 8.1, if less than
the entire outstanding principal amount of the Notes of a series is to be
prepaid, the principal amount of the Notes to be prepaid shall be allocated
among the Notes of a series pro rata in proportion, as nearly as practicable,
to the respective unpaid principal amounts thereof, with adjustments, to the
extent practicable, to compensate for any prior prepayments not made exactly in
such proportion. In the case of a partial prepayment of the Notes pursuant to
Section 8.2, the principal amount of
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the Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment.
8.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount
shall cease to accrue. Any Note paid or prepaid in full shall be surrendered
to the Company and canceled and shall not be reissued, and no Note shall be
issued in lieu of any prepaid principal amount of any Note.
8.5. PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.6. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, provided that the Make-Whole Amount may in no event be
less than zero. For the purposes of determining the Make-Whole Amount, the
following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or has become or
is declared to be immediately due and payable pursuant to Section 12.1,
as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
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"REINVESTMENT YIELD" means, with respect to the Called Principal of
any Note, the yield to maturity implied by 0.50% plus (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business
Day preceding the Settlement Date with respect to such Called Principal,
on the display designated as "Page 678" on the Telerate Access Service
(or such other display as may replace Page 678 on Telerate Access
Service) for actively traded U.S. Treasury securities having a maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date, or (ii) if such yields are not reported as of such time
or the yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day for
which such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill quotations
to bond-equivalent yields in accordance with accepted financial practice
and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the duration closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security
with the duration closest to and less than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum of
the products obtained by multiplying (a) the principal component of each
Remaining Scheduled Payment with respect to such Called Principal by (b)
the number of years (calculated to the nearest one-twelfth year) that
will elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior
to its scheduled due date, provided that if such Settlement Date is not a
date on which interest payments are due to be made under the terms of the
Notes, then the amount of the next succeeding scheduled interest payment
will be reduced by the amount of interest accrued to such Settlement Date
and required to be paid on such Settlement Date pursuant to Section 8.2
or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant
to Section 8.2 or has become or is declared to be immediately due and
payable pursuant to Section 12.1, as the context requires.
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9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
9.1. COMPLIANCE WITH LAW.
The Company will and will cause each of its Restricted Subsidiaries to
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, including, without limitation, Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses,
in each case to the extent necessary to ensure that non-compliance with such
laws, ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
9.2. INSURANCE.
The Company will and will cause each of its Restricted Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated, provided, however, that Directors and Officers Insurance currently
maintained by the Company is specifically described on Schedule 9.2.
9.3. MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Restricted Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary
wear and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Restricted 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 the Company has concluded that such
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.4. PAYMENT OF TAXES AND CLAIMS.
The Company will and will cause each of its Restricted Subsidiaries to
file all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies
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imposed on them or any of their properties, assets, income or franchises, to
the extent such taxes and assessments have become due and payable and before
they have become delinquent and all claims for which sums have become due and
payable that have or might become a Lien on properties or assets of the Company
or any Restricted Subsidiary, provided that neither the Company nor any
Restricted Subsidiary need pay any such tax or assessment or claims if (i) the
amount, applicability or validity thereof is contested by the Company or such
Restricted Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Company or a Restricted Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Restricted Subsidiary or (ii) the nonpayment of all such taxes and
assessments in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
9.5. CORPORATE EXISTENCE, ETC.
Subject to Section 10.2, the Company will at all times preserve and keep
in full force and effect its corporate existence. Subject to Sections 10.2 and
10.8, the Company will at all times preserve and keep in full force and effect
the corporate existence of each of its Restricted Subsidiaries (unless merged
into the Company or a Restricted Subsidiary) and all rights and franchises of
the Company and its Restricted Subsidiaries unless, in the good faith judgment
of the Company, the termination of or failure to preserve and keep in full
force and effect such corporate existence, right or franchise could not,
individually or in the aggregate, have a Material Adverse Effect.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
10.1. TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any Restricted Subsidiary to
enter into directly or indirectly any Material transaction or group of related
transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except (i)
pursuant to any of the agreements disclosed on Schedule 10.1 or (ii) in the
ordinary course 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 be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
10.2. MERGER, CONSOLIDATION, ETC.
The Company shall not, and shall not permit any Restricted Subsidiary to,
consolidate with or merge with any other corporation or convey, transfer or
lease substantially all of its assets in a single transaction or series of
transactions to any Person, except that:
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(a) The Company may merge or consolidate with, or convey, transfer
or lease substantially all of its assets to, another Person, if (i) the
successor formed by such consolidation or the survivor of such merger or
the Person that acquires by conveyance, transfer or lease substantially
all of the assets of the Company as an entirety, as the case may be,
shall be a solvent corporation organized and existing under the laws of
the United States or any State thereof (including the District of
Columbia), and, if the Company is not such successor corporation, such
corporation shall have executed and delivered to each holder of any Notes
its assumption of the due and punctual performance and observance of each
covenant and condition of this Agreement, the Other Agreements and the
Notes together with an opinion of nationally recognized independent legal
counsel in form and substance satisfactory to the Required Holders of the
Notes to the effect that the instrument of assumption has been duly
authorized, executed and delivered and constitutes the legal, valid and
binding agreement of such corporation enforceable in accordance with its
terms; and (ii) immediately after giving effect to such transaction no
Default or Event of Default shall have occurred.
(b) any Restricted Subsidiary may merge into, or convey, transfer or
lease substantially all of its assets to, the Company or another
Wholly-Owned Restricted Subsidiary.
10.3. INDEBTEDNESS RATIO.
The Company will not permit Consolidated Indebtedness to exceed 40%
of Consolidated Total Capitalization at any time.
10.4. INDEBTEDNESS OF RESTRICTED SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary to incur, directly
or indirectly, any Indebtedness other than:
(a) Indebtedness owed to the Company or another Wholly-Owned
Restricted Subsidiary; and
(b) Additional Indebtedness, provided that the aggregate outstanding
principal amount of Indebtedness of Restricted Subsidiaries (other than
Indebtedness referred to in paragraph (a) of this Section 10.4) would not
exceed 10% of Consolidated Tangible Net Worth.
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defects in title and landlord's, carriers', warehousemen's, lessor's,
mechanics' and materialmen's liens) and leases of office and laboratory
equipment that in the aggregate do not materially interfere with the
conduct of the business of the Company and its Restricted Subsidiaries
taken as a whole or materially impair the use or value of the property or
assets subject thereto;
(f) Any attachment or judgment Lien, unless the judgment it secures
shall not, within 60 days after entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been
discharged within 60 days after the expiration of any such stay;
(g) Liens resulting from extensions, renewals or replacements of
Indebtedness secured by any Lien referred to in foregoing clauses (a)
through (f), provided that there is no increase in the principal amount
of Indebtedness (including the amount of any reasonable premium, fees and
expenses, if any) secured thereby at the time of such extension, renewal
or replacement and that such Liens do not extend to any property not
subject thereto at the time of such extension, renewal or replacement and
that immediately after such extension, renewal or replacement, no Default
or Event of Default would exist; and
(h) Liens not otherwise permitted by paragraphs (a) through (g)
above incurred subsequent to the date of Closing to secure Indebtedness,
provided that the aggregate principal amount of Consolidated Indebtedness
secured by such Liens does not at any time exceed 10% of Consolidated
Tangible Net Worth.
10.7. LIMITATION OF PAYMENTS AND INVESTMENTS.
The Company will not:
(a) Declare or pay any dividends (other than dividends payable
solely in common stock of the Company);
(b) Make any other distributions on or with respect to any class of
the Company's capital stock (other than distributions consisting solely
of common stock of the Company);
(c) Acquire, redeem or retire, or permit any Subsidiary to acquire,
any shares of the Company's capital stock (unless acquired, redeemed or
retired solely in exchange for common stock of the Company); or
(d) make any Restricted Investment;
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10.5. TANGIBLE NET WORTH.
The Company will not permit its Consolidated Tangible Net Worth at any
time to be less than $170,000,000 plus the cumulative sum of 50% of
Consolidated Net Income (but only if a positive number) subsequent to August
31, 1996.
10.6. LIENS.
The Company will not, and will not permit any Restricted Subsidiary to,
permit to exist, create, assume or incur, directly or indirectly, any Lien on
its properties or assets, whether now owned or hereafter acquired, except:
(a) Liens existing on property or assets of the Company or any
Restricted Subsidiary as of the date of this Agreement that are described
in Schedule 10.6 and Liens provided for in agreements described in
Schedule 5.15;
(b) Liens securing Indebtedness of the Company or a Restricted
Subsidiary to the Company or to another Restricted Subsidiary;
(c) Liens (i) existing on property of a Person immediately prior to
its being consolidated with or merged into the Company or a Restricted
Subsidiary or its becoming a Restricted Subsidiary, so long as such Liens
were not created in contemplation thereof; (ii) existing on any property
acquired by the Company or any Restricted Subsidiary at the time such
property is acquired, so long as such Liens were not created in
contemplation thereof; and (iii) on property acquired, constructed or
improved by the Company or any Restricted Subsidiary after the date of
this Agreement that are created, incurred or assumed (or with respect to
which legally binding contracts to provide such financing have been
obtained) contemporaneously with or within one year after the acquisition
or, in the case of property constructed or improved, after completion of
construction or improvement thereof, to secure all or any portion of the
purchase price thereof, so long as the Indebtedness secured does not
exceed the lesser of the cost or the fair market value; provided, that at
the time such Liens described in foregoing clauses (i), (ii) and (iii)
are created, incurred or assumed, such Liens do not extend to any other
property of the Company or any Restricted Subsidiary;
(d) Liens for taxes, assessments or other governmental charges not
then due and delinquent or the validity of which is being contested in
good faith by appropriate proceedings and as to which the Company has
established adequate reserves on its books in accordance with GAAP;
(e) Liens arising in the ordinary course of business and not
incurred in connection with the borrowing of money (including
encumbrances in the nature of zoning restrictions, easements, rights and
restrictions of record on the use of real property,
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(all such non-permitted declarations, payments, distributions, acquisitions,
redemptions, retirements and investments being referred to as "Restricted
Payments") unless immediately after giving effect thereto (i) the aggregate
amount of such Restricted Payments declared or made during the period from
September 1, 1996 to and including the date such Restricted Payment is declared
or made would not exceed the sum of: (A) $12,500,000, plus (B) 50% of
cumulative Consolidated Net Income (or minus 100% of any deficit) for the
period beginning on September 1, 1996, plus (C) the net cash proceeds from the
issuance or sale of common stock of the Company after August 31, 1996, plus (D)
any net return of capital, in cash, from Restricted Investments after August
31, 1996 and (ii) no Default or Event of Default exists or would exist.
10.8. SALE OF ASSETS.
Except as permitted by Section 10.2 hereof, the Company will not, and will
not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise
dispose of, including by way of merger (collectively a "Disposition"), any
assets, including capital stock of Subsidiaries, in one or a series of
transactions, to any Person, other than in the ordinary course of business,
except to the Company or, in the case of a Restricted Subsidiary, to another
Restricted Subsidiary, (i) if, in any fiscal year, after giving effect to such
Disposition, the aggregate net book value of assets subject to Dispositions
during such fiscal year would exceed 10% of Consolidated Total Assets as of the
end of the immediately preceding fiscal year or (ii) if a Default or Event of
Default exists or would exist. Notwithstanding the foregoing, the Company may,
or may permit a Restricted Subsidiary to, make a Disposition and the assets
subject to such Disposition shall not be subject to or included in the
foregoing limitation and computation contained in clause (i) of the preceding
sentence to the extent that (x) such assets are leased back by the Company or
any Restricted Subsidiary, as lessee, within 180 days of the Disposition
thereof by the Company or such Restricted Subsidiary and payments with respect
thereto are Capitalized Lease Obligations, provided, that the aggregate net
book value of assets subject to such sale and leasebacks not exceed 35% of
Consolidated Tangible Assets in the aggregate, or (y) the net proceeds from
such Disposition are within 180 days of such Disposition (A) reinvested in
productive assets of the Company or a Restricted Subsidiary of at least
equivalent value or (B) applied to the pro rata payment or prepayment of
outstanding senior Indebtedness (including the Notes) of the Company or any
Restricted Subsidiaries. Any prepayment of Notes pursuant to this Section 10.8
shall be in accordance with Sections 8.2 and 8.3; provided, however, that any
such prepayment may be made in any amount without regard to the minimum
prepayment requirements of Section 8.2.
10.9. DISPOSITION OF STOCK OF RESTRICTED SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary to issue its capital
stock, or any warrants, rights or options to purchase, or securities
convertible into or exchangeable for, such capital stock, to any Person other
than the Company unless (i) such issuance is part of the initial organization
of such Restricted Subsidiary, (ii) the Restricted Subsidiary issuing such
security
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receives fair value (whether in the form of cash or otherwise) for such
security, or (iii) the Restricted Subsidiary simultaneously issues comparable
securities to the Company for a comparable per-share or per-unit consideration
and the percentage interest of the Company in such Restricted Subsidiary does
not decrease as a result of such issuance; provided that in no case may a
Restricted Subsidiary issue any such security to a Person who is not a
strategic (as opposed to a financial) investor.
If a Restricted Subsidiary at any time ceases to be such as a result of a
sale or issuance of its capital stock, any Liens on property of the Company or
any other Restricted Subsidiary held by such Restricted Subsidiary shall be
deemed to have been incurred at the time it ceases to be a Restricted
Subsidiary.
10.10. DESIGNATION OF UNRESTRICTED SUBSIDIARIES.
The Company will not designate any Restricted Subsidiary as an
Unrestricted Subsidiary if such Subsidiary has been designated an Unrestricted
Subsidiary more than once previously and unless immediately before and after
such designation:
(a) such Subsidiary does not own any Investment in the Company or
any Restricted Subsidiary; and
(b) there exists no Default or Event of Default.
10.11. NATURE OF BUSINESS.
The Company will not, and will not permit any of its Subsidiaries to,
engage in any business if, as a result, the general nature of the business in
which the Company and its 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 its Subsidiaries, taken as a whole, are engaged on the date of
this Agreement as described in the Memorandum.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable;
or
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(c) the Company defaults in the performance of or compliance with
any term contained in Sections 10.1 through 10.11; or
(d) the Company defaults in the performance of or compliance with
any term contained herein (other than those referred to in paragraphs
(a), (b) and (c) of this Section 11) and such default is not remedied
within 30 days; or
(e) any representation or warranty made in writing by or on behalf
of the Company or by any officer of the Company in this Agreement or in
any writing furnished in connection with the transactions contemplated
hereby proves to have been false or incorrect in any material respect on
the date as of which made; or
(f) (i) the Company or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of at
least $5,000,000 beyond any period of grace provided with respect
thereto, or (ii) the Company or any Restricted Subsidiary is in default
in the performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least
$5,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such
default or condition such Indebtedness has become, or has been declared
(or one or more Persons are entitled to declare such indebtedness to be),
due and payable before its stated maturity or before its regularly
scheduled due dates of payment, or (iii) as a consequence of the
occurrence or continuation of any event or condition (other than the
passage of time or the right of the holder of Indebtedness to convert
such Indebtedness into equity interests), (x) the Company or any
Restricted Subsidiary has become obligated to purchase or repay
Indebtedness before its regular maturity or before its regularly
scheduled dates of payment in an aggregate outstanding principal amount
of at least $5,000,000, or (y) one or more Persons have the right to
require the Company or any Restricted Subsidiary so to purchase or repay
such Indebtedness; or
(g) the Company or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they
become due, (ii) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or
any other petition in bankruptcy, for liquidation or to take advantage of
any bankruptcy, insolvency, reorganization, moratorium or other similar
law of any jurisdiction, (iii) makes an assignment for the benefit of its
creditors, (iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or
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(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of its
Restricted Subsidiaries, a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving a
petition for relief or reorganization or any other petition in bankruptcy
or for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of the Company or any of its Restricted Subsidiaries, or any
such petition shall be filed against the Company or any of its Restricted
Subsidiaries and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $2,000,000 are rendered against one or more of
the Company and its Restricted Subsidiaries and which judgments are not,
within 60 days after entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within 60 days after the expiration of such
stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of intent
to terminate any Plan shall have been or is reasonably expected to be
filed with the PBGC or the PBGC shall have instituted proceedings under
ERISA section 4042 to terminate or appoint a trustee to administer any
Plan or the PBGC shall have notified the Company or any ERISA Affiliate
that a Plan may become a subject of any such proceedings, (iii) the
aggregate "amount of unfunded benefit liabilities" (within the meaning of
section 4001(a)(18) of ERISA) under all Plans, determined in accordance
with Title IV of ERISA, shall exceed $250,000, (iv) the Company or any
ERISA Affiliate shall have incurred or is reasonably expected to incur
any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the
Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or
(vi) the Company or any Subsidiary establishes or amends any employee
welfare benefit plan that provides post-employment welfare benefits in a
manner that would increase the liability of the Company or any Subsidiary
thereunder; and any such event or events described in clauses (i) through
(vi) above, either individually or together with any other such event or
events, could reasonably be expected to have a Material Adverse Effect.
As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
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12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default with respect to the Company described in
paragraph (g) or (h) of Section 11 (other than an Event of Default
described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause
(i) of paragraph (g)) has occurred, all the Notes then outstanding shall
automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing,
any holder or holders of more than 25% in principal amount of the Notes
at the time outstanding may at any time at its or their option, by notice
or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes
at the time outstanding affected by such Event of Default may at any
time, at its or their option, by notice or notices to the Company,
declare all the Notes held by it or them to be immediately due and
payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole 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.
12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
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<PAGE> 36
12.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c), the holders of not less than 76% in principal
amount of the Notes then outstanding, by written notice to the Company, may
rescind and annul any such declaration and its consequences if (a) the Company
has paid all overdue interest on the Notes, all principal of and Make-Whole
Amount, if any, on any Notes that are due and payable and are unpaid other than
by reason of such declaration, and all interest on such overdue principal and
Make-Whole Amount, if any, and (to the extent permitted by applicable law) any
overdue interest in respect of the Notes, at the Default Rate, (b) all Events of
Default and Defaults, other than non-payment of amounts that have become due
solely by reason of such declaration, have been cured or have been waived
pursuant to Section 17, and (c) no judgment or decree has been entered for the
payment of any monies due pursuant hereto or to the Notes. No rescission and
annulment under this Section 12.3 will extend to or affect any subsequent Event
of Default or Default or impair any right consequent thereon.
12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers or remedies. No right,
power or remedy conferred by this Agreement or by any Note upon any holder
thereof shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a register
for the registration and registration of transfers of Notes. The name and
address of each holder of one or more Notes, each transfer thereof and the name
and address of each transferee of one or more Notes shall be registered in such
register. Prior to due presentment for registration of transfer, the Person in
whose name any Note shall be registered shall be deemed and treated as the owner
and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
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<PAGE> 37
13.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1-A or 1-B,
as appropriate. 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. 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. Notes
shall not be transferred in denominations of less than $500,000, provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $500,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2.
13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and 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 ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note which is an Institutional Investor, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a
new 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.
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<PAGE> 38
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole Amount, if
any, and interest becoming due and payable on the Notes shall be made in Chaska,
Minnesota at the principal executive office of the Company in such jurisdiction.
The Company may at any time, by notice to each holder of a Note, change the
place of payment of the Notes so long as such place of payment shall be either
the principal office of the Company in such jurisdiction or the principal office
of a bank or trust company in such jurisdiction.
14.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 14.1. Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company in exchange
for a new Note or Notes pursuant to Section 13.2. The Company will afford the
benefits of this Section 14.2 to any Institutional Investor that is the direct
or indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in this
Section 14.2.
15. EXPENSES, ETC.
15.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all costs and expenses (including reasonable attorneys'
fees of one special counsel and, if reasonably required, local or other counsel)
incurred by you and the Other Purchasers or holders of a Note in connection with
such transactions and in connection with any amendments, waivers or consents
under or in respect of this Agreement or the Notes (whether or not such
amendment, waiver or consent becomes effective), including, without limitation:
(a) the costs and expenses incurred in enforcing or defending (or determining
whether or how to enforce or defend) any rights under this Agreement or the
Notes or in responding to any subpoena or
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<PAGE> 39
other legal process or informal investigative demand issued in connection with
this Agreement or the Notes, or by reason of being a holder of any Note, and
(b) the costs and expenses, including financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of the Company or any Subsidiary
or in connection with any work-out or restructuring of the transactions
contemplated hereby and by the Notes. The Company will pay, and will save you
and each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses if any, of brokers and finders (other than those
retained by you).
15.2. SURVIVAL.
The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it
is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, (i) subject to
the provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment (including the maturity date) or method of
computation of interest or of the Make-Whole Amount on, the Notes, (ii) change
the percentage of the principal
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<PAGE> 40
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or
20.
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered
decision with respect to any proposed amendment, waiver or consent in
respect of any of the provisions hereof or of the Notes. The Company
will deliver executed or true and correct copies of each amendment,
waiver or consent effected pursuant to the provisions of this Section 17
to each holder of outstanding Notes promptly following the date on which
it is executed and delivered by, or receives the consent or approval of,
the requisite holders of Notes.
(b) Payment. The Company will not 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 of Notes as consideration for or as an inducement to the entering
into by any holder of Notes or any waiver or amendment of any of the
terms and provisions hereof unless such remuneration is concurrently
paid, or security is concurrently granted, on the same terms, ratably to
each holder of Notes then outstanding even if such holder did not consent
to such waiver or amendment.
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note
nor any delay in exercising any rights hereunder or under any Note shall operate
as a waiver of any rights of any holder of such Note. As used herein, the term
"this Agreement" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
17.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
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<PAGE> 41
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges paid by sender), or (b) by registered or certified mail with return
receipt requested (postage paid by sender), or (c) by a recognized overnight
delivery service (with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address specified
for such communications in Schedule A, or at such other address as you or
it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set forth at
the beginning hereof to the attention of Chief Financial Officer, with a
copy to the General Counsel, or at such other address as the Company
shall have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
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 you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
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<PAGE> 42
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information" means
information delivered to you 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, provided that such term does not
include information that (a) was or is publicly known or otherwise known to you
prior to the time of such disclosure through the rightful disclosure of a third
party under no confidentiality obligations known to you, (b) subsequently
becomes publicly known through no act or omission by you or any person acting on
your behalf, or (c) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of third
parties delivered to you, provided that you may deliver or disclose Confidential
Information to (i) your directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes), (ii) your financial
advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor
to which you sell or offer to sell 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
20), (v) any Person from which you offer 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 20), (vi) any federal
or state regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing, to
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.
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<PAGE> 43
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
21), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
22. MISCELLANEOUS.
22.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or
on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.
22.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
22.3. SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
22.4. CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance
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<PAGE> 44
with any one covenant shall not (absent such an express contrary provision) be
deemed to excuse compliance with any other covenant. 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.
22.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.6. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
39
<PAGE> 45
If you are in agreement with the foregoing, please sign the form of
Agreement on the accompanying counterpart of this Note Purchase Agreement and
return it to the Company, whereupon the foregoing shall become a binding
agreement between you and the Company.
Very truly yours,
FSI INTERNATIONAL, INC.
By: /s/ Benno G. Sand
--------------------------
Benno G. Sand
Executive Vice President, Chief
Financial Officer and Secretary
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<PAGE> 46
The foregoing is hereby agreed to as of the date hereof.
METROPOLITAN LIFE INSURANCE
COMPANY
By: /s/ Joseph A. Augustini
------------------------------------
Its: Vice President
------------------------------------
RELIASTAR LIFE INSURANCE
COMPANY
By: /s/ James V. Wittich
------------------------------------
Its: Authorized Representative
------------------------------------
NORTHERN LIFE INSURANCE
COMPANY
By: /s/ James V. Wittich
------------------------------------
Its: Assistant Treasurer
------------------------------------
PROTECTED HOME MUTUAL LIFE
INSURANCE COMPANY
By: MIMLIC Asset Management Company
By: /s/ Dianne Orbison, Vice President
--------------------------------------
THE CATHOLIC AID ASSOCIATION
By: MIMLIC Asset Management Company
By: /s/ Dianne Orbison, Vice President
--------------------------------------
41
<PAGE> 47
MUTUAL TRUST LIFE INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert, Vice President
-----------------------------------------
THE BALTIMORE LIFE INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert, Vice President
-----------------------------------------
LIFE OF MARYLAND, INC.
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert, Vice President
-----------------------------------------
FARM BUREAU LIFE INSURANCE
COMPANY OF MICHIGAN
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert, Vice President
-----------------------------------------
FARM BUREAU MUTUAL INSURANCE
COMPANY OF MICHIGAN
By: MIMLIC Asset Management Company
By: /s/ Guy M. de Lambert, Vice President
-----------------------------------------
42
<PAGE> 48
FB ANNUITY COMPANY
By: MIMLIC Asset Management Company
By: /s/ Loren Haugland, Vice President
-----------------------------------------
NATIONAL TRAVELERS LIFE
COMPANY
By: MIMLIC Asset Management Company
By: /s/ Loren Haugland, Vice President
-----------------------------------------
COLORADO BANKERS LIFE
INSURANCE COMPANY
By: MIMLIC Asset Management Company
By: /s/ Loren Haugland, Vice President
-----------------------------------------
GUARANTEE RESERVE LIFE
INSURANCE COMPANY
By: MIMLIC Asset Management Company
By: /s/ Loren Haugland, Vice President
-----------------------------------------
GREAT WESTERN INSURANCE
COMPANY
By: MIMLIC Asset Management Company
By: /s/ Loren Haugland, Vice President
-----------------------------------------
43
<PAGE> 49
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"AFFILIATE" means, at any time, and with respect to any Person, (a)
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, (b) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of the
Company or any Restricted Subsidiary or any corporation of which the Company and
its Restricted Subsidiaries beneficially own or hold, in the aggregate, directly
or indirectly, 10% or more of any class of voting or equity interests and (c)
any director or officer of such Person; provided, however, that Restricted
Subsidiaries shall not be deemed to be Affiliates of the Company. 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. Unless the context otherwise clearly requires, any reference to an
"Affiliate" is a reference to an Affiliate of the Company.
"BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed, and (b) for the purposes of any
other provision of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in New York City, Chicago, Illinois, or
Minneapolis, Minnesota are required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.
"COMPANY" means FSI International, Inc., a Minnesota corporation.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries determined on a consolidated basis in accordance with
GAAP.
Schedule B
<PAGE> 50
"CONSOLIDATED NET INCOME" means, for any period, the net income (or
deficit) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, but excluding in any
event (a) net losses or undistributed net income of any Person (other than a
Restricted Subsidiary) in which the Company has an ownership interest; (b) net
losses or undistributed net income of any Restricted Subsidiary accrued prior to
the date it became a Restricted Subsidiary; (c) gains or net losses (net of any
tax effect) resulting from the sale of any capital assets other than in the
ordinary course of business; (d) extraordinary, unusual, or nonrecurring gains
or losses; (e) gains resulting from the write-up of assets; (f) earnings of any
Subsidiary unavailable for payment to the Company; (g) proceeds of any life
insurance policy; and (h) the amount of reversals of any contingency reserves
not created during such period.
"CONSOLIDATED TANGIBLE ASSETS" means Consolidated Total Assets less
the sum of all intangibles, including, without limitation, goodwill, tradenames,
trademarks, patents, organization expense, unamortized debt discount and
expense, deferred costs and other similar intangibles properly classified as
intangibles in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means consolidated stockholders'
equity of the Company and its Restricted Subsidiaries determined in accordance
with GAAP less 50% of the sum of all intangibles, including, without limitation,
goodwill, tradenames, trademarks, patents, organization expense, unamortized
debt discount and expense, deferred costs and other similar intangibles properly
classified as intangibles in accordance with GAAP.
"CONSOLIDATED TOTAL ASSETS" means the assets and properties of the
Company and the Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP.
"CONSOLIDATED TOTAL CAPITALIZATION" means the sum of Consolidated
Indebtedness and Consolidated Tangible Net Worth.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of (i)
2.0% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Series A Notes or the Series B Notes, as the case may be, or
(ii) 2% over the rate of interest publicly announced by Bank of America Illinois
in Chicago, Illinois as its "base" or "prime" rate.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
2
Schedule B
<PAGE> 51
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"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 Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary,
or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working capital
or other balance sheet
3
Schedule B
<PAGE> 52
condition or any income statement condition of any other Person or
otherwise to advance or make available funds for the purchase or payment
of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor
under any Guaranty, the indebtedness or other obligations that are the subject
of such Guaranty shall be assumed to be direct obligations of such obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polycholorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for 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) all liabilities appearing on its balance sheet in accordance
with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities);
4
Schedule B
<PAGE> 53
(e) all its liabilities in respect of drawn letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a
type described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"INSTITUTIONAL INVESTOR" means any original purchaser of a Note and
any bank, trust company, savings and loan association, insurance company, any
pension plan, any investment company, any other similar financial institution or
entity, or any broker or dealer having or managing at least $100,000,000 of
assets, regardless of legal form.
"INVESTMENTS" means all investments made, in cash or by delivery of
property, directly or indirectly, by any Person, in any other Person, whether by
acquisition of shares of capital stock, indebtedness or other obligations or
securities or by loan, advance, capital contribution or otherwise.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and its Restricted Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of
the Company to perform its obligations under this Agreement and the Notes, or
(c) the validity or enforceability of this Agreement or the Notes.
"MEMORANDUM" is defined in Section 5.3.
5
Schedule B
<PAGE> 54
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"OTHER AGREEMENTS" is defined in Section 2.
"OTHER PURCHASERS" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, 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.
"PREFERRED STOCK" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any of its Affiliates).
"RESPONSIBLE OFFICER" means the Chief Executive Officer or General
Counsel of the Company or any Senior Financial Officer.
6
Schedule B
<PAGE> 55
"RESTRICTED INVESTMENTS" means any Investment of the Company and its
Restricted Subsidiaries other than:
(a) Investments in Restricted Subsidiaries;
(b) Investments in a Person which, as a result thereof, becomes a
Restricted Subsidiary;
(c) Receivables arising in the ordinary course of business and
investments in property or assets to be used or consumed in the
ordinary course of business, including investments in financing
arrangements created to facilitate equipment sales in the ordinary
course of business;
(d) Advances to officers and employees of the Company or a Restricted
Subsidiary in the ordinary course of business;
(e) Investments in:
(i) commercial paper maturing in 270 days or less from the date
of issuance which is rated in one of the top two rating
classifications by at least one nationally recognized rating
agency;
(ii) certificates of deposit or banker's acceptances maturing
within one year from the date of acquisition issued by commercial
banks whose long-term debt is rated in one of the top two rating
classifications by at least one nationally recognized rating
agency;
(iii) obligations of or fully guaranteed by the United States of
America or an agency thereof maturing within three years from the
date of acquisition;
(iv) municipal securities (including auction rate floaters and
variable rate demand notes), having an effective maturity within
three years from the date of acquisition, which are rated in one
of the top two rating classifications by at least one nationally
recognized rating agency;
(v) money market instrument programs that are properly classified
as current assets in accordance with GAAP;
(vi) auction rate preferred stock which is rated in one of the
top two (AAA/Aaa or AA/Aa) rating classifications by at least one
nationally recognized rating agency;
7
Schedule B
<PAGE> 56
(vii) bonds issued by a United States corporation maturing within
two years from the date of acquisition which are rated in one of
the top two rating classifications by at least one nationally
recognized rating agency; and
(viii) repurchase agreements which are collateralized 102% or
more by obligations of or fully guaranteed by the United States
of America or an agency thereof;
(f) Purchases of shares of:
(i) Metron Technology B.V. pursuant to the Amended and Restated
Buy and Sell Agreement effective as of July 6, 1995;
(ii) Metron Technology B.V. pursuant to the Metron Semiconductors
Europa B.V. (n/k/a Metron Technology B.V.) Investors Rights
Agreement dated July 6, 1995; and
(iii) m/FSI, Ltd. pursuant to the Shareholders Agreement among
the Company and Mitsui & Co., Ltd. and Chlorine Engineers Corp.,
Ltd.
(g) Premiums (and the right to receive repayment thereof), not
exceeding $3,000,000 in the aggregate in any fiscal year, on
split-dollar and key man life insurance policies on the lives of
employees of the Company and its Restricted Subsidiaries (A) issued by
life insurance companies rated A-2 or better by Moody's Investors
Service, Inc. or A or better by Standard & Poor's Rating Group and (B)
providing for the repayment to the Company or a Restricted Subsidiary
of all such premiums from the cash surrender value upon termination of
an insured's employment or from the death benefits upon the insured's
death; and
(h) Investments existing as of the date of this Agreement which are
listed in the attached Schedule B-1.
"RESTRICTED PAYMENTS" are defined in Section 10.7.
"RESTRICTED SUBSIDIARY" means any Subsidiary (a) of which at
least 50% of the voting securities are owned by the Company and/or one or more
Wholly-Owned Restricted Subsidiaries and of which the Company has management
control; (b) which is organized under the laws of the United States or any state
thereof, England, Singapore, Taiwan or Korea; (c) which maintains substantially
all of its assets and conducts substantially all of its business within the
United States, England, Singapore, Taiwan or Korea; and (d) which the Company
has designated a Restricted Subsidiary by notice in writing (including
designation in Schedule 5.4)
8
Schedule B
<PAGE> 57
given to the holders of the Notes; provided, however, that no Subsidiary may be
designated as a Restricted Subsidiary more than once.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
treasurer or controller of the Company.
"SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries or such Person and one or more
of its Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to
a "Subsidiary" is a reference to a Subsidiary of the Company.
"SWAPS" means, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap 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 such
obligation shall be the net amount so determined.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary not designated a
Restricted Subsidiary.
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company's other Wholly-Owned Subsidiaries at such time.
9
Schedule B
<PAGE> 58
EXHIBIT 1-A
[FORM OF NOTE]
FSI INTERNATIONAL, INC.
7.15% SERIES A SENIOR NOTE DUE DECEMBER 19, 2004
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, FSI INTERNATIONAL, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Minnesota, hereby promises to pay to [___________], or
registered assigns, the principal sum of [_______________] DOLLARS on
[____________,__________], with interest (computed on the basis of a 360-day
year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of
7.15% per annum from the date hereof, payable semiannually, on the fifteenth day
of June and December in each year, commencing with the June 19 or December 19
next succeeding the date hereof, until the principal hereof shall have become
due and payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreements referred to below), payable semiannually as aforesaid (or,
at the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 9.15% or (ii) 2% over the rate of
interest publicly announced by Bank of America Illinois from time to time in
Chicago, Illinois as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are to be made in lawful money of the United States of
America at the principal office of the Company or at such other place as the
Company shall have designated by written notice to the holder of this Note as
provided in the Note Purchase Agreements referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
December 19, 1996 (as from time to time amended, the "Note Purchase
Agreements"), between the Company and the respective Purchasers named therein
and is entitled to the benefits thereof. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to
have made the representation set forth in Section 6.2 of the Note Purchase
Agreements.
This Note is a registered Note and, as provided in the Note
Purchase Agreements, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a
Exhibit 1-A
<PAGE> 59
written instrument of transfer duly executed, by the registered holder hereof
or such holder's attorney duly authorized in writing, a new Note for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.
The Company will make required prepayments of principal on the
dates and in the amounts specified in the Note Purchase Agreements. This Note
is also subject to optional prepayment, in whole or from time to time in part,
at the times and on the terms specified in the Note Purchase Agreements, but not
otherwise.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
This Note and the Note Purchase Agreement are governed by and
construed in accordance with the substantive laws of the State of Illinois.
FSI INTERNATIONAL, INC.
By:
-----------------------
Title:
--------------------
2
Exhibit 1-A
<PAGE> 60
EXHIBIT 1-B
[FORM OF NOTE]
FSI INTERNATIONAL, INC.
7.27% SERIES B SENIOR NOTE DUE DECEMBER 19, 2006
No. [_____] [Date]
$[_______] PPN[_____________]
FOR VALUE RECEIVED, the undersigned, FSI INTERNATIONAL, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Minnesota, hereby promises to pay to [_______________], or
registered assigns, the principal sum of [____________________] DOLLARS on
[_________,_________], with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.27% per
annum from the date hereof, payable semiannually, on the fifteenth day of June
and December in each year, commencing with the June 19 or December 19 next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreements referred to below), payable semiannually as aforesaid (or,
at the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 9.27% or (ii) 2% over the rate of
interest publicly announced by Bank of America Illinois from time to time in
Chicago, Illinois as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount
with respect to this Note are to be made in lawful money of the United States of
America at the principal office of the Company or at such other place as the
Company shall have designated by written notice to the holder of this Note as
provided in the Note Purchase Agreements referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
December 19, 1996 (as from time to time amended, the "Note Purchase
Agreements"), between the Company and the respective Purchasers named therein
and is entitled to the benefits thereof. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to
have made the representation set forth in Section 6.2 of the Note Purchase
Agreements.
This Note is a registered Note and, as provided in the Note
Purchase Agreements, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a
Exhibit 1-B
<PAGE> 61
written instrument of transfer duly executed, by the registered holder hereof
or such holder's attorney duly authorized in writing, a new Note for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.
The Company will make required prepayments of principal on the
dates and in the amounts specified in the Note Purchase Agreements. This Note
is also subject to optional prepayment, in whole or from time to time in part,
at the times and on the terms specified in the Note Purchase Agreements, but not
otherwise.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
This Note and the Note Purchase Agreement are governed by and
construed in accordance with the substantive laws of the State of Illinois.
FSI INTERNATIONAL, INC.
By:
----------------------
Title:
-------------------
2
Exhibit 1-B
<PAGE> 62
EXHIBIT 4.4(A)
FORM OF OPINION OF SPECIAL COUNSEL
TO THE COMPANY
The opinion of Faegre & Benson, counsel to the Company, shall be to the
effect that:
1. Each of the Company and each Subsidiary is a corporation duly organized
and validly existing in good standing under the laws of its jurisdiction of
incorporation, and each has all requisite corporate power and authority to
carry on the business now being conducted by it, to own its property and, in
the case of the Company, to enter into and perform the Agreement and the Other
Agreements and to issue and sell the Notes.
2. The Company and each Subsidiary are duly qualified or licensed and in
good standing as foreign corporations authorized to do business in each
jurisdiction where the nature of its or their businesses or the character of
its or their properties makes such qualification or licensing necessary, except
where such failure to be so qualified or licensed would not have a Material
Adverse Effect.
3. The Agreement, the Other Agreements and the Notes have been duly
authorized by proper corporate action on the part of the Company, have been
duly executed and delivered by an authorized officer of the Company, and
constitute the legal, valid and binding agreements of the Company, enforceable
in accordance with their terms, except to the extent that enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws of general application relating to or affecting the enforcement
of the rights of creditors or by equitable principles, regardless of whether
enforcement is sought in a proceeding in equity or at law.
4. The offering, sale and delivery of the Notes do not require the
registration of the Notes under the Securities Act of 1933, as amended, or the
qualification of an indenture under the Trust Indenture Act of 1939, as
amended.
5. No authorization, approval or consent of any governmental or regulatory
body is necessary or required in connection with the lawful execution and
delivery by the Company of the Agreement, the Other Agreements or the lawful
offering, issuance and sale by the Company of the Notes, and no designation,
filing, declaration, registration and/or qualification with any governmental
authority is required in connection with the offer, issuance and sale of the
Notes by the Company.
6. The issuance and sale of the Notes by the Company and compliance with
the terms and provisions of the Notes and the Agreement and the Other
Agreements by the Company
Exhibit 4.4(a)
<PAGE> 63
will not conflict with, or result in any breach or violation of any of the
provisions of, or constitute a default under, or result in the creation or
imposition of any Lien upon the property of the Company or any Subsidiary
pursuant to the provisions of (i) the certificate of incorporation (or other
charter document) or by-laws of the Company or any Subsidiary, (ii) any loan
agreement or evidence of Indebtedness known to such counsel under which the
Company or any Subsidiary is bound, or other material agreement or instrument
known to such counsel under which the Company or any Subsidiary is a party or
by which any of them or their property is bound or may be affected, or (iii)
any law (including usury laws) or regulation applicable to the Company or any
Subsidiary or (iv) any order, writ, injunction or decree known to such counsel
of any court or governmental authority applicable to the Company or any
Subsidiary.
7. To such counsel's knowledge, there are no actions, suits or proceedings
pending, or threatened against, or affecting the Company or any Subsidiary, at
law or in equity or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which are likely to result, individually or in the
aggregate, in a Material Adverse Effect.
8. Neither the Company nor any Subsidiary is: (i) a "public utility
company" or a "holding company," or an "affiliate" or a "subsidiary company" of
a "holding company," or an "affiliate" of such a "subsidiary company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as
amended, or (ii) a "public utility" as defined in the Federal Power Act, as
amended, or (iii) an "investment company" or an "affiliated person" thereof, as
such terms are defined in the Investment Company Act of 1940, as amended.
9. The issuance of the Notes and the use of the proceeds of the sale of
the Notes do not violate or conflict with Regulations G, T, U or X of the Board
of Governors of the Federal Reserve System (12 CFR, Chapter II).
With respect to matters of fact on which such opinion is based, such
counsel shall be entitled to rely on appropriate certificates of public
officials and officers of the Company. With respect to matters governed by the
laws of any jurisdiction other than the United States of America and the State
of Minnesota, such counsel may rely upon the opinions of counsel deemed (and
stated in their opinion to be deemed) by them to be competent and reliable.
2
Exhibit 4.4(a)
<PAGE> 64
EXHIBIT 4.4(B)
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
The opinion of Gardner, Carton & Douglas, special counsel for the
Purchasers, shall be to the effect that:
1. The Company is a corporation validly existing in good standing under
the laws of the State of Minnesota, with all requisite corporate power and
authority to enter into the Agreement and to issue and sell the Notes.
2. The Agreement and the Notes have been duly authorized by proper
corporate action on the part of the Company, have been duly executed and
delivered by an authorized officer of the Company, and constitute the legal,
valid and binding agreements of the Company, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
of general application relating to or affecting the enforcement of the rights
of creditors or by equitable principles, regardless of whether enforcement is
sought in a proceeding in equity or at law.
3. Based upon the representations set forth in the Agreement, the
offering, sale and delivery of the Notes do not require the registration of the
Notes under the Securities Act of 1933, as amended, or the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
4. The issuance and sale of the Notes and compliance with the terms and
provisions of the Notes and the Agreement will not conflict with or result in
any breach of any of the provisions of the certificate of incorporation or
by-laws of the Company.
5. No approval, consent or withholding of objection on the part of, or
filing, registration or qualification with, any governmental body, Federal or
state, is necessary in connection with the execution and delivery of the Note
Agreement or the Notes.
The opinion of Gardner, Carton & Douglas also shall state that the legal
opinion of Faegre & Benson, counsel for the Company, delivered to you pursuant
to the Agreement, is satisfactory in form and scope to it, and, in its opinion,
the Purchasers and it are justified in relying thereon.
Exhibit 4.4(b)
<PAGE> 1
EXHIBIT 11.1
FSI INTERNATIONAL, INC.AND SUBSIDIARIES
COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
QUARTER ENDED:
--------------------------------
NOV 26, 1996 NOV 25, 1995
--------------------------------
PRIMARY:
<S> <C> <C>
AVERAGES SHARES OUTSTANDING 22,363,331 22,036,602
NET EFFECT OF DILUTIVE STOCK OPTIONS AND
WARRANTS -- BASED ON THE TREASURY STOCK METHOD 651,152 1,285,950
------------ ------------
TOTAL 23,014,483 23,322,552
============ ============
NET INCOME $4,040,924 $7,725,157
============ ============
PRIMARY PER SHARE AMOUNTS $0.18 $0.33
============ ============
FULLY DILUTED:
AVERAGE SHARES OUTSTANDING 22,363,331 22,036,602
NET EFFECT OF DILUTIVE STOCK OPTIONS AND
WARRANTS -- BASED ON THE TREASURY STOCK METHOD 822,153 1,108,817
------------ ------------
TOTAL 23,185,484 23,145,419
============ ============
NET INCOME $4,040,924 $7,725,157
============ ============
FULLY DILUTED PER SHARE AMOUNTS $0.17 $0.33
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> AUG-30-1997 AUG-31-1996
<PERIOD-START> SEP-01-1996 AUG-27-1995
<PERIOD-END> NOV-30-1996 NOV-25-1995
<CASH> 44,393,987 79,878,331
<SECURITIES> 26,354,445 21,137,837
<RECEIVABLES> 70,394,881 61,833,802
<ALLOWANCES> 1,937,400 1,386,800
<INVENTORY> 58,313,107 43,370,603
<CURRENT-ASSETS> 209,290,169 214,660,200
<PP&E> 76,230,866 46,285,622
<DEPRECIATION> 24,827,508 17,034,058
<TOTAL-ASSETS> 278,976,191 259,716,070
<CURRENT-LIABILITIES> 55,070,150 64,373,948
<BONDS> 0 0
0 0
0 0
<COMMON> 157,813,325 144,532,794
<OTHER-SE> 64,474,140 49,575,194
<TOTAL-LIABILITY-AND-EQUITY> 278,976,191 259,716,070
<SALES> 66,990,995 70,343,725
<TOTAL-REVENUES> 66,990,995 70,343,725
<CGS> 40,226,170 40,543,368
<TOTAL-COSTS> 40,226,170 40,543,368
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 94,400 152,800
<INTEREST-EXPENSE> 35,808 123,115
<INCOME-PRETAX> 4,539,225 9,756,953
<INCOME-TAX> 1,407,126 3,426,065
<INCOME-CONTINUING> 4,040,924 7,725,157
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,040,924 7,725,157
<EPS-PRIMARY> 0.18 0.33
<EPS-DILUTED> 0.17 0.33
<FN>
<F1>Financial statements have been restated to reflect the merger with
Semiconductor Systems, Inc. on April 4, 1996. The merger was accounted for
as a pooling of interests.
</FN>
</TABLE>
