<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPECIAL DEVICES, INCORPORATED
(EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3714 95-3008754
(STATE OF INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
SCOT, INCORPORATED
<TABLE>
<S> <C> <C>
DELAWARE 3728 36-3972852
(STATE OF INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
14370 WHITE SAGE ROAD
MOORPARK, CALIFORNIA 93021
(805) 553-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
JOHN M. CUTHBERT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SPECIAL DEVICES, INCORPORATED
14370 WHITE SAGE ROAD
MOORPARK, CALIFORNIA 93021
(805) 553-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
KENNETH M. DORAN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 229-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ] ---------
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ---------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 3/8% Senior Subordinated Notes
due 2008, Series B............... $100,000,000 100% $100,000,000 $27,800
- --------------------------------------------------------------------------------------------------------------------------------
Guarantee of the 11 3/8% Senior
Subordinated Notes due 2008...... $100,000,000 None(1) None(1) None(1)
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</TABLE>
(1) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is
payable for the Guarantee.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 8, 1999
SPECIAL DEVICES, INCORPORATED
OFFER TO EXCHANGE
11 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
REGISTERED UNDER THE SECURITIES ACT
FOR
11 3/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
We hereby offer, upon the terms and conditions described in this
prospectus, to exchange all of our outstanding and unregistered 11 3/8% Senior
Subordinated Notes due 2008, Series A ("OLD NOTES") for our registered 11 3/8%
Senior Subordinated Notes due 2008, Series B ("NEW NOTES"). The Old Notes were
issued on December 15, 1998 and, as of the date of this prospectus, an aggregate
principal amount of $100.0 million is outstanding. The terms of the New Notes
are identical to the terms of the Old Notes except that the New Notes will be
registered under the Securities Act and will not contain any legends restricting
their transfer. The Old Notes and New Notes are sometimes collectively referred
to as the "NOTES."
TERMS OF THE EXCHANGE OFFER
- - Expiration date of 5:00 p.m., New York City time, on , 1999,
unless extended
- - We will exchange New Notes for all validly tendered Old Notes that are not
withdrawn
- - Tenders may be withdrawn at any time prior to the expiration date
- - Exchanges of notes will not be taxable exchanges for U.S. federal income tax
purposes
- - We will not receive any proceeds from the exchange offer
- - The terms of the New Notes are substantially identical to those of the Old
Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes
- - If you fail to tender your Old Notes, you will continue to hold unregistered
securities and your ability to transfer them could be adversely affected
TERMS OF THE NOTES
- - The Notes will mature on December 15, 2008
- - We will pay interest on the Notes semi-annually on June 15 and December 15 of
each year, beginning on June 15, 1999
- - We have the option to redeem all or a portion of the Notes on or after
December 15, 2003 at certain rates set forth on page 74 of this prospectus
- - We also have the option to redeem up to 35% of the original aggregate
principal amount of the Notes on or prior to December 15, 2001 with the net
cash proceeds from a public equity offering
- - The Notes are unsecured obligations and rank junior in right of payment to our
existing and future senior debt. As of January 31, 1999, we had $70.8 million
of senior debt
- - Scot, Incorporated, our wholly owned subsidiary, has guaranteed our
obligations under the Notes
-------------------------
See "Risk Factors" beginning on page 11 of this prospectus for a discussion
of matters that you should consider before deciding whether to exchange your Old
Notes for New Notes.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
-------------------------
The date of this prospectus is , 1999
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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<S> <C>
Disclosure Regarding Forward-Looking
Statements........................ 1
Where You Can Find More Information
About the Company................. 2
Prospectus Summary.................. 3
Risk Factors........................ 11
The Transactions.................... 22
Sources and Uses of Funds........... 23
The Exchange Offer.................. 24
Capitalization...................... 33
Selected Historical Consolidated
Financial Data.................... 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................ 47
Management.......................... 60
Certain Transactions................ 67
Security Ownership of Certain
Beneficial Owners and
Management........................ 69
Description of New Credit
Facility.......................... 71
Description of Notes................ 73
Book-Entry; Delivery and Form....... 112
Plan of Distribution................ 114
Legal Matters....................... 114
Experts............................. 114
Index to Financial Statements....... F-1
</TABLE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything to you other than the information contained in
this prospectus. You must not rely on unauthorized information or
representations. This prospectus does not offer to sell or ask for offers to buy
any of the securities in any jurisdiction where it is unlawful, where the person
making the offer is not qualified to do so, or to any person who can not legally
be offered the securities.
The information in this prospectus is current only as of the date on its
cover, and may change after that date. For any time after the cover date of this
prospectus, we do not represent that our affairs are the same as described or
that the information in this prospectus is correct, nor do we imply those things
by delivering this prospectus to you.
Until , 1999 (90 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this exchange offer, may be required to deliver a prospectus.
This exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which this
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
i
<PAGE> 4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus under the sections
entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" are
forward-looking. They include statements about our expectations, beliefs, plans,
objectives, assumptions or future events or performance. These forward-looking
statements are based on our expectations and are subject to a number of risks
and uncertainties. Certain of these risks and uncertainties are beyond our
control. Our actual results may differ materially from those suggested by these
forward-looking statements for various reasons, including those discussed under
the sections entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." You can find many
of these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates" or similar expressions used in this prospectus. Some
of the key factors that have a direct bearing on our results of operations are:
- the competitive environment in the automotive and aerospace industries in
general and in the specific markets for our products,
- reliance on major customers, such as TRW and Autoliv (formerly Morton
International),
- the number of new automobiles sold (particularly in North America),
- continued acceptance of airbags as the principal secondary restraint
system incorporated in automobiles,
- voluntary incorporation of side and rear airbags and other safety devices
by automobile manufacturers,
- market acceptance of our new products,
- our ability to continue increasing the automation of our manufacturing
process in a timely and efficient manner,
- the impact of government regulations on our ability to obtain and
complete government contracts,
- changes in prevailing interest rates and the availability of favorable
terms of financing to fund the anticipated growth of our business,
- inflation,
- changes in or failure to comply with federal, state and/or local
governmental regulations, including our ability to safely manufacture
products which contain pyrotechnic devices,
- product liability and other claims asserted against us,
- our significant debt and the impact of increases in interest rates on
such debt and
- labor disturbances.
Given these uncertainties, you are cautioned not to place undue reliance on
such forward-looking statements and plans, which speak only as of the date of
this prospectus. We do not undertake any responsibility to publicly release any
revisions to these forward-looking statements to take into account events or
circumstances that occur after the date of this prospectus. Additionally, we do
not undertake any responsibility to update you on the occurrence of any
unanticipated events which may cause actual results to differ from those
expressed or implied by the forward-looking statements contained in this
prospectus.
1
<PAGE> 5
WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY
We have filed a Registration Statement on Form S-4 to register with the
Commission the New Notes to be issued in exchange for the Old Notes. This
prospectus is part of that Registration Statement. As allowed by the
Commission's rules, this prospectus does not contain all of the information you
can find in the Registration Statement or the exhibits to the Registration
Statement. This prospectus contains summaries of the material terms and
provisions of certain documents and in each instance we refer you to the copy of
such document filed as an exhibit to the Registration Statement.
From August 1991 until December 15, 1998, we were subject to the
informational requirements of the Securities and Exchange Act of 1934, as
amended, and in accordance therewith, filed reports, proxy statements and other
information with the Commission. Upon the effectiveness of the Registration
Statement, of which this prospectus forms a part, we will once again be subject
to the informational requirements of the Exchange Act, and in accordance
therewith we will file annual, quarterly and other reports and information with
the Commission.
The Registration Statement (including the exhibits and schedules thereto)
and the periodic reports and other information filed by us with the Commission
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois, at prescribed rates. Such information may
also be accessed electronically by means of the Commission's homepage on the
Internet at http://www.sec.gov., which contains reports, proxy and information
statements and other information regarding registrants, including us, that file
electronically with the Commission.
Pursuant to the indenture governing the Notes, we have agreed, whether or
not subject to the informational requirements of the Exchange Act, to provide
the trustee and holders of the Notes with annual, quarterly and other reports at
the times and containing in all material respects the information specified in
Sections 13 and 15(d) of the Exchange Act and to file such reports with the
Commission.
2
<PAGE> 6
PROSPECTUS SUMMARY
This brief summary highlights selected information from the prospectus. It
does not contain all of the information that is important to you. We urge you to
carefully read and review the entire prospectus and the other documents to which
it refers to fully understand the terms of the Notes and the exchange offer. In
this prospectus, the "Company," "we," "us" and "our" refer to Special Devices,
Incorporated and its subsidiaries, unless the context requires otherwise. The
term "you" refers to holders of the Old Notes. The term "Fiscal" used in
conjunction with a year refers to the Company's fiscal year ended or ending on
October 31 of that year.
THE COMPANY
We are a leading designer and manufacturer of highly reliable precision
engineered pyrotechnic devices. These devices are used predominantly in vehicle
airbag and other automotive safety systems as well as in various aerospace
applications. Our primary products are initiators, which function like an
"electrical match" to ignite the gas generating charge in an automotive airbag
system or to provide precision ignitions in aerospace-related products. In
manufacturing our products, which utilize pyrotechnic materials, we ensure safe
handling and processing by following strict safety procedures that we have
developed over the past 35 years.
We have two divisions: an Automotive Products Division and an Aerospace
Division.
- We believe that our Automotive Products Division is the world's largest
supplier of initiators sold to leading U.S. and foreign automotive airbag
system manufacturers. Those manufacturers use our product in the assembly
of integrated airbag safety systems, which they then sell to automobile
original equipment manufacturers.
- Our Aerospace Division supplies initiators and other advanced pyrotechnic
products to aerospace companies. Those companies, in turn, use our
products in a variety of applications including tactical missile systems,
spacecraft launch vehicles and military aircraft crew safety systems.
We have consistently generated strong financial results, which are largely
a result of favorable industry dynamics, various barriers to entry and a leading
market position. From Fiscal 1994 to Fiscal 1998, our net sales increased at a
compound annual growth rate of 27.5% and our EBITDA increased at a compound
annual growth rate of 41.8%. For the last twelve months ended January 31, 1999,
our net sales were $167.5 million and our EBITDA was $34.3 million.
Our principal executive offices are located at 14370 White Sage Road,
Moorpark, California 93021, and our phone number is (805) 553-1200.
AUTOMOTIVE PRODUCTS DIVISION
We believe that our Automotive Products Division is the world's largest
supplier of initiators to airbag system manufacturers. We formed the division in
1989 after the United States government adopted regulations requiring the
installation of airbags and other crash protection systems in all new passenger
automobiles. Since that time, demand for our initiators has grown rapidly. We
attribute this growth in large part to the continuing evolution of automotive
safety standards and increased customer preferences for airbag-related safety
options. We expect continued growth in the demand for our products as the number
of airbag-equipped vehicles increases, the number of airbags per vehicle grows
and our customers implement new technologies. These new technologies include
seat belt pre-tensioners and "smart" airbag systems, both of which we expect
will require new types of initiators and sometimes more than one initiator per
product.
In recent years our Automotive Products Division has grown its net sales
and cash flows significantly. The Automotive Products Division increased its net
sales from $49.5 million in Fiscal 1994 to $135.2 million in Fiscal 1998. This
represents an increasing portion of the Company's total net sales during that
time (76.7% in Fiscal 1994 to 79.3% in Fiscal 1998). During the same period, our
Automotive Products Division increased its EBITDA from $5.7 million to $26.4
million, representing a compound annual growth rate of 46.7%.
3
<PAGE> 7
We sell our initiators to leading domestic and foreign manufacturers of
airbag systems and subsystems. We have strong, long-term relationships with our
customers. In particular, we have supplier agreements with TRW, Autoliv ASP
Incorporated (formerly Morton International) and Atlantic Research Corporation.
We have been shipping initiators to Autoliv since 1990, TRW since 1991 and ARC
since 1994. In addition, we have established new relationships with other
growing safety systems suppliers, including Richard Hirschmann and Takata.
We have established a strong reputation for manufacturing high quality and
extremely reliable initiators. Since 1989, we estimate that approximately over
100 million of our initiators have been installed in automobiles. We do not know
of any instances where our initiators failed to perform. To date, we have
focused on developing glass-sealed, co-axial initiators. We believe that these
initiators are superior to plastic-sealed, spark-gap initiators, which are lower
priced and used in safety restraint systems outside the United States, primarily
in Europe. We are currently testing a new, low-cost, glass-sealed initiator (the
"AGI") that we expect will allow us to compete more favorably in Europe. We
intend to introduce this product during Fiscal 1999.
We base our success, in part, on years of investment in proprietary, highly
automated manufacturing equipment and the design of proprietary manufacturing
processes. In addition, we have significantly improved our operating efficiency
and profitability. We expect additional production efficiencies upon completion
of our relocation to our new facility in Moorpark, California during Fiscal
1999.
AEROSPACE DIVISION
Our Aerospace Division designs and manufactures highly reliable pyrotechnic
devices. Our customers use these devices in a variety of commercial and military
aerospace applications. The Aerospace Division's products include state-of-the
art initiators and mechanical subassemblies (such as explosive bolts, cable
cutters, actuators, valves, safe-arm devices, aircraft crew safety systems and
bomb ejectors) that incorporate these initiators. We have produced many of these
products for over 35 years. As a result, we have a strong reputation across a
diverse customer base which includes the United States government and leading
prime contractors such as Boeing, Lockheed Martin, Raytheon and Alliant
Techsystems.
Our aerospace initiators and the devices that incorporate them are used to
ignite larger pyrotechnic systems, including rocket motors, and activate
mechanical devices such as valves, directional fins, arm-fire devices, aircraft
crew ejection systems and rotary bomb ejectors.
We produce these high-cost-of-failure products according to customer
specifications. Lead times typically range between six to nine months in order
to satisfy the highly technical nature and intense product testing required
before shipment. As a result, our Aerospace Division produces a wider variety of
products in significantly lower volumes than our Automotive Products Division,
although these products typically generate higher gross margins than automotive
initiators. We believe that over the last four decades we have produced nearly
2,000 diverse products that are critical components in missile systems, bomb
deployment systems and satellite launching mechanisms.
Our Aerospace Division has produced stable financial results over the last
five years and has consistently generated strong cash flows. The Aerospace
Division has increased net sales from $15.0 million in Fiscal 1994 to $35.3
million in Fiscal 1998. The division's net sales have represented a decreasing
portion of the Company's net sales during that time (23.3% in Fiscal 1994 to
20.7% in Fiscal 1998) because of the significant growth of our Automotive
Products Division. During the same period, the Aerospace Division increased its
EBITDA from $2.8 million to $8.0 million, representing a compound annual growth
rate of 30.0%.
4
<PAGE> 8
THE EXCHANGE OFFER
Securities to be Exchanged.... On December 15, 1998, we issued $100.0 million
aggregate principal amount of Old Notes to BT
Alex. Brown Incorporated and Paribas
Corporation (the "INITIAL PURCHASERS") in a
transaction exempt from the registration
requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"). The terms of
the New Notes and the Old Notes are
substantially identical in all material
respects, except that the New Notes will
generally be freely transferable by their
holders. See "-- Resales of the New Notes" in
this table below.
The Exchange Offer............ We are offering to exchange $1,000 principal
amount of New Notes for each $1,000 principal
amount of Old Notes. As of the date hereof,
$100.0 million aggregate principal amount of
Old Notes is outstanding.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 1999, or
such later date and time to which it is
extended (the "EXPIRATION DATE").
Withdrawal Rights............. The tender of the Old Notes pursuant to the
exchange offer may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. Any Old Notes not accepted for
exchange for any reason will be returned
without expense to the tendering holder thereof
as soon as practicable after the expiration or
termination of the exchange offer.
Interest on the New Notes and
Old Notes................... Interest on the New Notes will accrue from the
date of the original issuance of the Old Notes
or from the date of the last periodic payment
of interest on the Old Notes, whichever is
later. No additional interest will be paid on
Old Notes tendered and accepted for exchange.
Conditions of the Exchange
Offer......................... The exchange offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. The only condition to
the exchange offer is the declaration by the
Commission of the effectiveness of the
Registration Statement of which this prospectus
constitutes a part.
Procedures for Tendering Old
Notes......................... Each holder of the Old Notes wishing to accept
the exchange offer must complete, sign and date
the letter of transmittal, or a copy thereof,
in accordance with the instructions contained
in this prospectus and in the letter of
transmittal itself, and mail or otherwise
deliver the letter of transmittal, or the copy,
together with the Old Notes and any other
required documentation, to the exchange agent
at the address set forth in this prospectus.
Persons holding the Old Notes through the
Depository Trust Company ("DTC") and wishing to
accept the exchange offer must do so pursuant
to the DTC's Automated Tender Offer Program, by
which each tendering participant will agree to
be bound by the letter of transmittal. By
executing or agreeing to be bound by the letter
of transmittal, each holder will represent to
us that, among other things:
5
<PAGE> 9
- the New Notes acquired pursuant to the
exchange offer are being obtained in the
ordinary course of business of the person
receiving such New Notes, whether or not such
person is the registered holder of the Old
Notes,
- the holder is not engaging in and does not
intend to engage in a distribution of such
New Notes,
- the holder does not have an arrangement or
understanding with any person to participate
in the distribution of such New Notes and
- the holder is not an "affiliate," as defined
under Rule 405 promulgated under the
Securities Act, of the Company.
Guaranteed Delivery
Procedures.................... If your Old Notes are not immediately available
to you or if you cannot deliver your Old Notes
or any other documents required by the letter
of transmittal to the exchange agent prior to
the Expiration Date (or complete the procedure
for book-entry transfer on a timely basis), you
may tender your Old Notes according to the
guaranteed delivery procedures set forth in the
letter of transmittal. See "The Exchange
Offer -- Guaranteed Delivery Procedures"
beginning on page 28.
Acceptance of Old Notes and
Delivery of New Notes......... We will accept for exchange any and all Old
Notes which are properly tendered (and not
withdrawn) in the exchange offer prior to 5:00
p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the
exchange offer will be delivered promptly
following the expiration date.
Exchange Agent................ United States Trust Company of New York is
serving as exchange agent (in such capacity,
the "EXCHANGE AGENT") in connection with the
exchange offer.
Federal Income Tax
Consequences.................. The exchange of Old Notes for New Notes
pursuant to the exchange offer should not be a
taxable event for federal income tax purposes.
See "The Exchange Offer -- Federal Income Tax
Consequences" beginning on page 31.
Resales of the New Notes...... Based on existing interpretations by the staff
of the SEC set forth in no-action letters
issued to third parties, we believe that New
Notes issued pursuant to the exchange offer to
a holder in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by a holder (other than (i) a
broker-dealer who purchased the Old Notes
directly from us for resale pursuant to Rule
144A under the Securities Act or any other
available exemption under the Securities Act or
(ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under
the Securities Act), without compliance with
the registration and prospectus delivery
provisions of the Securities Act, provided that
such holder is acquiring the New Notes in the
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate,
in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where
such Old Notes were acquired by such broker as
a result of market-making or
6
<PAGE> 10
other trading activities, must acknowledge that
it will deliver a prospectus in connection with
any resale of such New Notes. See "The Exchange
Offer -- Resales of the Exchange Notes" on page
32 and "Plan of Distribution" on page 114.
Termination of Rights......... Pursuant to the Old Notes and the registration
rights agreement entered into between us and
the Initial Purchasers (the "REGISTRATION
RIGHTS AGREEMENT"), holders of Old Notes have
rights to receive Additional Interest in the
event of a Registration Default (as defined in
"The Exchange Offer -- Purpose and Effect;
Termination of Rights" on pages 24-25) and
other rights intended for holders of
unregistered securities. "ADDITIONAL INTEREST"
means additional interest of 0.50% per annum
per $1,000 principal amount of Old Notes during
the first 90-day period immediately following
the occurrence of a Registration Default,
increased by an additional 0.50% per annum per
$1,000 principal amount of Old Notes during the
second 90-day period following a Registration
Default, pursuant to the terms of the
Registration Rights Agreement.
Holders of New Notes will not be, and upon
consummation of the exchange offer, holders of
Old Notes will no longer be, entitled to (i)
the right to receive Additional Interest or
(ii) other rights under the Registration Rights
Agreement intended for holders of unregistered
securities.
Effect of Not Tendering Old
Notes for Exchange............ Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the exchange offer, continue to
be subject to the existing restrictions upon
transfer thereof. We will have no further
obligation to provide for the registration
under the Securities Act of such Old Notes.
Fees and Expenses............. All expenses incident to our consummation of
the exchange offer will be borne by us.
7
<PAGE> 11
THE NOTES
Except as otherwise indicated, the following description relates both to
the Old Notes and the New Notes. The New Notes will evidence the same
indebtedness as the Old Notes, and will be entitled to the benefits of the same
indenture. The form and terms of the New Notes are the same as the form and
terms of the Old Notes, except that the New Notes have been registered under the
Securities Act and therefore will not bear legends restricting the transfer
thereof.
Issuer........................ Special Devices, Incorporated. See "The
Transactions" beginning on page 22 for a
description of the transactions by which we
assumed the obligations of SDI Acquisition
Corp. under the Old Notes and the indenture.
Securities Offered............ $100,000,000 principal amount of 11 3/8% Senior
Subordinated Notes due 2008.
Maturity...................... December 15, 2008.
Interest Rate................. 11 3/8% per year.
Interest Payment Dates........ We will pay interest on the Notes semi-annually
on each June 15 and December 15, beginning on
June 15, 1999. Interest will accrue from the
issue date of the Notes. The New Notes will
bear interest from the most recent date to
which interest has been paid on the Old Notes
or, if no interest has been paid on the Old
Notes, from December 15, 1998.
Ranking....................... The Notes are unsecured senior subordinated
obligations of the Company and rank junior in
right of payment to our existing and future
senior debt. The guarantees by our subsidiaries
will be subordinated to existing and future
senior debt of our subsidiaries that guarantee
the Notes. As of January 31, 1999, we
(including our subsidiaries) had $70.8 million
of senior debt, excluding approximately $21.8
million that we have available to borrow under
our credit facility.
Guarantees.................... Scot, Incorporated, a wholly owned subsidiary
("SCOT"), has unconditionally guaranteed our
obligations under the Notes. If we create or
acquire a new domestic subsidiary, it too will
guarantee the Notes unless we designate the
subsidiary as an "unrestricted subsidiary"
under the indenture or the subsidiary does not
have significant assets.
Optional Redemption........... We cannot redeem the Notes until December 15,
2003. Thereafter, we may redeem some or all of
the Notes at the redemption prices set forth
herein, plus accrued interest. See "Description
of the Notes -- Redemption -- Optional
Redemption" on page 74 for a list of those
redemption prices.
Optional Redemption after
Public Equity Offerings....... At any time (which may be more than once)
before December 15, 2001, we may buy back up to
35% of the outstanding Notes with money that we
raise in one or more public equity offerings,
as long as:
- we pay 111.375% of the face amount of the
Notes, plus interest,
- we buy the Notes back within 120 days of
completing the public equity offering and
8
<PAGE> 12
- at least 65% of the sum of the aggregate
principal amount of Notes issued under the
indenture remains outstanding immediately
after redemption.
Change of Control............. If a change of control occurs, we must give
holders of the Notes the opportunity to sell
their Notes to us at 101% of their face amount,
plus accrued interest. See "Description of the
Notes -- Change of Control" beginning on page
76.
Certain Indenture
Provisions.................... The indenture governing the Notes contains
covenants limiting our ability to:
- incur additional debt,
- pay dividends or distributions on, or
repurchase, capital stock,
- issue stock of subsidiaries,
- make certain investments,
- create liens on our assets to secure debt,
- enter into transactions with affiliates,
- merge or consolidate with another company or
- transfer or sell assets.
These covenants are subject to a number of
important limitations and exceptions. See
"Description of Notes -- Certain Covenants"
beginning on page 77.
Asset Sale Proceeds........... If we engage in asset sales, we generally must
either invest the net cash proceeds from such
sales in our business within a prescribed
period of time, repay senior debt or make an
offer to purchase a principal amount of the
Notes equal to the excess net cash proceeds. In
the event we purchase Notes with such proceeds,
the purchase price will be 100% of their
principal amount, plus accrued interest. See
"Description of Notes -- Certain
Covenants -- Limitation on Asset Sales"
beginning on page 80.
Use of Proceeds............... We will not receive any cash from the exchange
of the New Notes for the Old Notes. We used the
money raised from the sale of the Old Notes
(along with money from our new credit facility
and equity contributions) to:
- fund a portion of the consideration paid to
the Company's stockholders in connection with
the Transactions (as defined on page 21),
- refinance then-outstanding debt of the
Company and
- pay the transaction costs associated with the
Transactions.
RISK FACTORS
We urge you to carefully review the Risk Factors beginning on page 11 for a
discussion of factors you should consider before exchanging your Old Notes for
New Notes.
9
<PAGE> 13
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
We have summarized below the historical consolidated financial data of the
Company for the last three fiscal years and for the three months ended February
1, 1998 and January 31, 1999. The information should be read in conjunction with
"Selected Historical Consolidated Financial Data" on page 34, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 36 and our historical consolidated financial statements and
related notes beginning on page F-1 of this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, --------------------
----------------------------- FEB. 1, JAN. 31,
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales..................................... $104.5 $140.5 $170.5 $ 40.7 $ 37.7
Cost of sales................................. 84.3 112.6 131.6 32.5 30.7
------ ------ ------ ------ ------
Gross profit................................ 20.2 27.9 38.9 8.2 7.0
Operating expenses............................ 8.1 10.7 13.0 2.7 2.6
Recapitalization costs(1)..................... -- -- -- -- 15.6
------ ------ ------ ------ ------
Earnings (loss) from operations............. 12.0 17.2 25.9 5.6 (11.2)
Net interest income (expense)................. 0.1 0.1 -- -- (2.5)
------ ------ ------ ------ ------
Earnings (loss) before income taxes........... 12.2 17.3 25.9 5.6 (13.7)
Income taxes.................................. 4.7 6.7 10.4 2.2 (3.3)
------ ------ ------ ------ ------
Net earnings (loss)......................... $ 7.4 $ 10.7 $ 15.4 $ 3.4 $(10.4)
====== ====== ====== ====== ======
OTHER DATA:
EBITDA(2)..................................... $ 17.4 $ 23.6 $ 34.4 $ 7.4 $ 7.3
EBITDA margin(2).............................. 16.7% 16.8% 20.2% 18.1% 19.4%
Depreciation.................................. $ 5.4 $ 6.4 $ 8.5 $ 1.8 $ 3.0
Capital expenditures:.........................
Moorpark Facility........................... $ 3.1 $ 5.8 $ 16.5 $ 2.1 $ 2.4
Other....................................... 8.0 16.8 22.0 5.8 4.5
------ ------ ------ ------ ------
Total.................................... $ 11.1 $ 22.5 $ 38.5 $ 7.9 $ 6.9
====== ====== ====== ====== ======
Cash interest expense......................... $ 0.4 $ 0.3 $ 0.2 $ 0.1 $ 0.1
Ratio of earnings to fixed charges(3)......... 23.9x 33.2x 59.1x 49.5x (4.7x)
BALANCE SHEET DATA:
Total assets.................................. $ 86.2 $ 99.8 $124.6 $104.8 $136.9
Total debt.................................... 4.6 3.0 2.5 2.7 170.8
Stockholders' equity (deficit)................ $ 69.7 $ 81.4 $ 97.3 $ 84.9 $(79.6)
</TABLE>
- ---------------
(1) We incurred approximately $15,600,000 in one-time pre-tax charges in
connection with the Recapitalization (representing approximately $5,600,000
in professional advisory fees and approximately $10,000,000 of compensation
expense relating to cash payments to settle certain outstanding stock
options).
(2) EBITDA is the sum of earnings before income taxes, interest, depreciation
and amortization expense. We have presented EBITDA information because we
believe that it is a widely accepted financial indicator of a company's
ability to service indebtedness. However, EBITDA does not represent cash
flow from operations as defined by generally accepted accounting principles
("GAAP"), is not necessarily indicative of cash available to fund all cash
flow needs, should not be considered as an alternative to net income or to
cash flows from operating activities (as determined in accordance with GAAP)
and should not be construed as an indication of a company's operating
performance or as a measure of liquidity. Our EBITDA is not necessarily
comparable with similarly-titled measures for other companies. EBITDA margin
equals EBITDA as a percentage of net sales.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes, plus fixed charges. Fixed charges consist
of interest incurred (which includes amortization of deferred financing
costs) whether expensed or capitalized and a portion of rental expense
(based on the one-third of rent expense convention) which management
believes is a reasonable approximation of an interest factor.
10
<PAGE> 14
RISK FACTORS
You should carefully consider the information below in addition to all
other information provided to you in this prospectus before deciding whether to
exchange your Old Notes for New Notes.
RISKS RELATING TO THE NOTES
THERE ARE RISKS ASSOCIATED WITH FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the exchange offer will continue to be subject to restrictions on
transfer of their Old Notes. In general, Old Notes may not be offered or sold
unless they are registered under the Securities Act and applicable state
securities laws or an exemption is available therefrom. After this exchange
offer, we do not anticipate registering any Old Notes under the Securities Act.
Accordingly, the liquidity of the market for a holder's Old Notes will be
adversely affected upon the completion of the exchange offer if a holder does
not participate. See "The Exchange Offer" beginning on page 24.
THERE ARE RISKS RELATED TO OUR SUBSTANTIAL LEVERAGE
We Have Large Amounts Of Debt
In connection with our recapitalization on December 15, 1998, we incurred
significant debt and, as a result, became highly leveraged. At January 31, 1999,
we had total debt of approximately $170.8 million (including $100.0 million of
Notes) and a stockholders' deficit of $79.6 million. On a pro forma basis,
assuming the Transactions had been completed on November 1, 1997, our ratio of
earnings to fixed charges would have been 1.4x for Fiscal 1998. See "The
Transactions -- The Recapitalization" on page 22.
We Have The Capacity For Additional Debt
In addition to this debt, we will also be permitted to incur substantial
additional debt in the future. As of January 31, 1999, approximately $21.8
million was available for additional borrowing under our credit facility. If new
debt is added to our current debt levels, the related risks that we now face
could intensify. See "Capitalization" on page 33, "Selected Historical
Consolidated Financial Data" on page 34, "Description of the New Credit
Facility" beginning on page 71 and "Description of the Notes -- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness" on page 77.
Consequences Of Debt
Our substantial debt may have important consequences, including:
- making it more difficult for us to satisfy our obligations with
respect to the Notes,
- increasing our vulnerability to general adverse economic and industry
conditions,
- limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, research and development and
other general corporate requirements,
- requiring us to dedicate a substantial portion of our cash flow from
operations to make debt service payments, which would reduce our
ability to fund working capital, capital expenditures, research and
development and other general corporate requirements,
- limiting our flexibility in planning for, or reacting to, changes in
our business and the industry and
- placing us at a disadvantage when compared to those of our competitors
that have less debt.
There Is No Guarantee We Will Be Able To Service Our Debt
You should be aware that our ability to repay or refinance our current debt
or to fund planned capital expenditures, research and development expenses and
other obligations depends on our successful financial and operating performance
and on our ability to successfully implement our business strategy.
Unfortunately,
11
<PAGE> 15
we cannot assure you that we will be successful in implementing our strategy or
in realizing our anticipated financial results. You should also be aware that
our financial and operational performance depends on general economic,
financial, competitive, legislative, regulatory and other factors, many of which
are beyond our control. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"
beginning on page 42.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our credit facility will be adequate to meet our
future liquidity needs through at least fiscal 1999.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our credit facility in an amount sufficient to enable us
to service our debt, including the Notes, or to fund our other liquidity needs.
We may need to refinance all or a portion of our debt, including our credit
facility and the Notes, on or before maturity. We cannot assure you that we will
be able to refinance any of such debt on commercially reasonable terms or at
all.
WE ARE SUBJECT TO RESTRICTIVE DEBT COVENANTS
Our credit facility and the indenture contain a number of significant
covenants. These covenants limit our ability to, among other things:
- borrow additional money,
- make capital expenditures and other investments,
- pay dividends,
- merge, consolidate or dispose of our assets,
- enter into transactions with our affiliates and
- grant liens on our assets.
Our credit facility also requires us to meet certain financial tests. The
failure to comply with these tests would cause a default under our credit
facility. A default, if not waived, could result in acceleration of indebtedness
by the lenders under the credit facility, in which case the debt would become
immediately due and payable. If this were to occur, we might not be able to pay
our debt under the credit facility or borrow sufficient funds to refinance it.
Even if new financing is available, it may not be on terms that are acceptable
to us. Complying with these covenants may cause us to take actions that we
otherwise would not take, or not take actions that we otherwise would take. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" beginning on page 42 and
"Description of the New Credit Facility" beginning on page 71.
In connection with entering into the credit facility, we granted the
lenders a first priority lien on substantially all of our assets to secure our
obligations under the facility. In the event of a default under the credit
facility, the lenders could foreclose upon the assets pledged to secure our
obligations under the facility, and you, as holders of the Notes, might not be
able to receive any payments on the Notes until:
- any payment default under the credit facility was cured or waived,
- any acceleration of our debt under the credit facility was rescinded by
the lenders or
- our debt under the credit facility was discharged or paid in full.
12
<PAGE> 16
THE NOTES ARE SUBORDINATED TO OTHER DEBT
Contractual Subordination
The Notes and the guarantees are unsecured and contractually subordinated
to all our and the guarantors' existing and future senior debt (including all
debt under the credit facility). See "Description of the Notes -- Subordination"
beginning on page 75.
Effective Subordination
The Notes and the guarantees are effectively subordinated to all our and
our subsidiaries' existing and future secured debt to the extent of the value of
the assets securing such debt. Indebtedness under our credit facility is secured
by liens against substantially all of our assets. In the event (1) we were to
default on any senior debt (such as our credit facility) or (2) we or our
property were involved in a bankruptcy, liquidation, dissolution, reorganization
or similar proceeding, our assets would be available first to satisfy any
obligations owing under the secured debt to secured creditors before any payment
could be made on the Notes. In addition, to the extent our assets could not
satisfy in full obligations owing on secured debt, the holders of such secured
debt would have a claim for any such shortfall that would rank, subject to any
contractual subordination, equally in right of payment with the Notes (or
effectively senior if the debt were issued by a subsidiary that is not a
guarantor). Thus, if either of the scenarios set forth in (1) or (2) above were
to occur, there might only be a limited amount of assets available to satisfy
your claims as a holder of the Notes.
As of January 31, 1999, we had approximately $70.8 million of secured debt
outstanding. Our assets may not be sufficient to repay this debt in full.
The Notes are also effectively subordinated to all debt of our subsidiaries
that are not guarantors of the Notes. Holders of indebtedness of, and trade
creditors of, such subsidiaries, would, in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to us or our property,
generally be entitled to payment of their claims from the assets of the affected
subsidiaries before such assets would be made available for distribution to our
creditors, including holders of the Notes.
THERE COULD BE ADVERSE CONSEQUENCES TO YOU IF A COURT FINDS A FRAUDULENT
CONVEYANCE
Various fraudulent conveyance laws have been passed for the protection of
creditors. These laws may be applied by a federal or state court to subordinate
or avoid the Notes in favor of our other existing or future creditors.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the Notes and the guarantees could be voided, or
claims in respect of the Notes or the guarantees could be subordinated to all of
our or any guarantor's other debts if, among other things, we or such guarantor,
at the time we or such guarantor incurred the debt evidenced by the Notes or the
guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such debt, or
- was insolvent or rendered insolvent by reason of such incurrence, or
- was engaged in a business or transaction for which our or such
guarantor's remaining assets constituted unreasonably small capital or
- intended to incur, or believed that we or it would incur, debts beyond
our or its ability to pay such debts as they mature.
In addition, any payment by us or such guarantor pursuant to the Notes or a
guarantee could be voided and required to be returned to us or such guarantor,
or to a fund for the benefit of our creditors or creditors of such guarantor.
13
<PAGE> 17
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, the Company or a
guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets, or
- if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that, after giving effect to the debt incurred in
connection with the offering of the Old Notes and the establishment of our
credit facility, neither the Company nor Scot (the sole guarantor of the Notes
as of the date of this prospectus):
- will be insolvent,
- will have unreasonably small capital for the business in which it is
engaged or
- will have incurred debts beyond its ability to pay such debts as they
mature.
There can be no assurance, however, as to what standard a court would apply in
making such determinations or that a court would agree with our conclusions in
this regard.
WE MAY NOT BE ABLE TO FUND A CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control (as defined in the indenture),
we will be required to offer to repurchase all outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest to the date of purchase. However, in such a situation, there can be no
guarantee that we will have sufficient funds to make the required repurchase of
Notes. If we were required to purchase the Notes, we would probably require
third party financing; however, we cannot be sure we would be able to obtain
such financing on acceptable terms, if at all. In addition, our credit facility
restricts our ability to repurchase the Notes, including in the event of a
Change of Control under the indenture. A Change of Control will result in an
event of default under our credit facility and may cause the acceleration of
certain debt, in which case we would have to pay in full our credit facility and
any other such senior debt before repurchasing the Notes. Certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our debt, would not constitute a Change of Control under the indenture.
See "Description of Notes -- Change of Control" beginning on page 76.
THERE IS NO PUBLIC MARKET FOR THE NOTES
There is no active trading market for the Notes. We do not intend to apply
for listing of the Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation system. The
Initial Purchasers have told us that they plan on making a market in the Notes,
but they do not have to do so, and may discontinue such activities at any time
without notice. In addition, such market-making activity will be subject to the
limitations imposed by the Securities Act and the Exchange Act, and may be
limited during the exchange offer. See "Plan of Distribution" on page 114.
Accordingly, there can be no assurance that an active public or other market
will develop for the Notes or as to the liquidity of or the trading for the
Notes.
The liquidity of any market for the Notes will depend upon various factors,
including:
- the number of holders of the Notes,
- the interest of securities dealers in making a market for the Notes,
- the overall market for high yield securities,
- our financial performance or prospects and
- the prospects for companies in our industry generally.
14
<PAGE> 18
Historically, the market for non-investment grade debt such as the Notes
has been subject to disruptions that have caused substantial volatility in the
prices of securities similar to the Notes. We cannot assure you that the market
for the Notes, if any, will not be subject to similar disruptions. Any such
disruptions may adversely affect you as a holder of the Notes.
RISKS RELATING TO THE COMPANY
WE ARE DEPENDENT ON KEY CUSTOMERS
Our sales to TRW constituted 77.3% of total Automotive Products Division's
net sales in Fiscal 1996 (59.7% of our total net sales), 61.6% in Fiscal 1997
(49.1% of our total net sales) and 49.9% in Fiscal 1998 (39.7% of our total net
sales). Our Master Purchase Agreement with TRW does not require TRW to purchase
a minimum number of units or a specified percentage of its requirements from us
unless our prices are competitive with those offered by other suppliers and our
technology and quality are equivalent to or better than that of other suppliers.
In general, the TRW agreement may be terminated by TRW if:
- we breach our obligations,
- we become insolvent or bankrupt or dissolve or
- we fail to provide TRW with reasonable assurances that we can perform
under the TRW agreement.
In addition, TRW will not have to meet its purchase obligations if, in its
sole discretion, it determines that we will have difficulty meeting our supply
commitments. We determine manufacturing schedules and ship products to TRW based
upon delivery orders which specify the desired quantities and delivery dates.
This information is released several weeks in advance of delivery. Because the
number of airbag-system manufacturers in the United States is quite limited, a
significant decline in sales to TRW would have a material adverse effect on us.
See "Business -- Automotive Products Division -- Customers" beginning on page
51.
Our sales to Autoliv constituted 25.9% of the Automotive Products
Division's net sales (20.6% of our total net sales) during Fiscal 1997 and 31.3%
in Fiscal 1998 (24.9% of our total net sales). Pricing under our three-year
Supplier Agreement with Autoliv is determined annually by the parties. Prices
may be increased through negotiation if Autoliv requests a design change. We are
obligated to maintain pricing, terms, delivery, service and quality that are
consistent with industry standards. The Autoliv agreement may be terminated by
Autoliv if, among other things:
- we commit a material breach of our obligations,
- we are declared bankrupt or make an assignment for the benefit of
creditors or
- Autoliv determines that our products are not competitive with the
industry and we fail to correct the situation within a specified period.
A significant decline in sales to Autoliv would have a material adverse
effect on us. See "Business -- Automotive Products Division -- Customers."
Additionally, Autoliv is the parent company of Nouvelle Cartoucherie de
Survilliers, one of our competitors in the automotive initiator industry. See
"-- We Operate In A Competitive Environment -- Automotive Products Division" on
page 17.
We have in the past negotiated the unit prices for units sold to both TRW
and Autoliv during the terms of both agreements. Additional renegotiations in
the future resulting in reduced unit prices could adversely affect our financial
condition.
15
<PAGE> 19
WE ARE DEPENDENT ON THE AUTOMOTIVE INDUSTRY
Automotive Products Division net sales constituted approximately 76.8% of
our total net sales in Fiscal 1996, 79.7% in Fiscal 1997 and 79.3% in Fiscal
1998. We attribute the growth and increasing success of the division in large
part to federal regulations requiring the phased-in use of airbags in
automobiles and increased sales of automobiles during the last several years.
Future changes in federal regulations, the rate of implementation of new
applications for airbags and initiators and the rate of sales of new automobiles
could adversely affect the success of the Automotive Products Division.
For the last few years, the automobile industry has grown significantly.
There is no guarantee that such growth will continue in the future. New
automobile sales are also cyclical. In general, new automobile sales are
affected by:
- economic cycles,
- consumer spending levels,
- the timing of the introduction of new models,
- changes in consumer preferences,
- governmental regulation of auto safety,
- potential labor difficulties,
- adverse weather conditions and
- potential problems with obtaining supplies and other risks of production.
Fewer new automobile sales could have an adverse effect on our Automotive
Products Division. In addition, the business of automotive component
manufacturers is generally subject to the seasonal automotive industry shutdowns
in July and December of each year. We typically make fewer shipments in the
third and fourth quarters of each calendar year as a result of these shutdowns.
This seasonality may have an adverse effect on the Automotive Products
Division's operations in the future once demand for airbags and airbag
initiators stabilizes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality" on page 42.
Our Automotive Products Division competes in a very competitive market. We
and other automotive components suppliers are under constant pressure from major
customers to reduce product costs, improve quality and provide additional design
and engineering capabilities. The Automotive Products Division's continued
success will depend upon, among other things, its ability to continue to improve
its manufacturing efficiencies while minimizing costs. We anticipate that the
Automotive Products Division will continue making capital expenditures to
accomplish these objectives. Nevertheless, we cannot assure you that the
Automotive Products Division will be able to maintain satisfactory margins in
the face of downward pricing pressures.
WE ARE DEPENDENT ON THE DEFENSE INDUSTRY
We have been supplying components for United States defense programs for
over 30 years. Reliance upon defense programs has inherent risks. Some of these
risks include uncertain economic conditions, dependence on Congressional
appropriations and administrative allotment of funds, changes in governmental
policies that reflect military and political developments, and other facts
characteristic of the defense industry. We are unable to predict the impact, if
any, of changes in the political climate on defense appropriations for programs
that result in sales of our products.
Changes in the strategic direction of defense spending, the timing of
defense procurements and specific defense program appropriation decisions may
adversely affect our performance in coming years. The precise impact of these
matters on our profitability will depend on how well we can offset the negative
effects of these developments with new business and/or cost reductions. In view
of the continuing uncertainty
16
<PAGE> 20
regarding the size, content and priorities of the annual Department of Defense
budget, the historical financial information relating to our defense-related
operations may not be indicative of future performance.
RELOCATION TO THE MOORPARK FACILITY MAY DISRUPT OUR OPERATIONS
We completed construction of our new facility in Moorpark, California (the
"MOORPARK FACILITY") during the first quarter of Fiscal 1999. In December 1998,
we began relocating our operations from our existing facility in Newhall,
California (the "NEWHALL FACILITY") to the Moorpark Facility. Seven automotive
initiator production lines and all Aerospace Division production will be
relocated approximately 30 miles to the Moorpark Facility from the Newhall
Facility. Relocation involves movement and reassembly of intricate and precisely
calibrated machinery. Because of the strict manufacturing tolerances associated
with our products, the relocation process may result in production delays and
interruptions. As of March 31, 1999, two automotive initiator lines had been
relocated to Moorpark as well as all of our aerospace operations.
In addition, process validation (the procedure through which a customer
verifies that a manufacturer's management, personnel, equipment, facilities and
processes are capable of producing products within satisfactory tolerances) may
cause delays. These delays are possible because relocating an existing line,
even if it has already undergone a process validation, requires a new (albeit
abbreviated) process validation for the relocated line. See
"Business -- Manufacturing -- Quality Control" on page 55. Because of these
potential delays, we have scheduled our relocation efforts to minimize
disruptions to production. Significant production delays or interruptions
associated with the relocation could have a material adverse effect on our
operations. As of March 31, 1999, four automotive initiator production lines
(two new lines and two relocated lines from Newhall) are currently in process
validation testing.
Relocation to the Moorpark Facility will require us to "requalify" as an
approved subcontractor in connection with at least two of the Aerospace
Division's government contracts. With respect to other government contracts,
requalification will only be required if waivers cannot be obtained. Our failure
to successfully requalify promptly or at all could have a material adverse
effect on us.
Notwithstanding our efforts to lessen the impact on our employees of our
relocation to the Moorpark Facility, the move could cause a portion of the
engineering or labor force currently employed at the Newhall Facility to leave
our employ because the Moorpark Facility is approximately 30 miles from the
Newhall Facility. If a significant number of our employees or key personnel were
to leave, this could have a material adverse effect on us. As of January 31,
1999, there has been no significant loss of employees due to the move. We expect
to realize certain recurring cost savings as a result of our relocation to the
Moorpark Facility, including savings relating to improved efficiencies,
materials handling, facilities maintenance, waste disposal and related items. We
cannot assure you, however, that these cost savings will actually be realized.
Additionally, until we fully integrate our manufacturing operations into our
Moorpark Facility, we expect to experience short-term operating inefficiencies.
WE OPERATE IN A COMPETITIVE ENVIRONMENT
Automotive Products Division
Currently, two major manufacturers, OEA, Inc. and the Company, and one
smaller manufacturer, Quantic Industries, Inc., compete in the domestic
automotive initiator market. Davey Bickford Smith ("DBS") and Nouvelle
Cartoucherie de Survilliers are the two major suppliers of airbag initiators in
Europe. Other companies, such as foreign manufacturers of initiators that have
not penetrated the U.S. market, may choose to enter the U.S. airbag initiator
market. In addition, during recent years, competition among manufacturers of
airbag initiators has intensified. As a result of this increased competition, we
and other manufacturers of initiators have had to significantly reduce the price
of initiators. We expect this competition to continue and to cause additional
price pressure on us and other initiator manufacturers. We cannot assure you
that we will be able to compete successfully in such an environment.
In November 1990, we entered into a perpetual technology license agreement
with DBS (the "DBS LICENSE AGREEMENT"). This license gives DBS the right to use
all our technology and to distribute initiators
17
<PAGE> 21
worldwide using this technology. DBS, however, will not be able to sell
initiators to TRW or its affiliates in the U.S. DBS's obligation to pay us
royalties under this agreement ceased on January 1, 1999. To date, DBS has not
manufactured or distributed any products under the DBS License Agreement. If it
did, DBS would compete directly with us, and without having to pay royalties to
us for using our technology. Significant competition from DBS in Europe or the
U.S. could have a material adverse effect on our financial results. See
"Business -- Automotive Products Division -- Sales and Marketing" beginning on
page 52.
We believe that Autoliv, which is the parent of Nouvelle Cartoucherie de
Survilliers, is currently the only manufacturer of airbag systems to manufacture
initiators. Additional vertical integration of airbag systems manufacturers
could adversely affect us.
Aerospace Division
During the bid process for the initial contract for a program, the
Aerospace Division competes with several firms, some with greater financial
resources than ours. Once the initial contract is awarded, we generally enter
into contracts for additional products on a negotiated price basis and do not
bid competitively. We cannot assure you that we will successfully compete with
existing and future companies who are bidding against us. See
"Business -- Aerospace Division -- Competition" on page 54.
THERE ARE RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT, PRODUCT OBSOLESCENCE
AND THIRD-PARTY DEVELOPMENT OF ALTERNATIVE TECHNOLOGIES
To be successful we must continue to introduce new products as automotive
safety and aerospace technologies develop. We cannot assure you that our new
products will enjoy market acceptance. For example, because the European market
for automotive initiators is currently dominated by plastic-sealed, spark-gap
initiators, we cannot assure you that the AGI will win widespread acceptance as
a cost-effective substitute in the European market. Our failure to gain market
acceptance of our own new products could hurt our business and negatively affect
our financial performance.
The development process is often extremely complex and will likely become
more complex as automotive safety devices and aerospace applications become more
advanced. We cannot assure you that our product development efforts will be able
to keep pace with the rapid technological innovation in the automotive safety
and aerospace fields. Furthermore, it is possible that alternative technologies
could replace pyrotechnic-based initiators in the applications in which our
products are currently used. Our failure to keep pace with technological
innovations or switch to viable alternative technologies could hurt our business
and negatively affect our financial performance.
WE ARE SUBJECT TO ENVIRONMENTAL AND WORKPLACE REGULATIONS
We use various hazardous and toxic substances in our manufacturing
processes, including organic solvents and pyrotechnic materials. Our operations
are subject to numerous federal, state and local laws, regulations and permit
requirements relating to the handling, storage and disposal of those substances.
In general, organic solvents are recycled by a licensed disposal company and are
then reused by us. The pyrotechnic charge contained in units that are rejected
in the quality-control process is eliminated by explosive discharge pursuant to
government regulations. We believe that we are in substantial compliance with
applicable laws and regulations and have obtained all necessary permits. While
compliance with these laws and regulations increases our costs, our competitors
must also incur these costs.
In addition, we are subject to, among other things, stringent and
comprehensive occupational health and safety laws and regulations. These laws,
among other things, regulate employee exposure to hazardous substances in the
workplace. The nature of our operations exposes us to the risk of liabilities or
claims with respect to these environmental and workplace health and safety
matters. In the future, we may be required to make significant expenditures in
connection with these liabilities or claims. These laws and regulations may
become even more stringent and comprehensive and result in modifications to our
facilities or manufacturing practices. These modifications could involve
additional costs that could have an adverse effect on our business.
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<PAGE> 22
On February 18, 1999, an accidental explosion occurred at our Newhall
Facility, resulting in the death of one employee. We suspended all production at
Newhall for four days to conduct a thorough investigation of the accident along
with California OSHA, and suspended the blending of pyrotechnic powders for
approximately two weeks. Concurrently, we implemented contingency manufacturing
plans to meet customer demand from existing inventory and production from our
Mesa facility. No buildings or equipment, other than one transport vehicle, were
damaged in the accident. We resumed full production at Newhall on March 4, 1999.
California OSHA's investigation of the accident is continuing.
Based on information currently available, we believe that the cost of
compliance with existing environmental and health and safety laws and
regulations (and liability for known environmental conditions) will not have a
material adverse effect on our profitability. However, we cannot predict:
- whether environmental or health and safety laws and regulations that
impose additional costs will be enacted or promulgated in the future,
- how existing or future laws or regulations will be enforced,
administered or interpreted or
- whether our results of operations or financial condition will be
significantly affected by the accident which occurred at our Newhall
Facility in February 1999 (which resulted in one fatality) or any
future accidents, whether through third-party claims or actions by
state or federal regulators (such as OSHA) or
- the amount of future expenditures that we may incur in order to comply
with such laws or regulations to pay for remediation or to respond to
any future environmental claims.
See "Business -- Environmental Regulation" on page 58.
WE DEPEND ON KEY MANAGEMENT PERSONNEL
Our success depends in part on our ability to attract and retain highly
trained and qualified engineering personnel, especially pyrotechnic and
mechanical engineers. Competition for qualified employees can be intense, and
pyrotechnic engineers are especially scarce. We also depend on the continued
employment of our senior management. We cannot assure you that we will be
successful in attracting and retaining sufficient numbers of qualified
employees.
WE ARE SUBJECT TO LABOR ACTIVITY
Our employees are not currently unionized. An unsuccessful attempt to
organize the employees at the Newhall Facility occurred in June 1996. We cannot
assure you that labor organizing activities or other labor difficulties at one
or more of our facilities will not occur. The occurrence of labor difficulties
at our facilities or at those of any of our suppliers, transportation providers
or customers could have a material adverse effect on results of operations.
THERE ARE RISKS RELATED TO GOVERNMENT CONTRACTS AND COMPLIANCE WITH GOVERNMENT
REGULATIONS
The Aerospace Division is engaged primarily in supplying defense-related
equipment and services to contractors engaged by United States government
agencies or their subcontractors. As a result, the Aerospace Division is subject
to certain business risks that are specific to the defense industry. The
Aerospace Division is required to comply not only with the terms of its
contracts but also with an extensive body of regulations governing, among other
things, manufacturing, use of materials, safety and accounting.
Approximately 40% of the Aerospace Division's net sales in Fiscal 1998 were
made to the United States government. The remaining 60% of net sales were made
to government contractors or their subcontractors. Contracts with the United
States government are subject to cancellation for default or for convenience by
the government if deemed in its best interests. Such contracts generally provide
that if the contract is terminated for convenience, the contractor is entitled
to reimbursement of costs and a proportionate payment of profit for work
accomplished through the date of termination. If the contract is terminated for
default, the government is generally required to pay only for the work it has
accepted, and the contractor can be required to pay the
19
<PAGE> 23
difference between the contract price and the cost to procure the remaining
unfulfilled contract items from another source as well as pay other damages. We
cannot assure you that any current or prospective contract for which we are a
primary contractor or any such contract for which we are a subcontractor or
supplier will not be terminated for default or for convenience by the government
or that any such cancellation will not result in us realizing a loss or failing
to realize the expected profit on any such contract. The loss of a significant
government contract or portion of such a contract could have a material adverse
effect on us.
We are further at risk because our government contracts include price
redetermination clauses. Some of these contracts are fixed-priced or fixed-price
incentive development contracts. As a result, we bear the risk that actual costs
may exceed those expected when the contracts are originally negotiated.
Although we try to comply with the terms of our contracts and all
applicable government rules, regulations and procedures, the United States
government and its agencies have substantial latitude in determining compliance.
The United States government has asserted, and may assert, various claims
against us relating to our United States government contract work (whether based
on United States government or Company audits and investigations or otherwise).
This list includes claims based on business practices and cost classifications
and actions under the False Claims Act. The False Claims Act permits a person to
assert the rights of the United States government by initiating a suit under
seal against a contractor if such person claims to have information that the
contractor falsely submitted a claim to the United States government for
payment. The United States government, if it chooses, may intervene and assume
control of the case.
Governmental proceedings can result in fines, penalties, compensatory and
treble damages, the cancellation or suspension of payments under one or more
United States government contracts and the suspension or debarment from
government contracts. Given the extent of our business with the United States
government, a suspension or debarment could have a material adverse effect on
our operations. The resolution in any reporting period of one or more of these
matters could have a material adverse effect on our results of operations for
that period.
At present, we know of two pending preliminary inquiries regarding
compliance with government policies by the Aerospace Division. On their face,
the two matters, if determined adversely to us, are not likely to have a
material adverse effect on our operations. Nevertheless, the investigations are
in their preliminary stages and we cannot assure you of successful outcomes at
this time.
WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND PRODUCT RECALLS
As a manufacturer of products for the automotive and aerospace industries,
we are subject to the risk of claims arising from injuries to persons or
property and product recalls. We maintain general and product liability
insurance for both the Aerospace Division and the Automotive Products Division.
We cannot assure you that our insurance will be sufficient if any claims do
arise. In particular, the general incorporation of airbag systems into
automobiles is a relatively recent phenomenon. If the actual number of the
Company's initiators incorporated into airbags that fail to perform is higher
than the number predicted by our quality control procedures, the damages
resulting could be significantly higher than the Company's level of product
liability insurance. Although we have instituted quality control procedures that
we believe produce initiators of the highest quality, we may become subject to
future proceedings alleging defects in our initiators, including recalls of
airbag systems by automobile manufacturers. Recalls or products liability claims
could have a material adverse effect on our operations.
WE ARE SUBJECT TO CLAIMS OF INTELLECTUAL PROPERTY VIOLATIONS
Because of the technology-intensive nature of our business, from time to
time we receive notice of threatened intellectual property litigation with
respect to our manufacturing techniques and product design. Litigation, whether
meritorious or not, could result in substantial legal costs. If determined
adversely to us, such litigation could require us to pay damages or license fees
to third parties, and could result in injunction and/or sanctions, which could
have a material adverse effect on our operations. While we make every effort
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<PAGE> 24
to respect the intellectual property rights of third parties, no guarantee can
be made that a court or other competent tribunal might not ultimately decide an
intellectual property matter adversely to us.
WE ARE DEPENDENT ON A KEY SUPPLIER
In September 1997, we entered into an amendment to our only long-term
supply contract with a supplier of approximately 85% of our requirements for a
key component for our initiators. See "Certain Transactions" on page 66. We are
required to purchase a substantial majority of our requirements for this
component from this supplier. This supplier currently produces all components
for us at its facility in Rosemead, California. Although the supplier has
another facility in New Jersey, any significant disruption of production at the
Rosemead facility could create a shortage of parts for us. Although we believe
that several other sources are available to supply us with this component, an
unexpected delay in the delivery of a large order from this supplier, or the
sudden loss of the supplier, would delay our ability to obtain this component
while we qualify alternative sources. Such a delay may adversely affect
production schedules and results of operations for a particular quarter or year.
This could have a material adverse effect on our financial condition.
THERE ARE RISKS ASSOCIATED WITH ACQUISITIONS
From time to time, we may acquire the assets or capital stock of other
complementary businesses. We cannot assure you that future acquisitions will not
affect our operating results, particularly right after an acquisition while we
are in the process of integrating operations. In addition, the integration of
acquired companies requires substantial attention from our senior management,
which may limit the amount of time available to be devoted to our day-to-day
operations or to our growth strategy.
THE NEW INVESTOR GROUP EFFECTIVELY CONTROLS THE COMPANY
As a result of our recapitalization on December 15, 1998 (the
"RECAPITALIZATION") and the transactions related thereto (collectively with the
Recapitalization, the "TRANSACTIONS"), J.F. Lehman Equity Investors I, L.P.
("JFL EQUITY"), JFL Co-Invest Partners I, L.P. ("JFL CO-INVEST") and Paribas
Principal Inc., an affiliate of one of the Initial Purchasers ("PPI," and
collectively with JFL Equity and JFL Co-Invest, the "NEW INVESTOR GROUP"),
currently own approximately 58.7% of the Company's outstanding common stock in
the aggregate. In addition, J.F. Lehman & Company ("LEHMAN") has the right to
vote and to acquire an additional 19.8% of the Company's common stock from two
stockholders. See "The Transactions -- The Recapitalization" on page 22 and
"Security Ownership of Certain Beneficial Owners and Management" on page 69. As
a result of its stock ownership and voting rights, the New Investor Group has
the power to elect all of our directors, appoint new management and approve any
action requiring the approval of the holders of common stock, including adopting
amendments to our Certificate of Incorporation and Bylaws and approving mergers
or sales of all or substantially all of our assets. The directors elected by the
New Investor Group have the authority to make or issue additional capital stock,
implement stock repurchase programs and declare dividends. The interests of the
New Investor Group and the holders of the Notes may differ from each other.
RISK ASSOCIATED WITH THE "YEAR 2000" PROBLEM
Many computer systems and software products may not function properly
following December 31, 1999 due to a once-common programming standard that may
result in confusion of dates prior to or after such date. This problem is often
referred to as the "Year 2000" or the "Y2K" problem. We are currently working to
evaluate and resolve the potential impact of the Year 2000 problem on our
processing of date-sensitive information and network systems. We plan to contact
all our significant suppliers, contractors and major systems developers to
determine our vulnerability to their Year 2000 situations. We presently believe
that the Year 2000 problem will only have a minimal cost impact. However, we
cannot assure you that other companies will convert their systems on a timely
basis and that their failure will not have an adverse effect on our systems. Any
failure by our customers, suppliers, contractors or major systems developers to
resolve their Year 2000 problems in a timely manner may adversely affect us. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Information Systems and the Year 2000" on page 44.
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<PAGE> 25
THE TRANSACTIONS
THE RECAPITALIZATION
JFL Equity and JFL Co-Invest were the sole shareholders of SDI Acquisition
Corp., an affiliate of J.F. Lehman & Company ("SDI ACQUISITION"). On June 19,
1998, the Company and SDI Acquisition entered into the Recapitalization
Agreement (as subsequently amended) pursuant to which, on December 15, 1998, SDI
Acquisition merged with and into the Company. In the merger, each share of the
Company's common stock then outstanding was canceled and converted into the
right to receive $34.00 in cash, other than:
- 1,530,419 shares of common stock held by Messrs. Walter Neubauer and
Thomas F. Treinen,
- options to acquire common stock held by certain members of management
(together with Messrs. Neubauer and Treinen, the "CONTINUING
SHAREHOLDERS") and
- common stock held by stockholders who have perfected their dissenters'
rights under Delaware law.
The 1,530,419 shares of common stock held by Messrs. Neubauer and Treinen and
the options held by management remain outstanding (the "EQUITY ROLLOVER").
In connection with the Recapitalization, Paribas Principal Inc. acquired
from us 323,529 shares of common stock, or approximately 8.7% of the outstanding
common stock. PPI is an affiliate of a limited partner of both JFL Equity and
JFL Co-Invest. In addition, PPI is an affiliate of one of the Initial
Purchasers.
As a result of the Recapitalization, the Continuing Shareholders
collectively own approximately 41.3% of the outstanding common stock, and the
New Investor Group (JFL Equity, JFL Co-Invest and PPI) collectively owns
approximately 58.7% of the outstanding common stock. The transactions were
accounted for as a recapitalization. The Recapitalization was completed on
December 15, 1998.
Lehman has the right, exercisable at any time prior to December 15, 2002,
to acquire all or any portion of 735,294 shares of common stock held by Messrs.
Neubauer and Treinen (the "ADDITIONAL ROLLOVER SHARES") (or 19.8% of the
outstanding common stock) at a per share purchase price (the "CALL PRICE") equal
to the sum of $34.00 plus a premium equal to $2.04 for each full 6-month period
elapsed since December 15, 1998. In addition, Lehman has been granted an
irrevocable proxy to vote all of the Additional Rollover Shares. Messrs.
Neubauer and Treinen have the right to require the Company to purchase all or
any portion of the Additional Rollover Shares at a per share price equal to the
Call Price upon the earliest to occur of the repayment and termination of our
existing credit facility and repayment of the Notes, or, upon a change of
control of the Company or the completion of a qualified public offering by the
Company (provided, in the latter two cases, that such purchase by the Company is
permitted under our credit facility and the Notes).
For a description of the financing of the Recapitalization, see "Sources
and Uses of Funds."
NEW CREDIT FACILITY
As part of the Recapitalization, we entered into a credit facility
(sometimes referred to herein as the "NEW CREDIT FACILITY") with a syndicate of
banks, as lenders, and Bankers Trust Company ("BANKERS TRUST"), as lead arranger
and administrative agent. Bankers Trust is an affiliate of BT Alex. Brown
Incorporated, one of the Initial Purchasers. The New Credit Facility consists of
a $70.0 million Senior Term Loan and a $25.0 million Revolving Credit Facility.
We borrowed the full amount of the Senior Term Loan in connection with the
Recapitalization. As of January 31, 1999, $0.8 million was drawn and letters of
credit aggregating $2.5 million had been issued under the Revolving Credit
Facility. See "Description of the New Credit Facility" for a discussion of
various terms of the New Credit Facility, including the amortization schedule,
guarantees and covenants.
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<PAGE> 26
SOURCES AND USES OF FUNDS
We will not receive any proceeds from the exchange of the New Notes for Old
Notes. We used the gross proceeds of $100.0 million from the sale of the Old
Notes, together with borrowings under the $70.0 million Senior Term Loan and the
equity contribution of approximately $127.8 million, to
- fund the consideration payable to the Company's stockholders in
connection with the recapitalization,
- refinance our then-existing debt and
- pay transaction costs associated with the Transactions.
The following table outlines the sources and uses of funds in connection
with the Transactions as if they had occurred on October 31, 1998:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Revolving Credit Facility(1).............................. $ --
Senior Term Loan(1)....................................... 70.0
Notes..................................................... 100.0
Equity Investment by the New Investor Group(2)............ 74.0
Equity Rollover by Continuing Shareholders(3)............. 53.8
------
Total sources of funds.......................... $297.8
======
USES OF FUNDS:
Aggregate Recapitalization consideration(4)............... $277.4
Repayment of existing indebtedness........................ 2.5
Transaction expenses...................................... 15.5
Working capital........................................... 2.4
------
Total uses of funds............................. $297.8
======
</TABLE>
- ---------------
(1) The New Credit Facility provides for a Revolving Credit Facility of $25.0
million and a Senior Term Loan of $70.0 million. See "Description of the New
Credit Facility." Does not include potential reimbursement obligations as of
October 31, 1998 in respect of approximately $3.5 million in outstanding
letters of credit.
(2) Reflects cash capital contributions by the New Investor Group, which
collectively owns 58.7% of the outstanding common stock. In addition, Lehman
has been granted an irrevocable proxy to vote, and the right to acquire,
735,294 shares of common stock held by Messrs. Neubauer and Treinen.
(3) Reflects the value of shares of common stock and options retained by the
Continuing Shareholders who collectively own approximately 41.3% of the
outstanding common stock. Under certain circumstances, the Continuing
Shareholders have the right to require the Company to purchase 735,294
shares of Common Stock held by them.
(4) Consists of approximately $223.6 million in cash and $53.8 million from the
Equity Rollover by the Continuing Shareholders.
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<PAGE> 27
THE EXCHANGE OFFER
PURPOSE AND EFFECT; TERMINATION OF CERTAIN RIGHTS
We sold the Old Notes to the Initial Purchasers on December 15, 1998 in a
transaction exempt from the registration requirements of the Securities Act. The
Initial Purchasers subsequently resold the Old Notes in reliance on Rule 144A
under the Securities Act. In connection with the sale of the Old Notes to the
Initial Purchasers, we entered into the Registration Rights Agreement with the
Initial Purchasers, pursuant to which we agreed, for the benefit of the Holders
of the Old Notes and at our expense, to:
- file on or prior to April 14, 1999 (the 120th calendar day following the
Closing Date) this Registration Statement with the Commission,
- use our best efforts to cause this Registration Statement to be declared
effective under the Securities Act on or prior June 13, 1999 (the 180th
calendar day following the Closing Date) and
- use our best efforts to consummate the exchange offer on or prior to July
13, 1999 (the 210th calendar day following the Closing Date).
We will keep the exchange offer open for not less than 20 business days (or
longer if required by applicable law) after the date we mail notice of the
exchange offer to you. The exchange offer is intended to satisfy our obligations
under the Registration Rights Agreement.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer, will
not have registration rights and will not provide for Additional Interest, as
discussed below. The New Notes will evidence the same debt as the Old Notes and
will be issued pursuant to, and entitled to the benefits of, the indenture
pursuant to which the Old Notes were issued.
In the event that changes in the law or applicable interpretations of the
staff of the Commission do not permit us to effect the exchange offer, or if for
any reason the exchange offer is not consummated by July 13, 1999 (within 210
days of the Closing Date) or in other circumstances, the Registration Rights
Agreement requires us to, at our own expense:
- as promptly as practicable, and in any event on or prior to 90 days after
such filing obligation arises, file with the Commission a shelf
registration statement (the "SHELF REGISTRATION STATEMENT") covering
resales of the Old Notes,
- use our best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act on or prior to 45 days after
such filing occurs and
- keep effective the Shelf Registration Statement until two years after its
effective date (or such shorter period that will terminate when all the
Old Notes covered thereby (1) have been sold pursuant thereto or (2) are
distributed to the public pursuant to Rule 144 under the Securities Act
or are saleable pursuant to Rule 144(k) under the Securities Act).
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), holders
of Old Notes are entitled to receive Additional Interest, with respect to the
first 90-day period immediately following the occurrence of such Registration
Default, at a rate of 0.50% per annum per $1,000 principal amount of Old Notes
held by such holders, increasing by an additional 0.50% per annum per $1,000
principal amount of Old Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum of Additional
Interest of 1.00% per annum per $1,000 principal amount of Old Notes.
A "REGISTRATION DEFAULT" shall occur if:
- we fail to file either this Registration Statement or the Shelf
Registration Statement on or before the date specified for such filing,
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<PAGE> 28
- any of such registration statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"EFFECTIVENESS TARGET DATE"),
- we fail to exchange all New Notes for all Old Notes validly tendered and
not withdrawn in accordance with the terms of the exchange offer on or
prior to the 30th day after the date on which this Registration Statement
was declared effective or
- if applicable, the Shelf Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
New Notes during the periods specified in the Registration Rights
Agreement.
Holders of New Notes will not be, and upon consummation of the exchange
offer, holders of Old Notes will no longer be, entitled to:
- the right to receive Additional Interest and
- other rights under the Registration Rights Agreement intended for holders
of Old Notes.
The exchange offer shall be deemed consummated upon the occurrence of the
delivery by us to the Trustee under the indenture of New Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
are validly tendered by holders thereof pursuant to the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Following the expiration of the exchange offer, holders of Old Notes not
tendered, or not properly tendered, will not have any further registration
rights and such Old Notes will continue to be subject to the existing
restrictions on transfer thereof. Accordingly, the liquidity of the market for a
holder's Old Notes will be adversely affected upon expiration of the exchange
offer if such holder elects to not participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
We hereby offer, upon the terms and subject to the conditions set forth
herein and in the accompanying Letter of Transmittal, to exchange $1,000 in
principal amount of the New Notes for each $1,000 in principal amount of the
outstanding Old Notes. We will accept for exchange any and all Old Notes that
are validly tendered on or prior to 5:00 p.m., New York City time, on the
Expiration Date. Tenders of Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The exchange offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the exchange offer is subject to the terms and provisions of
the Registration Rights Agreement. See "-- Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, holders of Old Notes may tender less than the aggregate principal
amount represented by the Old Notes held by them, provided that they
appropriately indicate this fact on the Letter of Transmittal accompanying the
tendered Old Notes (or so indicate pursuant to the procedures for book-entry
transfer).
As of the date of this prospectus, $100.0 million in aggregate principal
amount of the Old Notes is outstanding of the maximum of $150.0 million of Notes
authorized for issuance under the Indenture. Solely for reasons of
administration (and for no other purpose), we have fixed the close of business
on June , 1999 as the record date (the "RECORD DATE") for purposes of
determining the persons to whom this prospectus and the Letter of Transmittal
will be mailed initially. Only a holder of the Old Notes (or such holder's legal
representative or attorney-in-fact) may participate in the exchange offer. There
will be no fixed record date for determining holders of the Old Notes entitled
to participate in the exchange offer. We believe that, as of the date of this
prospectus, no such holder is an affiliate (as defined in Rule 405 under the
Securities Act) of the Company.
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<PAGE> 29
We shall be deemed to have accepted validly tendered Old Notes when, as and
if we have given oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders of Old Notes and for
the purposes of receiving the New Notes from us.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1999 at 5:00 p.m., New York
City time, unless we, in our sole discretion, extend the exchange offer, in
which case the Expiration Date shall be the latest date and time to which the
exchange offer is extended.
In order to extend the exchange offer, we will notify the Exchange Agent of
any extension by oral or written notice and will make a public announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
We reserve the right, in our sole discretion, to:
- delay accepting any Old Notes,
- extend the exchange offer,
- if any of the conditions set forth below under "-- Conditions of the
Exchange Offer" shall not have been satisfied, terminate the exchange
offer, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent and
- amend the terms of the exchange offer in any manner.
If the exchange offer is amended in a manner which we determine to
constitute a material change, we will promptly disclose such amendments by means
of a prospectus supplement that will be distributed to the registered holders of
the Old Notes.
CONDITIONS OF THE EXCHANGE OFFER
The exchange offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the exchange offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Registration Statement of which this prospectus constitutes a part.
ACCRUED INTEREST
The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from December 15, 1998. See "Description of Notes -- Principal,
Maturity and Interest."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the acceptance
thereof by us will constitute a binding agreement between the tendering holder
and us upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying Letter of Transmittal. Except as set forth below, a
holder who wishes to tender Old Notes for exchange pursuant to the exchange
offer must transmit such Old Notes, together with a properly completed and duly
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set forth on the
back cover page of this prospectus prior to 5:00 p.m., New York City time, on
the Expiration Date. The method of delivery of Old Notes, Letters of Transmittal
and all other required documents is at the election and risk of the holder. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT
26
<PAGE> 30
REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT YOU USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered:
- by a registered holder of the Old Notes who has not completed either the
box entitled "Special Exchange Instructions" or the box entitled "Special
Delivery Instructions" in the Letter of Transmittal or
- by an Eligible Institution (as defined immediately below).
In the event that a signature on a Letter of Transmittal or a notice of
withdrawal, as the case may be, is required to be guaranteed, such guarantee
must be by a firm which is a member of a registered national securities exchange
or the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or
otherwise be an "eligible guarantor institution" within the meaning of the
Exchange Act (collectively, "ELIGIBLE INSTITUTIONS"). If the Letter of
Transmittal is signed by a person other than the registered holder of the Old
Notes, the Old Notes surrendered for exchange must either:
- be endorsed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution or
- be accompanied by a bond power, in satisfactory form as determined by us
in our sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution.
The term "REGISTERED HOLDER" as used herein with respect to the Old Notes means
any person in whose name the Old Notes are registered on the books of the
Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by us in our sole discretion, which determination shall be final and
binding. We reserve the absolute right to reject any and all Old Notes not
properly tendered and to reject any Old Notes, our acceptance of which might, in
the judgment of the Company or our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to particular Old Notes either before or after the Expiration
Date (including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the exchange offer). Our interpretation of the terms and
conditions of the exchange offer (including the Letter of Transmittal and its
instructions) shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes for exchange
must be cured within such period of time as we shall determine. We will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes for exchange but shall not incur any liability
for failure to give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by us,
proper evidence satisfactory to us, in our sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "BENEFICIAL OWNER") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the exchange
offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
27
<PAGE> 31
By tendering, each registered holder will represent to us that, among other
things:
- the New Notes to be acquired in connection with the exchange offer by the
holder and each Beneficial Owner of the Old Notes are being acquired by
the holder and each Beneficial Owner in the ordinary course of business
of the holder and each Beneficial Owner,
- the holder and each Beneficial Owner are not participating, do not intend
to participate, and have no arrangement or understanding with any person
to participate, in the distribution of the New Notes,
- the holder and each Beneficial Owner acknowledge and agree that any
person participating in the exchange offer for the purpose of
distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction of the New Notes acquired by such person
and cannot rely on the position of the staff of the Commission set forth
in no-action letters that are discussed herein under "-- Resales of New
Notes,"
- that if the holder is a broker-dealer that acquired Old Notes as a result
of market-making or other trading activities, it will deliver a
prospectus in connection with any resale of New Notes acquired in the
exchange offer,
- the holder and each Beneficial Owner understand that a secondary resale
transaction described in the third bullet point above should be covered
by an effective registration statement containing the selling security
holder information required by Item 507 of Regulation S-K of the
Commission and
- neither the holder nor any Beneficial Owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to us in writing.
In connection with a book-entry transfer, as discussed immediately below,
each participant will confirm that it makes the representations and warranties
contained in the Letter of Transmittal.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the DTC (the "BOOK-ENTRY TRANSFER FACILITY") for purposes of
the exchange offer within two business days after the date of this prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "-- Exchange
Agent" on or prior to 5:00 p.m., New York City time, on the Expiration Date, or
the guaranteed delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis)
28
<PAGE> 32
may tender their Old Notes according to the guaranteed delivery procedures set
forth in the Letter of Transmittal. Pursuant to such procedures:
- such tender must be made by or through an Eligible Institution and a
Notice of Guaranteed Delivery (as defined in the Letter of Transmittal)
must be signed by such Holder,
- on or prior to the Expiration Date, the Exchange Agent must have received
from the Holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the Holder,
the certificate number or numbers of the tendered Old Notes, and the
principal amount of tendered Old Notes, stating that the tender is being
made thereby and guaranteeing that, within four business days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Old
Notes, a duly executed Letter of Transmittal and any other required
documents will be deposited by the Eligible Institution with the Exchange
Agent and
- such properly completed and executed documents required by the Letter of
Transmittal and the tendered Old Notes in proper form for transfer (or
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at the DTC) must be received by the Exchange Agent within
four business days after the Expiration Date.
Any Holder who wishes to tender Old Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of the conditions to the exchange offer, we
will accept any and all Old Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New
Notes issued pursuant to the exchange offer will be delivered promptly after
acceptance of the Old Notes. For purposes of the Exchange Offer, we shall be
deemed to have accepted validly tendered Old Notes, when, as, and if we have
given oral or written notice thereof to the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at the
DTC); provided, however, that we reserve the absolute right to waive any defects
or irregularities in the tender or conditions of the exchange offer. If any
tendered Old Notes are not accepted for any reason, we will return such
unaccepted Old Notes without expense to the tendering Holder thereof as promptly
as practicable after the expiration or termination of the exchange offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
to the Exchange Agent, at its address set forth on the back cover page of this
prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must:
- specify the name of the person having deposited the Old Notes to be
withdrawn (the "DEPOSITOR"),
- identify the Old Notes to be withdrawn (including the certificate number
or numbers and principal amount of such Old Notes, as applicable),
- be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by a bond
power in the name of the person withdrawing the tender, in satisfactory
form as determined by us in our sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution together with the other documents required upon transfer by
the indenture and
29
<PAGE> 33
- specify the name in which such Old Notes are to be re-registered, if
different from the Depositor, pursuant to such documents of transfer.
Any questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us, in our sole discretion. The
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any Old Notes which have been
tendered for exchange but which are withdrawn will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "The Exchange Offer -- Procedures for Tendering Old
Notes" at any time on or prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
United States Trust Company of New York is the Exchange Agent. All tendered
Old Notes, executed Letters of Transmittal and other related documents should be
directed to the Exchange Agent. Questions and requests for assistance and
requests for additional copies of the prospectus, the Letter of Transmittal and
other related documents should be addressed to the Exchange Agent as follows:
BY REGISTERED OR CERTIFIED MAIL:
United States Trust Company of New York
P.O. Box 844, Cooper Station
New York, NY 10276-0844
Attn: Corporate Trust Services
BY FACSIMILE:
United States Trust Company of New York
(212) 780-0592
Attention: Customer Service
Confirm by Telephone: (800) 548-6565
Attn: Corporate Trust Services
BY OVERNIGHT COURIER (AND BY HAND AFTER 4:30 P.M.
ON THE EXPIRATION DATE ONLY):
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attn: Corporate Trust Services
BY HAND:
United States Trust Company of New York
111 Broadway
Lower Level
New York, New York 10006
Attn: Corporate Trust Services
30
<PAGE> 34
FEES AND EXPENSES
All expenses incident to our consummation of the exchange offer and
compliance with the Registration Rights Agreement will be borne by us,
including, without limitation:
- all registration and filing fees (including, without limitation, fees and
expenses of compliance with state securities or "blue sky" laws),
- printing expenses (including, without limitation, expenses of printing
certificates for the New Notes in a form eligible for deposit with the
DTC and of printing prospectuses),
- messenger, telephone and delivery expenses,
- fees and disbursements of our counsel,
- fees and disbursements of our accountants,
- rating agency fees and
- our internal expenses (including, without limitation, all salaries and
expenses of our officers and other employees performing legal or
accounting duties).
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the exchange offer. We will, however, pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with the exchange offer.
We will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the exchange offer. If, however, a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption is not submitted
with the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in our accounting records on the date of the exchange. Accordingly,
no gain or loss will be recognized by us for accounting purposes. The expenses
we incur in connection with the exchange offer will be amortized over the term
of the New Notes.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizing federal income tax consequences of the
exchange offer reflects the opinion of Gibson, Dunn, & Crutcher LLP, counsel to
us, as to material federal income tax consequences expected to result from the
exchange offer. An opinion of counsel is not binding on the IRS or the courts,
and there can be no assurances that the IRS will not take, and that a court
would not sustain, a position contrary to that described below. Moreover, the
following discussion is for general information only and does not constitute
comprehensive tax advice to any particular holder of Old Notes. The summary is
based on the current provisions of the Internal Revenue Code of 1986, as
amended, and applicable Treasury regulations, judicial authority and
administrative pronouncements. The tax consequences described below could be
modified by future changes in the relevant law, which could have retroactive
effect. Each holder of Old Notes should consult its own tax adviser as to these
and any other federal income tax consequences of the exchange offer as well as
any tax consequences to it under foreign, state, local or other law.
Exchanges of Old Notes for New Notes pursuant to the exchange offer should
be treated as a modification of the Old Notes that does not constitute a
material change in their terms, and the Company intends to treat the exchanges
in that manner. Under that approach, a New Note is treated as a continuation of
the corresponding Old Note. An exchanging holder's holding period for a New Note
would include such
31
<PAGE> 35
holder's holding period for the Old Note. Such holder would not recognize any
gain or loss, and such holder's basis in the New Note would be the same as such
holder's basis in the Old Note. The exchange offer will result in no federal
income tax consequences to a non-exchanging Holder.
RESALES OF THE NEW NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, we believe that the New Notes issued
pursuant to the exchange offer to a holder in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by such holder (other than
(1) a broker-dealer who purchased Old Notes directly from us for resale pursuant
to Rule 144A under the Securities Act or any other available exemption under the
Securities Act or (2) a person that is an affiliate of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such holder is acquiring the New Notes in the ordinary course of business
and is not participating, and has no arrangement or understanding with any
person to participate, in the distribution of the New Notes.
We have not requested or obtained an interpretive letter from the
Commission staff with respect to this exchange offer, and neither we nor the
holders are entitled to rely on interpretive advice provided by the staff to
other persons, which advice was based on the facts and conditions represented in
such letters. However, the exchange offer is being conducted in a manner
intended to be consistent with the facts and conditions represented in such
letters. If any holder acquires New Notes in the exchange offer for the purpose
of distributing or participating in a distribution of the New Notes, such holder
cannot rely on the position of the staff of the Commission enunciated in Morgan
Stanley & Co. Incorporated (available June 5, 1991) and Exxon Capital Holdings
Corporation (available April 13, 1989), or interpreted in the Commission's
letter to Shearman and Sterling (available July 2, 1993), or similar no-action
or interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
Sales of New Notes acquired in the exchange offer by holders who are
"affiliates" of the Company within the meaning of the Securities Act will be
subject to certain limitations on resale under Rule 144 of the Securities Act.
Such persons will only be entitled to sell New Notes in compliance with the
volume limitations set forth in Rule 144, and sales of New Notes by affiliates
will be subject to certain Rule 144 requirements as to the manner of sale,
notice and the availability of current public information regarding the Company.
The foregoing is a summary only of Rule 144 as it may apply to affiliates of the
Company. Any such persons must consult their own legal counsel for advice as to
any restrictions that might apply to the resale of their Notes.
The New Notes will be freely transferable by the holders thereof, subject
to the limitations described in this section.
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<PAGE> 36
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
January 31, 1999. The Old Notes surrendered in exchange for the New Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in any increase or decrease in our debt. As such, we have
not given any effect to the exchange offer in the table below. This table should
be read in conjunction with "The Transactions," "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JANUARY 31,
1999
---------------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C>
Debt:
New Credit Facility(1)
Revolving Credit Facility.............................. $ 0.8
Senior Term Loan....................................... 70.0
11 3/8% Senior Subordinate Notes due 2008................. 100.0
-------
Total long-term debt(1)................................ 170.8
Redeemable common stock..................................... 25.4
Total stockholders' equity.................................. (79.6)
-------
Total capitalization........................................ $ 116.6
=======
</TABLE>
- ---------------
(1) Does not include potential reimbursement obligations in respect of
outstanding letters of credit of approximately $2.5 million.
33
<PAGE> 37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below as of October 31, 1998 and
1997 and for the fiscal years ended October 31, 1998, 1997 and 1996 have been
derived from our Consolidated Financial Statements which have been audited by
KPMG LLP, independent certified public accountants, and are included elsewhere
in this prospectus. The selected consolidated financial data below as of October
31, 1996, 1995 and 1994 and for the fiscal years ended October 31, 1995 and 1994
have been derived from the Company's audited financial statements that are not
included in this prospectus. The selected consolidated financial data below as
of and for the three months ended January 31, 1999 and February 1, 1998 have
been derived from our unaudited financial statements that are included elsewhere
in this prospectus. The unaudited interim consolidated financial statements for
each of the periods referred to above include, in management's opinion, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the results for the unaudited periods. The information presented
below is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED OCTOBER 31, ----------------
------------------------------------------- FEB. 1 JAN. 31
1994(1) 1995 1996 1997 1998 1998 1999
------- ------ ------ ------ ------ ------ -------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.............................. $64.5 $100.6 $104.5 $140.5 $170.5 $ 40.7 $ 37.7
Cost of sales.......................... 54.4 83.0 84.3 112.6 131.6 32.5 30.7
----- ------ ------ ------ ------ ------ ------
Gross profit...................... 10.1 17.6 20.2 27.9 38.9 8.2 7.0
Operating expenses..................... 4.3 7.7 8.1 10.7 13.0 2.7 2.6
Recapitalization costs(2).............. -- -- -- -- -- -- 15.6
----- ------ ------ ------ ------ ------ ------
Earnings (loss) from operations... 5.8 9.9 12.0 17.2 25.9 5.6 (11.2)
Net interest income (expense).......... (0.5) (0.6) 0.1 0.1 -- -- (2.5)
----- ------ ------ ------ ------ ------ ------
Earnings before income taxes........... 5.3 9.3 12.2 17.3 25.9 5.6 (13.7)
Income taxes........................... 2.1 3.7 4.7 6.7 10.4 2.2 (3.3)
----- ------ ------ ------ ------ ------ ------
Net earnings (loss)............... $ 3.2 $ 5.6 $ 7.4 $ 10.7 $ 15.4 $ 3.4 $(10.4)
===== ====== ====== ====== ====== ====== ======
OTHER DATA:
EBITDA(3).............................. $ 8.5 $ 14.3 $ 17.4 $ 23.6 $ 34.4 $ 7.4 $ 7.3
EBITDA margin(3)....................... 13.2% 14.2% 16.7% 16.8% 20.2% 18.1% 19.4%
Depreciation........................... $ 2.7 $ 4.4 $ 5.4 $ 6.4 $ 8.5 $ 1.8 $ 3.0
Capital expenditures:
Moorpark Facility.................... $ 0.0 $ 0.6 $ 3.1 $ 5.8 $ 16.5 $ 2.1 $ 2.4
Other................................ 6.3 12.8 8.0 16.8 22.0 5.8 4.5
----- ------ ------ ------ ------ ------ ------
Total............................. $ 6.3 $ 13.4 $ 11.1 $ 22.5 $ 38.5 $ 7.9 $ 6.9
===== ====== ====== ====== ====== ====== ======
Cash interest expense.................. $ 0.4 $ 1.0 $ 0.4 $ 0.3 $ 0.2 $ 0.1 $ 0.1
Ratio of earnings to fixed
charges(4)........................... 9.5x 9.2x 23.9x 33.2x 59.1x 49.5x (4.7x)
BALANCE SHEET DATA:
Total assets........................... $51.7 $ 78.6 $ 86.2 $ 99.8 $124.6 $104.8 $136.9
Total debt............................. 13.8 5.9 4.6 3.0 2.5 2.7 170.8
Stockholders' equity (deficit)......... $26.7 $ 62.1 $ 69.7 $ 81.4 $ 97.3 $ 84.9 $(79.6)
</TABLE>
- ---------------
(1) We acquired Scot in September 1994. Accordingly, the operating data for
Fiscal 1994 reflect only one month of Scot's operations.
34
<PAGE> 38
(2) We incurred approximately $15,600,000 in one-time pre-tax charges in
connection with the Recapitalization (representing approximately $5,600,000
in professional advisory fees and approximately $10,000,000 of compensation
expense relating to cash payments to settle certain outstanding stock
options).
(3) EBITDA is the sum of earnings before income taxes, interest, depreciation
and amortization expense. EBITDA is presented because the Company believes
that it is a widely accepted financial indicator of a company's ability to
service indebtedness. However, EBITDA does not represent cash flow from
operations as defined by GAAP, is not necessarily indicative of cash
available to fund all cash flow needs, should not be considered as an
alternative to net income or to cash flows from operating activities (as
determined in accordance with GAAP) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity. Our EBITDA is not necessarily comparable with similarly-titled
measures for other companies. EBITDA margin equals EBITDA as a percentage
net sales.
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes, plus fixed charges. Fixed charges consist
of interest incurred (which includes amortization of deferred financing
costs) whether expensed or capitalized and a portion of rental expense
(based on the one-third of rent expense convention) which management
believes is a reasonable approximation of an interest factor.
35
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Historical Consolidated Financial Data" and our audited
Consolidated Financial Statements and the notes thereto included elsewhere in
this prospectus. See "Disclosure Regarding Forward-Looking Statements."
GENERAL
Automotive Products Division. The Automotive Products Division was formed
in 1989 as a result of management's strategic decision to participate in the
anticipated demand for airbag systems arising from new federal regulations.
Demand for initiators produced by the division has grown steadily since 1992 as
U.S. automobile manufacturers have installed airbags in automobiles for both the
driver and front passenger. Even though installation of the driver and front
passenger airbags is now mostly implemented in the United States, demand appears
to be continuing to grow as U.S. automobile manufacturers are now installing
airbags for side-impact protection and for seat belt pre-tensioners which also
employ an initiator. In addition, European and Pacific Rim automobile
manufacturers have over the last few years accelerated the rate of airbag
implementation for automobiles produced in these countries. We have invested in,
and continue to invest in, facilities and production equipment to meet these
increases in demand. Beginning in Fiscal 1992, we have improved gross profit
margins and operating income amounts through:
- automation of the initiator manufacturing process,
- improvements in manufacturing techniques,
- reductions in the prices of certain raw materials and
- a larger base of customers to absorb overhead costs.
No assurance can be given that the foregoing trends will continue. Our
future results of operations, financial position and cash flows are dependent on
a variety of factors that are inherently difficult to predict including, without
limitation:
- the number of automobiles sold (particularly in North America),
- continued acceptance of airbags as the primary restraint system
incorporated in automobiles,
- the impact of pressure from our customers and actions by our competitors
on our ability to sell initiators at acceptable average sales prices,
- voluntary incorporation of side and rear airbags and other safety devices
by automobile manufacturers and
- our ability to continue to improve automation of the manufacturing
processes efficiently.
The prices we receive for units of our automotive initiators vary depending
upon the complexity of design and the value of added components. As a result,
the total average selling price in any period will be affected by the relative
quantities sold to each customer. We sell the majority of airbag initiators to
TRW and Autoliv. Historically, the initiators we have sold to TRW are more
complex and have a higher material cost than the initiators we have sold to
Autoliv. Consequently, we sell initiators to TRW for a higher average unit price
than the initiators we sell to Autoliv.
During recent years, competition among manufacturers of airbag initiators
has intensified. As a result of this increased competition, we and other
manufacturers of initiators have had to significantly reduce the price of
initiators. We expect this competition to continue and to cause additional price
pressure on us and other initiator manufacturers. We cannot assure you that we
will be able to compete successfully in such an environment. See
"Business -- Automotive Products Division -- Competition."
Aerospace Division. Demand for our aerospace products is driven primarily
by the U.S. government's purchases of missiles and other weapon systems and
commercial launch vehicles for satellite communications
36
<PAGE> 40
that incorporate initiators, arm-fire devices and other pyrotechnic components,
and by demand for replacement parts used in military crew safety systems. In
most cases, we are a subcontractor to the non-governmental prime contractor or
other subcontractor of the program. The Aerospace Division's contracts provide
for a specific number of deliveries over a period of time. Revenue is recognized
for these production contracts as completed units are shipped. Cost of sales for
units shipped is computed based on the expected total unit cost of all units
required to be produced under the contract through completion, which amount
includes all estimated costs to complete the contract. Accordingly, the results
of the Aerospace Division for any particular accounting period, or
period-to-period comparisons, may be significantly affected by the timing of
production deliveries and may not be indicative of future operating results.
Unlike most of our products, demand for some of Scot's products is affected by
government purchases of replacement components directly from Scot in order to
replace parts whose service life has expired. The most significant factor
affecting the gross profit margin for the Aerospace Division is the mix of
products being delivered during a particular reporting period.
Calculation of Operating Expenses. Operating expenses for the Automotive
and Aerospace Divisions comprise the sum of two components. First, each division
is charged directly those operating expenses incurred by that division. Second,
on a quarterly basis, each division is allocated general corporate
administrative expenses that are not otherwise attributable to a particular
division. We allocate these expenses on a basis to fairly reflect the benefit
received by each operating division, as determined by management. In Fiscal
1998, we allocated these expenses approximately 60% to the Automotive Products
Division and 40% to the Aerospace Division. In Fiscal 1997, the allocation was
65% to the Automotive Products Division and 35% to the Aerospace Division.
During Fiscal 1996 and 1995, these expenses were allocated approximately equally
to each division.
Recent Developments. On February 18, 1999, an accidental explosion
occurred at our Newhall Facility, resulting in the death of one employee. We
suspended all production at Newhall for four days to conduct a thorough
investigation of the accident along with California OSHA, and suspended the
blending of pyrotechnic powders for approximately two weeks. Concurrently, we
implemented contingency manufacturing plans to meet customer demand for existing
inventory and production from our Mesa facility. No building or equipment, other
than one transport vehicle, were damaged in the accident. We resumed full
production at Newhall on March 4, 1999. California OSHA's investigation of the
accident is continuing.
Management believes that results for the first half of Fiscal 1999 could be
lower than results achieved in the first half of Fiscal 1998 due primarily to
costs relating to our relocation to the Moorpark Facility, including the
operation of duplicative facilities for approximately six months and the
manufacturing inefficiencies inherent with the commencement of new manufacturing
operations. In addition, unit-price concessions we have made to our leading
automotive initiator customers in exchange for anticipated volume increases
expected in the second half of Fiscal 1999 could contribute to a decline in
results over those periods. Finally, the slow-down in production at Newhall as a
result of the accidental explosion and resulting investigation could have an
impact on our results in the second quarter of Fiscal 1999. See "Risk Factors --
We Operate In A Competitive Environment," "-- We Are Dependent On Key Customers"
and "--Relocation To The Moorpark Facility May Disrupt Our Operations."
37
<PAGE> 41
RESULTS OF OPERATIONS
The following table is derived from our statements of earnings data and
sets forth, for the periods indicated, certain earnings data as a percentage of
net sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED OCTOBER 31, -----------------
-------------------------------- FEB 1, JAN 31,
1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
AUTOMOTIVE PRODUCTS DIVISION:
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 88.8 84.9 82.9 81.6 81.3 84.8
----- ----- ----- ----- ----- -----
Gross profit.............................. 11.2 15.1 17.1 18.4 18.7 15.2
Operating expenses........................ 4.8 4.8 4.9 4.8 4.9 5.6
----- ----- ----- ----- ----- -----
Earnings from operations.................. 6.4% 10.3% 12.2% 13.7% 13.8% 9.6%
===== ===== ===== ===== ===== =====
AEROSPACE DIVISION:
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 67.3 66.9 69.3 60.4 69.7 67.5
----- ----- ----- ----- ----- -----
Gross profit.............................. 32.7 33.1 30.7 39.6 30.3 32.5
Operating expenses........................ 14.5 17.4 18.2 18.6 18.1 11.9
----- ----- ----- ----- ----- -----
Earnings from operations.................. 18.2% 15.7% 12.5% 21.0% 12.1% 20.6%
===== ===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 31, 1999
Net Sales. Net sales for the Automotive Products Division decreased
$5,304,000, or 14.9%, to $30,443,000 for the three months ended January 31, 1999
compared to net sales of $35,747,000 for the same period last year. The decrease
was a result of slight reductions in units shipped in the first quarter of 1999
versus the same period in 1998, in addition to contractual price decreases.
Net sales for the Aerospace Division increased by $2,288,000, or 45.9%, to
$7,273,000 for the three months ended January 31, 1999 compared to net sales of
$4,985,000 for the same period last year. The increase in sales in the first
quarter of 1999 was due to increased shipments of products used on several
missile programs and the commencement of production of bomb ejectors.
Cost of Sales. Cost of sales for the Automotive Products Division
decreased $3,232,000, or 11.1%, to $25,816,000 for the quarter ended January 31,
1999, compared to cost of sales of $29,048,000 for same quarter last year. The
Division's gross profit margin was 15.2% for the 1999 quarter, compared to 18.7%
for the same quarter last year. The decrease in margin reflects the slight
reduction in initiators shipped, as well as certain inefficiencies related to
the Company's move to its new facility in Moorpark.
Cost of sales for the Aerospace Division increased $1,433,232, or 41.2%, to
$4,908,000 for the quarter ended January 31, 1999, compared to cost of sales of
$3,475,000 for the comparable quarter last year. Gross profit as a percent of
sales was 32.5% for the first quarter of 1999 compared to 30.3% for the same
quarter last year. The increase in gross profit as a percent of sales was
primarily attributable to the mix of products shipped in the first quarter of
fiscal 1999.
Operating Expenses. Operating expenses for each division (Automotive
Products and Aerospace) are comprised of two components. First, each division is
charged those operating expenses directly incurred by that division. Second,
each division is allocated administrative expenses incurred by the Company
(which are not attributable to a particular division) on an equitable basis to
reflect fairly the benefit received by each operating division. Administrative
expenses incurred by the Company for allocation to each division were
approximately the same amount for the first quarter of Fiscal 1999 compared to
the same period last year.
Operating expenses for the Automotive Products Division decreased $43,000,
or 2.5%, to $1,712,000 in the first quarter of 1999, compared to operating
expenses of $1,755,000 for the same period last year. As a percentage of sales,
operating expenses were 5.6% compared to 4.9% for the same period last year.
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<PAGE> 42
Operating expenses for the Aerospace Division decreased by $38,000, or
4.2%, to $864,000 for the quarter ended January 31, 1999, compared to operating
expenses of $902,000 for the same period last year. As a percentage of sales,
operating expenses were 11.9% for the quarter ended January 31, 1999 compared to
18.1% for the same quarter last year. The decrease in operating expenses in the
current year first quarter is due to a reduction in the amount of administrative
expenses allocated to the Aerospace Division compared to the same period last
year.
Recapitalization Costs. The Company incurred approximately $15,600,000 in
one-time pre-tax charges in connection with the Recapitalization (representing
approximately $5,600,000 in professional advisory fees and approximately
$10,000,000 of compensation expense relating to stock options). As a result of
the foregoing, the Company incurred a net loss in the quarter. Because this loss
resulted directly from the one-time charges incurred in connection with the
Recapitalization, the Company believes this loss will have no material impact on
its ongoing operations or liquidity.
Net Interest Income (Expense). Net interest income (expense) consists of
interest expense on borrowings and interest income earned on short-term
investments. Interest expense was $2,341,000 in the first quarter of Fiscal 1999
compared to interest expense of $51,000 for the first quarter last year. The
increase of $2,290,000 was the result of increased debt outstanding in the first
quarter of Fiscal 1999, compared to the same period of 1998. Interest income was
$800 in the first quarter of Fiscal 1999, compared to interest income of $66,000
for the same period last year. The decrease was the result of lower average
amounts invested in interest-bearing securities during the first quarter of
Fiscal 1999.
COMPARISON OF FISCAL 1997 AND 1998
Net Sales. Net sales for the Automotive Products Division were
$135,235,000 for Fiscal 1998, compared to net sales of $111,931,000 for Fiscal
1997. The increase of $23,304,000, or 20.8%, was due to a 43.9% increase in
units shipped during Fiscal 1998 compared to Fiscal 1997. The increase in units
shipped resulted primarily from increased shipments to Autoliv under terms of a
supplier agreement signed in November 1995. The initiators sold to Autoliv are
generally sold at lower average unit selling prices than those sold to other
customers, due to simplicity of design, resulting in net sales increasing at a
slower rate than the increase in units sold. Net sales to TRW as a percentage of
Automotive Products Division net sales were 49.9% for Fiscal 1998, compared to
61.6% for Fiscal 1997, and were 39.7% of total Company net sales in Fiscal 1998
compared to 49.1% of total Company net sales for Fiscal 1997. Net sales to
Autoliv as a percentage of Automotive Product Division net sales were 31.3% for
Fiscal 1998, compared to 25.9% for Fiscal 1997 and were 24.9% of total Company
net sales in Fiscal 1998 compared to 20.6% for Fiscal 1997. The portion of the
Company's overall net sales represented by net sales to TRW decreased primarily
as the result of increasing net sales to Autoliv.
Notwithstanding the Automotive Products Division results for Fiscal 1998 as
a whole, results for the Automotive Products Division for the fourth quarter of
Fiscal 1998 were adversely affected by the 54-day United Auto Workers strike at
General Motors and continued weakness in the Asian market, resulting in reduced
purchases by certain customers.
Net sales for the Aerospace Division were $35,303,000 for Fiscal 1998,
compared to net sales of $28,572,000 for Fiscal 1997. The increase of
$6,731,000, or 23.6%, was due primarily to a contract for production of a
proprietary bomb ejector, which began in Fiscal 1998, and also due to increased
demand for products used in commercial satellite launch vehicles.
Cost of Sales. Cost of sales was $110,284,000 for the Automotive Products
Division for Fiscal 1998, compared to cost of sales of $93,159,000 for Fiscal
1997, an increase of $17,126,000, or 18.4%. The increase was due to costs
associated with increased net sales noted above. Gross profit as a percent of
net sales was 18.4% for Fiscal 1998, compared to gross profit as a percent of
net sales of 16.8% for Fiscal 1997. The improvement in gross profit as a percent
of sales was due to efficiencies related to volume increases, improvements in
automated machine yields and other manufacturing efficiencies achieved in the
current period.
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<PAGE> 43
Cost of sales for the Aerospace Division was $21,326,000 for Fiscal 1998,
compared to cost of sales of $19,395,000 for Fiscal 1997. The increase of
$1,931,000, or 9.9%, was due to costs associated with increased net sales during
Fiscal 1998. Gross profit as a percentage of net sales was 39.6% for Fiscal
1998, compared to gross profit as a percentage of sales of 32.1% for Fiscal
1997. The increase in gross profit as a percentage of net sales in Fiscal 1998
was due to changes in the mix of products shipped compared to Fiscal 1997 and
the absorption of relatively stable overhead expenses over greater net sales in
Fiscal 1998.
Operating Expenses. Operating expenses for each division (Automotive
Products and Aerospace) are comprised of two components. First, each division is
charged those operating expenses incurred directly by that division. Second,
each division is allocated administrative general operating expenses (which are
not attributable to a particular division) on what management considers to be an
equitable basis to fairly reflect the benefit received by each division.
Operating expenses for the Automotive Products Division were $6,459,000 for
Fiscal 1998, compared to operating expenses of $6,089,000 for Fiscal 1997. The
increase of $370,000, or 6.1%, was due primarily to labor related cost increases
incurred by the Automotive Products Division, and, to a lesser extent, to
increases in corporate expenses which were allocated to the Automotive Products
Division. Such increases were with respect to recurring costs. The increase in
corporate expenses was primarily legal and other professional services costs not
incurred in connection with the Transactions.
Operating expenses for the Aerospace Division were $6,564,000 for Fiscal
1998, compared to operating expenses of $4,617,000 for Fiscal 1997. The increase
of $1,947,000, or 42.2%, was the result primarily of an increase in incentive
bonus accruals in the current period and increases in corporate expenses for
bonuses that will be payable as a result of the division reaching performance
targets.
Net Interest Income (Expense). Net interest income (expense) consists of
interest expense on borrowings and interest income earned on short-term
investments. Interest income was $108,000 for Fiscal 1998, compared to interest
income of $353,000 for Fiscal 1997. The decrease in interest income during
Fiscal 1998 was due to lower average amounts invested in interest-bearing
securities during the year compared to Fiscal 1997. Interest expense was
$156,000 for Fiscal 1998, compared to interest expense of $259,000 for Fiscal
1997. The decrease in the current year was due to lower average debt balances
resulting from scheduled monthly principal payments, and due to the repayment of
debt relating to the sale of an airplane which we previously owned.
COMPARISON OF FISCAL 1996 AND 1997
Net Sales. Net sales for the Automotive Products Division increased
$31,695,000, or 39.5%, between Fiscal 1996 and Fiscal 1997. This increase was
due primarily to a significant increase in initiator shipments to TRW pursuant
to the TRW Agreement and increases in shipments to Autoliv. In December 1995,
the Company signed a three-year supplier agreement with Autoliv whereby the
Company is required to supply a substantial portion of Autoliv's initiator
requirements. The Autoliv agreement became effective with model year 1997
production (approximately August 1996) and therefore did not have a substantial
impact on Fiscal 1996 results of operations. Increases in initiator unit sales
during the two-year period were partially offset by decreases in initiator unit
prices. Increases in initiator unit sales in Fiscal 1997 were also offset by
lower average initiator unit prices caused by increased shipments to Autoliv of
lower-priced initiators. During Fiscal 1996 and 1997, net sales to TRW accounted
for 77.3% and 61.6%, respectively, of the Automotive Products Division's net
sales, and 59.7%, and 49.1%, respectively, of the Company's combined net sales.
In Fiscal 1997, net sales to Autoliv accounted for 25.9% of the Automotive
Products Division's net sales and 20.6% of the Company's combined net sales. Net
sales to Autoliv were not significant in Fiscal 1996. We expect TRW and Autoliv
to be the Automotive Products Division's largest customers for the foreseeable
future.
Net sales for the Aerospace Division increased $4,325,000, or 17.8%,
between Fiscal 1996 and Fiscal 1997. This increase was due to increased
shipments of parts used for commercial satellite launch vehicles and a
non-recurring engineering contract in Fiscal 1997 to redesign a proprietary
ejector.
Cost of Sales. Cost of sales for the Automotive Products Division
increased by $24,645,000, or 36.2%, between Fiscal 1996 and Fiscal 1997. This
increase was related primarily to the increased volume of initiators shipped.
Automotive Products Division gross profit margins as a percentage of its net
sales improved from
40
<PAGE> 44
15.1% in Fiscal 1996 to 17.1% in Fiscal 1997. In Fiscal 1996 and 1997, we
achieved greater recovery of overhead costs from the increases in levels of
production, and in Fiscal 1997, we achieved an increase in production machine
utilization. In addition, in Fiscal 1996 and 1997, we achieved a reduction in
the cost of some raw materials used to manufacture initiators, all of which
contributed to improved gross margins. As described above, these improvements
were partially offset by decreases in the sales price of initiators during the
above periods. Although we have experienced a reduction in total in average unit
selling price, improvements in machine utilization and manpower efficiency,
reductions in raw material costs and greater absorption of overhead have more
than offset selling price reductions. In addition, these improvements in
manufacturing operations have allowed us to absorb higher depreciation expense
as productive capacity has been expanded.
Effective September 1, 1997, we amended the Automotive Products Division's
only long-term supply contract with the supplier of glass-sealed, co-axial
bodies, a key component used in the production of initiators, significantly
reducing the unit prices which we are obligate pay. The amendment also extended
the term of the contract to December 31, 2000 and provides that unit costs will
be further reduced at the beginning of the 1999 and 2000 calendar years. See
"Risk Factors -- We Are Dependent On A Key Supplier" and
"Business -- Manufacturing -- Supplies and Suppliers."
Cost of sales for the Aerospace Division increased $3,580,000, or 22.1%,
between Fiscal 1996 and Fiscal 1997. This increase was the result of an increase
in net sales. Gross profit as a percentage of the Aerospace Division's net sales
decreased from 33.1% in Fiscal 1996 to 30.7% in Fiscal 1997. Fluctuations in
gross profit as a percentage of net sales occur primarily due to the mix of
products sold during any period. Mature product lines, in general, earn a higher
gross profit than newer, developing product lines due to the benefits of
learning and the reduction of start-up costs. In addition, replacement parts, in
general, earn a higher gross profit than other products.
Operating Expenses. Operating expenses increased $2,612,000, or 32.2%,
between Fiscal 1996 and Fiscal 1997. In Fiscal 1996, the allocation of general
corporate expenses was made approximately equally to each division, whereas in
Fiscal 1997, we allocated approximately 65% of such expenses to the Automotive
Products Division and 35% to the Aerospace Division. If the allocation had been
made equally in Fiscal 1997, Aerospace Division operating expenses would have
increased by $581,000, with a corresponding decrease in the Automotive Products
Division's operating expenses. The general corporate expenses which we allocated
to the divisions totaled $2,704,000 in Fiscal 1996 and $3,874,000 in Fiscal
1997.
The increase in operating expenses in Fiscal 1997 compared to Fiscal 1996
was due primarily to increases in corporate administrative expenses and
discretionary bonuses. The increase in corporate administrative expenses
resulted primarily from increases in compensation expense (as increased staffing
was required to support the large increase in sales), outside professional costs
and public relations costs.
Operating expenses for the Automotive Products Division increased
$1,646,000, or 42.4%, between Fiscal 1996 and Fiscal 1997. As a percentage of
the Automotive Products Division net sales, these expenses have remained
relatively constant for the past two fiscal years.
Operating expenses for the Aerospace Division increased by $966,000, or
18.6%, between Fiscal 1996 and Fiscal 1997. Operating expenses as a percentage
of net sales for the Aerospace Division increased from 17.4% in Fiscal 1996 to
18.2% in Fiscal 1997. The increase in operating expenses as a percentage of
sales in Fiscal 1997 resulted from an increase in operating expenses, primarily
at Scot, at a faster rate than sales increased due to increased discretionary
bonus payments.
Net Interest Income (Expense). Net interest income (expense) consists of
interest expense on borrowings and interest income earned on short-term
investments. In Fiscal 1996, interest income earned on short-term investments
was $485,000, offset by interest expense of $365,000. In Fiscal 1997, interest
income earned on short-term investments was $353,000, offset by interest expense
of $259,000. The decrease in interest income in Fiscal 1997 compared to Fiscal
1996 was the result of lower average amounts invested in Fiscal 1997 as some
cash resources were used to finance capital additions. The reduction in interest
expense in Fiscal 1997 was the result of scheduled monthly principal payments of
long-term debt.
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<PAGE> 45
SEASONALITY
Airbag manufacturers' requirements for the Automotive Products Division's
initiators are dependent on the requirements of automobile manufacturers.
Although demand for the Automotive Products Division's initiators has not been
subject to significant seasonal fluctuations to date, we believe that the U.S.
airbag initiator market will become seasonal once demand for airbags stabilizes.
See "Risk Factors -- Dependence upon the Automotive Industry."
The Aerospace Division recognizes sales upon the shipment of units or
completion of a task. While there is no identifiable seasonality in the
aerospace business, there can be quarter-to-quarter changes in shipment volume
that result from customer requirements or other factors beyond our control.
During the past several years, the trend has been that customer shipment
requirements are greater in the second half of our fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash flow from operations and
borrowings under the New Credit Facility. Our principal uses of cash are debt
service requirements, capital expenditures, research and development and working
capital. The Recapitalization had a substantial impact on our capital structure,
as we are significantly more highly leveraged than we were prior to the
Recapitalization.
In Fiscal 1998, we generated cash from operations of $29,105,000, and in
the quarter ended January 31, 1999, we used cash of $12,575,000, including a
charge of $15,637,400 for costs incurred in connection with the
Recapitalization. Capital expenditures, primarily for payments related to
automated manufacturing equipment and production facilities, amounted to
$38,523,000 in Fiscal 1998 and $6,925,000 for the first quarter of Fiscal 1999.
At January 31, 1999, we had commitments to acquire capital equipment aggregating
approximately $2,000,000 related primarily to additional production equipment
and other support equipment required for the increased operations of the
Automotive Products Division.
At January 31, 1999, we had working capital of $19,630,800, an increase of
$3,959,500 from working capital of $15,671,300 at October 31, 1998. This
increase was due to:
- an increase in inventories of $2,365,300, which occurred in order to
support several large aerospace contracts, the inventory for which will
be shipped in Fiscal 1999,
- an increase in prepaid expenses of $384,000,
- a decrease in accrued expenses of $1,431,300, resulting from the timing
of payments for certain accrued expenses,
- a decrease in current income taxes payable of $4,590,200, resulting from
a decrease in taxable income in the first quarter of Fiscal 1999 and
- a decrease in the current portion of long-term debt of $484,600,
offset partially by:
- a decrease in cash of $1,160,400, resulting from the use of cash to
provide for working capital,
- a decrease in accounts receivable of $3,236,200, resulting from a
decrease in sales in the first quarter of Fiscal 1999 from the fourth
quarter of Fiscal 1998 and
- an increase in accounts payable of $1,572,400, resulting from the
increase in inventories noted above.
We incurred approximately $15,637,000 in one-time pre-tax charges in
connection with the Recapitalization (representing approximately $5,537,000 in
professional fees and approximately $10,100,000 of compensation expense relating
to cash payments to settle certain outstanding stock options). As a result of
the foregoing, we incurred a net loss in the quarter ended January 31, 1999.
Because this loss will result directly from the one-time charges incurred in
connection with the Recapitalization, we do not expect this loss to materially
impact our ongoing operations or liquidity.
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<PAGE> 46
As part of the Recapitalization, we entered into the New Credit Facility
with a syndicate of banks, as lenders, and Bankers Trust, as lead arranger,
administrative agent and a lender. Bankers Trust is an affiliate of BT Alex.
Brown Incorporated, an Initial Purchaser. The New Credit Facility consists of a
$70,000,000 Senior Term Loan and a $25,000,000 Revolving Credit Facility. As of
January 31, 1999, the Senior Term Loan was fully drawn and we had $750,000
outstanding on the Revolving Credit Facility. In addition, we had approximately
$2,500,000 of letters of credit outstanding under the Revolving Credit Facility.
The Revolving Credit Facility enables us to obtain revolving credit loans and
the issuance of letters of credit for our account from time to time for working
capital, acquisitions and general corporate purposes. See "Description of the
New Credit Facility."
We used the proceeds of the Old Notes offering, the Senior Term Loan and
the equity contribution by the New Investor Group to:
- finance the payment of the cash portion of the Recapitalization
consideration,
- to refinance our then-outstanding debt,
- to pay fees and expenses incurred in connection with the Recapitalization
and
- to provide for working capital and general corporate purposes.
We anticipate that working capital requirements will increase in Fiscal
1999 as compared to Fiscal 1998 to service our new long-term debt incurred in
connection with the Recapitalization (the Notes and the New Credit Facility). In
addition, we will require additional working capital to support our investment
in inventories and accounts receivable related to the anticipated increased
demand for our initiators, although future demand is inherently difficult to
predict and affected by a variety of factors. See "Business -- Automotive
Products Division." We believe that we will be able to meet our expected working
capital requirements for the foreseeable future from cash from operations and
borrowings under the New Credit Facility.
In order to improve manufacturing efficiencies and to provide facilities
for growth, we purchased in October 1996, approximately 280 acres of land in the
City of Moorpark, located in Ventura County, north of Los Angeles, where we are
currently building new facilities. Total cost of the project is estimated at
approximately $32,500,000, of which $27,915,000 had been spent at January 31,
1999 and is included in construction in progress in the accompanying condensed
consolidated balance sheet. We anticipate spending approximately an additional
$4,500,000 in Fiscal 1999 to complete this project. We plan to sell two
commercial lots being developed as part of this project, the proceeds of which
are expected to reduce the net project cost to approximately $27,000,000
(although there can be no assurance that these lots will sold on terms
acceptable to us). We believe that we have available adequate cash flow from
operations and borrowing capacity to adequately finance the completion of this
project. We intend to consider long term financing in connection with the
Moorpark Facility; however, there can be no assurance that such financing will
be available when required.
Excluding expenditures relating to the Moorpark Facility, total capital
expenditures are expected to be approximately $6,000,000 in Fiscal 1999.
Our ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance, our debt (including the Notes), or to fund planned
capital expenditures and research and development expense, will depend on our
future performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Based upon the current level of operations, we believe that
cash flow from operations and available cash, together with available borrowings
under the New Credit Facility, will be adequate to meet our future liquidity
needs for the foreseeable future. We may, however, need to refinance all or a
portion of the principal of the Notes on or prior to maturity. There can be no
assurance that our business will generate sufficient cash flow from operations
or that future borrowings will be available under the New Credit Facility in an
amount sufficient to enable us to service our debt, including the Notes, or to
fund our other liquidity needs. In addition, there can be no assurance that we
will be able to effect any such refinancing on commercially reasonable terms or
at all. See "Risk Factors -- Risks Relating to the Notes -- Substantial
Leverage."
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<PAGE> 47
INFORMATION SYSTEMS AND THE YEAR 2000
General
We have established a program to address Year 2000 issues. The Year 2000
effort, which includes the implementation of previously planned business
critical systems and specific Year 2000 projects, is on track to be completed
before the year 2000. The majority of those applications that are not Year 2000
compliant have been, or will be, replaced by new systems. The costs of new
systems have been, or will be, recorded as an asset and amortized. A significant
portion of the costs associated with making the remaining applications not
covered by new systems Year 2000 compliant do not represent incremental costs to
the Company, but rather the redeployment of existing information technology
("IT") resources. Accordingly, we do not expect the Year 2000 effort to have a
material impact on our results of operations, liquidity or financial condition.
In addition, we have not deferred any other projects that will have a material
impact on our results of operations, liquidity or financial condition.
IT Systems
In late 1997, prior to the establishment of our Year 2000 program, we began
converting our corporate, financial and human resources management systems to a
new client server system. The systems are expected to be implemented before June
30, 1999. We have received vendor assurance that the systems are Year 2000
ready, and will conduct additional testing during 1999.
The remaining IT systems have been inventoried, and necessary Year 2000
replacements and retrofits identified. A few of these projects are in the
analysis phase, while most are in the development, testing or implementation
phase. We will focus on these efforts during 1999, since the implementation of
our core systems is nearly complete.
Non-IT Systems
Non-IT Systems may contain date sensitive embedded technology requiring
Year 2000 upgrades. Examples of this technology include industrial equipment and
security equipment such as access and alarm systems, as well as facilities
support equipment.
We are also addressing the readiness of our critical suppliers and
customers. We have inventoried our critical suppliers, and where appropriate,
contacted certain suppliers requesting Year 2000 certification. In certain areas
where we rely on products supplied by manufacturers for systems provided to our
customers, we are seeking standard Year 2000 warranties that, to the extent
assignable, may be transferred to customers.
Costs
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to our results of operations, liquidity
and financial condition. The estimated total cost of the Year 2000 effort is
approximately $100,000. This estimate does not include the cost of our
previously planned business critical systems which are nearly complete. The
total amount expended through January 1999 was approximately $60,000. The
capital and expense costs above are primarily related to payroll costs for the
Information Technology group, consulting fees and hardware and software costs.
Risks and Contingency Planning
We have identified and assessed our areas of risk related to the Year 2000
problem. The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers, we are unable to determine at this
time whether the consequences of the Year 2000 failures will have a material
impact on our results of operations, liquidity or financial condition. The Year
2000 effort is expected to significantly reduce our level of uncertainty about
the Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of our critical suppliers. We believe that, with the implementation of
new business critical systems and
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completion of the Year 2000 specific projects as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
ENVIRONMENTAL MATTERS
We use various hazardous and toxic substances in its manufacturing
processes, including organic solvents and pyrotechnic materials. Our operations
are subject to numerous federal, state and local laws, regulations and permit
requirements relating to the handling, storage and disposal of those substances.
In general, we reuse organic solvents are recycled by a licensed disposal
company. The pyrotechnic charge contained in products that are rejected in the
quality-control process is eliminated by explosive discharge pursuant to
government regulations. We believe that we are in substantial compliance with
these laws and regulations and we have obtained all necessary permits. While
compliance with such laws and regulations has the effect of increasing our costs
of operations, these costs must also be incurred by our competitors. Therefore,
such costs do not materially adversely affect our competitive position.
Under certain environmental laws, a current or previous owner of real
property, and parties that generate or transport hazardous substances that are
disposed of at real property, may be liable for the costs of investigating and
remediating such substances on or under the property. The federal Comprehensive
Environmental Response, Compensation & Liability Act, as amended ("CERCLA"), and
similar state laws, impose liability on a joint and several basis, regardless of
whether the owner, operator, or other responsible party was at fault for the
presence of such hazardous substances.
In connection with our plan to relocate operations from Newhall to
Moorpark, we may be required to conduct environmental investigations at the
Newhall site. Due to the site's history of industrial use by multiple parties,
it is possible that such investigations will reveal the presence of hazardous
substances in soil and/or groundwater, which could require remediation. While we
do not expect remedial costs, if any, to be material, and while such costs might
be shared with other responsible parties, this cannot be guaranteed.
To date, our compliance with applicable environmental laws has not had a
material adverse effect on our financial condition, results of operations or
competitive position. Furthermore, although no assurances can be given, we do
not believe that compliance with presently existing environmental laws will have
such a material adverse effect or require material expenditures. See "Risk
Factors -- Environmental Matters."
COMPREHENSIVE INCOME
On November 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," issued by the Financial Accounting Standards Board (the
"FASB"). SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
The statement requires only additional disclosures in the financial statements;
it does not affect the Company's financial position or results of operations.
There is no difference between net earnings and comprehensive income for the
Company.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 is effective for annual financial
statements issued for periods beginning after December 15, 1997. We believe that
the adoption of SFAS No. 131 will not have a material impact on our financial
reporting.
STARTUP ACTIVITIES
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Cost of Startup
Activities." This SOP requires that costs incurred during start-up activities,
including organization costs, be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. Initial
application of the SOP should be as of the beginning of the fiscal year in which
the SOP is first adopted and should be reported as a cumulative effect
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of a change in accounting principles. We believe that the adoption of SOP 98-5
will not have a material impact on our consolidated financial statements.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In 1998, the FASB issued Statement of Financial Statements No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
modifies the accounting for derivative and hedging activities and is effective
for fiscal years beginning after December 15, 1999. We believe that the adoption
of SFAS No. 133 will not have a material impact on our financial reporting.
In March 1999, we entered into an interest rate swap agreement with a bank
with a notional amount of $35 million. Under the swap agreement, we are required
to pay a fixed rate of 5.42% on each March 17, June 17, September 17 and
December 17, commencing on June 17, 1999. The swap agreement terminates on March
7, 2001. We will receive a floating rate based on the three-month LIBOR rate on
the same dates as described above.
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BUSINESS
OVERVIEW
General
We are a leading designer and manufacturer of highly reliable precision
engineered pyrotechnic devices. These devices are used predominantly in vehicle
airbag and other automotive safety systems as well as in various aerospace
applications. Our primary products are initiators, which function like an
"electrical match" to ignite the gas generating charge in an automotive airbag
system or to provide precision ignitions in aerospace-related products. In
manufacturing our products, which utilize pyrotechnic materials, we ensure safe
handling and processing by following strict safety procedures that we have
developed over the past 35 years.
We have two divisions: an Automotive Products Division and an Aerospace
Division.
- We believe that our Automotive Products Division is the world's largest
supplier of initiators sold to leading U.S. and foreign automotive airbag
system manufacturers. Those manufacturers use our product in the assembly
of integrated airbag safety systems, which they then sell to automobile
OEMs.
- Our Aerospace Division supplies initiators and other advanced pyrotechnic
products to aerospace companies. Those companies, in turn, use our
products in a variety of applications including tactical missile systems,
spacecraft launch vehicles and military aircraft crew safety systems.
We have consistently generated strong financial results, which are largely
a result of favorable industry dynamics, various barriers to entry and a leading
market position. From Fiscal 1994 to Fiscal 1998, our net sales increased at a
compound annual growth rate of 27.5% and our EBITDA increased at a compound
annual growth rate of 41.8%. For the last twelve months ended January 31, 1999,
our net sales were $167.5 million and our EBITDA was $34.3 million.
Automotive Products Division
We believe that our Automotive Products Division is the world's largest
supplier of initiators to airbag system manufacturers. We formed the division in
1989 after the United States government adopted regulations requiring the
installation of airbags and other crash protection systems in all new passenger
automobiles. Since that time, demand for our initiators has grown rapidly. We
attribute this growth in large part to the continuing evolution of automotive
safety standards and increased customer preferences for airbag-related safety
options. We expect continued growth in the demand for our products as the number
of airbag-equipped vehicles increases, the number of airbags per vehicle grows
and our customers implement new technologies. These new technologies include
seat belt pre-tensioners and "smart" airbag systems, both of which we expect
will require new types of initiators and sometimes more than one initiator per
product. See "Risk Factors -- We Are Dependent On The Automotive Industry."
In recent years, our Automotive Products Division has grown its net sales
and cash flows significantly. The Automotive Products Division increased its net
sales from $49.5 million in Fiscal 1994 to $135.2 million in Fiscal 1998. This
represents an increasing portion of our total net sales during that time (76.7%
in Fiscal 1994 to 79.3% in Fiscal 1998). During the same period, our Automotive
Products Division increased its EBITDA (excluding pro forma adjustments) from
$5.7 million to $26.4 million, representing a compound annual growth rate of
46.7%.
We sell our initiators to leading domestic and foreign manufacturers of
airbag systems and subsystems. We have strong, long-term relationships with our
customers. In particular, we have supplier agreements with TRW, Autoliv and
Atlantic Research Corporation. We have been shipping initiators to Autoliv since
1990, TRW since 1991 and ARC since 1994. In addition, we have established new
relationships with other growing safety systems suppliers, including Richard
Hirschmann and Takata.
We have established a strong reputation for manufacturing high quality and
extremely reliable initiators. Since 1989, we estimate that over 100 million of
our initiators have been installed in automobiles. We do not
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know of any instances where our initiators failed to perform. To date, we have
focused on developing glass-sealed, co-axial initiators. We believe that these
initiators are superior to plastic-sealed, spark-gap initiators, which are lower
priced and used in safety restraint systems outside the United States, primarily
in Europe. We are currently testing the AGI, a new, low-cost, glass-sealed
initiator, that we expect will allow us to compete more favorably in Europe. We
intend to introduce this product during Fiscal 1999. See "Business -- Automotive
Products Division -- Products and Technology."
We base our success, in part, on years of investment in proprietary, highly
automated manufacturing equipment and the design of proprietary manufacturing
processes. In addition, we have significantly improved our operating efficiency
and profitability. We expect additional production efficiencies upon completion
of our relocation to our new Moorpark Facility in during Fiscal 1999.
Aerospace Division
Our Aerospace Division designs and manufactures highly reliable pyrotechnic
devices. Our customers use these devices in a variety of commercial and military
aerospace applications. The Aerospace Division's products include state-of-the
art initiators and mechanical subassemblies (such as explosive bolts, cable
cutters, actuators, valves, safe-arm devices, aircraft crew safety systems, and
bomb ejectors) that incorporate these initiators. We have produced many of these
products for over 35 years. As a result, we have a strong reputation across a
diverse customer base which includes the United States government and leading
prime contractors such as Boeing, Lockheed Martin, Raytheon and Alliant
Techsystems.
Our aerospace initiators and the devices that incorporate them are used to:
- ignite larger pyrotechnic systems, including rocket motors, and
- activate mechanical devices such as valves, directional fins, arm-fire
devices, aircraft crew ejection systems and rotary bomb ejectors.
We produce these high-cost-of-failure products according to customer
specifications. Lead times typically range between six to nine months in order
to satisfy the highly technical nature and intense product testing required
before shipment. As a result, our Aerospace Division produces a wider variety of
products in significantly lower volumes than our Automotive Products Division,
although these products typically generate higher gross margins than automotive
initiators. We believe that over the last four decades we have produced nearly
2,000 diverse products that are critical components in missile systems, bomb
deployment systems and satellite launching mechanisms.
Our Aerospace Division has produced stable financial results over the last
five years and has consistently generated strong cash flows. The Aerospace
Division has increased net sales from $15.0 million in Fiscal 1994 to $35.3
million in Fiscal 1998. The division's net sales have represented a decreasing
portion of our net sales during that time (23.3% in Fiscal 1994 to 20.7% in
Fiscal 1998) because of the dramatic growth of our Automotive Products Division.
During the same period, the Aerospace Division increased its EBITDA from $2.8
million to $8.0 million, representing a compound annual growth rate of 30.0%.
HISTORY
Special Devices, Incorporated was founded in the late 1950s in Pacoima,
California to manufacture pyrotechnics for motion picture special effects
applications. In 1960, the Company constructed a new facility in Newhall,
California for the production of military pyrotechnic devices. The Company
changed ownership several times before being purchased by Messrs. Thomas F.
Treinen, Jack B. Watson and outside investor Walter Neubauer in 1976. At the
time of that transaction the Company had net sales of $800,000 and 30 employees.
During the 1980s, increased defense spending and a broadening of the
Company's product lines allowed the Company to establish itself as a leading
manufacturer of high-reliability initiators for weapons systems and safe and arm
fire devices. By the end of the 1980s, the decline of the Cold War and rising
budget deficits were placing downward pressure on defense spending. At the same
time Congress passed legislation
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mandating the increased use of airbags in passenger cars and automotive OEMs
were beginning to market the superior safety of cars equipped with airbags.
Management decided to maintain the Company's aerospace business and aggressively
penetrate the automotive market.
In 1989, we signed a five-year contract to supply initiators to TRW, one of
the leading manufacturers of automotive airbags in the U.S. We constructed a
facility in Mesa, Arizona (the "MESA FACILITY") and renovated our Newhall
Facility to support production of automotive initiators. To raise capital for
this expansion we completed an initial public offering of our Common Stock in
August 1991. Through the 1990's, we gained additional airbag customers and by
the last quarter of Fiscal 1993, we had established our position as a leading
supplier of initiators and pyrotechnic devices to the world automotive and
aerospace markets.
COMPETITIVE STRENGTHS
We believe that the following competitive strengths will enable us to
continue to solidify our position as a leader in the global automotive initiator
market and in the aerospace initiator and pyrotechnic device market:
- LEADING MARKET POSITION IN A GROWING MARKET. Through our Automotive
Products Division, we believe we are the world's largest supplier of
automotive initiators with divisional net sales in Fiscal 1998 of $135.2
million. We are one of the two principal manufacturers of automotive
initiators in the United States, and we believe that we manufactured the
majority of initiators produced in the United States in 1998.
- BARRIERS TO ENTRY. We believe that the following significant barriers to
entry have limited the number of competitors that we face:
- Expertise. Handling and processing sensitive pyrotechnic materials
requires extensive pyrotechnics expertise. We have 35 years of
experience working with the fuels and oxidizers used in our
pyrotechnic devices.
- High Sales Volume Needed. A new entrant into the automotive initiator
market must achieve high sales volumes of relatively low priced units
in order to recover significant start up costs, including those
relating to equipment outlays.
- Qualifications. Each automotive initiator platform must pass numerous
tests established by automobile OEM and airbag system manufacturers.
These testing phases typically take approximately 12 to 18 months to
complete and are very expensive. We currently have approximately 65
initiator platforms. It would take a new entrant into our industry
years and significant expenditures to replicate the qualification and
testing required to successfully market the mix of products that we
offer.
- STRONG, LONG-TERM RELATIONSHIPS WITH AUTOMOTIVE INITIATOR CUSTOMERS. We
supply initiators to the major manufacturers and suppliers of airbag
systems and sub-systems in the U.S. market, including TRW, Autoliv, ARC,
Takata and Breed. Since 1991, TRW has purchased most of its initiator
requirements from us under long-term supply agreements. Since Fiscal
1997, we have been supplying Autoliv, a customer since 1990, with a
significant portion of its initiator requirements under a long-term
supply agreement. As a result of our relationships with our customers,
our initiators have been incorporated into airbag systems in vehicles
manufactured by most of the OEMs that sell automobiles, light trucks and
vans in the United States, including the three major domestic
manufacturers (Chrysler, Ford and General Motors), as well as BMW, Fiat,
Kia, Mazda, Mitsubishi, Nissan and Toyota.
- LEADING EDGE MANUFACTURING CAPABILITIES. We have significantly improved
our operating efficiency and productivity through several successful
initiatives. For example, we have expanded shipments of automotive
initiators from 8.3 million units in Fiscal 1994 to 42.3 million units in
Fiscal 1998. During that period, we also improved our Automotive Products
Division gross profit margin from 12.3% to 18.4%.
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- HIGH QUALITY AND RELIABLE PRODUCTS. We have built a strong reputation
for high quality and reliable products through our advanced manufacturing
capabilities. Since 1989, we estimate that over 100 million of our
glass-sealed, co-axial initiators have been installed. We do not know of
any instances where our initiators failed to perform.
- ESTABLISHED POSITIONS ON KEY AEROSPACE PLATFORMS. Our Aerospace Division
provides devices for several important military procurement programs,
including the Tomahawk cruise missile and the Company-designed bomb
ejector for the B-2 Spirit stealth bomber. Our Aerospace Division
maintains its strong competitive position due to long-term relationships
with key customers, participation on high priority platforms, strong
technical expertise, and a proven record for reliability. The division
has successfully maintained preferred supplier positions with prime
contractors following recent industry consolidation.
- EXPERIENCED MANAGEMENT TEAM. Each of our top four executive officers has
at least 20 years of experience in the automotive or aerospace device
industries, primarily in the pyrotechnic field. Our management team has
successfully implemented a strategy that has enabled us to achieve market
leadership and strong financial results.
BUSINESS STRATEGY
Key elements of our business strategy are as follows:
- EXPAND AUTOMOTIVE INITIATOR PRODUCTION CAPACITY. We have continued to
expand our automotive initiator production capacity as the market for
these initiators continues to grow. During the first quarter of Fiscal
1999, we completed construction of our new Moorpark Facility, which will
allow us to expand our California-based automotive initiator production
capacity from 35 million to 80 million units per year with little
additional construction required. See "Risk Factors -- Relocation To The
Moorpark Facility May Disrupt Our Operations." Additionally, we are
expanding production capacity at our Mesa, Arizona facility from 20
million units to 30 million units per year during Fiscal 1999, with
minimal additional construction costs. Our business plan contemplates
expanding total automotive initiator capacity to 120 million units per
year by Fiscal 2002.
- CONTINUE NEW PRODUCT DEVELOPMENT. We have developed the AGI, a new,
low-cost, glass-sealed, co-axial initiator, which is currently undergoing
qualification testing by our customers. We have designed the AGI to
provide an alternative that is cheaper than and as reliable as the
glass-sealed, co-axial initiators that are currently on the market. Also,
we have designed the AGI to be more reliable than plastic-sealed,
spark-gap initiators at a competitive price. We are currently developing
initiators for new automobile restraint technologies, such as seat belt
pre-tensioners and "smart airbags" (airbags that can sense the size,
weight and position of the occupant and deploy accordingly). See "Risk
Factors -- There Are Risk Associated With New Products Development,
Product Obsolescence And Third-Party Development Of Alternative
Technologies."
- PENETRATE INTERNATIONAL MARKETS. As foreign automobile purchasers become
more aware of the safety benefits of airbags, we are positioning
ourselves to address expected growth in these markets. Despite limited
legislative pressure, foreign OEMs are introducing airbag systems in an
effort to compete on safety. We foresee significant opportunities in
Europe and other markets, where current implementation rates for
driver-side and passenger-side airbags are lower than in the United
States and where our market share is lower than our U.S. market share. We
expect that the AGI will allow us to compete favorably with lower priced,
plastic-sealed, spark-gap initiators which currently dominate the
European market. We are also investigating expansion into other
international markets as safety awareness and demand for initiators
increases.
- CONTINUE MANUFACTURING PROCESS IMPROVEMENTS. We have successfully
implemented several manufacturing process improvements that have
dramatically improved manufacturing efficiency in the Automotive Products
Division. These initiatives include increasing automation and labor
productivity, reducing raw material costs, vertically integrating,
reducing scrap and implementing the Toyota
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Production System. In addition, we have designed our Moorpark Facility to
further increase production efficiency and reduce manufacturing costs,
operating costs and costs of future expansion.
- AEROSPACE GROWTH. We intend to capitalize on the strong foundation of
our Aerospace Division by:
- increasing our supply of initiators and other pyrotechnic devices to
the commercial satellite launch industry,
- capitalizing on the availability of numerous complementary
acquisitions in an effort to acquire new capabilities and increase the
number of products that we offer,
- focusing development efforts on long-term production contracts to
assist customers in the design of new pyrotechnic technologies,
- developing additional applications for existing products and
- expanding our capabilities in technologies that could replace
electro-mechanical devices, such as electronic or laser technology.
AUTOMOTIVE PRODUCTS DIVISION
Products and Technology. The Automotive Products Division currently
produces over 65 different airbag initiators for the four major domestic
manufacturers of airbag systems and has a variety of other initiator products
that are currently at various stages of the qualification process. An initiator
acts like an "electrical match" in an airbag, receiving the electrical signal
from a firing module and converting it to a high-energy output to initiate the
inflation of the airbag. Electrical systems and performance requirements differ
among automobile models and airbag systems and airbag systems differ among
driver-side, passenger-side and other applications. Therefore, the electrical
and physical characteristics of our initiators are customized for the airbag
system in which they are used. Each initiator version is similar in design
characteristics and utilizes many of the same basic components and production
techniques. However, each initiator and airbag system must complete design
validation and product validation requirements before it can be installed in
automobiles. See "-- Manufacturing -- Quality Control."
There are two principal types of airbag initiators currently in
use -- glass-sealed, co-axial initiators and plastic-sealed, spark-gap
initiators. We produce only glass-sealed, co-axial initiators. Most
manufacturers of automobiles sold in the U.S. use glass-sealed, co-axial
initiators while most airbags installed in cars sold in Europe employ
plastic-sealed, spark-gap initiators.
We believe that glass-sealed initiators are more reliable than
plastic-sealed initiators because they are more resistant to environmental
forces such as moisture and dirt. The co-axial design is also more resistant to
accidental ignition by stray electromagnetic signals (such as static electricity
or radio signals) than the spark-gap design. Plastic-sealed initiators currently
cannot use the co-axial design, although glass-sealed initiators can be either
co-axial or spark-gap. As a result of sound engineering and quality control
efforts, we believe that there has not been a single reported failure of any of
the estimated 80 million of our initiators that have been installed in
automobiles since the Automotive Products Division was formed in 1989.
The primary advantage of plastic-sealed, spark-gap initiators is their
lower cost. During 1997, however, we developed and our currently testing the
AGI -- a new, low cost glass-sealed, co-axial initiator. The AGI has completed
the production phase of its product validation and has been made available to
our customers in quantities for testing. See "-- Manufacturing -- Quality
Control." The AGI will be available in production quantities during Fiscal 1999.
The AGI's simplified design should enable us to provide an initiator with
equivalent functionality and reliability to current glass-sealed, co-axial
initiators and better reliability than plastic-sealed, spark-gap initiators. The
AGI will be priced to compete favorably with the plastic-sealed, spark-gap
initiators which currently dominate the European initiator market. See "Risk
Factors -- New Product Introductions; Uncertainty of Market Acceptance."
Customers. TRW, Autoliv, ARC, Takata and Breed Technologies, the current
global manufacturers and suppliers of automotive airbag systems or sub-systems,
all incorporate our initiators in certain of their
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airbag systems or sub-systems. In addition, we sell our products to the other
manufacturers of airbag systems, including Richard Hirschmann (Austria), TRW
Auto Systems (England), TRW Airbag Systems (Germany) and Autoliv (Amsterdam).
Our three principal customers are TRW, Autoliv and ARC, who together represented
approximately 93.7% of total Automotive Product Division units produced in
Fiscal 1998. TRW and Autoliv are two of the major domestic manufacturers of
airbag systems. We have supplied initiators to TRW since 1991, Autoliv since
1990 and ARC since 1994. See "Risk Factors -- We Are Dependent On Key
Customers."
In Fiscal 1998, TRW accounted for approximately 35.1% of the units we sold
and approximately 39.7% of our net sales. The TRW Agreement, which expires at
the end of the 2002 model year, obligates TRW to purchase a majority of its
initiator requirements from us at prices per unit that vary based on the type of
initiator purchased and the model year and requires that we have certain
specified minimum production capacities during the term. Prices may be increased
through negotiation if TRW requests a design change. Prices have also been
subject to renegotiation. The TRW Agreement does not require TRW to purchase a
minimum number of units nor is TRW obligated to purchase the specified
percentage of its requirements unless our prices are competitive with those
offered by other suppliers and our technology and quality are equivalent or
better than that of other suppliers. We determine manufacturing schedules and
ship products to TRW based upon delivery orders, specifying the desired
quantities and delivery dates which are released several weeks in advance of
delivery. TRW may terminate a particular purchase order or any part of it by
written notice to us, in which case TRW is obligated to pay us for all goods
that:
- are ready for shipment prior to our receipt of the notice of termination,
- conform to all requirements of the purchase order and
- are free and clear of all encumbrances.
In Fiscal 1998, Autoliv accounted for approximately 42.1% of the units we
sold and approximately 24.9% of our net sales. In November 1995, we entered into
the Autoliv Agreement, which lasts through the 1999 model year, whereby Autoliv
is required to purchase a substantial portion of its airbag-system initiators
from us. We successfully completed qualification requirements, and Autoliv
ordered a substantial volume of initiators under this agreement beginning in
August 1996 for 1997 model year production. Pricing is agreed each year by the
parties, and prices may be increased through negotiation if Autoliv requests a
design change. Prices have also been subject to renegotiation during the course
of a model year. We are obligated to maintain pricing, terms, delivery, service
and quality consistent with industry standards.
We have an agreement with ARC (which accounted for approximately 16.4% of
our units shipped and approximately 11.3% of our net sales in Fiscal 1998) with
terms similar to those contained in the TRW Agreement, pursuant to which ARC
agreed to purchase a majority of its initiator requirements from us through the
2000 model year. In addition, we have established new relationships with other
growing safety systems suppliers, including Richard Hirschmann and Takata. We
began to ship production quantities to Hirschmann in Fiscal 1998 and we expect
to supply production quantities to Takata beginning in Fiscal 1999.
Sales and Marketing. The Automotive Products Division's management,
engineers and personnel maintain close contact with each customer and monitor
developments in the automotive industry (particularly the status of products
such as side and rear seat airbag systems, seat belt pre-tensioners and "smart"
airbag systems) and the domestic and international airbag system markets in
order to exploit marketing opportunities as they become available.
In November 1990, we entered into the DBS License Agreement pursuant to
which we granted DBS a license to:
- use all patented and non-patented technical information, know-how, data,
systems, programs and specifications (collectively, "TECHNOLOGY") used in
the manufacture of initiators or incorporated in initiators (whether such
Technology is owned by us or developed by us subsequently) and
- distribute initiators using the Technology worldwide, provided that DBS
may not sell such initiators to TRW or its affiliates in the U.S.
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Until December 31, 1998, DBS was required to pay royalties to us under the
agreement. From and after January 1, 1999, DBS is no longer obligated to pay
royalties to us, and DBS is entitled to continue using the Technology
perpetually on a royalty-free basis. As DBS failed to meet certain distribution
requirements by December 31, 1998, the Company has the right to license the
Technology to third parties. To date, DBS has not manufactured or distributed
any products under the DBS License Agreement. Significant competition from DBS
in Europe or the U.S. could have a material adverse effect on us.
Competition. Currently there are two large-volume manufacturers of airbag
initiators in the United States -- us and OEA, Inc. We believe that we hold the
largest share of the domestic airbag initiator market although OEA may have
greater financial resources than the Company. Other companies may choose to
enter the automotive initiator market in the future. There are, however,
substantial monetary costs and time associated with the design validation and
product validation qualifications required by customers as well as development
and start-up. See "-- Manufacturing -- Quality Control." Currently, Nouvelle
Cartoucherie de Survilliers and an affiliate of DBS are the major suppliers of
airbag initiators in Europe.
Unit selling prices to customers vary depending upon the complexity of
design and the value of added components. As a result, the total average selling
price in any period will be affected by the relative quantities sold to each
customer. In addition, during recent years, competition among manufacturers of
airbag initiators has intensified. As a result of this increased competition, we
and other manufacturers of initiators have had to significantly reduce the price
of initiators. We expect this competition to continue and to cause additional
price pressure on us and other initiator manufacturers. We cannot assure you
that we will be able to compete successfully in such an environment.
AEROSPACE DIVISION
Products and Technology. The Aerospace Division, like the Automotive
Products Division, designs and manufactures highly reliable initiators and other
pyrotechnic devices. The Aerospace Division's products are used primarily in
tactical missile systems, spacecraft launch vehicles and military aircraft crew
safety systems. The Aerospace Division's products include state-of-the-art
initiators and mechanical devices that incorporate these initiators such as
explosive bolts, cutters, actuators, valves, pin pullers and arm-fire devices
used in tactical missile systems and cutters and gas generators used in military
aircraft escape and safety systems employed by the F-15, F-16, F-18, AV-8B,
T-38, T-45, T-48 and B-2 aircraft, automatic parachute releases, time delays,
separation nuts, thrusters, valves, actuators and retractors used to lock
landing gear, jettison the manipulator arm on the Space Shuttle, and deploy the
drogue chute for the Space Shuttle upon landing. In addition, during Fiscal 1997
the Aerospace Division began selling a portable oxygen flow/ communications
tester used by Air Force pilots and also began production of a proprietary bomb
ejector in Fiscal 1998.
Aerospace Division initiators are used to ignite larger pyrotechnic
charges, such as rocket propellant, or to activate mechanical devices. Missiles,
other weapon systems and aircraft incorporate initiators for several purposes,
such as igniting the fuel which propels the missile, releasing directional fins,
triggering automatic parachutes, ejecting crew members from military aircraft
and opening or closing valves. An arm-fire device is an electro-mechanical
device that prevents a rocket motor from being fired accidentally. Bomb ejectors
are used on aircraft to allow for sequential release of missiles and bombs and
they employ initiators to trigger the release.
Each of the devices manufactured by the Aerospace Division is a component
in a larger product of its customer. As a result, we and our competitors must
respond to specification requirements by devoting significant engineering,
development and testing resources.
Customers. The Aerospace Division's customers typically are prime
contractors or subcontractors on projects where the United States government is
the end-user, although we are supplying an increasing number
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<PAGE> 57
of initiators to the commercial satellite launch industry. The following table
summarizes certain of the Aerospace Division's major customers and the programs
that incorporate our products:
<TABLE>
<CAPTION>
MAJOR CUSTOMERS MAJOR PROGRAMS
- --------------- --------------
<S> <C>
U.S. Air Force............... Ejection Seat Components, Parachute
Testers
Primex....................... SFW, BAT, Fire Extinguisher Initiators
Raytheon..................... TOW, Tomahawk, Standard Missile
Thiokol...................... HARM
Alliant Techsystems.......... AMRAAM, Seasparrow, SFW, Maverick,
Hellfire
Lockheed Martin.............. Patriot, Javelin, Atlas, Hellfire,
JASAM
Boeing....................... Tomahawk, Harpoon, SLAM, Delta, BRU-
44
U.S. Navy.................... Initiators
Textron...................... SFW, WAM
Royal Ordnance............... ASRAAM
Northrop..................... BAT, K-1
UTC.......................... Space Shuttle, Tomahawk, Titan, AEGIS
Aerojet Corp. ............... AMRAAM, Hawk
Atlantic Research Corp. ..... RAM, Sidewinder, AMRAAM, Standard
Missile
Orbital Sciences Corp. ...... Pegasus, Taurus
</TABLE>
No program of the Aerospace Division accounted For more than 10% of our net
sales during any of the three fiscal years ended October 31, 1998.
A majority of the division's present customer contracts are fixed-price
contracts. These contracts generally specify a fixed price per unit depending on
the quantity desired. Fixed-price contracts carry certain inherent risks,
including underestimating costs, problems with new technologies and economic and
other changes that may occur over the contract period. However, because of
economies of scale that may be realized during the contract term, fixed price
contracts may offer significant profit potential.
Sales and Marketing. Marketing efforts for the Aerospace Division are
focused on identifying emerging new programs that have long-term production
potential and the prime contractors or subcontractors who are likely to receive
contracts for such programs. The Aerospace Division has a full-time Director of
Marketing whose duties include identifying and pursuing new program
opportunities, customers, potential teaming arrangements and new business
development strategies. Scot also employs two full-time employees whose primary
responsibilities are to market Scot's products.
For new programs, the Aerospace Division generally receives a request for
bids from its customer. We respond to customer inquiries with "firm" quotations
and extensive cost, technical and management proposals. In some cases, we will
provide prototype hardware for the customer's evaluation prior to source
selection. We believe that customers award contracts based upon the technical
proposals submitted, which include design innovation, analysis and compliance
with specifications, in addition to pricing.
All proposals with respect to United States government programs involving
amounts in excess of $500,000 are subject to audit by the United States
government. Most of our contracts with respect to United States government
programs are subject to unilateral termination at the government's convenience.
See "Risk Factors -- There Are Risks Related To Government Contracts And
Compliance With Government Regulations."
Competition. The Aerospace Division competes with several firms, some with
greater financial resources than the Company. Once the initial contract is
awarded, contracts for additional products are generally entered into on a
negotiated price basis and are not competitively bid.
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<PAGE> 58
Although we have very few patents, there are practical barriers to entry
for potential new competitors. Each of the Aerospace Division's products is made
to precise technical specifications and must be thoroughly tested before being
used in a customer's products. Testing and approval is a costly and
time-consuming process. Not only must each of the division's products be tested
individually, but all such products must be tested in conjunction with the
larger product into which they are intended to be placed. After commencement of
a program, it is costly for the Aerospace Division's competitors to design, and
the customers to change suppliers of, the components we manufacture since the
customer would be required to re-qualify its products using a new
subcontractor's components.
MANUFACTURING
General. Our production process consists of fabricating and assembling the
hardware components and separately preparing the pyrotechnic charge. Production
of the electro-mechanical assemblies involves the purchase of machined
components, seals and other materials, the mechanical assembly of the components
and the testing of the completed units. Throughout the entire process, strict
quality assurance controls are maintained in order to obtain the lowest possible
theoretical failure rates. After assembly, the products are functionally tested
on a sample basis as required by each customer or the applicable contract.
We manufacture the pyrotechnic charge from raw generic chemicals and have
handled and processed these fuels and oxidizers for over 35 years. Some of the
pyrotechnic fuels are delivered to us in bulk in a wet and non-volatile form. We
dry the pyrotechnic fuels before use. These fuels are then mixed with oxidizers
and pressed in small quantities into the metal housings of the specific product
being made. Handling and processing pyrotechnic materials requires extensive
experience and expertise as well as the proper equipment and facilities.
While both the Automotive Products Division and the Aerospace Division
manufacture similar pyrotechnic products, each division's manufacturing process
is unique. Because the Automotive Products Division must produce large
quantities of highly reliable products at high speeds (current run rates
approximate 50 million units per annum), automation and process engineering are
as important to us as product design. We have a staff of highly trained
automation engineers, technicians and operators whose goal is to maximize yield
and product quality. In addition, we have achieved significant improvements in
operating efficiency and productivity through the successful implementation of a
manufacturing process improvement program based on Japanese manufacturing
techniques, including the Toyota Production System. Our new Moorpark Facility is
designed to increase efficiencies further through improved plant layout. In
contrast, the Aerospace Division manufactures primarily engineered-to-order
products pursuant to custom specifications. Lead times typically range between
six to nine months in order to satisfy the highly technical nature and intense
product testing required prior to product shipment. As a result, the Aerospace
Division produces a wider variety of products at significantly lower volumes
than the Automotive Products Division, although these products typically
generate higher gross margins.
Quality Control. Each type of initiator manufactured by the Automotive
Products Division must qualify for use by passing numerous tests established by
the automobile and airbag system manufacturers. The initial test phase is design
validation, which is intended to demonstrate that the design of the initiator is
capable of performing the required function within the stated specifications.
The second test phase is product validation, which is intended to demonstrate
that we have the management, personnel, equipment and facilities to manufacture
the initiator in production quantities to design specifications. The design
validation and product validation qualification phases must be repeated for each
new initiator design. The product validation qualification phase must also be
repeated for each facility at which initiators are produced. These initial
qualification procedures are very costly and time consuming. The product
validation qualification phase, for example, requires a supplier to have in
place its management, personnel, equipment and facilities prior to the time they
would otherwise be required for production.
Products manufactured by the Aerospace Division also must meet rigorous
standards and specifications for workmanship, process, raw materials, procedures
and testing. Customers, and in some cases the United States government as the
end user, perform periodic quality audits of the manufacturing process. Certain
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<PAGE> 59
customers and the United States government maintain representatives at our
facilities to monitor quality assurance.
Production Facilities. We utilize automatic and semiautomatic production
equipment located at the Moorpark Facility (Automotive Products Division and
Aerospace Division), the Newhall Facility (Automotive Products Division), the
Mesa Facility (Automotive Products Division) and at our facility in Downers
Grove, Illinois (Aerospace Division). Since the end of Fiscal 1996, the
Automotive Products Division has expanded from two production lines in each of
the Mesa and Newhall Facilities (with an annual designed capacity of 20 million
units) to four lines in the Moorpark Facility, four lines in the Newhall
Facility and five lines in the Mesa Facility. As of March 31, 1999, these three
facilities were producing at a combined annualized rate of approximately 50
million automotive initiators per year, with an average of three shifts working
an average of 5 1/2 days a week.
Our Newhall Facility consists of several buildings that are no longer
conducive to achieving optimal manufacturing efficiencies. In October 1996, we
purchased approximately 280 acres of land in the city of Moorpark, located in
Ventura County, north of Los Angeles. During the first quarter of Fiscal 1999,
we completed construction of our new Moorpark Facility, which will allow us to
expand our California-based automotive initiator production capacity from 35
million to 80 million units per year with little additional construction
required. We completed the move of our corporate and administrative offices from
Newhall to Moorpark in February 1999, and we began shifting Aerospace operations
to Moorpark in December 1998 and Automotive operations to Moorpark in January
1999. See "Risk Factors -- Relocation To The Moorpark Facility May Disrupt Our
Operations."
Supplies and Suppliers. The principal materials we use in our various
manufacturing processes include pyrotechnic powder, glass to metal seal
components, fabricated metal parts, wire, nylon and a variety of other
fabricated or manufactured items. While some components, such as flexible
circuits, mechanical parts, connectors, seals and certain chemicals are
purchased from single suppliers, substantially all materials are normally
available from multiple suppliers. Current and potential suppliers are evaluated
on a regular basis on their ability to meet our requirements and standards. Most
components are manufactured specifically for us to our specifications.
In 1997, we leased a facility in Moorpark, California and purchased
equipment to begin manufacturing glass-sealed initiator bodies (header sub
assemblies) internally. All of these initiator bodies have historically been
purchased from outside sources, primarily from one manufacturer, and we expect
to continue to purchase a majority of our requirements for these initiator
bodies from outside sources in the future. We plan to begin production for these
items during Fiscal 1999.
We have a long-term supply contract with a company for header
sub-assemblies used by the Automotive Products Division for incorporation into
initiators. This supply contract was amended in 1997 to extend through December
31, 2000. The amended agreement significantly reduced the prices we pay for
headers purchased effective September 1997 and provides that such prices will be
further reduced at the beginning of the 1999 and 2000 calendar years. In return
for the extension and price reductions, we are required to purchase a
substantial majority of our requirements for sub-assemblies from the supplier.
We are not obligated to make such minimum purchases in the event certain
competitive pricing, quality or delivery issues arise. We believe that
alternative sources of the component are available in the event of any
disruption in delivery by the supplier. In addition, we plan to have internal
production capacity for header sub-assemblies, as discussed above, during Fiscal
1999.
RISK MANAGEMENT AND INSURANCE
The drying, sifting, mixing and processing of pyrotechnic materials involve
certain risks and potential liabilities. Our safety and health programs provide
specialized training to employees working with pyrotechnic materials.
Pyrotechnic chemicals are generally delivered to us and are stored by us in a
non-volatile form. The pyrotechnic materials are then dried, sifted and blended
at a remote location. Work stations are designed to shield employees from any
accidental explosion. Furthermore, our machines are designed so that an
accidental explosion will be contained in a protective enclosure to minimize
damage. The explosion at our
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<PAGE> 60
Newhall Facility in February 1999 occurred while loading pyrotechnic materials
into a transport vehicle, rather than within a building or at a work station.
See "Risk Factors -- We Are Subject To Environmental And Workplace Regulations."
We maintain a liability insurance program covering a number of risks. Our
insurance program includes comprehensive general liability and products
liability coverage in the amount of $100.0 million for the Aerospace Division,
including our subsidiary, Scot, and $50.0 million for the Automotive Products
Division. We also have casualty and fire insurance with various coverage limits
for damage to personal property and buildings, business interruption,
earthquakes, boilers and machinery and automobile liability. Pollution liability
is excluded from our comprehensive general liability insurance policy.
We are engaged in a business which could expose us to possible claims for
injury resulting from the failure of products sold by us, notably initiators for
airbag systems. Although we are not aware of any claims for injury resulting
from its airbag initiators, they have only been in general use for approximately
eight years. We maintain product liability insurance coverage as described
above. However, there can be no assurance that claims will not arise in the
future, that the proceeds of such policy will be sufficient to pay future claims
or that we will be able to maintain the same level of insurance.
EMPLOYEES
At March 31, 1999, we had approximately 770 full-time employees at our
Newhall and Moorpark Facilities, approximately 628 full-time employees at the
Mesa Facility, approximately 70 full-time employees in Downers Grove, Illinois
and one full-time employee in Ogden, Utah. None of our employees is represented
by a collective bargaining unit. We consider our relationship with our employees
to be good.
BACKLOG
The majority of sales for the Automotive Products Division are achieved
under long-term agreements such as the TRW Agreement and the Autoliv Agreement.
Those agreements typically have terms ranging from three to five years and
specify minimum percentage requirements to be supplied by us during the term of
the agreements. Purchase order releases against those agreements are updated
weekly by each customer and include "firm" shipping requirements for the next 12
to 16 weeks. The Automotive Products Division does not reflect an order in
backlog until it has received a purchase order from a customer that specifies
the quantity ordered and the delivery dates required. Since these orders are
generally shipped within 12 to 16 weeks of receipt of the order, the amount of
"firm" backlog for the Automotive Products Division at any given time is not
indicative of sales levels expected to be achieved over a 12-month period.
Aerospace Division backlog was $32.2 million at January 31, 1999 as
compared to $40.8 million at January 31, 1998 and $34.5 million at October 31,
1998. Aerospace Division backlog includes the remaining contract amount for
units yet to be shipped (excluding renewals or extensions which are at the
discretion of the customer) for signed contracts or contract award notifications
with firm delivery dates and prices. Backlog is calculated without regard to
possible adjustments for scope change or potential cancellations until such
changes or cancellations occur. Of the total Aerospace Division backlog at
January 31, 1999, we expect that approximately $9.5 million will not be
delivered until after Fiscal 1999.
FACILITIES
Our principal executive offices are now located at the Moorpark Facility.
The Moorpark Facility consists of six buildings which cover approximately
170,000 square feet. We own the 280 acres of land on which the Moorpark Facility
is located.
We still maintain production operations at our Newhall Facility, which are
in the process of being moved to the Moorpark Facility. The Newhall Facility is
leased from a partnership (consisting of certain of our stockholders) under a
Master Lease Agreement that expired on April 30, 1996 but that has continued
month-to-month since then. We are operating under a non-conforming use permit,
issued by the Los Angeles County Regional Planning Commission, which expires
December 31, 2001. The Newhall Facility consists of approximately 35 buildings,
modular units and other structures aggregating approximately 70,000 square feet.
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<PAGE> 61
We have an additional facility used by the Automotive Products Division in
Mesa, Arizona on approximately 21 acres of land which we own. The Mesa Facility
consists of several buildings aggregating approximately 72,000 square feet,
including two blending facilities. See "Business -- Manufacturing."
Scot's manufacturing facilities and principal offices which are owned by
Scot, subject to a mortgage, are located in Downers Grove, Illinois and consist
of approximately 47,000 square feet of office and manufacturing facilities
located on three and one-half acres of land that are owned by Scot. Scot also
owns 29 acres of land in Ogden, Utah, on which Scot tests various products.
GOVERNMENT REGULATION
As a contractor and subcontractor of the United States government, we are
subject to various laws and regulations more restrictive than those applicable
to non-government contractors. We are subject to periodic audits and
investigations to confirm compliance with those laws. Violations can result in
civil and/or criminal liability as well as suspension or debarment from
eligibility for awards of new government contracts or contract renewals. As of
the date hereof, we know of two pending preliminary inquiries regarding
compliance with government policies by the Aerospace Division. On their face,
the two matters, if determined adversely to us, are not likely to have a
material adverse effect on us, although the investigations are in their
preliminary stages and there can be no assurance as to this. Accordingly, we
cannot predict the outcome of these proceedings. See "Risk Factors -- Risks
Related to Government Contracts and Compliance with Government Regulations."
ENVIRONMENTAL REGULATION
We use various hazardous and toxic substances in our manufacturing
processes, including organic solvents and pyrotechnic materials. Our operations
are subject to numerous federal, state and local laws, regulations and permit
requirements relating to the handling, storage and disposal of those substances.
In general, organic solvents are recycled by a licensed disposal company and
reused by us. The pyrotechnic charge contained in products that are rejected in
the quality-control process is eliminated by explosive discharge pursuant to
government regulations. We believe that we are in substantial compliance with
applicable laws and regulations and that we have obtained all necessary permits.
While compliance with such laws and regulations has the effect of increasing our
costs of operations, these costs must also be incurred by our competitors and,
therefore, they do not materially adversely affect our competitive position.
Under certain environmental laws, a current or previous owner of real
property, and parties that generate or transport hazardous substances that are
disposed of at real property, may be liable for the costs of investigating and
remediating such substances on or under the property. CERCLA, and similar state
laws, impose liability on a joint and several basis, regardless of whether the
owner, operator, or other responsible party was at fault for the presence of
such hazardous substances.
In connection with our plan to relocate operations from Newhall to
Moorpark, we may be required to conduct environmental investigations at the
Newhall site. Due to the site's history of industrial use by multiple parties,
it is possible that such investigations will reveal the presence of hazardous
substances in soil and/or groundwater, which could require remediation. While we
do not expect remedial costs, if any, to be material, and while such costs might
be shared with other responsible parties, this cannot be guaranteed.
To date, our compliance with applicable environmental laws has not had a
material adverse effect on our financial condition, results of operations or
competitive position. Furthermore, although no assurances can be given, we do
not believe that compliance with presently existing environmental laws will have
such a material adverse effect or require material expenditures in the future.
See "Risk Factors -- We Are Subject To Environmental And Workplace Regulations."
LEGAL PROCEEDINGS
We are involved in various legal proceedings generally incidental to our
business. While the ultimate disposition of these proceedings is not presently
determinable, we do not believe that the outcome of these proceedings will have
a material adverse effect on our financial position or results of operations.
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<PAGE> 62
Stockholder Litigation. Four purported stockholder class action lawsuits
have been filed in the Delaware Court of Chancery challenging the Merger. On
June 22, 1998, David Finkelstein filed a purported stockholder class action
lawsuit against J. Nelson Hoffman, Robert S. Ritchie, Jack B. Watson, Thomas F.
Treinen, Walter Neubauer, Samuel Levin, Donald A. Benedix, John M. Cuthbert, the
Company and Lehman. Also on June 22, 1998, a purported stockholder class action
complaint was filed by Harbor Finance Partners against Messrs. Treinen, Hoffman,
Ritchie, Watson, Levin, Bendix, Cuthbert, as well as the Company. Finally, on
June 25, 1998, a purported stockholder class action lawsuit was filed by Timothy
Hawkins against Messrs. Hoffman, Watson, Treinen, Levin, Bendix, Cuthbert, as
well as the Company and Lehman. Each of these three lawsuits charges the
individual defendants with breaching their fiduciary duties to the public
stockholders of the Company by allegedly failing to obtain adequate
consideration for the Merger. The complaints allege, among other things, that
the terms of the Merger are unfair, that the defendants failed to consider other
potential purchasers of the Company, and that the individual defendants are
favoring their own interest at the expense of the stockholders. On August 21,
1998, David Finkelstein, the plaintiff in one of the derivative lawsuits, filed
an amended class action complaint against the same defendants as the original
complaint which charges the individual defendants with failing to disclose
material information in the original proxy statement, including, among other
things, the failure to disclose third quarter financial statements, information
concerning the projections made available to bidders and the firm which rendered
a fairness opinion in connection with the Merger, the interest of certain
persons in the equity of the continuing entity as well as breaching their
fiduciary duties to the public stockholders of the Company by allegedly failing
to obtain adequate consideration for the Merger.
On November 30, 1998, a fourth purported stockholder class action lawsuit
was filed in the Delaware Court of Chancery challenging the Merger. The lawsuit,
filed by Paul Packer, purportedly on behalf of himself and other stockholders of
the Company as of October 15, 1998, is brought against J. Nelson Hoffman, Jack
B. Watson, Thomas F. Treinen, Samuel Levin, Donald A. Bendix, John M. Cuthbert,
Robert S. Ritchie and the Company. The lawsuit essentially charges the
individual defendants with breaching their fiduciary duties to the public
stockholders of the Company by allegedly failing to obtain adequate
consideration for the Merger. The complaint alleges, among other things, that
the terms of the Merger are unfair, that the consideration paid to the public
shareholders of the Company is unfair, inadequate and substantially below the
fair market value of the Company, that the individual defendants failed to take
steps to enhance the Company's value, that they failed to effectively expose the
Company in the marketplace, and that they are favoring their own interests at
the expense of the public stockholders.
The plaintiffs and defendants agreed in the first three purported class
actions to enter into a memorandum of understanding, evidencing the parties'
agreement on the material terms of a settlement of the litigation before the
fourth lawsuit was filed. Since then, the Company and its counsel have had
discussions with counsel for the plaintiffs in all of these actions and it is
possible that the actions will still be settled. Any settlement will be subject
to approval by the Delaware Court of Chancery. No trial date has been set for
any of the four lawsuits and the defendants have not yet filed responsive
pleadings. Management disputes all of the plaintiffs' material allegations and
believes that this litigation is without merit. At this preliminary stage, we
are not in a position to evaluate the likely outcome of this litigation nor the
terms of any possible settlement.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the name, age and position of each of our
directors and executive officers. All of our officers are elected annually and
serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
John M. Cuthbert.......................... 56 Director, President and Chief Executive Officer
Samuel Levin.............................. 69 President, Scot, Incorporated
Robert S. Ritchie......................... 55 Vice President, Aerospace Division
John T. Vinke............................. 54 Executive Vice President, Chief Financial Officer
George Sawyer............................. 67 Chairman of the Board of Directors
Oliver C. Boileau, Jr..................... 71 Director
Stephen Eisenstein........................ 36 Director
Donald Glickman........................... 65 Director
John F. Lehman............................ 56 Director
Keith Oster............................... 37 Director
William Paul.............................. 62 Director
Thomas G. Pownall......................... 76 Director
Joseph Stroud............................. 43 Director
Thomas F. Treinen......................... 61 Director
Jack B. Watson............................ 62 Director
</TABLE>
John M. Cuthbert has been a Director of the Company since June 1991 and
served as President of the Automotive Products Division from January 1992 until
the completion of the Recapitalization, at which time he became President and
Chief Executive Officer of the Company. From December 1989 to January 1992, he
served as a Vice President of the Automotive Products Division. From 1977 to
1984, he was Director of Engineering at OEA, Inc. (Aerospace and Automotive
Products) and was Vice President of Engineering for OEA, Inc. from 1984 to 1989.
Mr. Cuthbert holds a degree in mechanical engineering.
Samuel Levin has been President of Scot since 1992. Mr. Levin served as a
Director of the Company from September 1994 until consummation of the
Recapitalization in December 1998. Prior to September 1994, Mr. Levin spent 18
years in various executive capacities with Scot. Mr. Levin holds a degree in
mechanical engineering.
Robert S. Ritchie has been employed by the Company since 1990 and has been
a Vice President in charge of the Aerospace Division's operations at the Newhall
Facility since October 1991. From 1985 to 1990, Mr. Ritchie was an independent
business management consultant servicing aerospace and commercial companies. Mr.
Ritchie holds a degree in mechanical engineering and an M.B.A.
John T. Vinke has been employed by the Company as Vice President, Finance
and Chief Financial Officer since April 1994. Upon completion of the
Recapitalization, Mr. Vinke became Executive Vice President, Chief Financial
Officer of the Company. Mr. Vinke is a Certified Public Accountant.
George Sawyer, who became Chairman of the Board of Directors of the Company
upon consummation of the Recapitalization, is a Managing Principal of Lehman.
From 1993 to 1995, Mr. Sawyer served as the President and Chief Executive
Officer of Sperry Marine Inc. Prior to that, Mr. Sawyer held a number of
prominent positions in private industry and in the United States government,
including serving as the President of John J. McMullen Associates, the President
and Chief Operating Officer of TRE Corporation, Executive Vice President and
Director of General Dynamics Corporation, the Vice President of International
Operations for Bechtel Corporation and the Assistant Secretary of the Navy for
Shipbuilding and Logistics under Dr. Lehman. Mr. Sawyer is currently Chairman of
Burke Industries, Inc. and a director of Elgar Holdings, Inc. He also serves on
the Board of Trustees of Webb Institute and is on the Board of Managers of the
American Bureau of Shipping.
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Oliver C. Boileau, Jr. became a director of the Company upon consummation
of the Recapitalization. He joined The Boeing Company in 1953 as a research
engineer and progressed through several technical and management positions and
was named Vice President in 1968 and then President of Boeing Aerospace in 1973.
In 1980, he joined General Dynamics Corporation as President and a member of the
Board of Directors. In January 1988, Mr. Boileau was promoted to Vice Chairman.
He retired in May 1988. Mr. Boileau joined Northrop Grumman Corporation in
December 1989 as President and General Manager of the B-2 Division. He also
served as President and Chief Operating Officer of the Grumman Corporation, a
subsidiary of Northrop Grumman, and as a member of the Board of Directors of
Northrop Grumman. Mr. Boileau retired from Northrop Grumman in 1995. He is an
Honorary Fellow of the American Institute of Aeronautics and Astronautics, a
member of the National Academy of Engineering, the Board of Trustees of St.
Louis University and the Massachusetts Institute of Technology -- Lincoln
Laboratory Advisory Board. Mr. Boileau is also director of Burke Industries,
Inc. and Elgar Holdings, Inc.
Stephen Eisenstein became a director of the Company upon consummation of
the Recapitalization. Prior to co-founding Paribas Principal Partners in 1996,
Mr. Eisenstein was a Managing Director specializing in financing and investing
in leveraged buyouts for six years at Paribas. Before joining Paribas, Mr.
Eisenstein worked at The Chase Manhattan Bank in the Media Corporate Finance
Group and at PaineWebber Inc. in the Equity Research Department. Mr. Eisenstein
serves on the Board of Directors of Atlantic Coast Fire Protection, Inc.,
Collins and Aikman Floorcoverings, Inc. and Key Plastics, Inc.
Donald Glickman, who became a director of the Company upon consummation of
the Recapitalization, is a Managing Principal of Lehman. Prior to joining
Lehman, Mr. Glickman was a principal of the Peter J. Solomon Company, a Managing
Director of Shearson Lehman Brothers Merchant Banking Group and Senior Vice
President and Regional Head of The First National Bank of Chicago. Mr. Glickman
served as an armored calvary officer in the Seventh U.S. Army. Mr. Glickman is
currently Chairman of Elgar Holdings, Inc. and a director of the
MacNeal-Schwendler Corporation, General Aluminum Corporation, Monroe Muffler
Brake, Inc. and Burke Industries, Inc. He is also a trustee of MassMutual
Corporate Investors, MassMutual Participation Investors and Wolf Trap Foundation
for the Performing Arts.
John F. Lehman, who became a director of the Company upon consummation of
the Recapitalization, is a Managing Principal of Lehman. Prior to joining
Lehman, Dr. Lehman was an investment banker with PaineWebber Incorporated and
served as a Managing Director in Corporate Finance. Dr. Lehman served for six
years as Secretary of the Navy, was a member of the National Security Council
Staff, served as a delegate to the Mutual Balanced Force Reductions negotiations
and was the Deputy Director of the Arms Control and Disarmament Agency. Dr.
Lehman served as Chairman of the Board of Directors of Sperry Marine, Inc., and
is a member of the Board of Directors of Elgar Holdings, Inc., Ball Corporation,
ISO Inc., and Burke Industries, Inc., and is Chairman of the Princess Grace
Foundation, a director of OpiSail Foundation and a Trustee of LaSalle College
High School.
Keith Oster, who became a director of the Company upon consummation of the
Recapitalization, is a Principal of Lehman. Mr. Oster joined Lehman in 1992 and
is principally responsible for financial structuring and analysis. Prior to
joining Lehman, Mr. Oster was with the Carlyle Group, where he was responsible
for analyzing acquisition opportunities and arranging debt financing, and was a
Senior Financial Analyst with Prudential-Bache Capital Funding, working in the
Mergers, Acquisitions and Leveraged Buyouts Department. Mr. Oster is currently a
director of Burke Industries, Inc. and Elgar Holdings, Inc.
William Paul became a director of the Company upon consummation of the
Recapitalization. Mr. Paul began his career with United Technologies Corporation
("UTC") at its Sikorsky Aircraft division in 1955. Mr. Paul progressed through a
succession of several technical and managerial positions while at Sikorsky
Aircraft, including Vice President of Engineering and Programs and Executive
Vice President and Chief Operating Officer, and in 1983 was named President and
Chief Executive Officer of Sikorsky Aircraft. In 1994, Mr. Paul was appointed
the Executive Vice President of UTC, Chairman of UTC's international operations
and became a member of UTC's Management Executive Committee. Mr. Paul retired
from these positions in 1997 but remains a consultant to UTC. Mr. Paul is a
Fellow of the American Institute of
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<PAGE> 65
Aeronautics and a Fellow of the Royal Aeronautical Society. Mr. Paul is also a
director of Elgar Holdings, Inc.
Thomas G. Pownall, who became a director of the Company upon consummation
of the Recapitalization, is a member of the investment advisory board of Lehman.
Mr. Pownall was Chairman of the Board of Directors from 1983 until 1992 and
Chief Executive Officer of Martin Marietta Corporation ("MARTIN MARIETTA") from
1982 until 1988. Mr. Pownall joined Martin Marietta in 1963 as Vice President of
its Aerospace Advanced Planning Unit, became President of Aerospace Operations
and, in succession, Vice President, then President and Chief Operating Officer
of Martin Marietta. Mr. Pownall is also a director of The Titan Corporation,
Burke Industries, Inc., Elgar Holdings, Inc., Director Emeritus of Sundstrand
Corporation, serves on the advisory board of Ferris, Baker Watts Incorporated,
and is Chairman and President of the American-Turkish Council. He is also a
director of the U.S. Naval Academy Foundation and the Naval Academy Endowment
Trust and a trustee of Salem-Teikyo University.
Joseph Stroud, who became a director of the Company upon consummation of
the Recapitalization, is a Principal of Lehman. Mr. Stroud has been affiliated
with Lehman since 1992 and formally joined the firm in 1996. He is responsible
for managing the financial and operational aspects of portfolio company value-
enhancement. Prior to joining Lehman, Mr. Stroud was the Chief Financial Officer
of Sperry Marine Inc. from 1993 until the company was purchased by Litton
Industries, Inc. in 1996. From 1989 to 1993, Mr. Stroud was Chief Financial
Officer of the Accudyne and Kilgore Corporations. Mr. Stroud is currently a
director of Elgar Holdings, Inc. and Burke Industries, Inc.
Thomas F. Treinen has been a director of the Company since 1976, and served
as Chairman and President of the Company from 1976 until consummation of the
Recapitalization. From 1965 to 1976, Mr. Treinen held various positions,
including project engineer and Vice President, with the Company. From 1961 to
1965, Mr. Treinen was a project engineer at Aerojet General Corporation. Mr.
Treinen holds a degree in mechanical engineering.
Jack B. Watson has been a director of the Company since April 1991. Mr.
Watson served as President of the Automotive Products Division from 1987 to
January 1992 and served as Vice President of the Automotive Products Division
from January 1997 through December 1997. From 1982 to the present, Mr. Watson
has been President of Watson Helicopters Inc. Prior to January 1997, Mr. Watson
provided consulting services to the Company regarding pyrotechnic devices. Mr.
Watson was initially employed by the Company from 1967 to 1981. He served as
Vice President from 1970 to 1975 and as Co-President with Mr. Treinen from 1974
to 1981. Mr. Watson holds degrees in aerodynamics.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. The Executive Committee of the Board of Directors is
comprised of Messrs. Lehman, Sawyer, Glickman, Paul and Cuthbert. The Executive
Committee's main function is to expedite the decision-making process on certain
matters.
Audit Committee. The Audit Committee of the Board of Directors is
comprised of Messrs. Glickman, Paul, Oster, Treinen, Eisenstein and Boileau. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the scope
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee of the Board of
Directors is comprised of Messrs. Lehman, Sawyer, Glickman, Stroud, Pownall and
Cuthbert. The Compensation Committee makes recommendations concerning the
salaries and incentive compensation of employees of and consultants to the
Company, and oversees and administers the Company's stock option plans.
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<PAGE> 66
EXECUTIVE COMPENSATION
Compensation. Set forth below is information concerning the annual and
long-term compensation for services in all capacities to the Company for Fiscal
1998, 1997 and 1996, of those persons (collectively, the "NAMED EXECUTIVE
OFFICERS") who were, during Fiscal 1998, (i) the Chief Executive Officer and
(ii) the five other most highly compensated executive officers receiving
compensation of $100,000 or more from the Company or one of its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- AWARDS-STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (SHARES) COMPENSATION(1)
- --------------------------- ---- -------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas F. Treinen............. 1998 $225,680 $ -- -- $3,449
President and Chief
Executive 1997 221,667 72,542 -- 3,353
Officer(2) 1996 199,992 27,465 -- 4,030
John M. Cuthbert.............. 1998 211,598 -- -- 2,917
President and Chief
Executive 1997 177,162 34,660 150,000(3) 2,656
Officer(2) 1996 171,592 13,158 3,000(3) 3,056
Robert S. Ritchie............. 1998 149,365 -- -- 2,061
Vice President, Aerospace 1997 138,263 58,642 30,000(3) 1,781
Division 1996 133,634 13,365 3,000(3) 2,200
Samuel Levin.................. 1998 206,766 437,901 -- 4,000
President, Scot,
Incorporated 1997 187,500 105,019 10,000(4) 9,918
1996 181,900 66,972 5,000(4) 7,894
John T. Vinke................. 1998 131,304 -- -- 772
Vice President, Finance and 1997 118,938 29,096 25,000(4) 716
Chief Financial Officer 1996 112,912 12,149 3,000(4) 1,078
</TABLE>
- ---------------
(1) Consists of matching contributions by the Company under its 401(k) plan,
which was adopted in Fiscal 1994, or its non-qualified deferred compensation
plan, which was adopted in Fiscal 1995, and certain life insurance premiums
paid on behalf of Mr. Levin.
(2) Mr. Treinen served as President and Chief Executive Officer of the Company
until December 15, 1998. Mr. Cuthbert became President and Chief Executive
Officer on that date, having served as President of the Automotive Products
Division until that time.
(3) Options granted by the Compensation Committee of the Board of Directors on
December 30, 1996 and ratified by the stockholders at the Company's 1997
annual meeting. All grants were at the market price of the Common Stock
($17.00) on the date of grant.
(4) Granted pursuant to the Company's Amended and Restated 1991 Stock Incentive
Plan at the market price of the Common Stock on the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
During Fiscal 1998, the Company did not grant any options to the Named
Executive Officers.
EMPLOYMENT AND CONSULTING AGREEMENTS
Samuel Levin
Samuel Levin, the President and Chief Executive Officer of Scot, entered
into an employment agreement with Scot and the Company, the term of which began
on September 8, 1994 and ended on October 31, 1997. Mr. Levin's employment
agreement was extended to December 31, 1999. Such amended employment agreement
provides for an annual salary of $205,000 with annual adjustments for cost of
living increases and also provides for participation by Mr. Levin in a bonus and
qualified deferred compensation plan.
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<PAGE> 67
During his employment term the level of Mr. Levin's participation in the
bonus and qualified compensation plan is calculated according to a formula based
upon Scot's net operating income. In the event Mr. Levin voluntarily terminates
the employment agreement or the employment agreement is terminated due to a
disability suffered by Mr. Levin, Mr. Levin is entitled to a severance payment
equal to one year's salary and the pro rata portion of his bonus for the year of
termination. In the case of disability, he will be entitled to participate in
welfare benefit plans for six months following termination, and in the case of
voluntary termination, he will be entitled to participate (at his expense) in
welfare benefit plans for ten years following termination. In the event Mr.
Levin's employment agreement is terminated "for cause" (as defined therein), Mr.
Levin is not entitled to a severance payment except for a pro rata portion of
his bonus for the year of termination. In the event Mr. Levin's employment
agreement is terminated due to his death, neither Scot nor the Company is
obligated to make a severance payment to Mr. Levin's estate, except for a pro
rata portion of his bonus for the year of his death, and the continuation of
welfare benefits plan coverage for his dependents for a period of six months
after his death. In the event Mr. Levin's employment agreement is terminated by
Scot or the Company for any reason other than "for cause" or upon Mr. Levin's
voluntary termination, death or disability, Mr. Levin is entitled to receive as
severance an amount equal to his then base salary and his existing employee
benefits for the remaining period of the employment agreement as well as
continued participation in the bonus and deferred compensation plans for such
period. Mr. Levin's employment agreement also provides for a consulting term,
beginning on January 1, 2000 and ending on December 31, 2000, during which
period Mr. Levin will receive a payment of $50,000, payable in equal monthly
installments. In the event Mr. Levin provides more than eight hours of service
in any month during this period, he shall be paid at the rate of $1,000 a day.
Jack B. Watson
Jack B. Watson, former Vice President of the Company's Automotive Products
Division and a Director of the Company, entered into an employment and
consulting agreement with the Company dated as of January 1, 1997. The
employment portion of the agreement was for a term of one year which commenced
on January 1, 1997 and ended on December 31, 1997. The employment portion of the
agreement provided for a salary of $150,000 for the one year term, and also
entitled Mr. Watson to participate in the benefit plans provided by the Company
to its other senior officers. Pursuant to the agreement Mr. Watson earned a
bonus in the amount of $50,000 based on the Company's achievement of certain
financial milestones. The Company has no obligations under the agreement to make
severance payments to Mr. Watson of any kind. The consulting portion of the
agreement is for a term of two years which commenced on January 1, 1998 and ends
on December 31, 1999. For his services as a consultant to the Company, Mr.
Watson will receive an annual fee of $50,000 subject to Mr. Watson providing a
certain number of hours of service to the Company each month. In the event Mr.
Watson's retention as a consultant to the Company is terminated for any reason,
Mr. Watson shall receive accrued compensation through the date of termination.
STOCK OPTION PLANS AND GRANTS
During 1991, the Company adopted the Amended and Restated 1991 Stock
Incentive Plan (the "PLAN"). The Plan is administered by a committee of the
Board of Directors, which determines the amount, type, vesting period, terms and
conditions of the awards granted thereunder. The Plan provides for the issuance
of restricted stock, grants of incentive and non-qualified stock options, stock
appreciation rights and performance share awards at exercise prices
approximating the current market value on the date of grant. The Company has
reserved 560,000 shares of Common Stock for issuance under the Plan.
Pursuant to the Plan, no option may be granted that is exercisable in less
than six months or more than ten years from the grant date. Certain events,
including a change in control of the Company, may accelerate exercise dates,
cause forfeiture of all shares of any restricted stock and terminate all
conditions relating to the realization of any performance awards.
Prior to Fiscal 1996, all options granted under the Plan vested ratably
over a three year period. Options granted under the Plan during Fiscal 1996 and
1997 vest ratably during the five years after the grant date.
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<PAGE> 68
In December 1996, the Stock Option Committee authorized stock option grants
to certain employees via a special grant which is not part of the 1991 Stock
Option Plan. Under terms of this authorization, 130,000 shares were granted
which were to vest ratably over five years from the grant date and 312,000
shares were granted which were to vest ratably during the eight years after the
grant date. The exercise price of all of the options granted was the fair market
value of the Common Stock on the grant date, which was $17.00 per share. The
eight-year options contain vesting acceleration clauses which are effective
during the first 36 months of the option term; acceleration of vesting is
contingent upon the price of the Common Stock reaching a minimum level and upon
the Company attaining minimum earnings targets. As of October 31, 1998, all of
the eight-year options and 26,000 five-year options had vested.
Except for options that remain outstanding (set forth in the table below)
after the Recapitalization pursuant to the stock option agreement letters
entered into by the Company and each of John M. Cuthbert, Jack B. Watson, Robert
S. Ritchie, Thomas F. Treinen, John Vinke, Mary Lou Graham and Samuel Levin in
connection with the Equity Rollover (each such letter, a "STOCK OPTION AGREEMENT
LETTER"), all vested and unvested options (the "STOCK RIGHTS") to purchase
shares of Common Stock that were granted under any employee stock option or
compensation plan or other arrangement vested and became exercisable immediately
prior to the Recapitalization, and each holder of an unexercised Stock Right
received a cash payment from the Company equal to the amount by which $34.00
exceeded the per share exercise price of such Stock Right, multiplied by the
number of shares of Common Stock then subject to such Stock Right (the "OPTION
CONSIDERATION"). Upon payment of the Option Consideration, each Stock Right was
canceled.
The following table sets forth the roll-over of certain options pursuant to
the Stock Option Agreement Letters:
<TABLE>
<CAPTION>
NAME OPTIONS ROLLED OVER
- ---- -------------------
<S> <C>
John M. Cuthbert............................ 50,000
Jack B. Watson.............................. 21,325
Robert S. Ritchie........................... 7,500
Thomas J. Treinen........................... 7,500
John T. Vinke............................... 7,500
Mary Lou Graham............................. 4,000
Samuel Levin................................ 3,750
</TABLE>
All of the options set forth in the table above are ten-year options which
were issued in December 1996, vest ratably over five years and have an exercise
price of $17.50 per share (except for the options granted to Mary Lou Graham,
which have an exercise price of $17.75 per share).
BONUS AND INCENTIVE PLANS
In March 1998, the Company established two short-term incentive plans for
the benefit of all regular, full time employees of the Automotive Division and
the Aerospace Division, respectively (collectively, the "BONUS PLANS"), and a
Management Incentive Plan for certain members of management from both divisions
(the "MANAGEMENT PLAN"). The Bonus Plans permit the Company to pay employees
quarterly bonuses based on employment level, the attainment of certain
pre-established financial performance criteria, and the attainment of certain
pre-established individual goals. The Management Plan bonuses are paid annually,
based upon the attainment of certain pre-established Company and division
financial performance criteria. The Bonus Plans and the Management Plan are
administered by a committee of the Board of Directors, which has full power and
authority to determine the terms and conditions of awards under the Bonus Plans
and the Management Plan. In addition, Scot has instituted a special bonus plan,
the terms of which are described in connection with the description of Mr.
Levin's employment contract under "-- Employment Agreements."
BENEFIT PLANS
The Company also maintains various qualified and non-qualified benefit
plans for its employees, including a 401(k) profit sharing plan and an insured
deferred compensation plan for certain highly compensated
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<PAGE> 69
employees. The Company reserves the right to add, amend, change, tie off and/or
terminate any or all qualified or nonqualified benefit plans at any time and to
alter, amend, add to and/or restrict employee participation to the extent
permitted by applicable Federal or state law or regulation.
COMPENSATION COMMITTEE; INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is comprised of
Messrs. Lehman, Sawyer, Glickman, Stroud, Pownall and Cuthbert. Of the members,
only Mr. Cuthbert is an employee or officer of the Company. During Fiscal 1998,
no executive officer of the Company has served as a member of the board of
directors or compensation committee of any company of which Messrs. Lehman,
Sawyer, Glickman, Stroud, Pownall or Cuthbert is an executive officer.
STOCKHOLDERS AGREEMENT
Upon consummation of the Recapitalization, the Company entered into a
Stockholders Agreement (the "STOCKHOLDERS AGREEMENT") with JFL Equity, JFL
Co-Invest, Thomas F. Treinen and Walter Neubauer (collectively, the
"STOCKHOLDERS") and Lehman. Among other things, the Stockholders Agreement
provides that each Stockholder will vote all of its Common Stock to elect as
directors the 11 persons designated as directors by JFL Equity and the one
person designated as a director by PPI. The Stockholders Agreement contains
customary restrictions on transfer, rights of first offer, preemptive rights,
tag-along and drag-along rights. The Stockholders Agreement will terminate upon
the earlier of:
- the tenth anniversary of the Stockholders Agreement,
- the date when all Stockholders and their transferees cease to hold any
Securities (as defined under the Stockholders Agreement),
- the date when all Securities have been sold in a registered public
offering or distributed to the public pursuant to Rule 144 under the
Securities Act or
- the date when Securities at an aggregate offering price of least
$20,000,000 are sold in a registered public offering.
The Stockholders Agreement will terminate with respect to any Stockholder
once that Stockholder ceases to hold any Securities. The Stockholders Agreement
will terminate with respect to any Securities once those Securities have been
sold in a registered public offering or distributed to the public pursuant to
Rule 144 under the Securities Act.
ROLLOVER STOCKHOLDERS AGREEMENT
Upon consummation of the Recapitalization, the Company entered into a
Rollover Stockholders Agreement (the "ROLLOVER STOCKHOLDERS AGREEMENT") with
Lehman, Thomas F. Treinen and Walter Neubauer. The Rollover Stockholders
Agreement provides that Neubauer, Treinen and their respective transferees will
have the right under certain circumstances to require the Company to purchase
all or any portion of the Additional Rollover Shares at the Call Price. See "The
Transactions -- The Recapitalization." The Rollover Stockholders Agreement also
provides that Lehman will have the right for a specified period to purchase any
or all of the Additional Rollover Shares held by Neubauer and Treinen at the
Call Price. Lehman has an irrevocable proxy to vote all of the Additional
Rollover Shares it has a right to acquire.
COMPENSATION OF DIRECTORS
None of the directors of the Company who are officers of the Company will
receive any compensation directly for their service on the Board of Directors.
All other directors will receive customary directors' fees for their services.
In addition, the Company will pay Lehman certain fees for various management,
consulting and financial planning services, including assistance in strategic
planning, providing market and financial analyses, negotiating and structuring
financing and exploring expansion opportunities. See "Certain Relationships and
Related Transactions -- Management Agreements With Lehman."
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<PAGE> 70
CERTAIN TRANSACTIONS
NEWHALL LEASE
We lease our land and facilities located in Newhall, California from
Placerita Land and Farming Company, the sole partners of which are Thomas F.
Treinen, one of our directors, and Walter Neubauer, a stockholder of the
Company. The lease is a triple net lease that requires us to pay all utilities,
taxes and insurance. This lease expired on April 30, 1996, but we continue to
lease this property from the same lessor on a month-to-month basis. Our lease
expense for this property was $461,540 in Fiscal 1997 and $524,472 in Fiscal
1998. Lease payments under the month-to-month lease are $43,700 per month,
subject to annual increases based on the Consumer Price Index. We believe that
the terms of the lease are no less favorable to us than those that could have
been obtained from an unrelated third party.
COMPONENT PURCHASES
We purchase various parts and components manufactured to our specifications
and used in our products from Ordnance Products, Inc. and Multi-Screw, Inc.,
companies controlled by Walter Neubauer, a stockholder of the Company. In most
cases, these parts and components are similar to those that could be obtained
from other suppliers without significant delay. Our aggregate purchases of parts
and components from these companies were $2,361,500 in Fiscal 1996, $3,460,100
in Fiscal 1997 and $720,156 in Fiscal 1998. We believe that parts and components
purchased from these companies were purchased at prices that were no less
favorable to us than those that could have been obtained from an unrelated third
party.
GLASS SEAL PURCHASES
We also have a contract to purchase glass seals (the "SEAL CONTRACT") from
Hermetic Seal Corporation ("HSC"). Mr. Neubauer acquired 40% of the common stock
of the ultimate parent company of HSC in November 1989. Mr. Neubauer divested
his ownership in HSC in January 1997. Both the original and the new contracts
were subject to a competitive bidding process. In both instances, HSC was the
lowest bidder. The Seal Contract, as amended, requires us to buy a substantial
majority of our requirements of four header sub-assemblies from HSC at a
decreasing fixed price per unit through December 2002. Our obligations under the
contract are subject to HSC's prices, technology and quality remaining
competitive. Our purchases of header sub-assemblies from HSC aggregated
$12,768,500 in Fiscal 1996 and $11,464,400 in Fiscal 1997. Although Mr. Neubauer
divested his ownership in HSC in January 1997, we continue to do business with
HSC. We believe that the terms of the Seal Contract were no less favorable to us
than could have been obtained from an unrelated third party.
SALE OF AIRPLANE
In December 1994, we purchased an airplane from United Beechcraft, Inc. for
$669,419. We entered into a promissory note with Beech Acceptance, Inc. to
finance the purchase over a 10-year period. The unpaid balance of this note at
August 2, 1998 was $530,000. In May 1997, we entered into an agreement with Mr.
Treinen, whereby he assumed responsibility for the note and agreed to buy the
airplane at its then fair market value. In August 1998, Mr. Treinen repaid the
note. The net book value ($523,000) and the promissory note ($530,000) were
removed from our books in May 1997 to reflect this sale and transfer of
liability. We did not recognize any gain or loss as a result of this
transaction.
COMPENSATION OF OFFICER RELATED TO A DIRECTOR
Thomas J. Treinen (the son of Thomas F. Treinen, one of our directors and a
Stockholder), our Vice President of Administration, receives customary
compensation for services rendered to the Company.
MANAGEMENT AGREEMENTS WITH LEHMAN
Pursuant to the terms of a ten-year Management Agreement and a ten-year
Management Services Agreement (together, the "MANAGEMENT AGREEMENTS") we entered
into with Lehman upon consummation of
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<PAGE> 71
the Recapitalization, we paid Lehman a transaction fee of $3.0 million for its
efforts in connection with the Transactions. In addition, we agreed to pay
Lehman an annual management fee equal to $900,000, payable in advance on a
quarterly basis.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement entered into upon
consummation of the Recapitalization, JFL Equity, JFL Co-Invest, PPI, Thomas F.
Treinen and Walter Neubauer and any of their direct or indirect transferees have
certain demand and piggyback registration rights, on customary terms, with
respect to the Common Stock held by such entities and persons.
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<PAGE> 72
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, ownership of the
Company's Common Stock by (i) the stockholders known to us to be the beneficial
owners of more than five percent of the outstanding shares of Common Stock, (ii)
each Director, (iii) each Named Officer and (iv) all Directors and Executive
Officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OUTSTANDING(3)
- --------------------------------------- ---------------- ----------------
<S> <C> <C>
JFL Co-Invest Partners I, L.P. ........................... 1,173,499(4) 31.6%
2001 Jefferson Davis Highway, Suite 607
Arlington, Virginia 22202
J.F. Lehman & Company..................................... 735,294(4)(5) 19.8%
450 Park Avenue
New York, New York 10022
J.F. Lehman Equity Investors I, L.P. ..................... 679,442(4) 18.3%
2001 Jefferson Davis Highway, Suite 607
Arlington, Virginia 22202
Walter Neubauer........................................... 1,096,522(6) 29.6%
Ordnance Products, Inc.
21200 S. Figueroa Street
Carson, CA 90745
Paribas Principal Inc. ................................... 323,529 8.7%
787 Fifth Avenue
New York, New York 10019
Thomas F. Treinen......................................... 433,897(7) 11.7%
Oliver C. Boileau, Jr. ................................... --(8) --
Stephen Eisenstein........................................ 323,529(9) 8.7%
John F. Lehman............................................ 2,588,865(4)(10) 69.7%
Donald Glickman........................................... 2,588,865(4)(10) 69.7%
George Sawyer............................................. 2,588,865(4)(10) 69.7%
Joseph Stroud............................................. 2,588,865(4)(10) 69.7%
Keith Oster............................................... 2,588,865(4)(10) 69.7%
William Paul.............................................. --(11) --
Thomas G. Pownall......................................... --(12) --
Jack B. Watson............................................ 21,325(13) *
John M. Cuthbert.......................................... 20,000(13) *
Robert S. Ritchie......................................... --(13) --
Samuel Levin.............................................. --(13) --
John T. Vinke............................................. --(13) --
Directors and Executive Officers as a Group...............
</TABLE>
- ---------------
* Indicates ownership of less than one percent of outstanding shares.
(1) Unless indicated otherwise, the address of the beneficial owner listed
above is c/o Special Devices, Incorporated, 14370 White Sage Road,
Moorpark, California 93021.
(2) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared power
to dispose, or direct the disposition of, a security. However,
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<PAGE> 73
under California law, personal property owned by a married person may be
community property that either spouse may manage and control. The Company has no
information as to whether any shares shown in this table are subject to
California community property law.
(3) Computed based upon the total number of shares of Common Stock outstanding
and the number of shares of Common Stock underlying options or warrants
held by that person exercisable within 60 days of March 31, 1999. In
accordance with Rule 13(d)-3 of the Exchange Act, any Common Stock that
will not be outstanding within 60 days of March 31, 1999 that is subject to
options or warrants exercisable within 60 days of March 31, 1999 is deemed
to be outstanding for the purpose of computing the percentage of
outstanding shares of the Common Stock owned by the person holding such
options or warrants, but is not deemed to be outstanding for the purpose of
computing the percentage of outstanding shares of the Common Stock owned by
any other person.
(4) JFL Co-Invest is a Delaware limited liability company that is an affiliate
of JFL Equity and Lehman. Each of Messrs. Lehman, Glickman, Sawyer, Oster
and Stroud, either directly (whether through ownership interest or
position) or through one or more intermediaries, may be deemed to control
JFL Co-Invest, JFL Equity and Lehman. JFL Equity and Lehman may be deemed
to control the voting and disposition of the shares of the Common Stock
owned by JFL Co-Invest. Accordingly, for certain purposes, Messrs. Lehman,
Glickman, Sawyer, Oster and Stroud may be deemed to be beneficial owners of
the shares of Common Stock owned by JFL Co-Invest.
(5) Represents 735,294 shares owned by Messrs. Neubauer and Treinen that Lehman
has the right to vote under an irrevocable voting power and has the right
to acquire at any time prior to December 15, 2002. See "The Transactions."
(6) Includes 367,647 shares as to which Mr. Neubauer has granted Lehman an
irrevocable voting proxy and which Lehman has the right to acquire at any
time prior to the fourth anniversary of the Recapitalization. See "The
Transactions."
(7) All of such shares are owned by the Treinen Family Trust dated December 2,
1981, as restated on November 3, 1986, under which Mr. Treinen is the sole
trustee and has sole voting and investment power. Includes 367,647 shares
as to which Mr. Treinen has granted Lehman an irrevocable voting proxy and
which Lehman has the right to acquire at any time prior to December 15,
2002. See "The Transactions."
(8) Mr. Boileau is a member of a limited partner of JFL Equity. The address for
Mr. Boileau is 202 North Brentwood Boulevard, Apt. 3A, St. Louis, Missouri
63105.
(9) As an affiliate of Paribas, Mr. Eisenstein may be deemed to control the
shares of Common Stock owned by Paribas. Accordingly, Mr. Eisenstein may be
deemed to be beneficial owner of the shares of Common Stock owned by
Paribas reflected above. The address for Mr. Eisenstein is c/o Paribas
Principal Inc., 787 Fifth Avenue, New York, New York 10019.
(10) The address of Messrs. Lehman, Glickman, Sawyer, Oster and Stroud is 2001
Jefferson Davis Highway, Suite 607, Arlington, Virginia 22202.
(11) Mr. Paul is a member of a limited partner of JFL Equity. The address for
Mr. Paul is 21 Springwood Drive, Trumbull, Connecticut 06611.
(12) Mr. Pownall is a member of a limited partner of JFL Equity and is on the
investment advisory board of Lehman. The address for Mr. Pownall is 1800 K
Street, N.W., Suite 724, Washington, D.C. 20006.
(13) Includes options exercisable within 60 days of March 31, 1999 for 21,235,
20,000, 0, 0 and 0 shares for Messrs. Watson, Cuthbert, Ritchie, Levin and
Vinke, respectively. Does not include stock options that vest and become
exercisable upon a change of control for 0, 30,000, 7,500, 3,750 and 7,500
shares for Messrs. Watson, Cuthbert, Ritchie, Levin and Vinke,
respectively, representing in the aggregate (together with options
exercisable within 60 days of March 31, 1999) 2.7% of the Company's fully
diluted Common Stock.
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<PAGE> 74
DESCRIPTION OF NEW CREDIT FACILITY
As part of the Transactions, we entered into the New Credit Facility with a
syndicate of banks, as lenders, and Bankers Trust, as lead arranger and
administrative agent. Bankers Trust is an affiliate of BT Alex. Brown
Incorporated. The New Credit Facility consists of a $70.0 million Senior Term
Loan and a $25.0 million Revolving Credit Facility. We borrowed the full amount
of the Senior Term Loan in connection with the Recapitalization. As of January
31, 1999, $0.8 million was drawn and letters of credit aggregating $2.5 million
had been issued under the Revolving Credit Facility.
The Revolving Credit Facility enables us to obtain revolving credit loans
and the issuance of letters of credit for our account from time to time for
working capital, acquisitions and general corporate purposes. At our option,
loans under the New Credit Facility bear interest at:
(1) the higher of:
- 1/2 of 1% in excess of the overnight federal funds rate (as defined
in the New Credit Facility) and
- the administrative agent's prime rate,
in either case, plus 1.75% per annum in the case of loans under the
Revolving Credit Facility and 2.25% per annum in the case of the Senior
Term Loan, or
(2) the reserve adjusted Eurodollar Rate (as defined in the New Credit
Facility) as determined by the administrative agent, plus 2.75% per
annum in the case of loans under the Revolving Credit Facility and
3.25% per annum in the case of the Senior Term Loan.
We will pay letter of credit commissions on amounts available to be drawn
under each letter of credit at 3.00% per annum. We will pay a commitment fee on
the unused portion of the Revolving Credit Facility equal to 0.50% per annum. We
will also pay certain fees with respect to the New Credit Facility.
The Revolving Credit Facility has a term of five years, unless terminated
sooner upon an event of default, and outstanding revolving credit loans will be
payable on such date or such earlier date as may be accelerated following the
occurrence of any event of default.
The Senior Term Loan has a term of seven years and provides for the
following amortization schedule:
<TABLE>
<CAPTION>
FY ENDED OCTOBER 31, AMOUNT
- -------------------- -----------
<S> <C>
1999............................................ $ 700,000
2000............................................ $ 700,000
2001............................................ $ 700,000
2002............................................ $10,000,000
2003............................................ $16,700,000
Thereafter...................................... $41,200,000
</TABLE>
Borrowings under the Senior Term Loan are required to be prepaid (and after
the Senior Term Loan has been paid in full, reductions to the commitments under
the Revolving Credit Facility) from:
- 100% of the net proceeds of certain nonordinary course asset sales by the
Company and its subsidiaries subject to exceptions for reinvestment;
- 100% of the net proceeds from certain issuances of debt by the Company
and its subsidiaries;
- 100% of the net proceeds from certain insurance recovery and condemnation
events of the Company and its subsidiaries subject to an ability to
rebuild or replace;
- 100% of the net proceeds from equity issuances and capital contributions
by the Company and, subject to certain exceptions, its subsidiaries; and
- 75% of excess annual cash flow subject to reduction or elimination upon
achievement of certain performance criteria.
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<PAGE> 75
The Senior Term Loan may be prepaid without penalty or premium.
Our obligations under the New Credit Facility are guaranteed by each of our
domestic subsidiaries (which, as of the date hereof, is only Scot) and are
secured by a first priority lien (subject to permitted encumbrances) on
substantially all of the Company's and each guarantor's real, personal and
intellectual property including all of the capital stock of our domestic
subsidiaries and 65% of the capital stock of our first-tier foreign
subsidiaries.
The New Credit Facility contains various customary covenants that restrict
our ability to take various actions and that require us to achieve and maintain
certain financial covenants. The New Credit Facility also includes covenants
relating to maintenance of specified levels of minimum interest coverage ratios,
minimum levels of consolidated EBITDA and maximum levels of leverage ratios. The
New Credit Facility also contains limitations on, among other things, capital
expenditures, liens, indebtedness, guarantees, mergers, acquisitions,
disposition of assets, dividends and other restricted payments, investments,
changes in business activities and certain corporate activities. The New Credit
Facility prohibits us from prepaying the Notes.
The New Credit Facility also contains customary events of default,
including nonpayment of principal, interest or fees, violation of covenants,
inaccuracy of representations or warranties in any material respect, cross
default and cross acceleration to certain other debt, bankruptcy, ERISA,
material judgments, invalidity of guarantees or collateral documents and certain
changes in control of the Company.
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<PAGE> 76
DESCRIPTION OF NOTES
Except as otherwise indicated below, the following summary applies to both
the Old Notes and the New Notes. As used herein, the term "Notes" shall mean the
Old Notes and the New Notes, unless otherwise indicated. For purposes of this
section, references to the "COMPANY," "WE," "US" and "OUR" include only the
Company and not its subsidiaries. The definitions of certain capitalized terms
used in the following summary are set forth below under "-- Certain
Definitions."
The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the New Notes:
- will be registered under the Securities Act,
- will not provide for payment of Additional Interest, which terminates
upon consummation of the Exchange Offer and
- will not bear legends containing transfer restrictions.
The New Notes will be issued solely in exchange for an equal principal
amount of Old Notes. As of the date hereof, $100.0 million aggregate principal
amount of Old Notes is outstanding.
The Old Notes were issued, and the New Notes will be issued, under the
Indenture, dated as of December 15, 1998 (the "INDENTURE"), by and among the
Company, Scot, as Guarantor and United States Trust Company of New York, as
trustee (the "TRUSTEE"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TRUST INDENTURE ACT"), and to all of the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act as in effect on the date of
the Indenture. A copy of the Indenture is available as set forth under "Where
You Can Find More Information About the Company."
The Notes are general unsecured obligations of the Company, ranking
subordinate in right of payment to all of our Senior Indebtedness, equal in
right of payment with all of our senior subordinated Indebtedness and senior in
right of payment to all of our subordinated Indebtedness. The Notes are also
effectively subordinated to all Indebtedness of our Subsidiaries (other than
Restricted Subsidiaries that are parties to the Guarantee).
The Old Notes were issued, and the New Notes will be issued, in fully
registered form only, without coupons, in denominations of $1,000 and integral
multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar
for the Notes. The Notes may be presented for registration or transfer and
exchange at the offices of the Registrar, which initially will be the Trustee's
corporate trust office. We may change any Paying Agent and Registrar without
notice to holders of the Notes (the "HOLDERS"). We will pay principal (and
premium, if any) on the Notes at the Trustee's corporate office in New York, New
York. At our option, interest may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of Holders. Any Notes that
remain outstanding after the completion of the exchange offer, together with the
New Notes issued in connection with the exchange offer, will be treated as a
single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150.0 million, of
which $100.0 million in aggregate principal amount was issued in the offering of
the Old Notes (the "PRIOR OFFERING"). The Notes mature on December 15, 2008.
Additional amounts may be issued from time to time, subject to the limitations
set forth under "-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness." Interest on the Notes accrues at the rate of 11.375% per annum
and is payable semiannually in cash on each June 15 and December 15, commencing
on June 15, 1999, to the persons who are registered Holders at the close of
business on the June 1 and December 1 immediately preceding the applicable
interest payment date. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from and
including December 15, 1998.
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<PAGE> 77
The Notes are not entitled to the benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Notes are redeemable, at our option, in whole at
any time or in part from time to time, on and after December 15, 2003, upon not
less than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on December 15 of the year set forth below,
plus, in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003.............................................. 105.688%
2004.............................................. 104.266%
2005.............................................. 102.844%
2006.............................................. 101.422%
2007 and thereafter............................... 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from
time to time, on or prior to December 15, 2001, we may, at our option, use the
net cash proceeds of one or more Public Equity Offerings (as defined below) to
redeem up to 35% of the sum of:
- $100.0 million and
- the respective initial aggregate principal amounts of Notes issued under
the Indenture after the Issue Date,
at a redemption price equal to 111.375% of the principal amount thereof plus
accrued and unpaid interest thereon and Liquidated Damages, if any, to the date
of redemption; provided that at least 65% of the sum of:
- $100.0 million and
- the respective initial aggregate principal amounts of Notes issued under
the Indenture after the Issue Date,
remains outstanding immediately after any such redemption. In order to effect
the foregoing redemption with the proceeds of any Public Equity Offering, we
shall make such redemption not more than 120 days after the consummation of any
such Public Equity Offering.
As used in the preceding paragraph, "PUBLIC EQUITY OFFERING" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
Subject to the following sentence, in the event that less than all of the
Notes are to be redeemed at any time, selection of such Notes for redemption
will be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which such Notes are listed or, if such
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate.
We will not redeem in part Notes of a principal amount of $1,000 or less, and if
we elect to effect a partial redemption with the proceeds of a Public Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as
is practicable (subject to DTC procedures), unless such method is otherwise
prohibited.
Notice of redemption shall be mailed by first-class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion
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<PAGE> 78
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as we have
deposited with the Paying Agent funds in satisfaction of the applicable
redemption price pursuant to the Indenture.
SUBORDINATION
Our payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all of our
Obligations on Senior Indebtedness, whether outstanding on the Issue Date or
thereafter incurred, including, without limitation, our obligations under the
New Credit Facility. Upon any payment or distribution of our assets, of any kind
or character, whether in cash, property or securities, to creditors upon any
total or partial liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to us or our property, whether voluntary or involuntary, all
Obligations due or to become due upon all Senior Indebtedness (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Indebtedness whether or not such interest is an allowed
claim in such proceeding) shall first be paid in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Indebtedness, before any payment or distribution of any kind
or character is made on account of any Obligations on the Notes, or for the
acquisition of any of the Notes for cash or property or otherwise. If any
default occurs and is continuing in the payment when due, whether at maturity,
upon any redemption, by declaration or otherwise, of any principal of, interest
on, unpaid drawings for letters of credit issued in respect of, or regularly
accruing fees with respect to, any Senior Indebtedness, no payment of any kind
or character shall be made by us or on our behalf or any other Person on its or
their behalf with respect to any Obligations on the Notes or to acquire any of
the Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness then
outstanding to accelerate the maturity thereof, and if the Representative for
the respective issue of Designated Senior Indebtedness gives written notice of
the event of default to the Trustee (a "DEFAULT NOTICE"), then, unless and until
all events of default have been cured or waived or have ceased to exist or the
Trustee receives notice from the Representative for the respective issue of
Designated Senior Indebtedness terminating the Blockage Period, during the 180
days after the delivery of such Default Notice (the "BLOCKAGE PERIOD"), neither
we nor any other Person on our behalf shall:
- make any payment of any kind or character with respect to any Obligations
on the Notes or
- acquire any of the Notes for cash or property or otherwise.
Notwithstanding anything herein to the contrary, in no event will a
Blockage Period extend beyond 180 days from the date the payment on the Notes
was due, and only one such Blockage Period may be commenced within any 360
consecutive days. No event of default which existed or was continuing on the
date of the commencement of any Blockage Period with respect to the Designated
Senior Indebtedness shall be, or be made, the basis for commencement of a second
Blockage Period by the Representative of such Designated Senior Indebtedness
whether or not within a period of 360 consecutive days, unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that, in either case, would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of our insolvency, our
creditors who are not holders of Senior Indebtedness, including the Holders of
the Notes, may recover less, ratably, than holders of Senior Indebtedness.
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<PAGE> 79
As of January 31, 1999, the Company had approximately $70.8 million of
Senior Indebtedness outstanding, letters of credit in the amount of $2.5 million
and unused and available commitments of $21.8 million under the New Credit
Facility and the Guarantor had no Guarantor Senior Indebtedness outstanding
(other than guarantees of Senior Indebtedness).
GUARANTEES
Each Guarantor unconditionally guarantees, on an unsecured senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of our obligations under the Indenture and the
Notes, including the payment of principal of and interest on the Notes. The
Guarantees are subordinated to Guarantor Senior Indebtedness on the same basis
as the Notes are subordinated to Senior Indebtedness.
The obligations of each Guarantor are limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, will result in the obligations of such Guarantor under the
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. See "Risk Factors -- Fraudulent Conveyance." Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to us
or another Guarantor that is a Restricted Subsidiary of the Company without
limitation, or with other Persons upon the terms and conditions set forth in the
Indenture. See "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets." In the event all of the Capital Stock or all or substantially all of
the assets of a Guarantor is sold and the sale complies with the provisions set
forth in "-- Certain Covenants -- Limitation on Asset Sales," the Guarantor's
Guarantee will be released. See "-- Certain Covenants -- Limitation of
Guarantees by Restricted Subsidiaries."
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to our
obligations pursuant to the Notes, and the aggregate net assets, earnings and
equity of the Guarantors and the Company are substantially equivalent to the net
assets, earnings and equity of the Company on a consolidated basis.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require us to purchase all or a portion of
such Holder's Notes pursuant to the offer described below (the "CHANGE OF
CONTROL OFFER"), at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase. The Indenture
provides that, prior to the mailing of the notice referred to below, but in any
event within 30 days following any Change of Control, we will:
- repay in full and terminate all commitments under Indebtedness under the
New Credit Facility and all other Senior Indebtedness the terms of which
require repayment upon a Change of Control, or offer to repay in full and
terminate all commitments under all Indebtedness under the New Credit
Facility and all other such Senior Indebtedness and to repay the
Indebtedness owed to each lender which has accepted such offer or
- obtain the requisite consents under the New Credit Facility and all other
such Senior Indebtedness to permit the repurchase of the Notes as
provided below.
We shall first comply with the covenant in the immediately preceding
sentence before we shall be required to repurchase Notes pursuant to the
provisions described below. Our failure to comply with the covenant described in
the second preceding sentence shall constitute an Event of Default described in
clause (3) and not in clause (2) under "Events of Default" below.
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<PAGE> 80
Within 30 days following the date upon which the Change of Control
occurred, we must send, by first class mail, a notice to each Holder, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 60 days from the date such
notice is mailed, other than as may be required by law (the "CHANGE OF CONTROL
PAYMENT DATE"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that we
will have available funds sufficient to pay the Change of Control purchase price
for all the Notes that might be delivered by Holders seeking to accept the
Change of Control Offer. In the event we are required to purchase outstanding
Notes pursuant to a Change of Control Offer, we would expect to seek third party
financing to the extent we do not have available funds to meet our purchase
obligations. However, there can be no assurance that we would be able to obtain
such financing.
Neither our Board of Directors nor the Trustee may waive the covenant
relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on our ability, and the ability
of our Restricted Subsidiaries, to:
- incur additional Indebtedness,
- grant Liens on property,
- make Restricted Payments or
- make Asset Sales
may also make more difficult or discourage the Company's takeover, whether
favored or opposed by our management. Consummation of any such transaction in
certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that we or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. Such restrictions
and the restrictions on transactions with Affiliates may, in certain
circumstances, make more difficult or discourage any leveraged buyout of the
Company or any of its Subsidiaries by management. While such restrictions cover
a wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of Notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of the Indenture, we shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached our obligations under the
"Change of Control" provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness.
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create, incur, assume, guarantee, acquire, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for payment of (collectively, "INCUR") any Indebtedness (other than
Permitted Indebtedness); provided, however, that if no Default or Event of
Default shall have occurred and be continuing at the time of or as a consequence
of the incurrence of any such Indebtedness, we and/or any Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness) if on the
date of the incurrence of such
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<PAGE> 81
Indebtedness, after giving effect to the incurrence thereof, our Consolidated
Fixed Charge Coverage Ratio is greater than:
- 2.0 to 1.0 if the day of such incurrence is on or prior to December 15,
2000 or
- 2.25 to 1.0 if the date of such incurrence is after December 15, 2000.
For the purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness or is otherwise entitled to be incurred
pursuant to this covenant, we shall, in our sole discretion, classify (or
reclassify) such item of Indebtedness in any manner that complies with this
covenant and such items of Indebtedness will be treated as having been incurred
pursuant to only one of such clauses or pursuant to the first paragraph hereof.
Accrual of interest or accretion of accreted value will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
Limitation on Restricted Payments.
We will not, and will not cause or permit any of our Restricted
Subsidiaries to, directly or indirectly,
(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the Company) on
or in respect of shares of the Company's Capital Stock to holders of such
Capital Stock,
(2) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock,
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Company that is subordinate or junior in right of payment to
the Notes (except the prepayment, purchase, repurchase or other acquisition or
retirement of Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of prepayment, purchase, repurchase or other acquisition or
retirement) or
(4) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to
as a "RESTRICTED PAYMENT"),
if at the time of such Restricted Payment or immediately after giving effect
thereto:
(a) a Default or an Event of Default shall have occurred and be continuing
or
(b) we are not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant or
(c) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount expended for
such purposes, if other than in cash, being the fair market value of such
property as determined reasonably and in good faith by our Board of Directors)
shall exceed the sum of:
(w) 50% of our cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) earned
subsequent to December 15, 1998 through the last day of our most recently
ended fiscal quarter for which internal financial statements are available
at the time of such proposed Restricted Payment (the "REFERENCE DATE")
(treating such period as a single accounting period); plus
(x) 100% of the aggregate net cash proceeds we received from any Person
(other than one of our Restricted Subsidiaries) from the issuance and sale
subsequent to December 15, 1998 and on or prior to the Reference Date of
(i) Qualified Capital Stock of the Company and (ii) Indebtedness or
Disqualified Capital Stock that has been converted into or exchanged for
Qualified Capital Stock together with the aggregate net cash proceeds
received by us or any Restricted Subsidiary at the time of such conversion
or exchange; plus
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<PAGE> 82
(y) without duplication of any amounts included in clause (c)(x) above,
100% of the aggregate net cash proceeds of any equity contribution we
received from a holder of the Company's Capital Stock (excluding, in the
case of clauses (c)(x) and (y), any net cash proceeds from a Public Equity
Offering to the extent used to redeem the Notes); plus
(z) without duplication, the sum of:
(i) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made subsequent to
December 15, 1998 whether through interest payments, principal payments,
dividends or other distributions or payments,
(ii) the net cash proceeds received by us or any of our Restricted
Subsidiaries from the disposition of all or any portion of such
Investments (other than to one of our Restricted Subsidiaries) and
(iii) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of such Subsidiary;
provided, however, that the sum of clauses (i), (ii) and (iii) above
shall not exceed the aggregate amount of all such Investments made
subsequent to December 15, 1998.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of such dividend or the
giving of such irrevocable redemption if the dividend or redemption would have
been permitted on the date of declaration or the giving of such irrevocable
redemption;
(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of our Capital Stock, either
(a) solely in exchange for shares of our Qualified Capital Stock or
(b) through the application (within 10 business days of the sale
thereof) of net proceeds of a sale for cash (other than to one of our
Restricted Subsidiaries) of shares of our Qualified Capital Stock;
(3) if no Default or Event of Default shall have occurred and be
continuing, the purchase, redemption, repayment, retirement, defeasance or other
acquisition of any of our Indebtedness that is subordinate or junior in right of
payment to the Notes, either
(a) solely in exchange for shares of our Qualified Capital Stock,
(b) through the application (within 60 days of the sale thereof) of net
proceeds of a sale for cash (other than to one of our Restricted
Subsidiaries) of
(i) shares of our Qualified Capital Stock or
(ii) Refinancing Indebtedness or
(iii) solely in exchange for the issuance of Refinancing
Indebtedness;
(4) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases by us of our Common Stock from directors, officers or
employees of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of such
officers or employees, in an aggregate amount not to exceed, in any calendar
year, the sum of:
- $1.0 million (provided that if at the time of any such repurchase our
Consolidated Fixed Charge Coverage Ratio is greater than 2.0 to 1.0 then
such amount may be up to $3.0 million) and
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- the net cash proceeds received by us after the Issue Date from the sale
of Qualified Capital Stock to employees, directors or officers of the
Company and its Subsidiaries that occurs in such fiscal year (to the
extent such proceeds do not provide the basis for any other Restricted
Payment); and
(5) repurchases of Capital Stock deemed to occur upon the exercise of stock
options if such Capital Stock represents a portion of the exercise price of such
options.
Not later than the date of making any Restricted Payment, we shall deliver
to the Trustee an officers' certificate stating that such Restricted Payment
complies with the Indenture and setting forth in reasonable detail the basis
upon which the required calculations were computed, which calculations may be
based upon our latest available internal quarterly financial statements.
In determining the aggregate amount of Restricted Payments made subsequent
to December 15, 1998 in accordance with clause (3) of the second paragraph under
the covenant "-- Limitation on Restricted Payments," amounts expended pursuant
to clauses (1), (2)(ii), 3(ii)(A) and (4) of such paragraph shall be included in
such calculation. Notwithstanding the foregoing, in determining whether any
Restricted Payment is permitted by the foregoing covenant, we may allocate or
reallocate all or any portion of such Restricted Payment among clauses (1)
through (5) of the second preceding paragraph or among such clauses and the
first paragraph of this covenant; provided that at the time of such allocation
or reallocation, all such Restricted Payments, or allocated portions thereof,
would be permitted under the various provisions of the foregoing covenant.
In making the computations required by this covenant:
- we may use audited financial statements for the portions of the relevant
period for which audited financial statements are available on the date
of determination and unaudited financial statements and other current
financial data based on our books and records for the remaining portion
of such period and
- we will be permitted to rely in good faith on the financial statements
and other financial data derived from our books and records that are
available on the date of determination.
If we make a Restricted Payment that, at the time of the making of such
Restricted Payment, would, in our good faith determination, be permitted under
the requirements of the Indenture, such Restricted Payment will be deemed to
have been made in compliance with the Indenture notwithstanding any subsequent
adjustments made in good faith to our financial statements which adjustments
affect any of the financial data used to make the calculations with respect to
such Restricted Payment.
Limitation on Asset Sales.
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of (as determined in
good faith by our Board of Directors),
(2) at least 75% of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the
form of Qualified Proceeds; provided that the amount of:
(a) any liabilities of the Company or any Restricted Subsidiary (as
shown on the Company's or on such Restricted Subsidiary's most recent
balance sheet) (other than liabilities that are by their terms subordinated
to the Notes or, in the case of a Restricted Subsidiary, its Guarantee)
that are assumed by the transferee of any such assets and
(b) any securities, notes or other obligations received by the Company
or any such Restricted Subsidiary from such transferee that are converted
by the Company or such Restricted Subsidiary into cash (to the extent of
the cash received) within 180 days after receipt,
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shall be deemed to be cash for the purposes of this clause (ii);
provided, further, however, that this clause (2) shall not apply to any
sale of Capital Stock of or other Investments in Unrestricted
Subsidiaries or any Sale and Leaseback Transaction and
(3) upon the consummation of an Asset Sale, we shall apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 360 days of receipt thereof either:
(a) to prepay any Senior Indebtedness or Guarantor Senior Indebtedness
or Indebtedness of a Restricted Subsidiary that is not a Guarantor (and, in
the case of any Senior Indebtedness or Guarantor Senior Indebtedness or
Indebtedness of a Restricted Subsidiary that is not a Guarantor under any
revolving credit facility, including the New Credit Facility, effect a
permanent reduction in the availability under such revolving credit
facility) or effect a permanent reduction in the availability under any
revolving credit facility regardless of the fact that no prepayment is
required in order to do so (in which case no prepayment shall be required),
(b) to make an investment in properties and assets that replace the
properties and assets that were the subject of such Asset Sale or in
properties and assets that are used or usable in the business of the
Company and its Subsidiaries as existing on the Issue Date or in businesses
reasonably related or complementary thereto ("REPLACEMENT ASSETS"), it
being understood that:
(i) the receipt of Qualified Proceeds (other than cash or Cash
Equivalents) and
(ii) the payment of expenses related to the relocation to the
Moorpark Facility (including, without limitation, reimbursement to the
Company of expenses incurred prior to the Issue Date) are deemed to be a
valid application of such Qualified Proceeds pursuant to this clause
(iii)(B) or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
On the 361st day after an Asset Sale or such earlier date, if any, as the
Board of Directors of the Company or of such Restricted Subsidiary determines
not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (3)(a), (3)(b) and (3)(c) of the immediately preceding sentence (each, a
"NET PROCEEDS OFFER TRIGGER DATE"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (3)(a), (3)(b) and (3)(c) of the immediately preceding
sentence (each a "NET PROCEEDS OFFER AMOUNT") shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase (the "NET PROCEEDS
OFFER") on a date (the "NET PROCEEDS OFFER PAYMENT DATE") not less than 20
Business Days, nor more than 30 Business Days following the date that notice of
the Net Proceeds Offer is mailed to Holders, from all Holders, together with
holders of other Indebtedness that is not by its terms subordinated to the Notes
(the "OTHER ASSET SALE INDEBTEDNESS") of the Company or any Restricted
Subsidiary to whom an offer of Net Cash Proceeds relating to such Asset Sale
must be made pursuant to the terms of the instruments governing such Other Asset
Sale Indebtedness on a pro rata basis, that amount of Notes and such Other Asset
Sale Indebtedness equal to the Net Proceeds Offer Amount at a price equal to
100% of the principal amount of the Notes or such Other Asset Sale Indebtedness
(as the case may be) to be purchased, plus accrued and unpaid interest thereon,
if any, to the date of purchase; provided, however, that if at any time any
non-cash consideration received by the Company or any Restricted Subsidiary of
the Company, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash (other than interest or dividends
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant.
Notwithstanding the foregoing, we may defer the Net Proceeds Offer until
there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess
of $10,000,000 resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of
$10,000,000, shall be applied as required pursuant to this paragraph). Upon
completion of a Net Proceeds Offer, the amount of Net Cash Proceeds and the
amount of the aggregate unutilized Net Proceeds Offer
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Amount will be reset to zero. Accordingly, to the extent that any Net Proceeds
remain after consummation of a Net Proceeds Offer, we may use such Net Proceeds
for any purpose not prohibited by the Indenture.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed for purposes of
this covenant to have sold the properties and assets of the Company and its
Restricted Subsidiaries not so transferred, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of Notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of the
Indenture, we shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached our obligations under the "Asset Sale"
provisions of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.
We will not, and will not cause or permit any of our Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect of its
Capital Stock,
(b) make loans or advances or to pay any Indebtedness or other obligation
owed to the Company or any other Restricted Subsidiary of the Company or
(c) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company,
except for such encumbrances or restrictions existing under or by reason of:
(1) the Indenture and the Notes;
(2) any security or pledge agreements, leases or options (or similar
agreements) containing customary restrictions on transfers of the assets
encumbered thereby or leased or subject to option or on the transfer or
subletting of the leasehold interest represented thereby;
(3) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of the Person so
acquired;
(4) agreements existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date;
(5) any contracts for the sale of assets, including, without limitation,
any restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of such Restricted Subsidiary, pending the
closing of such sale
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or disposition; provided that any such restriction relates solely to the assets
that are the subject of such agreement;
(6) restrictions on cash or other deposits or net worth and prohibitions on
assignment imposed by leases entered into in the ordinary course of business;
(7) customary provisions in joint venture agreements and other similar
agreements;
(8) the New Credit Facility and any instruments issued pursuant thereto;
(9) any agreement or instrument governing Capital Stock of any Person that
is acquired;
(10) purchase money obligations for assets acquired in the ordinary course
of business that impose restrictions of the nature described in (c) above on the
property so acquired;
(11) Liens permitted to be incurred pursuant to the provisions of the
covenant described under the caption "-- Limitation on Liens";
(12) any agreement relating to a Sale and Leaseback Transaction or
Capitalized Lease Obligation, but only on the property subject to such Sale and
Leaseback Transaction or such Capitalized Lease Obligation and only to the
extent that such restrictions or encumbrances are customary with respect to such
arrangements;
(13) any licensing or technology transfer agreement entered into in the
ordinary course of business, including, without limitation, those entered into
in connection with any European joint venture;
(14) applicable law; and
(15) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of contracts, instruments or obligations referred
to in clauses (1) through (13); provided that the dividend and other transfer
restrictions imposed under such contract, instrument, agreement or obligation as
amended, modified, restated, renewed, increased, supplemented, refunded,
replaced or refinanced are, taken as a whole, in the good faith judgment of the
Board of Directors, whose judgment shall be conclusively binding, not materially
more restrictive than those contained in such contract, instrument, agreement or
obligation immediately prior to such amendment, modification, restatement,
renewal, increase, supplement, refunding, replacement or Refinancing.
Limitation on Preferred Stock of Restricted Subsidiaries.
We will not permit any of our Restricted Subsidiaries that are not
Guarantors to issue to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) Preferred Stock or permit any Person
(other than the Company or a Wholly Owned Restricted Subsidiary of the Company)
to own any Preferred Stock of any Restricted Subsidiary of the Company that is
not a Guarantor.
Limitation on Liens.
We will not, and will not cause or permit any of our Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Liens of any kind against or upon any property or assets of
the Company or any of its Restricted Subsidiaries whether owned on the Issue
Date or acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens and
(2) in all other cases, the Notes are equally and ratably secured,
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except in the case of either clause (1) or (2) for:
(a) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(b) Liens securing Senior Indebtedness and Liens securing Guarantor Senior
Indebtedness;
(c) Liens securing the Notes and the Guarantees;
(d) Liens of the Company or a Wholly Owned Restricted Subsidiary of the
Company on assets of any Subsidiary of the Company;
(e) Liens securing Refinancing Indebtedness which is incurred to Refinance
any Indebtedness which has been secured by a Lien permitted under the Indenture
and which has been incurred in accordance with the provisions of the Indenture;
provided, however, that such Liens:
(i) are no less favorable to the Holders and are not more favorable to
the lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and
(ii) do not extend to or cover any property or assets of the Company or
any of its Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and
(f) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt.
Neither we nor the Guarantors will incur or suffer to exist Indebtedness
that is senior in right of payment to the Notes or the Guarantees, as the case
may be, and subordinate in right of payment to any other Indebtedness of the
Company or the Guarantors, as the case may be.
Merger, Consolidation and Sale of Assets.
We will not, in a single transaction or series of related transactions,
consolidate or merge with or into any Person (other than in connection with the
Recapitalization), or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of our
assets (determined on a consolidated basis with our Restricted Subsidiaries)
whether as an entirety or substantially as an entirety to any Person unless:
(1) either
(a) the Company shall be the surviving or continuing corporation or
(b) the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the properties
and assets of the Company and of the Company's Restricted Subsidiaries
substantially as an entirety (the "SURVIVING ENTITY")
(x) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of
Columbia and
(y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium,
if any, and interest on all of the Notes and the performance of every
covenant of the Notes, the Indenture and the Registration Rights
Agreement on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(y) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company
or such Surviving Entity, as the case may be, shall be able to incur at
least $1.00 of additional Indebtedness
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(other than Permitted Indebtedness) pursuant to the "-- Limitation on
Incurrence of Additional Indebtedness" covenant;
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and
(4) the Company or the Surviving Entity shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have
been satisfied.
Notwithstanding the foregoing clauses (2), (3) and (4):
- any Restricted Subsidiary may consolidate with, merge into or transfer
all or part of its property and assets to the Company or any other Restricted
Subsidiary and
- we may merge with an Affiliate incorporated solely for the purpose of our
reincorporation in another jurisdiction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more our Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
our properties and assets, shall be deemed to be the transfer of all or
substantially all of our properties and assets.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of our assets in accordance with the
foregoing, in which we are not the continuing corporation, the successor Person
formed by such consolidation or into which we are merged or to which such
conveyance, lease or transfer is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture and
the Notes with the same effect as if such surviving entity had been named as
such.
Each Guarantor will not, and we will not cause or permit any Guarantor to
(other than any Guarantor whose Guarantee is to be released in accordance with
the terms of the Guarantee and the Indenture in connection with any transaction
complying with the provisions of "-- Limitation on Asset Sales"), consolidate
with or merge with or into any Person other than the Company or any other
Guarantor unless:
(i) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia;
(ii) such entity assumes by supplemental indenture all of the
obligations of the Guarantor on the Guarantee;
(iii) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(iv) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, we could satisfy the
provisions of clause (ii) of the first paragraph of this covenant.
Notwithstanding the foregoing clause (iv):
- any Guarantor may consolidate with, merge into or transfer all or part of
its property and assets to the Company or any other Guarantor and
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- any Guarantor formed solely for the purpose of merging with and into any
other Person, may merge with or into such Person.
Limitations on Transactions with Affiliates.
(a) We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction or series
of related transactions (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service) with, or for
the benefit of, any of our Affiliates (each an "AFFILIATE TRANSACTION"), other
than:
- Affiliate Transactions permitted under paragraph (b) below and
- Affiliate Transactions on terms that, taken as a whole, are not
materially less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of ours or such Restricted
Subsidiary.
All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $2,500,000
shall be approved by the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions.
If the Company or any Restricted Subsidiary enters into an Affiliate
Transaction (or a series of related Affiliate Transactions related to a common
plan) that involves an aggregate fair market value of more than $7,500,000, the
Company or such Restricted Subsidiary, as the case may be, shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of the
financial terms of such transaction or series of related transactions, taken as
a whole, to the Company or the relevant Restricted Subsidiary, as the case may
be, from a financial point of view, from an Independent Financial Advisor, and
file the same with the Trustee.
(b) The restrictions set forth in clause (a) above shall not apply to:
(1) reasonable fees and compensation paid to, indemnity provided for the
benefit of and benefit plans provided for, officers, directors, employees
or consultants of the Company or any Restricted Subsidiary as determined in
good faith by the Company's or such Restricted Subsidiary's Board of
Directors or senior management;
(2) transactions exclusively between or among the Company and any of its
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by
the Indenture;
(3) the transactions and payments contemplated by any agreement as in
effect as of the Issue Date (including, without limitation, the
Recapitalization Agreement) or any amendment thereto in any replacement
agreement therefor so long as any such amendment or replacement agreement,
taken as a whole, is not more disadvantageous to the Holders in any
material respect than the original agreement as in effect on the Issue
Date;
(4) the payment to the Principals or their Related Parties and
affiliates of annual management and advisory fees and related expenses up
to $1,000,000 in any fiscal year;
(5) loans and advances (or guarantees of third party loans) to officers
or employees of the Company or any of its Restricted Subsidiaries in the
ordinary course of business not to exceed $500,000 at any time outstanding;
(6) the payment of fees and expenses related to the Recapitalization;
(7) Permitted Investments and Restricted Payments permitted by the
Indenture;
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(8) any employment agreement, collective bargaining agreement, employee
benefit plan, related trust agreement, indemnification agreement, benefit
plan or similar arrangement for the benefit of directors or officers
entered into in the ordinary course of business;
(9) our (expired) lease with the Placerita Land and Farming Company
relating to the Newhall Facility, on a month-to-month basis, as in effect
in all material respects on the Issue Date subject to annual increases
based on the Consumers Price Index; and
(10) purchases of parts and components from Ordnance Products, Inc. and
Multi-Screw, Inc. consistent with past practice.
(c) In addition, the last sentence of paragraph (a) shall not apply to
- payments by the Company or any of its Restricted Subsidiaries to the
Principals or their Related Parties and Affiliates for any financial
advisory, financing, underwriting or placement services or in respect of
other investment banking activities, including in connection with
acquisition or divestitures, which payments are approved by the Board of
Directors of the Company in good faith and
- Indebtedness permitted by paragraph (13) of the definition of "Permitted
Indebtedness" below.
Limitation of Guarantees by Restricted Subsidiaries.
We will not permit any of our Restricted Subsidiaries that are organized
under the laws of the United States or a subdivision thereof, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
guarantee any of our Indebtedness unless, in any such case:
- such Restricted Subsidiary executes and delivers a supplemental indenture
to the Indenture providing a Guarantee by such Restricted Subsidiary and
- if any such guarantee of such Restricted Subsidiary is provided in
respect of Indebtedness that is expressly subordinated to the Notes, such
guarantee or other instrument provided by such Restricted Subsidiary in
respect of such subordinated Indebtedness shall be subordinated to the
Guarantee pursuant to subordination provisions no less favorable to the
Holders of the Notes than those contained in the Indenture.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon:
- the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such
Guarantee was executed and delivered pursuant to the preceding paragraph;
- any sale or other disposition (by merger or otherwise) to any Person
which is not a Restricted Subsidiary of all of our Capital Stock in, or
all or substantially all of the assets of, such Restricted Subsidiary;
provided that such sale or disposition of such Capital Stock or assets is
otherwise in compliance with the terms of the Indenture;
- the designation of such Subsidiary as an Unrestricted Subsidiary in
accordance with the provisions of the Indenture; or
- the sale or other disposition of shares of Capital Stock of such
Subsidiary to a Person other than the Company or a Restricted Subsidiary
such that such Subsidiary ceases to constitute one of our Subsidiaries,
provided such disposition is otherwise in accordance with the provisions
of the Indenture.
Conduct of Business.
Neither we nor the Restricted Subsidiaries will engage in any businesses
which are not the same, similar or reasonably related or complementary to the
businesses in which we and the Restricted Subsidiaries are engaged on the Issue
Date (as determined in good faith by our Board of Directors).
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Reports to Holders.
At all times from and after the earlier of:
- the date of the commencement of the exchange offer or the effectiveness
of the Shelf Registration Statement (the "REGISTRATION") and
- June 13, 1999,
in either case, whether or not we are then required to file reports with the
Commission, we will file with the Commission (to the extent accepted by the
Commission) annual reports containing the information required to be contained
in Form 10-K promulgated under the Exchange Act, quarterly reports containing
the information required to be contained in Form 10-Q promulgated under the
Exchange Act and from time to time such other information as is required to be
contained in Form 8-K promulgated under the Exchange Act. We will also be
required:
- to supply the Trustee and each Holder of Notes, or supply to the Trustee
for forwarding to each such Holder, without cost to such Holder, copies
of such reports and other documents within 15 days after the date on
which we file such reports and documents with the Commission or the date
on which we would be required to file such reports and documents if we
were so required and
- if filing such reports and documents with the Commission is not accepted
by the Commission or is prohibited under the Exchange Act, to supply, at
our own expense, copies of such reports and documents to any prospective
Holder of Notes promptly upon written request.
In addition, at all times prior to the earlier of the date of Registration
and June 13, 1999, we will, at our own expense, deliver to each Holder of the
Notes quarterly and annual reports substantially equivalent to those that would
be required by the Exchange Act. Furthermore, at all times prior to the date of
Registration, we will supply at our own expense copies of such reports and
documents to any prospective Holder of Notes promptly upon written request and
as required by Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "EVENTS OF DEFAULT":
(1) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(2) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(3) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 60 days after we receive written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the Holders of
at least 25% of the outstanding principal amount of the Notes (except in
the case of a default with respect to the "Merger, Consolidation and Sale
of Assets" covenant, which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(4) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary and such
failure continues for a period of 20 days or more, or the acceleration of
the final stated maturity of any such Indebtedness (which acceleration is
not rescinded, annulled or otherwise cured within 20 days after receipt by
the Company or such Restricted Subsidiary of notice of any such
acceleration) if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which
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has been accelerated, in each case with respect to which the 20-day period
described above has passed, aggregates $7,500,000 or more at any time;
(5) one or more judgments in an aggregate amount in excess of $7,500,000
(net of any amounts with respect to which a reputable insurance company has
acknowledged liability in writing) shall have been rendered against the
Company or any of its Significant Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 60 days after such
judgment or judgments become final and nonappealable;
(6) certain events of bankruptcy affecting us or any of our Significant
Subsidiaries; or
(7) any of the Guarantees of a Guarantor that is a Significant
Subsidiary ceases to be in full force and effect or any of such Guarantees
is declared to be null and void and unenforceable or any of such Guarantees
is found to be invalid or any of such Guarantors denies its liability under
its Guarantee (other than by reason of release of a Guarantor in accordance
with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(6) above relating to the Company) shall occur and be continuing, the Trustee or
the Holders of at least 25% in principal amount of outstanding Notes may declare
the principal of and accrued interest on all the Notes to be due and payable by
notice in writing to the Company and the Trustee specifying the respective Event
of Default and that it is a "notice of acceleration" (the "ACCELERATION
NOTICE"), and the same:
(i) shall become immediately due and payable or
(ii) if there are any amounts outstanding under the New Credit Facility,
shall become immediately due and payable upon the first to occur of:
- an acceleration under the New Credit Facility or
- five business days after receipt by the Company and the Representative
under the New Credit Facility of such Acceleration Notice but only if
such Event of Default is then continuing.
If an Event of Default specified in clause (6) above relating to us occurs
and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Notes shall become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described above, the Holders of a
majority in principal amount of the Notes may rescind and cancel such
declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree,
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration,
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid,
(4) if we have paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
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The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the Trust Indenture Act. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, we are required to provide an officers' certificate to
the Trustee promptly upon any such officer obtaining knowledge of any Default or
Event of Default that has occurred and describe such Default or Event of Default
and the status thereof (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default)
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have our obligations and
the Guarantors' obligations discharged with respect to the outstanding Notes,
the Indenture and the Guarantees (this is referred to as "LEGAL DEFEASANCE").
Such Legal Defeasance means that the Company and, if it so elects, each of the
Guarantors, shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes and cured all then existing Defaults and
Events of Default, except for:
- the rights of Holders to receive payments in respect of the principal of,
premium, if any, and interest on the Notes when such payments are due,
- our obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes
and the maintenance of an office or agency for payments,
- the rights, powers, trust, duties and immunities of the Trustee and our
obligations in connection therewith and
- the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and the Guarantors' obligations released with respect to certain
covenants that are described in the Indenture and thereafter any failure to
comply with such obligations shall not constitute a Default or Event of Default
with respect to the Notes (this is referred to as "COVENANT DEFEASANCE"). In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
Concurrently with any Legal Defeasance or Covenant Defeasance, we may, at
our further option, cause to be terminated, as of the date on which such Legal
Defeasance or Covenant Defeasance occurs, all of the obligations under any or
all of the Guarantees, if any, then existing. In order to exercise such option
regarding a Guarantee, we will provide the Trustee with written notice of our
desire to terminate such Guarantee prior to the delivery of the opinion of
counsel referred to in clause (2) or (3) (as applicable) of the next succeeding
paragraph.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) we must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders, cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
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(2) in the case of Legal Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that we have received from, or there has been
published by, the IRS a ruling or since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or an Event of Default
resulting from the borrowing of funds to be applied to such deposit and the
grant of any Lien securing such borrowing) or insofar as Events of Default
from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the Indenture (other
than a Default or an Event of Default resulting from the borrowing of funds
to be applied to such deposit and the grant of any Lien securing such
borrowing) or any other material agreement or instrument to which we or any
of our Subsidiaries is a party or by which we or any of our Subsidiaries is
bound;
(6) we shall have delivered to the Trustee an officers' certificate
stating that the deposit was not made by us with the intent of preferring
the Holders over any of our other creditors or with the intent of
defeating, hindering, delaying or defrauding any of our other creditors or
others;
(7) we shall have delivered to the Trustee an officers' certificate and
an opinion of counsel, each stating that all conditions precedent provided
for or relating to the Legal Defeasance or the Covenant Defeasance have
been complied with;
(8) we shall have delivered to the Trustee an opinion of counsel to the
effect that, subject to customary assumptions and exclusions, after the
91st day following the deposit, the trust funds will not be, in the case of
Covenant Defeasance, subject to a Lien in favor of the Trustee for the
benefit of the Holders; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the Opinion of Counsel required by clause
(2) above with respect to a Legal Defeasance need not be delivered if all Notes
not theretofore delivered to the Trustee for cancellation:
- have become due and payable,
- will become due and payable on the maturity date within one year or
- are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture, the Notes and the Guarantees will be discharged and will
cease to be of further effect (except as to surviving rights or registration of
transfer or exchange of the Notes, as expressly provided for in the Indenture)
as to all outstanding Notes when
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(1) either:
- all the Notes theretofore authenticated and delivered have been
delivered to the Trustee for cancellation (except lost, stolen or
destroyed Notes which have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust or segregated
and held in trust by us and thereafter repaid to us or discharged from
such trust) or
- all Notes not theretofore delivered to the Trustee for cancellation
have become due and payable and we have irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient
to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal
of, premium, if any, and interest on the Notes to the date of deposit
together with irrevocable instructions from us directing the Trustee
to apply such funds to the payment thereof at maturity or redemption,
as the case may be;
(2) we have paid all other sums payable by us under the Indenture; and
(3) we have delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for any of the following
purposes:
(1) to evidence the succession of another person to the Company or any
Guarantor and the assumption by any such successor of the covenants of the
Company or any Guarantor in the Indenture and in the Notes;
(2) to add to the covenants of the Company or any Guarantor for the
benefit of the Holders, or to surrender any right or power herein conferred
upon the Company or any Guarantor;
(3) to add additional Events of Default;
(4) to provide for uncertificated Notes in addition to or in place of
the certificated Notes;
(5) to evidence and provide for the acceptance of appointment under the
Indenture by a successor Trustee;
(6) to secure the Notes or any Guarantee;
(7) to cure any ambiguity, to correct or supplement any provision in the
Indenture that may be defective or inconsistent with any other provisions
in the Indenture or to make any other provisions with respect to matters or
questions arising under the Indenture, provided that such actions taken
pursuant to this clause (7) do not, in the opinion of the Trustee,
adversely affect the interests of the Holders in any material respect;
(8) to comply with any requirements of the Commission in order to effect
and maintain the qualification of the Indenture under the Trust Indenture
Act; or
(9) to release any Guarantor from its Guarantee in accordance with the
provisions of the Indenture (including in connection with a sale of all of
the Capital Stock or all or substantially all of the assets of such
Guarantor).
In formulating its opinion on the matters in clause (7), the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an opinion of counsel.
Other modifications and amendments of the Indenture may be made with the
consent of the Holders of a majority in principal amount of the then outstanding
Notes issued under the Indenture (including, without
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limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes), except that, without the consent of each Holder
affected thereby, no amendment may:
(a) reduce the amount of Notes whose Holders must consent to an
amendment;
(b) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Notes;
(c) reduce the principal of or change the fixed maturity of any Notes,
or change the scheduled date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price
therefor;
(d) make any Notes payable in money other than that stated in the Notes;
(e) make any change in the express provisions of the Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a majority in principal
amount of Notes to waive Defaults or Events of Default;
(f) after our obligation to purchase Notes arises thereunder, amend,
change or modify in any material respect our obligation to make and
consummate a Change of Control Offer in the event of a Change of Control or
make and consummate a Net Proceeds Offer with respect to any Asset Sale
that has been consummated or, after such Change of Control has occurred or
such Asset Sale has been consummated, modify any of the provisions or
definitions with respect thereto;
(g) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the Notes; or
(h) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the Trust Indenture Act contain certain
limitations on the rights of the Trustee, should it become one of the Company's
creditors, to obtain payments of claims in certain cases or to realize on
certain property received in respect of any such claim as security or otherwise.
Subject to the Trust Indenture Act, the Trustee will be permitted to engage in
other transactions; provided that if the Trustee acquires any conflicting
interest as described in the Trust Indenture Act, it must eliminate such
conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
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"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries:
- existing at the time such Person becomes a Restricted Subsidiary of the
Company or
- at the time it merges or consolidates with us or any of our Subsidiaries
or
- assumed in connection with the acquisition of assets from such Person,
and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
of the Company or such acquisition, merger or consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"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; and the
terms "CONTROLLING" and "CONTROLLED" have meanings correlative of the foregoing.
"ASSET ACQUISITION" means:
- an Investment by the Company or any Restricted Subsidiary of the Company
in any other Person pursuant to which such Person shall become a
Restricted Subsidiary of the Company or of any Restricted Subsidiary of
the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or
- the acquisition by the Company or any Restricted Subsidiary of the
Company of the assets of any Person (other than a Restricted Subsidiary
of the Company) which constitute all or substantially all of the assets
of such Person or comprises any division or line of business of such
Person or any other properties or assets of such Person, other than in
the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by us or any of our
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of:
- any Capital Stock of any Restricted Subsidiary of the Company or
- any other property or assets of the Company or any Restricted Subsidiary
of the Company other than in the ordinary course of business;
provided, however, that Asset Sales shall not include:
(1) a transaction or series of related transactions for which we or one of
our Restricted Subsidiaries receive aggregate consideration of less than
$500,000,
(2) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of our assets, or our consolidation or merger with any other
Person, in each case as permitted under "-- Merger, Consolidation and Sale of
Assets,"
(3) any disposition of property of the Company or any of its Restricted
Subsidiaries that, in our reasonable judgment, has become uneconomic, damaged,
obsolete or worn out,
(4) the sale of inventory in the ordinary course of business,
(5) the sale or discount, in each case without recourse (other than
recourse for a breach of a representation or warranty), of accounts receivable
arising in the ordinary course of business, but only in connection with the
compromise or collection thereof,
(6) sales of Cash Equivalents,
(7) surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind,
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(8) granting of Liens not prohibited by the Indenture,
(9) to the extent such would constitute an Asset Sale, transfers of
leasehold improvements, fixtures, consumables or other equipment made in
connection with our relocation to the Moorpark Facility,
(10) the licensing of intellectual property, including, without limitation,
licensing in connection with any European joint venture,
(11) the sale, lease, conveyance, disposition or other transfer of
Permitted Investments or the Capital Stock of or any Investment in any
Unrestricted Subsidiary,
(12) leases or subleases to third persons not interfering in any material
respect with the business of the Company or any of its Restricted Subsidiaries
and
(13) the making of any Permitted Investments or other Restricted Payments
permitted by the covenant described under the caption "-- Certain
Covenants -- Limitation on Restricted Payments."
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means:
- with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of Common
Stock and Preferred Stock of such Person and
- with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"CASH EQUIVALENTS" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("MOODY'S");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from S&P or Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $250,000,000;
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(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(6) investments in money market funds with assets of $5,000,000 or
greater.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets
of the Company and its Restricted Subsidiaries, taken as a whole, to any
Person or group of related Persons for purposes of Section 13(d) of the
Exchange Act (a "GROUP"), together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of the Indenture) other
than to a Subsidiary of the Company, the Principals and their Related
Parties;
(2) our liquidation or dissolution (whether or not otherwise in
compliance with the provisions of the Indenture);
(3) any Person or Group (other than the Principals and their Related
Parties) shall become the owner, directly or indirectly, beneficially or of
record, of shares representing more than 50% of the aggregate ordinary
voting power represented by our issued and outstanding Capital Stock; or
(4) the replacement of a majority of our Board of Directors over a
two-year period from the directors who constituted the Board of Directors
at the beginning of such period, and such replacement shall not have been
approved by a vote of at least a majority of the Board of Directors then
still in office who either were members of such Board of Directors at the
beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of:
(1) Consolidated Net Income and
(2) to the extent Consolidated Net Income has been reduced thereby,
(a) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary or nonrecurring gains or
losses or taxes attributable to Asset Sales and other sales or
dispositions outside the ordinary course of business to the extent that
gains or losses from such transactions have been excluded from the
computation of Consolidated Net Income),
(b) Consolidated Interest Expense and
(c) Consolidated Non-cash Charges,
less any non-cash items increasing Consolidated Net Income for such period, all
as determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "FOUR QUARTER PERIOD") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "TRANSACTION DATE") for which financial statements
are available to Consolidated Fixed Charges of such Person for the Four Quarter
Period. In addition to and without limitation of the foregoing,
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for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to:
- the incurrence or repayment of any Indebtedness of such Person or any of
its Restricted Subsidiaries (and the application of the proceeds thereof)
giving rise to the need to make such calculation and any incurrence or
repayment of other Indebtedness (and the application of the proceeds
thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four Quarter Period or
at any time subsequent to the last day of the Four Quarter Period and on
or prior to the Transaction Date, as if such incurrence or repayment, as
the case may be (and the application of the proceeds thereof), occurred
on the first day of the Four Quarter Period and
- any Asset Sales or other dispositions or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make
such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as
a result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any Consolidated
EBITDA (including any pro forma expense and cost reductions calculated on
a basis consistent with Regulation S-X under the Exchange Act)
attributable to the assets which are the subject of the Asset Acquisition
or Asset Sale or other disposition during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to the
last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such Asset Sale or other disposition or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. If since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Acquisition or Asset Sale or other disposition
that would have required adjustment pursuant to this definition, then the
Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro forma
effect thereto as if such Asset Acquisition or Asset Sale or other disposition
had occurred at the beginning of the applicable Four Quarter Period.
Furthermore, in calculating Consolidated Fixed Charges for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the average rate of interest on such Indebtedness in effect
on the 30 business days preceding the Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor
of a prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) immediately above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest
is covered by agreements relating to Interest Swap Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
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"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense plus
(2) the product of:
(x) the amount of all dividend payments on any series of Preferred
Stock of such Person and, in the case of the Company, any series of
Preferred Stock of the Guarantors (other than dividends paid in
Qualified Capital Stock) paid, accrued or scheduled to be paid or
accrued during such period and
(y) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated federal,
state and local income tax rate of such Person, expressed as a decimal;
provided that Consolidated Fixed Charges shall not include:
(a) gain or loss from the extinguishment of debt, including, without
limitation, write-off of debt issuance costs, commissions, fees and
expenses,
(b) amortization of debt issuance costs, commissions, fees and expenses
or
(c) customary commitment, administrative and transaction fees or
charges.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP, including without limitation,
(a) any amortization of debt discount and amortization or write-off
of deferred financing costs,
(b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and
(d) the interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations accrued by
such Person and its Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, excluding:
(1) after-tax gains or losses from Asset Sales or other sales of assets
outside the ordinary course of business or abandonments or reserves
relating thereto (other than after-tax gains from sales of Unrestricted
Subsidiaries and other Investments made in compliance with the Covenant
described under the caption "-- Limitation on Restricted Payments," but
only to the extent not already included in clause (z) under the caption
"-- Certain Covenants -- Limitation on Restricted Payments"),
(2) after-tax items classified as extraordinary or nonrecurring gains or
losses,
(3) solely for purposes of calculating Consolidated Net Income for the
covenant described under the caption "-- Certain Covenants -- Limitation on
Restricted Payments," the net income of any Person acquired in a "pooling
of interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary of the referent Person or is merged or consolidated with the
referent Person or any Restricted Subsidiary of the referent Person,
(4) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is
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restricted by a contract, operation of law or otherwise, except to the
extent that such net income is actually paid to the Company or one of its
Restricted Subsidiaries by loans, advances, intercompany transfers,
principal payments or otherwise; provided, however, that for purposes of
determining compliance with the covenant described under the caption
"-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness," any net income of such Restricted Subsidiary, which net
income is subject to any restriction permitted under clause (8) in the
covenant described under the caption "-- Certain Covenants -- Limitation on
Dividend and Other Payment Restrictions Affecting Subsidiaries," shall be
included,
(5) the net income of any Person, other than a Restricted Subsidiary of
the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Restricted Subsidiary of
the referent Person by such Person,
(6) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date,
(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued),
(8) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets, and
(9) the fees, expenses and other costs incurred in connection with the
Recapitalization, including payments to management contemplated by the
Recapitalization Agreement.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period:
(1) the sum of:
(a) the aggregate depreciation, amortization and other non-cash
expenses or charges of such Person and its Restricted Subsidiaries
reducing Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period (including amortization of goodwill, the
non-cash costs of agreements evidencing Interest Swap Obligations,
Currency Agreements, license agreements, noncompetition agreements,
non-cash amortization of Capitalized Lease Obligations or management
fees and organization costs),
(b) expenses and charges relating to any equity offering or
incurrence of Indebtedness permitted to be incurred by the Indenture
(including any such expenses or charges relating to the
Recapitalization),
(c) the amount of any restructuring charge or reserve,
(d) unrealized gains and losses from hedging, foreign currency or
commodities translations and transactions and
(e) the amount of any reduction representing a minority interest in
Guarantors, minus
(2) any cash payment with respect to which a charge or reserve referred
to in clause (1) was taken in a prior period,
in each case, determined on a consolidated basis in accordance with GAAP.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
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"DESIGNATED SENIOR INDEBTEDNESS" means:
- Indebtedness under or in respect of the New Credit Facility and
- any other Indebtedness constituting Senior Indebtedness which, at the
time of determination, has an aggregate principal amount of at least
$25,000,000 and is specifically designated in the instrument evidencing
such Senior Indebtedness as "Designated Senior Indebtedness" by the
Company.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Notes. Notwithstanding the
foregoing, any Capital Stock that would not constitute Disqualified Capital
Stock but for provisions therein giving holders thereof the right to cause the
issuer thereof to repurchase or redeem such Capital Stock upon the occurrence of
an "Asset Sale" or "Change of Control" occurring prior to the final stated
maturity of the Notes will not constitute Disqualified Capital Stock if the
"Asset Sale" or "Change of Control" provisions applicable to such Capital Stock,
taken as a whole, are not materially more favorable to the holders of such
Capital Stock than the provisions described under "-- Certain Covenants --
Change of Control" and "-- Certain Covenants -- Limitation on Assets Sales."
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors acting in good faith and shall be
evidenced by a Board Resolution delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"GUARANTEE" means the guarantee of our Obligations with respect to the
Notes by each Guarantor pursuant to the terms of the Indenture.
"GUARANTOR" means Scot, Incorporated and each of the Company's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of the Indenture as a
Guarantor; provided that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms of the Indenture.
"GUARANTOR SENIOR INDEBTEDNESS" means with respect to any Guarantor, the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Indebtedness" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate
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provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of:
- all obligations (including guarantees thereof) of every nature of such
Guarantor under the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations
under letters of credit, fees, expenses and indemnities,
- all Interest Swap Obligations (including guarantees thereof) and
- all obligations (including guarantees thereof) under Currency Agreements,
in each case whether outstanding on the Issue Date or thereafter
incurred.
Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not
include:
- any Indebtedness of such Guarantor to a Restricted Subsidiary of such
Guarantor or any Affiliate of such Guarantor or any of such Affiliate's
Subsidiaries (other than an Affiliate which is also a lender or an
Affiliate of a lender under the New Credit Facility),
- Indebtedness to, or guaranteed on behalf of, any shareholder (other than
a shareholder which is also a lender or an Affiliate of a lender under
the New Credit Facility), director, officer or employee of such Guarantor
or any Restricted Subsidiary of such Guarantor (including, without
limitation, amounts owed for compensation),
- Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services,
- Indebtedness represented by Disqualified Capital Stock,
- any liability for federal, state, local or other taxes owed or owing by
such Guarantor,
- that portion of any Indebtedness incurred in violation of the Indenture
provisions set forth under "Limitation on Incurrence of Additional
Indebtedness" (but, as to any such obligation, no such violation shall be
deemed to exist for purposes of this clause if the holder(s) of such
obligation or their representative and the Trustee shall have received an
officers' certificate of the Company to the effect that the incurrence of
such Indebtedness does not (or, in the case of revolving credit
indebtedness, that the incurrence of the entire committed amount thereof
at the date on which the initial borrowing thereunder is made would not)
violate such provisions of the Indenture),
- Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and
- any Indebtedness which is, by its express terms, subordinated in right of
payment to any other Indebtedness of such Guarantor.
"INDEBTEDNESS" means with respect to any Person, without duplication,
(1) all indebtedness of such Person for borrowed money,
(2) all indebtedness of such Person evidenced by bonds, debentures,
notes or other similar instruments,
(3) all Capitalized Lease Obligations of such Person,
(4) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement,
(5) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction,
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below,
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(7) all obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any lien on any property or
asset of such Person, the amount of such obligation being deemed to be the
lesser of (a) the fair market value of such property or asset and (b) or
the amount of the obligation so secured,
(8) all obligations under currency agreements and interest swap
agreements of such Person and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its (a) voluntary or involuntary liquidation preference
and (b) maximum fixed repurchase price, but excluding accrued dividends, if
any.
For purposes hereof, the "MAXIMUM FIXED REPURCHASE PRICE" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined in good faith by the
Board of Directors of the issuer of such Disqualified Capital Stock.
Notwithstanding the foregoing, the term "Indebtedness" shall not include:
- trade accounts payable and other accrued liabilities arising in the
ordinary course of business,
- Obligations of such Person other than principal,
- any liability for federal, state or local taxes or other taxes or by such
Person and
- Obligations of such Person with respect to performance and surety bonds
and completion guarantees in the ordinary course of business and
- the accretion of original issue discount.
"INDEPENDENT FINANCIAL ADVISOR" means a firm:
- which does not, and whose directors, officers and employees or Affiliates
do not, have a direct or indirect financial interest in the Company and
- which, in the judgment of our Board of Directors, is otherwise
independent and qualified to perform the task for which it is to be
engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any other Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of
the Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
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"ISSUE DATE" means December 15, 1998, the date of original issuance of the
Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest or
dividends) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of:
- reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees and sales commissions),
- taxes paid or payable relating to such Asset Sale,
- repayment of Indebtedness that is secured by such assets or required to
be repaid in connection with such Asset Sale,
- appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale and
- amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the assets that
are subject to the Asset Sale (by way of holding Capital Stock of the
Person owning such assets or otherwise).
"NEW CREDIT FACILITY" means the Credit Agreement dated as of the Issue
Date, among the Company, the lenders party thereto in their capacities as
lenders thereunder and Bankers Trust Company, as lead arranger, administrative
agent and a lender, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(1) Indebtedness under the Notes issued in the Offering in an aggregate
principal amount of $100,000,000 and the related Guarantees;
(2) Indebtedness incurred pursuant to the New Credit Facility in an
aggregate principal amount at any time outstanding not to exceed:
(a) $70,000,000 with respect to Indebtedness under a term loan
facility, less the amount of all mandatory principal payments actually
made by the Company in respect of such term loans with the Net Cash
Proceeds of an Asset Sale pursuant to the covenant described under the
caption "-- Certain Covenants -- Limitation on Asset Sales" and
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(b) the greater of:
(x) $25,000,000 (reduced by the amount of any required permanent
repayments or commitment reductions made with the Net Cash Proceeds
of an Asset Sale pursuant to the covenant described under the caption
"-- Certain Covenants -- Limitation on Asset Sales") and
(y) 60% of inventory plus 85% of accounts receivable (each as
determined in accordance with GAAP, but excluding accounts receivable
that are past due by more than 60 days, other than by reason of any
laws governing insolvency or bankruptcy) as of the end of the last
fiscal quarter for which financial statements have been prepared;
(3) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereof;
(4) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or any of its Restricted
Subsidiaries; provided, however, that such Interest Swap Obligations are
entered into to protect the Company and its Restricted Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance with
the Indenture to the extent the notional principal amount of such Interest
Swap Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(5) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(6) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Wholly Owned Restricted Subsidiary of the Company for so
long as such Indebtedness is held by the Company, a Wholly Owned Restricted
Subsidiary of the Company or the lenders or collateral agent under any
senior secured Indebtedness permitted to be incurred under the Indenture,
in each case subject to no Lien held by a Person other than the Company or
such other lenders or collateral agent, a Wholly Owned Restricted
Subsidiary of the Company or such other lenders or collateral agent;
provided that if as of any date any Person other than the Company, a Wholly
Owned Restricted Subsidiary of the Company or the lenders or collateral
agent under the New Credit Facility owns or holds any such Indebtedness or
holds a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
issuer of such Indebtedness pursuant to this clause (6);
(7) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
of the Company for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of the Company or the lenders or collateral agent
under any senior secured Indebtedness permitted to be incurred under the
Indenture, in each case subject to no Lien held by such Person other than a
Wholly Owned Restricted Subsidiary or such other lenders or collateral
agent; provided that:
- any Indebtedness of the Company to any Wholly Owned Restricted
Subsidiary of the Company which is not a Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's
obligations under the Indenture and the Notes and
- if as of any date any Person other than a Wholly Owned Restricted
Subsidiary of the Company or such other lenders or collateral agent
owns or holds any such Indebtedness or any Person holds a Lien in
respect of such Indebtedness, such date shall be deemed the incurrence
of Indebtedness not constituting Permitted Indebtedness by the Company
pursuant to this clause (7);
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within five business days of incurrence;
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(9) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, issued in the ordinary course of
business of the Company or such Restricted Subsidiary, including, without
limitation, in order to provide security for workers' compensation claims
or payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business and other Indebtedness with
respect to workers' compensation claims, self-insurance obligations,
performance, surety and similar bonds and completion guarantees provided by
the Company or any Restricted Subsidiary in the ordinary course of
business;
(10) Indebtedness (a) represented by Capitalized Lease Obligations and
(b) Purchase Money Indebtedness of the Company and its Restricted
Subsidiaries or under purchase money mortgages or secured by purchase money
security interests, in the case of (a) or (b) incurred for the purpose of
leasing or financing or refinancing all or any part of the purchase price
or cost of construction or improvement of any property (real or personal)
or other assets that are used or useful in the business of the Company or
such Restricted Subsidiary (whether through the direct purchase of assets
or the Capital Stock of any Person owning such assets and whether such
Indebtedness is owed to the seller or Person carrying out such construction
or improvement or to any third party), so long as:
(x) such Indebtedness is not secured by any property or assets of the
Company or any Restricted Subsidiary other than the property or assets
so leased, acquired (directly or indirectly), constructed or improved
and
(y) such Indebtedness is created within 90 days of the acquisition or
completion of construction or improvement of the related property or
asset provided that the aggregate principal amount of Indebtedness under
clauses (a) and (b) does not exceed $10,000,000 and any Refinancing of
Indebtedness permitted under clause (a) or (b) the aggregate of which
does not exceed $10,000,000;
(11) Refinancing Indebtedness;
(12) guarantees of Indebtedness otherwise permitted under the Indenture;
(13) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10,000,000 at
any one time outstanding (which amount may, but need not, be incurred in
whole or in part under the New Credit Facility);
(14) Indebtedness arising from any agreement entered into by the Company
or any of its Restricted Subsidiaries providing for indemnification,
purchase price adjustment or similar obligations, in each case incurred or
assumed in connection with any Asset Sale;
(15) Indebtedness arising from a Sale and Leaseback Transaction or from
the creation of a mortgage, in either case with respect to the Company's
production facility in Moorpark, California in an amount not to exceed
$25,000,000; provided that the Net Cash Proceeds from such Sale and
Leaseback Transaction or from the creation of such mortgage are applied in
accordance with the provisions described under "-- Certain
Covenants -- Limitation on Asset Sales" as if such transaction were an
Asset Sale thereunder; provided, further, however, that any Net Cash
Proceeds remaining after the foregoing proviso is complied with shall be
applied in accordance with the other provisions described under "Certain
Covenants -- Limitation on Asset Sales" as if such transaction were an
Asset Sale thereunder; and
(16) Indebtedness arising from a Sale and Leaseback Transaction or from
the creation of a mortgage, in either case with respect to the Company's
facility in Mesa, Arizona in an amount not to exceed $15,000,000; provided
that the Net Cash Proceeds from such Sale and Leaseback Transaction or from
the creation of such mortgage are applied in accordance with the provisions
described under "-- Certain Covenants -- Limitation on Asset Sales" as if
such transaction were an Asset Sale thereunder; provided, further, however,
that any Net Cash Proceeds remaining after the foregoing proviso
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is complied with shall be applied in accordance with the other provisions
described under "Certain Covenants -- Limitation on Asset Sales" as if such
transaction were an Asset Sale thereunder.
"PERMITTED INVESTMENTS" means:
(1) Investments by the Company or any Restricted Subsidiary of the
Company in any Person that is or will become immediately after such
Investment a Restricted Subsidiary of the Company or that will merge or
consolidate into the Company or a Restricted Subsidiary of the Company,
(2) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment to the
extent held by a Restricted Subsidiary that is not a Guarantor is unsecured
and subordinated, pursuant to a written agreement, to the Company's
obligations under the Notes and the Indenture;
(3) investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of the Company and its
Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $1,000,000 at any one time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture;
(6) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in good
faith settlement of delinquent obligations of such trade creditors or
customers;
(7) Investments made pursuant to the Recapitalization;
(8) guarantees of Indebtedness otherwise permitted under the Indenture;
(9) obligations of one or more officers or other employees of the
Company or any of its Restricted Subsidiaries in connection with such
officer's or employee's acquisition of shares of Common Stock of the
Company so long as no cash is paid by the Company or any of its Restricted
Subsidiaries to such officers or employees in connection with the
acquisition of any such obligations;
(10) Investments made by the Company or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant;
(11) additional Investments not to exceed an amount equal to (a)
$10,000,000 plus (b) to the extent not previously reinvested under this
clause (11), any return of capital realized on a Permitted Investment made
pursuant to this clause (11); provided that in no event shall the aggregate
amount of Investments pursuant to clauses (a) and (b) of this clause (11)
exceed $10,000,000 in the aggregate at any one time outstanding;
(12) any acquisition of assets solely in exchange for the issuance of
Qualified Capital Stock of the Company;
(13) commission, travel, payroll, entertainment, relocation and similar
advances to officers and employees of the Company or any Restricted
Subsidiary made in the ordinary course of business; and
(14) Investments in one or more joint ventures relating to the Company's
expansion into the European market not to exceed an amount equal to (a)
$4,000,000 plus (b) to the extent not previously reinvested under this
clause (14) any return of capital realized on a Permitted Investment made
pursuant to this clause (14); provided that in no event shall the aggregate
amount of Investments pursuant to clauses (a) and (b) of this clause (14)
exceed $4,000,000 in the aggregate at any one time outstanding.
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"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Liens securing letters of credit
issued in the ordinary course of business in connection therewith, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default;
(5) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(7) purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary of the Company; provided, however, that:
(a) the related purchase money Indebtedness shall not exceed the cost
of the acquisition, construction or improvement of such property or
assets and shall not be secured by any property or assets of the Company
or any Restricted Subsidiary of the Company other than the property and
assets so acquired whether through the direct acquisition of such
property or assets or indirectly through the acquisition of the Capital
Stock of any Person owning such property or assets constructed or
improved and
(b) the Lien securing such Indebtedness shall be created within 90
days of such acquisition or completion of construction or improvement;
(8) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
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(12) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to the "Limitation on Incurrence of
Additional Indebtedness" covenant; provided, however, that in the case of
Purchase Money Indebtedness:
(a) the Indebtedness shall not exceed the cost of such property or
assets and shall not be secured by any property or assets of the Company
or any Restricted Subsidiary of the Company other than the property and
assets so acquired or constructed and
(b) the Lien securing such Indebtedness shall be created within 180
days of such acquisition or construction or, in the case of a
Refinancing of any Purchase Money Indebtedness, within 180 days of such
Refinancing;
(13) Liens securing Indebtedness under Currency Agreements;
(14) any lease or sublease to a third party;
(15) Liens placed upon assets of a Restricted Subsidiary of the Company
not organized under the laws of the United States or any subdivision
thereof to service the Indebtedness of such Restricted Subsidiary that is
otherwise permitted under the Indenture;
(16) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that:
(a) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Company or
a Restricted Subsidiary of the Company and were not granted in
anticipation of the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company and
(b) such Liens do not extend to or cover any property or assets of
the Company or of any of its Restricted Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary of the Company;
(17) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company; provided that such
Liens were not incurred in connection with, or in contemplation of, such
acquisition;
(18) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that
do not exceed $5,000,000 at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances of credit (other than trade credit in the ordinary
course of business) and
(b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary;
(19) Liens on materials, inventory or consumables and the proceeds
therefrom securing trade payables relating to such materials, inventory or
consumables;
(20) Liens in favor of customs and revenues authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(21) Liens in connection with workmen's compensation obligations and
general liability exposure of the Company and its Restricted Subsidiaries;
(22) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which are not leased pursuant to such Capitalized Lease Obligation;
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(23) Liens for judgments, attachments, seizures or levies not to exceed
$500,000 in the aggregate at any one time;
(24) Liens on property or assets of the Company or any of its Restricted
Subsidiaries securing Indebtedness incurred under clause (13) of the
definition of "Permitted Indebtedness" and any guarantees relating thereto;
and
(25) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (1) through (24) provided that the
Lien so extended, renewed or replaced does not extend to any additional
property or assets.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust or joint venture, or a
governmental agency or political subdivision thereof.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PRINCIPALS" means:
(1) Lehman, JFL Equity and each Affiliate of Lehman and JFL Equity as of
the Issue Date,
(2) each officer or employee of Lehman or any such member referred to in
clause (1) as of the Issue Date and
(3) each of the foregoing's family members, legal representatives or
guardians, heirs and legatees and trusts, partnerships and
corporations the sole beneficiaries, partners or shareholders, as
the case may be, of which are family members.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"QUALIFIED PROCEEDS" means any of the following or any combination of the
following:
(1) cash,
(2) Cash Equivalents,
(3) assets that are used or usable in the business of the Company and
its Subsidiaries as existing on the Issue Date or a business reasonably
related or complementary thereto and
(4) Capital Stock of any Person engaged primarily in the business of the
Company and its Subsidiaries as existing on the Issue Date or a business
reasonably related or complementary thereto if, in connection with the
receipt by the Company or any Restricted Subsidiary of the Company of such
Capital Stock (a) such Person becomes a Restricted Subsidiary or (b) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the
Company or any Restricted Subsidiary of the Company.
"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness (whose proceeds are applied within 60 days
after the incurrence thereof) in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (2), (4), (5), (6), (7), (8), (9), (10), (12), (13), (14),
(15) or (16) of the definition of Permitted Indebtedness), in each case that
does not:
(1) result in an increase in the aggregate principal amount (or accreted
value, if applicable) of Indebtedness of such Person as of the date of such
proposed Refinancing (plus the amount of any
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penalties, interest or premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
fees, discounts, commissions and other expenses incurred by the Company in
connection with such Refinancing) or
(2) create Indebtedness with:
(a) a Weighted Average Life to Maturity that is less than the
Weighted Average Life to Maturity of the Indebtedness being Refinanced
or
(b) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced; provided that:
(x) if such Indebtedness being Refinanced is solely Indebtedness
of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company and
(y) if such Indebtedness being Refinanced is subordinate or
junior to the Notes, then such Refinancing Indebtedness shall be
subordinate or junior to the Notes at least to substantially the same
extent and in substantially the same manner as the Indebtedness being
Refinanced.
"RELATED PARTY" with respect to any Principal means:
(1) any controlling stockholder or 80% (or more) owned Subsidiary of
such Principal or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (1).
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Indebtedness in respect of any Designated
Senior Indebtedness.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
- all obligations (including guarantees thereof) of every nature of the
Company under the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations
under letters of credit, fees, expenses and indemnities,
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- all Interest Swap Obligations (including guarantees thereof) and
- all obligations (including guarantees thereof) under Currency Agreements,
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include:
(a) any Indebtedness of the Company to a Subsidiary of the Company or
any Affiliate of the Company or any of such Affiliate's Subsidiaries (other
than an Affiliate which is also a lender or an Affiliate of a lender under
the New Credit Facility),
(b) Indebtedness to, or guaranteed on behalf of, any shareholder (other
than a shareholder which is also a lender or an Affiliate of a lender under
the New Credit Facility), director, officer or employee of the Company or
any Subsidiary of the Company (including, without limitation, amounts owed
for compensation),
(c) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services,
(d) Indebtedness represented by Disqualified Capital Stock,
(e) any liability for federal, state, local or other taxes owed or owing
by the Company,
(f) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (f) if the holder(s)
of such obligation or their representative and the Trustee shall have
received an officers' certificate of the Company to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving
credit indebtedness, that the incurrence of the entire committed amount
thereof at the date on which the initial borrowing thereunder is made would
not) violate such provisions of the Indenture),
(g) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and
(h) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Company.
"SIGNIFICANT SUBSIDIARY," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "Significant
Subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act.
"SUBSIDIARY" means:
- any corporation of which the outstanding Capital Stock having at least a
majority of the votes entitled to be cast in the election of directors
under ordinary circumstances shall at the time be owned, directly or
indirectly, by such Person or
- any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly,
owned by such Person.
"UNRESTRICTED SUBSIDIARY" of any Person means:
- any Subsidiary of such Person that at the time of determination shall be
or continue to be designated an Unrestricted Subsidiary by the Board of
Directors of such Person in the manner provided below and
- any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or
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holds any Lien on any property of, the Company or any other Subsidiary of the
Company that is not a Subsidiary of the Subsidiary to be so designated; provided
that:
- the Company certifies to the Trustee that such designation complies with
the "Limitation on Restricted Payments" covenant and
- each Subsidiary to be so designated and each of its Subsidiaries has not
at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to any Indebtedness pursuant to which the lender has
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if:
- immediately after giving effect to such designation, the Company is able
to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant and
- immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an officers' certificate certifying that such
designation complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such Indebtedness
into
(2) the sum of the total of the products obtained by multiplying:
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes initially will be issued in the
form of one or more permanent global certificates in definitive, fully
registered form without interest coupons (the "Global Notes"). The Global Notes
will be deposited with the Trustee as custodian for the DTC and registered in
the name of a nominee of such depositary.
The Global Notes. We expect that pursuant to procedures established by
DTC:
- upon the issuance of the Global Notes, DTC or its custodian will credit,
on its internal system, the principal amount of Notes of the individual
beneficial interests represented by such Global Notes to the respective
accounts of persons who have accounts with such depositary and
- ownership of beneficial interests in the Global Notes will be shown on,
and the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests
of persons other than participants).
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So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any) and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner of the Notes. None of the Company, the Trustee or any Paying Agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest on the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in the Global Notes held through
such participants will be governed by standing instructions and customary
practice, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
certificated security for any reason, including to sell Notes to persons in
states that require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Notes, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised us that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such participant
or participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Notes for
certificated securities, which it will distribute to its participants.
DTC has advised the Company as follows:
- DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act;
- DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates;
- Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations; and
- Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
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Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and we do not appoint a successor
depositary within 90 days, certificated securities will be issued in exchange
for the Global Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, starting on the Expiration Date and
ending on the close of business 180 days after the Expiration Date, we will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until September , 1999,
all dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
We will not receive any proceeds from any sales of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of New Notes and any
commissions or concessions received by such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the Notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the New Notes will be passed upon for us by Gibson, Dunn &
Crutcher LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of the Company as of October 31, 1997
and 1998 and for each of the years in the three year period ended October 31,
1998 are included in this prospectus in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
<TABLE>
<S> <C>
Audited Consolidated Financial Statements
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of October 31, 1997 and
1998................................................... F-3
Consolidated Statements of Earnings for the years ended
October 31, 1996, 1997 and 1998........................ F-4
Consolidated Statements of Stockholders' Equity for the
years ended October 31, 1996, 1997 and 1998............ F-5
Consolidated Statements of Cash Flows for the years ended
October 31, 1996, 1997 and 1998........................ F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of October 31,
1998 and January 31, 1999 (unaudited).................. F-20
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended February 2, 1998
and January 31, 1999................................... F-21
Condensed Consolidated Statements of Stockholders' Equity
(Deficit) (unaudited) for the three months ended
January 31, 1999....................................... F-22
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended February 2, 1998
and January 31, 1999................................... F-23
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-24
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Special Devices, Incorporated:
We have audited the accompanying consolidated balance sheets of Special
Devices, Incorporated and subsidiary as of October 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended October 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Special
Devices, Incorporated and subsidiary as of October 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended October 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Los Angeles, California
December 9, 1998
F-2
<PAGE> 120
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,415,335 $ 1,248,130
Marketable securities..................................... 6,750,000 --
Accounts receivable, net of allowance of $44,126 in 1997
and $385,109 in 1998 for doubtful accounts (Note 2).... 18,192,877 19,410,344
Inventories (Note 3)...................................... 14,554,614 16,609,014
Prepaid expenses.......................................... 503,430 545,834
Deferred income taxes (Note 6)............................ 991,000 1,366,000
----------- ------------
Total current assets.............................. 43,407,256 39,179,322
----------- ------------
Property, plant and equipment, at cost:
Land...................................................... 1,611,331 1,611,331
Building.................................................. 7,963,637 9,332,173
Machinery and equipment................................... 44,080,413 59,482,401
Furniture and fixtures.................................... 2,844,116 3,337,788
Transportation equipment.................................. 2,486,034 331,069
Leasehold improvements.................................... 3,314,332 3,928,569
Construction in progress (includes land and related costs
of $9,440,000 in 1997 and $25,562,000 in 1998)......... 17,942,985 38,236,428
----------- ------------
80,242,848 116,259,759
Less accumulated depreciation and amortization............ 23,974,540 31,488,641
----------- ------------
56,268,308 84,771,118
----------- ------------
Other assets................................................ 148,716 668,678
----------- ------------
$99,824,280 $124,619,118
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4)................ $ 944,793 $ 2,109,562
Trade accounts payable.................................... 6,175,501 9,361,350
Accounts payable to related parties (Note 9).............. 1,471,748 269,727
Accrued payroll and benefits.............................. 1,929,420 2,161,240
Accrued expenses.......................................... 1,491,360 5,015,987
Income taxes payable (Note 6)............................. 1,257,872 4,590,183
----------- ------------
Total current liabilities......................... 13,270,694 23,508,049
Long-term debt, less current portion (Note 4)............... 2,056,766 416,125
Deferred income taxes (Note 6).............................. 3,140,000 3,415,000
----------- ------------
Total liabilities................................. 18,467,460 27,339,174
----------- ------------
Commitments and contingencies (Note 7)...................... -- --
Stockholders' equity (Note 5):
Preferred stock, $.01 par value. Authorized 2,000,000
shares; no shares issued or outstanding................ -- --
Common stock, $.01 par value. Authorized 20,000,000
shares; issued and outstanding 7,771,167 shares in 1997
and 7,809,801 shares in 1998........................... 77,712 78,098
Additional paid-in capital................................ 50,887,737 51,363,891
Retained earnings......................................... 30,391,371 45,837,955
----------- ------------
Total stockholders' equity........................ 81,356,820 97,279,944
----------- ------------
$99,824,280 $124,619,118
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 121
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales........................................ $104,482,025 $140,502,420 $170,537,769
Cost of sales (Note 9)........................... 84,327,787 112,553,611 131,610,049
------------ ------------ ------------
Gross profit................................... 20,154,238 27,948,809 38,927,720
------------ ------------ ------------
Operating expenses............................... 8,110,025 10,721,536 13,023,137
------------ ------------ ------------
Earnings from operations....................... 12,044,213 17,227,273 25,904,583
------------ ------------ ------------
Other (expense) income:
Interest expense............................... (364,992) (258,678) (155,996)
Interest income................................ 493,818 369,299 107,997
------------ ------------ ------------
Net other income (expense)..................... 128,826 110,621 (47,999)
------------ ------------ ------------
Earnings before income taxes................... 12,173,039 17,337,894 25,856,584
Income taxes (Note 6)............................ 4,725,000 6,660,000 10,410,000
------------ ------------ ------------
Net earnings................................... $ 7,448,039 $ 10,677,894 $ 15,446,584
============ ============ ============
Basic net earnings per share..................... $ .97 $ 1.39 $ 1.98
============ ============ ============
Weighted average shares outstanding.............. 7,664,275 7,697,522 7,797,429
============ ============ ============
Diluted net earning per share.................... $ 0.96 $ 1.37 $ 1.90
============ ============ ============
Weighted average shares and dilutive share
equivalents outstanding........................ 7,755,286 7,821,600 8,114,323
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 122
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 31,
1995....................... 7,655,076 $76,551 $49,711,881 $12,265,438 $62,053,870
Issuance of common stock on
exercise of stock
options.................... 20,459 205 199,169 -- 199,374
Net earnings................. -- -- -- 7,448,039 7,448,039
--------- ------- ----------- ----------- -----------
Balance at October 31,
1996....................... 7,675,535 $76,756 $49,911,050 $19,713,477 $69,701,283
Issuance of common stock on
exercise of stock
options.................... 95,632 956 976,687 -- 977,643
Net earnings................. -- -- -- 10,677,894 10,677,894
--------- ------- ----------- ----------- -----------
Balance at October 31,
1997....................... 7,771,167 $77,712 $50,887,737 $30,391,371 $81,356,820
Issuance of common stock on
exercise of stock
options.................... 38,634 386 476,154 -- 476,540
Net earnings................. -- -- -- 15,446,584 15,446,584
--------- ------- ----------- ----------- -----------
Balance at October 31,
1998....................... 7,809,801 $78,098 $51,363,891 $45,837,955 $97,279,944
========= ======= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 123
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings....................................... $ 7,448,039 $ 10,677,894 $ 15,446,584
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................... 5,402,314 6,376,824 8,520,340
Deferred income tax provision................... 300,000 50,000 (100,000)
Changes in assets and liabilities:
Increase in accounts receivable................. (101,148) (5,529,647) (1,217,467)
(Increase) decrease in inventories.............. (1,059,097) 3,744,091 (2,054,400)
Increase in prepaid expenses.................... (102,139) (101,785) (42,404)
Decrease (increase) in other assets............. 183,000 53,334 (519,962)
(Decrease) increase in accounts payable,
accounts payable to related parties and other
accrued expenses.............................. (1,077,681) 3,987,089 5,740,275
Increase (decrease) in income taxes payable..... 1,864,189 (733,418) 3,332,311
------------ ------------ ------------
Net cash provided by operating activities.......... 12,857,477 18,524,382 29,105,277
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment......... (11,117,856) (22,544,145) (38,523,150)
(Purchases) sales of marketable securities......... (2,000,000) 3,950,000 6,750,000
------------ ------------ ------------
Net cash used in investing activities.............. (13,117,856) (18,594,145) (31,773,150)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock............. 199,374 977,643 476,540
Net borrowings under revolving line of credit...... -- 750,000 1,300,000
Repayment of long term debt........................ (1,274,602) (1,835,123) (275,872)
------------ ------------ ------------
Net cash (used in) provided by financing
activities...................................... (1,075,228) (107,480) 1,500,668
------------ ------------ ------------
Net decrease in cash............................... (1,335,607) (177,243) (1,167,205)
Cash at beginning of year............................ 3,928,185 2,592,578 2,415,335
------------ ------------ ------------
Cash at end of year.................................. $ 2,592,578 $ 2,415,335 $ 1,248,130
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized)........... $ 354,938 $ 269,004 $ 156,355
Income taxes.................................... 2,437,500 7,200,418 7,177,689
Non-cash financing activities:
Assignment of note payable...................... $ -- $ 530,000 $ --
Long term debt assumed by buyer on sale of
aircraft...................................... $ -- $ -- $ 1,500,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 124
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Special
Devices, Incorporated, a Delaware corporation, and its wholly owned subsidiary,
together collectively described as "the Company." All material intercompany
accounts and transactions have been eliminated.
Revenue Recognition
The Company has two operating divisions. The Automotive Products Division,
organized in 1989, manufactures products, to customer specifications, under
standard purchase orders. Sales are recognized when products are shipped. The
Aerospace Division manufactures products under fixed price, long-term contracts
directly for the Department of Defense, their prime contractors and commercial
companies. The contracts vary in length, but are generally completed within 12
to 24 months. Sales under long-term production contracts are recognized as units
are shipped or, in some cases, when accepted by the customer; sales under
significant engineering contracts are recognized under the percentage completion
method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities and the reported amounts of
income and expenses for the periods presented. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash, trade accounts receivable and
all current liabilities approximate the fair values due to the relatively short
maturities of these instruments.
Marketable securities consist of a tax-exempt mutual fund which is stated
at fair value based on market quotes. Accordingly, the cost basis of the
securities approximates the fair value.
The carrying amounts of the Company's long-term debt approximate the fair
value due to variable interest rates which approximate market rates associated
with the notes.
Inventories
Inventories, other than inventoried costs relating to long-term contracts,
are stated at the lower of cost (principally first-in, first-out) or market.
Inventoried costs relating to long-term contracts and programs are stated at the
actual production cost, including overhead incurred to date reduced by amounts
identified with revenue recognized on units delivered. Inventoried costs
relating to long-term contracts are further reduced by any amounts in excess of
estimated realizable value. The costs attributed to units delivered under
long-term contracts are based on the estimated average cost of all units
expected to be produced under existing contracts.
In accordance with industry practice, inventories are classified as current
assets although inventories may include amounts relating to contracts and
programs having production cycles longer than one year.
Property and Equipment
Property and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation is
charged against results of operations using the straight-line
F-7
<PAGE> 125
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method over the estimated service lives of the related assets. The principal
lives used in determining depreciation rates of various assets are as follows:
<TABLE>
<S> <C>
Building.......................................... 25 years
Machinery and equipment........................... 7.5 years
Furniture and fixtures............................ 5 years
Transportation equipment.......................... 4 years
</TABLE>
Leasehold improvements are amortized over the lesser of the estimated
service life or the remaining life of the lease. Upon sale or retirement of the
depreciable property, the related cost and accumulated depreciation are
eliminated from the accounts and gains or losses are reflected in earnings.
Interest costs incurred during the period of construction of plant and
equipment are capitalized. The interest costs capitalized were $101,000 and
$112,600 in Fiscal 1997 and 1998, respectively, and no amounts of interest were
capitalized in Fiscal 1996.
Net Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 was adopted at the beginning of the Company's 1998 fiscal year and replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to fully diluted earnings
per share. Earnings per share amounts for the prior periods have been restated
to conform to SFAS No. 128 requirements.
Basic net earnings per share is computed by dividing net earnings by the
weighted average number of common stock outstanding during the period. Diluted
net earnings per share is computed by dividing net earnings by the weighted
average number of common stock and dilutive stock equivalents outstanding during
the period.
The following table sets forth the computation of basic and diluted net
earnings per share:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net earnings....................... $7,448,039 $10,677,894 $15,446,584
========== =========== ===========
Denominator:
Denominator for basic net earnings
per share --
Weighted average shares
outstanding................... 7,664,275 7,697,522 7,797,429
Effect of dilutive securities:
Employee stock options........ 91,011 124,078 316,894
---------- ----------- -----------
Denominator for dilutive
earnings per share -- weighted
average shares and dilutive
potential shares
outstanding................... 7,755,286 7,821,600 8,114,323
========== =========== ===========
</TABLE>
Income Taxes
The Company accounts for income taxes under the asset and liability method
of accounting for income taxes whereby deferred income taxes are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
F-8
<PAGE> 126
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
Impairment of Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on
November 1, 1997. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell. Adoption of SFAS No. 121 did not have a material impact on the Company's
financial position, results of operations, or liquidity.
Comprehensive Income
On November 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. The statement requires only additional disclosures in the
financial statements; it does not affect the Company's financial position or
results of operations. There is no difference between net earnings and
comprehensive income for the Company.
Segments of an Enterprise and Related Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. The Company believes that its adoption of SFAS
No. 131 will not have a material impact on its financial reporting.
Startup Activities
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Cost of Startup
Activities." This SOP requires that costs incurred during start-up activities,
including organization costs, be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. Initial
application of the SOP should be as of the beginning of the fiscal year in which
the SOP is first adopted and should be reported as a cumulative effect of a
change in accounting principles. We believe that the adoption of SOP 98-5 will
not have a material impact on our consolidated financial statements.
Derivative Instruments and Hedging Activities
In 1998, the FASB issued Statement of Financial Statements No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
modifies the accounting for derivative and hedging activities and is effective
for fiscal years beginning after December 15, 1999. We believe that the adoption
of SFAS No. 133 will not have a material impact on our financial reporting.
Stock-Based Compensation
Prior to November 1, 1997, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to
F-9
<PAGE> 127
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employees," and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On November 1, 1997, the Company adopted SFAS
No. 123. "Accounting for Stock-Based Compensation," which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock options
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
2. ACCOUNTS RECEIVABLE
Accounts receivable are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Commercial customers...................... $11,897,328 $13,591,228
U.S. Government........................... 1,295,349 2,273,366
U.S. Government contractors............... 5,044,326 3,930,859
----------- -----------
18,237,003 19,795,453
Less allowance for doubtful accounts...... 44,126 385,109
----------- -----------
$18,192,877 $19,410,344
=========== ===========
</TABLE>
The activity relating to the allowance for doubtful accounts was as
follows:
<TABLE>
<S> <C>
Balance at October 31, 1995...................... $ 216,604
Additions charged to expense..................... 81,000
Write-offs and other............................. (141,645)
---------
Balance at October 31, 1996...................... 155,959
Additions charged to expense..................... 208,000
Write-offs....................................... (319,833)
---------
Balance at October 31, 1997...................... $ 44,126
Additions charged to expense..................... 510,000
Write-offs....................................... (169,017)
---------
Balance at October 31, 1998...................... $ 385,109
=========
</TABLE>
3. INVENTORIES
Inventories and inventoried costs relating to long-term contracts are
classified as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Raw materials and component parts......... $ 4,840,722 $ 6,294,435
Work in process........................... 3,104,313 3,677,720
Finished goods............................ 1,627,523 1,650,654
Inventoried costs relating to long-term
contracts, net of amounts attributed to
revenues recognized to date............. 4,982,056 6,810,036
----------- -----------
14,554,614 18,432,845
Less progress payments related to
long-term contracts..................... -- 1,823,831
----------- -----------
$14,554,614 $16,609,014
=========== ===========
</TABLE>
F-10
<PAGE> 128
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventoried costs relate to costs of products currently in progress. There
are no significant inventoried costs relating to the production costs of
delivered units over the estimated average cost of all units expected to be
produced.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Bank term notes............................. $ 530,530 $ 475,687
Bank revolver............................... 750,000 2,050,000
Finance company............................. 1,713,641 --
Other notes................................. 7,388 --
---------- ----------
3,001,559 2,525,687
Less current portion...................... 944,793 2,109,562
---------- ----------
$2,056,766 $ 416,125
========== ==========
</TABLE>
The Company has a Credit Agreement with a bank, which was renewed in April
1998, and expires May 1, 2000. Borrowings under the Credit Agreement bear
interest at the bank's Reference Rate less 0.25%, or at the Company's option, at
LIBOR plus 0.75%. The Credit Agreement contains two revolving credit facilities.
The Company may borrow up to $10,000,000 under Facility No. 1, and may borrow up
to $12,000,000 under Facility No. 2. Facility No. 1 may be used for commercial
letters of credit not to exceed a total of $500,000 and for standby letters of
credit not to exceed $6,000,000 in the aggregate, which reduce the amount
available under Facility No. 1 when incurred. In addition, the Company has the
option of converting outstanding borrowings, in increments of not less than
$1,000,000, under Facility No. 2 to a 5-year term loan. Any amounts converted to
term debt under Facility No. 1 will bear interest at a fixed rate equal to the
bank's long-term interest rate in effect at the time of such conversion. At
October 31, 1997 and 1998, $750,000 and $2,050,000, respectively, were
outstanding under Facility No. 2, and no amounts were outstanding under Facility
No. 1. In addition, at October 31, 1998, the Company had outstanding
approximately $3,518,000 of performance bonds secured by standby letters of
credit related to development of new facilities (see Note 8). The Credit
Agreement contains certain covenants. The Company was in violation of certain of
these covenants for the period ended October 31, 1998. The Company has received
a waiver of such violations from the lender thereunder.
The Company's wholly owned subsidiary, Scot, Incorporated, has a term loan
with a bank, which was renewed in August, 1996, secured by certain real property
of Scot. The principal balance outstanding under the renewed loan at October 31,
1998, was $475,687. The loan is being amortized with monthly payments of
approximately $7,800, including interest, adjusted monthly, at 1.9% over the
bank's LIBOR rate (5.69% at October 31, 1998). Any unpaid principal is due on
August 1, 2001.
The finance company note was secured by related equipment. The note was
being amortized over 12 years with interest at prime plus one-half percent
through November 2006, when the note would have been fully amortized. Monthly
payments were approximately $23,100. The related equipment was sold in October
1998 and the note was paid. The unpaid balance at October 31, 1997 was
$1,713,641.
The scheduled principal payments of long-term debt outstanding at October
31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31,
- -----------------------
<S> <C>
1999.............................................. $ 59,562
2000.............................................. 64,345
2001.............................................. 351,780
</TABLE>
F-11
<PAGE> 129
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 2,000,000 shares of Preferred Stock,
$.01 par value. Shares of Preferred Stock may be issued from time to time in one
or more series and the Board of Directors, without further stockholder approval,
is authorized to fix the rights and terms, including dividends and liquidation
preferences and any other rights to each such series of Preferred Stock. At
October 31, 1997 and 1998, no shares of Preferred Stock were issued or
outstanding.
Stock Options and Grants
The Company's Amended and Restated 1991 Stock Incentive Plan (the "Plan")
is administered by a committee of the Board of Directors which determines the
amount, type, terms and conditions of the awards made pursuant to the Plan. The
Plan provides for issuance of restricted stock, grants of incentive and non-
qualified stock options, stock appreciation rights and performance share awards.
There are 560,000 shares of Common Stock reserved for issuance under the Plan.
Pursuant to the Plan, no option may be granted that is exercisable in less
than six months or more than ten years from the grant date. Certain events,
including a change in control of the Company, may accelerate exercise dates,
cause forfeiture of all shares of any restricted stock and terminate all
conditions relating to the realization of any performance awards.
During Fiscal 1998, 25,500 options were granted and 38,634 were exercised
at prices ranging from $9.50 to $18.00 per share. At October 31, 1998, there
were options outstanding to purchase 232,072 shares, which options were
exercisable with respect to 119,212 shares.
In December 1996, the Company's Stock Option Committee authorized stock
option grants to certain employees via a special grant which is not part of the
1991 Stock Option Plan. Under terms of this authorization, options to purchase
130,000 shares were granted which vest ratably over 5 years from the grant date,
and options to purchase 312,000 shares vest ratably over a period ranging from 5
to 8 years from the grant date. The grants for the latter options contain
vesting acceleration clauses during the first 36 months of the option; the
acceleration clauses are contingent upon the price of the Company's Common Stock
attaining a certain level, and upon the Company attaining certain earnings
levels. As of October 31, 1998, options to purchase 312,000 shares have vested
under the acceleration clauses, and options to purchase 26,000 shares have
vested due to the passage of time. The options were granted at the fair market
value of the stock on the grant date, which was $17.00 per share.
The Company adopted the requirements of SFAS No. 123, "Accounting for Stock
Based Compensation" in 1997. As permitted by SFAS No. 123, the Company has
elected to account for compensation expense pursuant to the provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with
APB Opinion No. 25, no compensation expense has been charged to earnings in any
of the three years ended October 31, 1998.
Had compensation cost for the Company's stock-based compensation plan been
determined consistent with SFAS No. 123, the Company's net income and per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C> <C>
Net Income......................... As Reported $10,677,894 $15,446,584
Pro forma 9,415,397 14,547,778
Basic earnings per share........... As Reported $1.39 $1.98
Pro Forma $1.22 $1.87
Diluted earnings per share......... As Reported $1.37 $1.90
Pro Forma $1.20 $1.79
</TABLE>
F-12
<PAGE> 130
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997 and 1998, respectively: risk-free interest rates of 6.12%
and 5.68%; dividend yields of 0% and 0%; volatility factors of the expected
market price of the Company's common stock of 47.30% and 45.26%, and a
weighted-average expected life of the option of 6 years.
Stock option activity for the three years ended October 31, 1998 was as
follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
1991 STOCK AVERAGE AVERAGE
OPTION PLAN EXERCISE PRICE SPECIAL GRANT EXERCISE PRICE
----------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares authorized................. 560,000 442,000
======= =======
Shares under option:
Outstanding at October 31, 1995... 247,507 --
Granted......................... 117,000 $17.63 -- $ --
Exercised....................... 20,460 $ 9.75 -- $ --
Forfeited....................... 24,337 $11.54 -- $ --
-------
Shares under option:
Outstanding at October 31, 1996... 319,710 --
Granted......................... 33,000 $17.07 442,000 $17.00
Exercised....................... 95,632 $10.85 -- $ --
Forfeited....................... 10,672 $12.54 -- $ --
------- -------
Shares under option:
Outstanding at October 31, 1997... 246,406 442,000
Granted......................... 25,500 $23.80 $ --
Exercised....................... 38,634 $12.30 -- $ --
Forfeited....................... 1,200 $17.75 $ --
-------
Outstanding at October 31, 1998... 232,072 442,000
======= =======
Weighted average fair value of
options granted during the year:
1996............................ $ 9.38 $ --
1997............................ $ 9.19 $ 9.16
1998............................ $12.32 $ --
Options exercisable:
At October 31, 1996............. 149,200 --
At October 31, 1997............. 129,209 58,000
At October 31, 1998............. 119,212 338,000
</TABLE>
The following table summarizes information about stock options outstanding
at October 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------------
AVERAGE EXERCISABLE NUMBER --------------------- NUMBER WEIGHTED
AT RANGE OF OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT AVERAGE EXERCISE
EXERCISE PRICE OCTOBER 31, 1998 LIFE PRICE OCTOBER 31, 1998 PRICE
------------------- ---------------- --------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 6.50 - 10.00............ 77,905 4.87 $ 9.56 77,905 $ 9.56
$13.75 - 17.75............ 567,167 7.92 $17.12 373,307 $17.06
$18.00 - 24.75............ 29,000 8.73 $23.11 6,000 $18.67
------- -------
674,072 7.60 $10.14 457,212 $15.80
======= =======
</TABLE>
F-13
<PAGE> 131
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The provisions for income taxes consist of the following for each
respective fiscal year ended October 31:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal............................. $3,558,000 $5,343,000 $ 8,492,000
State............................... 867,000 1,267,000 2,018,000
---------- ---------- -----------
$4,425,000 $6,610,000 $10,510,000
========== ========== ===========
Deferred:
Federal............................. $ 279,000 $ 77,000 $ (96,000)
State............................... 21,000 (27,000) (4,000)
---------- ---------- -----------
$ 300,000 $ 50,000 $ (100,000)
========== ========== ===========
Total:
Federal............................. $3,837,000 $5,420,000 $ 8,396,000
State............................... 888,000 1,240,000 2,014,000
---------- ---------- -----------
$4,725,000 $6,660,000 $10,410,000
========== ========== ===========
</TABLE>
Temporary differences which give rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax liabilities-non-current:
Depreciation...................................... $3,140,000 $3,415,000
---------- ----------
Deferred tax assets-current:
Allowance for doubtful accounts................... 22,000 117,000
Inventory......................................... 506,000 472,000
Vacation.......................................... 445,000 451,000
State taxes....................................... 18,000 326,000
---------- ----------
991,000 1,366,000
---------- ----------
Net deferred tax liability.......................... $2,149,000 $2,049,000
========== ==========
</TABLE>
Management believes that it is more likely than not that future operations
will generate sufficient taxable income to realize the deferred tax assets.
The provisions for income taxes for the years ended October 31, 1996, 1997
and 1998 differ from the provisions that would have resulted by applying the
Federal statutory rates during such periods to the earnings before income taxes.
The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Income taxes at Federal rate.......... $4,139,000 $5,522,000 $ 9,050,000
State income taxes.................... 675,000 806,000 1,312,000
Other................................. (89,000) 332,000 48,000
---------- ---------- -----------
$4,725,000 $6,660,000 $10,410,000
========== ========== ===========
</TABLE>
F-14
<PAGE> 132
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Leases
Land and Buildings
The Company is obligated under a month-to-month operating lease for the
property on which the Company's Newhall facility is located. This lease is with
a partnership which is composed of certain stockholders of the Company, one of
which is an officer of the company. Monthly rental expense as of October 31,
1998 was $43,706 per month with annual increases equal to any changes in the
Consumer Price Index.
In May 1997, the Company signed a 7-year lease for an approximate 25,000
square foot building in Moorpark, California, for its glass-sealing division.
Monthly rental expense as of October 31, 1998 was $13,208 per month with annual
increases equal to the change in the Consumer Price Index.
Other Operating Leases
The Company also has several non-cancelable operating leases, primarily for
transportation equipment and temporary office units, that expire through August,
1998. Rental expense for these operating leases for each of the fiscal years
ended October 31, 1996, 1997 and 1998 were $114,900, $286,000 and $236,065,
respectively.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
Year ending October 31,
- -------------------------------------------------
1999........................................... $ 232,049
2000........................................... 217,617
2001........................................... 205,840
2002........................................... 198,606
2003........................................... 172,439
2004........................................... 118,827
----------
Total minimum lease payments........... $1,145,378
==========
</TABLE>
Other
The Company had commitments at October 31, 1998, to acquire capital
equipment, at cost aggregating approximately $3,071,000, primarily for
production and other support equipment required for the increased operations of
the Automotive Products Division. In addition, in order to improve manufacturing
efficiencies and to provide facilities for growth, the Company purchased in
October 1996, approximately 280 acres of land in the City of Moorpark, located
in Ventura County, north of Los Angeles, where the Company is currently building
new facilities. Total cost of the project is estimated at $32,500,000 of which
$25,562,000 had been spent at October 31, 1998 and is included in construction
in progress in the accompanying consolidated balance sheet. The Company
anticipates spending approximately $7,000,000 in fiscal year 1999 to complete
this project. The Company plans to sell two commercial lots being developed as
part of this project, the proceed of which are expected to reduce the net
project cost to approximately $27,000,000. The Company has committed to complete
the building construction, the total cost of which is estimated to be
approximately $7,000,000.
Litigation
The Company is a defendant in pending claims and lawsuits arising in the
normal course of business. In the opinion of the Company's management, after
consultation with counsel, these matters are not expected to have a material
adverse effect upon the financial statements taken as a whole.
F-15
<PAGE> 133
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
The Company supports a 401(k) plan that provides eligible employees the
opportunity to make tax deferred contributions to a retirement trust account in
amounts up to 15% of their gross wages. The Company can elect to make matching
contributions in amounts that can change from year to year. During the last
three fiscal years the Company matched 30% of the employees deferral up to the
first 5% of each participating employee's deferral. Employees vest immediately
in the Company's matching contributions. The Company's matching contributions
aggregated $221,400, $242,300 and $288,235 in 1996, 1997, and 1998,
respectively.
9. RELATED PARTY TRANSACTIONS
The Company purchased materials from two corporations owned by one of its
principal stockholders. During the years ended October 31, 1996, 1997 and 1998,
$2,361,500, $3,460,100 and $720,156 respectively, of materials were purchased
from such stockholder's corporations. At October 31, 1997 and 1998, $381,200 and
$269,727, respectively, were owed to the corporations owned by this principal
stockholder.
During 1990, the same principal stockholder of the Company acquired a
significant stockholding in the parent company of a corporation that supplies
materials to the Company. During the years ended October 31, 1996 and 1997,
$12,768,500 and, $11,464,400, respectively, of materials were purchased from
such corporation. At October 31, 1997, $1,090,548, was due to this corporation.
In January 1997, the principal stockholder sold his interest in this
corporation.
10. MAJOR CUSTOMERS
Sales to customers, in excess of 10% of net sales during any of the past
three years, as a percentage of net sales, were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Automotive:
TRW, Incorporated.................................... 59.7% 49.1% 39.7%
Autoliv.............................................. -- 20.6% 24.9%
ARC.................................................. -- -- 11.3%
</TABLE>
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1997 and 1998 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
FEBRUARY 2 MAY 4 AUGUST 3 OCTOBER 31 FULL YEAR
---------- ------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1997
Net sales............................. $27,537 $32,792 $36,970 $43,203 $140,502
Gross profit.......................... 5,297 6,391 7,094 9,167 27,949
Earnings from operations.............. 3,071 3,932 4,543 5,681 17,227
Net earnings.......................... 1,914 2,462 2,795 3,507 10,678
Basic net earnings per share.......... $ .25 $ .32 $ .36 $ .46 $ 1.39
Diluted net earnings per share........ $ .25 $ .32 $ .36 $ .44 $ 1.37
</TABLE>
F-16
<PAGE> 134
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
FEBRUARY 1 MAY 3 AUGUST 2 OCTOBER 31 FULL YEAR
---------- ------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1998
Net sales............................. $40,732 $45,114 $43,400 $41,292 $170,538
Gross profit.......................... 8,209 10,146 10,503 10,070 38,928
Earnings from operations.............. 5,546 6,944 7,305 6,110 25,905
Net earnings.......................... 3,387 4,048 4,394 3,618 15,447
Basic net earnings per share.......... $ .43 $ .52 $ .56 $ .46 $ 1.98
Diluted net earnings per share........ $ .42 $ .50 $ .54 $ .44 $ 1.90
</TABLE>
12. INDUSTRY SEGMENT INFORMATION
The Company operates primarily in two industry segments -- aerospace and
automotive. In the aerospace industry, the Company produces pyrotechnic devices
under long-term contracts for the Department of Defense and their prime
contractors. In the automotive industry, the Company produces air bag initiators
under trade terms for commercial companies. The Company has a multi-year
agreement to supply its largest customer that expires in 2000 and a multi-year
agreement to supply its second largest customer that expires in 1999.
Future changes in federal regulations, the rate of implementation of new
applications for air bags and initiators and the rate of sales of new
automobiles could adversely affect the success of the Automotive Products
Division. The Aerospace Division's reliance upon defense programs has inherent
risks. Some of these risks include uncertain economic conditions, dependence on
Congressional appropriations and administrative allotment of funds, changes in
government policies that reflect military and political developments, and other
facts characteristic of the defense industry.
Each division is allocated administrative operating expenses incurred by
the Company (which are not attributable to a particular division) on an
equitable basis to fairly reflect the benefit received by each operating
division. In Fiscal 1996 the allocation was made approximately equally to each
division. In Fiscal 1997, the allocation was made at 35% to the Aerospace
Division and 65% to the Automotive Products Division. In Fiscal 1998, the
allocation was made at 40% to the Aerospace Division and 60% to the Automotive
Products Division. Administrative operating expenses amounted to approximately
$2,704,000, $3,874,000 and $3,928,000 in Fiscal 1996, 1997 and 1998,
respectively.
The Company operates entirely within the United States and has no
intersegment sales. Corporate assets are primarily cash, prepaids and other
assets.
F-17
<PAGE> 135
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial information for these segments is summarized in the table below:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Automotive Products............ $ 80,235,225 $111,930,660 $135,234,636
Aerospace...................... 24,246,800 28,571,760 35,303,133
------------ ------------ ------------
Total net sales........ $104,482,025 $140,502,420 $170,537,769
============ ============ ============
Earnings from operations:
Automotive Products............ $ 8,244,332 $ 13,648,127 $ 18,491,367
Aerospace...................... 3,799,881 3,579,146 7,413,216
------------ ------------ ------------
Total earnings from
operations........... $ 12,044,213 $ 17,227,273 $ 25,904,583
============ ============ ============
Depreciation and amortization:
Automotive Products............ $ 4,623,005 $ 5,593,108 $ 7,601,009
Aerospace...................... 429,809 518,188 592,417
Corporate...................... 349,500 265,528 326,914
------------ ------------ ------------
Total depreciation and
amortization......... $ 5,402,314 $ 6,376,824 $ 8,520,340
============ ============ ============
Capital expenditures:
Automotive Products............ $ 10,511,449 $ 10,911,242 $ 21,204,608
Aerospace...................... 346,367 680,962 1,269,708
Corporate...................... 260,040 10,421,941 16,048,834
------------ ------------ ------------
Total capital
expenditures......... $ 11,117,856 $ 22,014,145 $ 38,523,150
============ ============ ============
Identifiable assets:
Automotive Products............ $ 54,658,384 $ 53,996,681 $ 69,295,100
Aerospace...................... 14,445,201 18,422,308 21,736,616
Corporate...................... 17,055,610 27,405,291 33,587,402
------------ ------------ ------------
Total identifiable
assets............... $ 86,159,195 $ 99,824,280 $124,619,118
============ ============ ============
</TABLE>
13. SUBSEQUENT EVENT (UNAUDITED)
On June 19, 1998, the Company entered into an agreement and plan of merger
with SDI Acquisition Corp. ("Acquisition"), an affiliate of J.F. Lehman &
Company (as subsequently amended, the "Merger Agreement") and a guaranty
agreement with J.F. Lehman Equity Investors L.P. ("JFL Equity"). Acquisition
will acquire all of the Company's outstanding common stock at $34.00 per share,
excluding certain shares and options held by certain members of management and
certain shareholders of the Company, and JFL Equity will guarantee certain
aspects of the transaction. This transaction was consumated on December 15,
1998.
In connection with the Merger Agreement, the Company issued $100,000,000
aggregate principal amount of its 11 3/8% Senior Subordinated Notes due 2008
pursuant to an offering exempt from registration under the Securities Act of
1933. The notes are unsecured obligations of the Company. The notes are fully
and unconditionally guaranteed, jointly and severally, on an unsecured, senior
subordinated basis by the Company's only wholly owned subsidiary, Scot,
Incorporated (the "Subsidiary Guarantor").
In connection with the Recapitalization, the Company entered into the New
Credit Facility, which provides for a Revolving Credit Facility of $25.0 million
and a $70.0 million Senior Term Loan.
F-18
<PAGE> 136
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SCOT, INCORPORATED
Sections 13 and 15(d) of the Securities Exchange Act of 1934 require
presentation of the following audited summarized financial information of the
Subsidiary Guarantor. The Company has elected not to present separate financial
statements and other disclosures concerning the Subsidiary Guarantor because
management believes such information is not material to investors. There are no
significant contractual restrictions on distributions from the Subsidiary
Guarantor to the Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
INCOME STATEMENT
Net Sales........................................... $10,574,130 $11,657,787 $17,271,753
Gross Profit........................................ 5,225,681 4,960,828 8,929,586
Income from continuing operations................... 3,085,298 2,258,896 4,704,166
Net income.......................................... 1,887,731 1,391,187 2,800,573
BALANCE SHEET (AS OF END OF PERIOD)
Current Assets...................................... $ 6,510,920 $ 6,687,854 $ 6,747,964
Non-current Assets.................................. 3,144,654 2,997,795 3,413,881
Current Liabilities................................. 3,414,910 1,311,995 3,124,766
Non-current Liabilities............................. 529,596 475,290 416,125
</TABLE>
F-19
<PAGE> 137
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,248,130 $ 87,681
Accounts receivable, net of allowance of $385,109 at
October 31, 1998 and $81,734 at January 31, 1999 for
doubtful accounts (Note 3)............................. 19,410,344 16,174,161
Inventories (Note 4)...................................... 16,609,014 18,974,334
Prepaid expenses.......................................... 545,834 2,769,613
Deferred income taxes (Note 6)............................ 1,366,000 1,366,000
------------ -------------
Total current assets.............................. 39,179,322 39,371,789
------------ -------------
Property, plant and equipment, at cost:
Land...................................................... 1,611,331 1,611,331
Buildings................................................. 9,332,173 9,351,991
Machinery and equipment................................... 59,482,401 61,842,197
Furniture and fixtures.................................... 3,337,788 3,443,138
Transportation equipment.................................. 331,069 331,069
Leasehold improvements.................................... 3,928,569 4,288,513
Construction in progress (includes land and related costs
of $25,562,000 at October 31, 1998 and $27,915,000 at
January 31, 1999)...................................... 38,236,428 42,316,758
------------ -------------
116,259,759 123,184,997
Less accumulated depreciation............................. 31,488,641 34,469,400
------------ -------------
84,771,118 88,715,597
------------ -------------
Other assets................................................ 668,678 8,823,504
------------ -------------
$124,619,118 $ 136,910,890
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 5)................ $ 2,109,562 $ 1,625,000
Trade accounts payable.................................... 9,361,350 10,976,418
Accounts payable to related parties....................... 269,727 227,053
Accrued payroll and benefits.............................. 2,161,240 2,199,399
Accrued expenses.......................................... 5,015,987 3,584,664
Income taxes payable (Note 6)............................. 4,590,183 --
------------ -------------
Total current liabilities......................... 23,508,049 18,612,534
Long-term debt, less current portion (Note 5)............... 416,125 169,125,000
Deferred income taxes (Note 6).............................. 3,415,000 3,415,000
------------ -------------
Total liabilities................................. 27,339,174 191,152,534
------------ -------------
Commitments and contingencies (Note 7)...................... -- --
Redeemable common stock..................................... -- 25,374,996
Stockholders' equity (deficit):
Preferred stock, $.01 par value. Authorized 2,000,000
shares; no shares issued or outstanding................ -- --
Common stock, $.01 par value. Authorized 20,000,000
shares; issued and outstanding 7,809,801 shares at
October 31, 1998 and 3,706,889 shares at January 31,
1999................................................... 78,098 29,716
Additional paid-in capital................................ 51,363,891 73,603,215
Retained earnings (accumulated deficit)................... 45,837,955 (153,249,571)
------------ -------------
Total net stockholders' equity (deficit).......... 97,279,944 (79,616,640)
------------ -------------
$124,619,118 $ 136,910,890
============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-20
<PAGE> 138
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
FEBRUARY 1, JANUARY 31,
1998 1999
----------- ------------
<S> <C> <C>
Net sales................................................... $40,732,373 $ 37,715,781
Cost of sales............................................... 32,523,427 30,723,875
----------- ------------
Gross profit.............................................. 8,208,946 6,991,906
----------- ------------
Operating expenses.......................................... 2,656,944 2,576,347
Recapitalization costs...................................... -- 15,637,389
----------- ------------
Total operating expenses.................................. 2,656,944 18,213,736
----------- ------------
Earnings (loss) from operations........................ 5,552,002 (11,221,830)
----------- ------------
Other income (expense):
Interest income........................................... 66,309 778
Interest expense.......................................... (50,487) (2,341,237)
Other..................................................... (5,846) (116,258)
----------- ------------
Net other income (expense)............................. 9,976 (2,456,717)
----------- ------------
Earnings (loss) before income taxes......................... 5,561,978 (13,678,547)
Income taxes................................................ 2,175,000 (3,300,000)
----------- ------------
Net earnings (loss).................................... $ 3,386,978 $(10,378,547)
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-21
<PAGE> 139
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) -- UNAUDITED
FOR THE THREE MONTHS ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
RETAINED NET
COMMON STOCK ADDITIONAL EARNINGS STOCKHOLDERS'
--------------------- PAID-IN (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT) (DEFICIT)
---------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 31,
1998...................... 7,809,801 $ 78,098 $51,363,891 $ 45,837,955 $ 97,279,944
Record recapitalization
transaction............... (3,367,618) (41,029) 22,614,324 (163,716,336) (141,143,041)
Record redeemable common
stock..................... (735,294) (7,353) -- (24,992,643) (24,999,996)
Accreted put premium on
redeemable common stock... -- -- (375,000) -- (375,000)
Net loss.................... -- -- -- (10,378,547) (10,378,547)
---------- -------- ----------- ------------- -------------
Balance at January 31,
1999...................... 3,706,889 $ 29,716 $73,603,215 $(153,249,571) $ (79,616,640)
========== ======== =========== ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-22
<PAGE> 140
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ 3,386,978 $ (10,378,547)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 1,888,292 2,980,759
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............. (1,513,172) 3,236,183
Increase in inventories................................ (817,656) (2,365,320)
Increase in prepaid expenses........................... (593,569) (2,223,779)
Decrease in other assets............................... 13,333 586,628
Increase in accounts payable, accounts payable to
related parties and other accrued expenses........... 764,154 179,230
Increase (decrease) in income taxes payable............ 851,000 (4,590,183)
----------- -------------
Increase in net deferred taxes......................... 125,000 --
Net cash provided by (used in) operating activities....... 4,104,360 (12,575,028)
----------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (7,922,270) (6,925,238)
Sale of marketable securities............................. 2,000,000 --
----------- -------------
Net cash used in investing activities..................... (5,922,270) (6,925,238)
----------- -------------
Cash flows from financing activities:
Recapitalization costs.................................... -- (141,102,012)
Repurchase of common stock................................ -- (41,029)
Proceeds from issuance of common stock.................... 183,899 --
Draws on lines of credit.................................. -- 750,000
Proceeds from issuance of long-term debt.................. -- 170,000,000
Payment of deferred financing fees........................ -- (8,741,454)
Repayment of long term debt............................... (301,576) (2,525,687)
----------- -------------
Net cash (used in) provided by financing activities....... (117,677) 18,339,818
----------- -------------
Net decrease in cash...................................... (1,935,587) (1,160,449)
Cash at beginning of period................................. 2,415,335 1,248,130
----------- -------------
Cash at end of period....................................... $ 479,748 $ 87,681
=========== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 50,683 $ 77,500
Income taxes........................................... 1,199,000 3,055,000
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-23
<PAGE> 141
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
1. COMPANY OPERATIONS
Special Devices, Incorporated, a Delaware corporation (the "Company"),
designs and manufactures highly reliable precision engineered pyrotechnic
devices. These devices are used predominantly in vehicle airbag and other
automotive safety systems as well as in various aerospace applications.
On December 15, 1998, the Company consummated a recapitalization (the
"Recapitalization") in which all shares of the Company's common stock, other
than those retained by certain members of management and certain other
shareholders (the "Continuing Shareholders"), were converted into the right to
receive $34 per share in cash. The Continuing Shareholders retained
approximately 41.3% of the common equity of the Company while new investors
acquired the balance of the equity interests in the Company.
The Company has the right on certain of the outstanding shares of common
stock held by the continuing shareholders (additional rollover shares) to
acquire all or any portion of the additional rollover shares prior to December
31, 2002. The owners of the additional rollover shares under certain conditions
have the right to require the Company to purchase all or a portion of the
additional rollover shares at a price per share equal to the call price.
Accordingly, the additional rollover shares have been recorded as temporary
equity or redeemable common stock.
2. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
the Company include all adjustments (consisting of normal recurring entries)
which management believes are necessary for a fair presentation of the financial
position and results of operations for the periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that the accompanying financial statements
be read in conjunction with the Company's audited financial statements and
footnotes as of and for the year ended October 31, 1998. Operating results for
the three month period ended January 31, 1999 are not necessarily indicative of
the operating results which may be expected for the full fiscal year.
3. ACCOUNTS RECEIVABLE
Accounts receivable are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Commercial customers.............................. $13,591,228 $13,512,444
U.S. Government................................... 2,273,366 1,072,011
U.S. Government contractors....................... 3,930,859 1,671,440
----------- -----------
19,795,453 16,255,895
Less allowance for doubtful accounts.............. 385,109 81,734
----------- -----------
$19,410,344 $16,174,161
=========== ===========
</TABLE>
F-24
<PAGE> 142
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
4. INVENTORIES
Inventories and inventoried costs relating to long-term contracts are
classified as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Raw materials and component parts................. $ 6,294,434 $ 5,961,703
Work in process................................... 3,677,720 3,647,561
Finished goods.................................... 1,650,654 1,353,533
Inventoried costs relating to long-term contracts,
net of amounts attributed to revenues recognized
to date......................................... 6,810,036 8,341,027
----------- -----------
18,432,845 19,303,824
Less progress payments related to long-term
contracts....................................... 1,823,831 329,490
----------- -----------
$16,609,014 $18,974,334
=========== ===========
</TABLE>
Inventoried costs relate to costs of goods currently in progress on
long-term contracts. There are no significant inventoried costs relating to the
production costs of delivered units over the estimated average cost of all units
expected to be produced.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1999
----------- ------------
<S> <C> <C>
Bank revolver..................................... $ 475,687 $ 750,000
Senior term loan.................................. 2,050,000 70,000,000
Senior Subordinated Notes......................... -- 100,000,000
---------- ------------
Total long-term debt............................ 2,525,687 170,750,000
Less current portion............................ 2,109,562 1,625,000
---------- ------------
Total long-term debt, less current
portion............................... $ 416,125 $169,125,000
========== ============
</TABLE>
At October 31, 1998, $2,050,000, was outstanding under a credit agreement,
which was paid in full on December 15, 1998 in connection with the
Recapitalization. This credit agreement was then terminated. In addition, at
October 31, 1998, the Company had outstanding approximately $3,518,000 of
performance bonds secured by standby letters of credit.
The Company's wholly-owned subsidiary, Scot, Incorporated, had a term loan
with a bank, secured by certain real property of Scot. The principal balance
outstanding at October 31, 1998, was $475,687. The loan was repaid in full on
December 15, 1998.
As part of the Recapitalization, the Company entered into a new credit
facility (the "New Credit Facility") with a syndicate of banks, which consists
of a $25,000,000 Revolving Credit Facility ("Revolver") and a $70,000,000 Senior
Term Loan. The Senior Term Loan is a seven year loan which bears interest at the
Eurodollar Rate determined on a quarterly basis (8.375% at January 31, 1999).
F-25
<PAGE> 143
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
Principal payments under the Senior Term Loan are required as follows for
the fiscal years ended October 31:
<TABLE>
<CAPTION>
FY ENDED OCTOBER 31, AMOUNT
- -------------------- -----------
<S> <C>
1999............................................ $ 700,000
2000............................................ $ 700,000
2001............................................ $ 700,000
2002............................................ $10,000,000
2003............................................ $16,700,000
Thereafter...................................... $41,200,000
</TABLE>
The Revolver bears interest at the bank's prime interest rate plus 175
basis points (9.75% at January 31, 1999). As of January 31, 1999, $750,000 was
outstanding under the Revolver. In addition, the Company had approximately
$2,500,000 of letters of credit outstanding under the Revolver, which reduces
the amount of additional borrowing available. The total amount available under
the Revolver at January 31, 1999 was $21,750.00.
The New Credit Facility contains several financial and operating covenants
with which the Company was in compliance at January 31, 1999. These covenants
consist of an EBITDA requirement, an interest coverage test and a leverage test.
Substantially all of the Company's assets are pledged as collateral under the
New Credit Facility.
In addition, as part of the Recapitalization, the Company sold $100,000,000
of Senior Subordinated Notes. The Notes are due in December 2008, and bear
interest at 11-3/8% per annum. Interest is payable semi-annually, commencing
June 15, 1999. The Company's obligations under the Notes are subordinate to its
obligations under the New Credit Facility.
6. INCOME TAXES
The provisions for income taxes (benefit) consist of the following for the
three-month periods presented below:
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Current:
Federal.......................................... $1,662,000 $(2,700,000)
State............................................ 388,000 (600,000)
---------- -----------
$2,050,000 $(3,300,000)
========== ===========
Deferred:
Federal.......................................... $ 86,000 $ --
State............................................ 39,000 --
---------- -----------
$ 125,000 $ --
========== ===========
Total:
Federal.......................................... $1,748,000 $(2,900,000)
State............................................ 427,000 (400,000)
---------- -----------
$2,175,000 $(3,300,000)
========== ===========
</TABLE>
F-26
<PAGE> 144
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
Recapitalization costs of approximately $5.6 million represent advisory
fees related to the Recapitalization which are not deductible for income tax
purposes.
Temporary differences which give rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax liabilities -- non-current:
Depreciation.................................... $(3,415,000) $(3,415,000)
=========== ===========
Deferred tax assets -- current:
Allowance for doubtful accounts................. 117,000 117,000
Inventory....................................... 472,000 472,000
Vacation........................................ 451,000 451,000
State taxes..................................... 326,000 326,000
----------- -----------
1,366,000 1,366,000
----------- -----------
Net deferred tax liability........................ $(2,049,000) $(2,049,000)
=========== ===========
</TABLE>
Management believes that it is more likely than not that future operations
will generate sufficient taxable income to realize the deferred tax assets.
The provisions for income tax expense for the three month periods presented
below differ from the provisions that would have resulted from applying the
Federal statutory rates during such periods to the income before income taxes.
The reasons for these differences are as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1998 1999
----------- -----------
<S> <C> <C>
Income taxes at Federal rate....................... $1,613,000 $(4,787,000)
State income taxes, net of federal tax benefit..... 517,000 (390,000)
Non deductible expenses............................ -- 1,945,000
Other.............................................. 45,000 (68,000)
---------- -----------
$2,175,000 $(3,300,000)
========== ===========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various pending claims and lawsuits. In the
opinion of the Company's management, after consultation with counsel,
disposition of such matters is not expected to have a material adverse effect
upon the results of operations or the financial position of the Company.
The Company had commitments at January 31, 1999 to acquire capital
equipment, at cost aggregating approximately $2,000,000, primarily for
production and other support equipment required for the increased operations of
the Automotive Products Division. In addition, in order to improve manufacturing
efficiencies and to provide facilities for growth, the Company purchased in
October 1996, approximately 280 acres of land in the City of Moorpark, located
in Ventura County, north of Los Angeles, where the Company is currently building
new facilities. Total cost of the project is estimated at $32,500,000 of which
$27,915,000 had been spent at January 31, 1999 and is included in construction
in progress in the accompanying condensed consolidated balance sheet. The
Company anticipates spending approximately $4,500,000 in fiscal year 1999 to
complete this project. The Company plans to sell two commercial lots being
developed as part of this project, the proceeds of which are expected to reduce
the net project cost to approximately $27,000,000.
The statements above regarding the land purchased by the Company in
Moorpark, the construction of facilities on that land by the Company, and the
amount and timing of expenditures are forward-looking
F-27
<PAGE> 145
SPECIAL DEVICES, INCORPORATED AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
statements. Actual results and the timing of those results may vary depending on
various factors including, for example, the ability of the Company to obtain
permits and approvals that do not contain conditions or restrictions that are
unduly restrictive or otherwise unacceptable to the Company, the Company's not
encountering any unforeseen conditions relating to the property that make
completion of the land infrastructure work or construction more expensive,
difficult or time intensive than is currently expected, the ability of the
contractors and subcontractors retained by the Company to complete the work on
the schedule and for the costs described above, and other factors which may
develop during the course of this project.
8. SUBSEQUENT EVENTS
On February 18, 1999, an accidental explosion occurred at the Company's
Newhall facility, resulting in the death of one employee. The Company suspended
all production at the Newhall facility for four days to conduct a thorough
investigation. Concurrently, the Company implemented contingency manufacturing
plans to meet customer demand from existing inventory and production from its
Mesa facility. No buildings or equipment, other than one transport vehicle, were
damaged in the accident. The Company resumed full production at Newhall on March
4, 1999. The Company is not aware of any litigation commenced in connection with
this event.
F-28
<PAGE> 146
- ------------------------------------------------------
- ------------------------------------------------------
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ADDITIONAL COPIES OF THE PROSPECTUS, LETTER OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE AGENT AS FOLLOWS:
BY REGISTERED OR CERTIFIED MAIL:
UNITED STATES TRUST COMPANY OF NEW YORK
P.O. BOX 844
COOPER STATION
NEW YORK, NY 10276-0844
ATTN: CORPORATE TRUST SERVICES
BY FACSIMILE:
(212) 780-0592
BY OVERNIGHT COURIER:
UNITED STATES TRUST COMPANY OF NEW YORK
770 BROADWAY, 13TH FLOOR
NEW YORK, NEW YORK 10003
ATTN: CORPORATE TRUST SERVICES
BY HAND:
UNITED STATES TRUST COMPANY OF NEW YORK
111 BROADWAY
LOWER LEVEL
NEW YORK, NEW YORK 10006
ATTN: CORPORATE TRUST SERVICES
CONFIRM BY TELEPHONE 800-548-6565
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL)
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
OFFER TO EXCHANGE ALL OUTSTANDING
11 3/8% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES A
($100,000,000 PRINCIPAL AMOUNT)
FOR
11 3/8% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES B
SPECIAL DEVICES,
INCORPORATED
PAYMENT OF PRINCIPAL AND INTEREST
UNCONDITIONALLY GUARANTEED BY
SCOT, INCORPORATED
------------------------
PROSPECTUS
------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 147
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Corporation Law") gives Delaware corporations broad powers to
indemnify their present and former directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with threatened, pending or
completed actions, suits or proceedings to which they are parties or are
threatened to be made parties by reason of being or having been such directors
or officers, subject to specified conditions and exclusions; gives a director or
officer who successfully defends an action the right to be so indemnified; and
permits a corporation to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other rights to which those indemnified
may be entitled under any by-law, agreement, vote of stockholders or otherwise.
As permitted by Section 145 of the Delaware Corporation Law, Article 8 of
the Bylaws of the Company and Article 8 of the Certificate of Incorporation of
the Company provide for the indemnification by the Company of its directors,
officers, employees and agents against liabilities and expenses incurred in
connection with actions, suits or proceedings brought against them by a third
party or in the rights of the corporation, by reason of the fact that they were
or are such officers, employees or agents.
Article 7 of the Company's Certificate of Incorporation provides that to
the fullest extent permitted by the Delaware Corporation Law as the same exists
or may hereafter be amended, a director of the Company shall not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director.
The Purchase Agreement by and among BT Alex. Brown Incorporated and Paribas
Corporation (together, the "Initial Purchasers") and the Company dated as of
December 11, 1998 (the "Purchase Agreement"), provides for indemnification of
the Company and persons who control the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Securities Exchange Act of 1934 (the
"Exchange Act") for certain liabilities, including liabilities under the
Securities Act.
The Registration Rights Agreement by and among the Company and the Initial
Purchasers dated as of December 11, 1998 (the "Registration Rights Agreement"),
provides for indemnification of the Company, its directors and officers, and
persons who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act for certain liabilities,
including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
II-1
<PAGE> 148
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Purchase Agreement, dated as of December 11, 1998, among SDI
Acquisition Corp. and BT Alex. Brown Incorporated and
Paribas Corporation.
2.1(a) Amended and Restated Agreement and Plan of Merger, dated as
of June 19, 1998, between the Company and SDI Acquisition
Corp.
2.2(b) Amendment No. 1, dated as of October 27, 1998, to the
Amended and Restated Agreement and Plan of Merger between
the Company and SDI Acquisition Corp.
2.3(c) Guaranty Agreement, dated as of June 19, 1998, between J.F.
Lehman Equity Investors I, L.P. and the Company
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
3.3 Certificate of Incorporation of Scot, Incorporated
3.4 Bylaws of Scot, Incorporated
4.1 Indenture, dated as of December 15, 1998, among SDI
Acquisition Corp., the Guarantors named therein and United
States Trust Company of New York, as Trustee.
4.2 First Supplemental Indenture, dated as of December 15, 1998,
among the Company, the Guarantors named therein and the
United States Trust Company of New York, as Trustee.
4.3 Form of 11 3/8% Senior Subordinated Note due 2008, Series A
(see Exhibit A of the First Supplemental Indenture in
Exhibit 4.2).
4.4 Form of 11 3/8% Senior Subordinated Note due 2008, Series B
(see Exhibit B of the First Supplemental Indenture in
Exhibit 4.2).
4.5 Registration Rights Agreement, dated as of December 15,
1998, among SDI Acquisition Corp., as Issuer and BT Alex.
Brown Incorporated and Paribas Corporation as Initial
Purchasers.
5.1* Opinion of Gibson, Dunn & Crutcher LLP, including consent
8.1* Opinion of Gibson, Dunn & Crutcher LLP with regard to
federal income tax consequences of the Exchange Offer
10.1 Assumption Agreement, dated as of December 15, 1998, by the
Company and Scot, Incorporated, assuming, among other
things, the obligations of SDI Acquisition Corp. under the
Purchase Agreement and the Registration Rights Agreement
10.2 Credit Agreement, dated as of December 15, 1998, among the
Company, various banks and Bankers Trust Company, as Lead
Arranger and Administrative Agent.
10.3 Security Agreement, dated as of December 15, 1998, by the
Company and Scot, Incorporated in favor of Bankers Trust
Company.
10.4 Pledge Agreement, dated as of December 15, 1998, by the
Company and Scot, Incorporated in favor of Bankers Trust
Company.
10.5 Subsidiaries Guarantee, dated as of December 15, 1998, by
Scot, Incorporated in favor of Bankers Trust Company.
10.6 Management Agreement, dated as of December 15, 1998, between
the Company and J.F. Lehman & Company
10.7 Management Services Agreement, dated as of December 15,
1998, between the Company and J.F. Lehman & Company
10.8 Subscription Agreement, dated as of September 7, 1998, among
the Company, Paribas Principal Inc., J.F. Lehman Equity
Investors I, L.P. and JFL Co-Invest Partners I, L.P.
</TABLE>
II-2
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.9 Amendment No. 1 to Subscription Agreement, dated as of
December 3, 1998, among the Company, Paribas Principal Inc.,
J.F. Lehman Equity Investors I, L.P. and JFL Co-Invest
Partners I, L.P.
10.10 Amendment No. 2 to Subscription Agreement, dated as of
December 15, 1998, among the Company, Paribas Principal
Inc., J.F. Lehman Equity Investors I, L.P. and JFL Co-Invest
Partners I, L.P.
10.11 Stockholders Agreement, dated as of December 15, 1998, among
the Company, J.F. Lehman & Co., J.F. Lehman Equity Investors
I, L.P., JFL Co-Invest Partners I, L.P., the Neubauer Family
Trust, by Walter Neubauer trustee, and the Treinen Family
Trust, by Thomas F. Treinen trustee.
10.12 Pledge Agreement, dated as of December 15, 1998, between the
Neubauer Family Trust, by Walter Neubauer, trustee and J.F.
Lehman & Company.
10.13 Rollover Stockholders Agreement, dated as of December 15,
1998, among the Company, J.F. Lehman & Co., the Neubauer
Family Trust, by Walter Neubauer trustee, and the Treinen
Family Trust, by Thomas F. Treinen trustee.
10.14 Pledge Agreement, dated as of December 15, 1998, between
Thomas Treinen Family Trust, by Thomas F. Treinen, trustee
and J.F. Lehman & Company.
10.15 Registration Rights Agreement, dated as of December 15,
1998, among the Company, J.F. Lehman Equity Investors I,
L.P., JFL Co-Invest Partners I, L.P., Paribas Principal
Inc., the Neubauer Family Trust, by Walter Neubauer trustee,
and the Treinen Family Trust, by Thomas F. Treinen trustee.
10.16(d) Lease dated May 1, 1991 between the Company and Placerita
Land and Farming Company.
10.17(d) Letter Agreement dated June 8, 1990 between the Company and
Hermetic Seal Corporation.
10.18(d) Master Purchase Agreement, dated May 15, 1990, between the
Company and TRW Inc. (confidential treatment granted as to
part).
10.19(d) Technology License Agreement dated November 7, 1990 between
the Company and Davey Bickford Smith.
10.20(e) Amended and Restated 1991 Stock Incentive Plan of the
Company
10.21(d) Special Devices, Incorporated 401(k) Plan.
10.22(e) First Amendment to Master Purchase Agreement, dated February
25, 1993, between the Company and TRW, Inc. (confidential
treatment granted as to part).
10.23(f) Letter Agreement, dated November 30, 1994 between the
Company and Hermetic Seal Corporation (confidential
treatment granted as to part).
10.24(f) Employment Agreement dated September 7, 1994, between the
Company, Scot, Incorporated and Samuel Levin.
10.25(g) Second Amendment to Master Purchase Agreement, dated March
8, 1995, between the Company and TRW, Inc. (confidential
treatment granted as to part).
10.26(h) Supply Agreement dated as of November 14, 1995 between the
Company and Autoliv International, Inc. (confidential
treatment requested as to part).
10.27(i) Development Agreement, dated August 28, 1996, between
Company and the City of Moorpark.
10.28(j) Purchase Agreement, dated September 30, 1997, between the
Company and Hermetic Seal Corporation (confidential
treatment requested as to part).
12.1 Statement of Computation of Ratios of Earnings to Fixed
Charges
21.1 Subsidiaries of the Company
23.1* Consent of Gibson, Dunn & Crutcher LLP (to be included in
Exhibit 5.1)
</TABLE>
II-3
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
23.2 Consent of KPMG LLP
24.1 Powers of Attorney (see pages II-6 and II-8 of this
Registration Statement)
25.1 Form T-1 Statement of Eligibility of United States Trust
Company of New York to act as trustee under the Indenture
27 Financial Data Schedules
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* To be filed by amendment.
(a) Previously filed as Appendix A to the Company's Proxy Statement on Schedule
14A filed with the Commission on August 18, 1998 and incorporated by
reference herein.
(b) Previously filed as Appendix B to the Company's Proxy Statement on Schedule
14A filed with the Commission on December 10, 1998 and incorporated by
reference herein.
(c) Previously filed as Exhibit 2.3 to the Company's Current Report on Form 8-K
filed with the Commission on July 10, 1998 and incorporated by reference
herein.
(d) Previously filed as an exhibit to Registration Statement on Form S-1 (File
No. 33-40903) and incorporated herein by reference.
(e) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1994 and incorporated herein by
reference.
(f) Previously filed as an exhibit to Amendment No. 1 on Form 10-K/A for the
fiscal year ended October 31, 1994 and incorporated herein by reference.
(g) Previously filed as an exhibit to Registration Statement on Form S-1 (File
No. 33-89902) and incorporated herein by reference.
(h) Previously filed as an exhibit to Annual Report on Form 10-K for the fiscal
year ended October 31, 1995 and incorporated herein by reference.
(i) Previously filed as an exhibit to Annual Report on Form 10-K for the fiscal
year ended October 31, 1996 and incorporated herein by reference.
(j) Previously filed as an exhibit to Annual Report on Form 10-K for the fiscal
year ended October 31, 1997 and incorporated herein by reference.
II-4
<PAGE> 151
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake with respect to the securities
offered by them:
1. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted as to
directors, officers and controlling persons of any Registrant pursuant to
the provisions described in Item 20 or otherwise, the Registrants have been
advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore
unenforceable. In the event a claim for indemnification against such
liabilities (other than the payment by any Registrant of expenses incurred
or paid by a director, officer or controlling person of such Registrant in
the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, such Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
2. The undersigned Registrants hereby undertake to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
3. The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newhall, State of
California on the 7th day of April, 1999.
SPECIAL DEVICES, INCORPORATED
By: /s/ JOHN M. CUTHBERT
------------------------------------
John M. Cuthbert,
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John M.
Cuthbert, Keith Oster and John T. Vinke his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN M. CUTHBERT Director, President and Chief April 7, 1999
- --------------------------------------------------- Executive Officer (Principal
John M. Cuthbert Executive Officer)
/s/ JOHN T. VINKE Executive Vice President and Chief April 7, 1999
- --------------------------------------------------- Financial Officer (Principal
John T. Vinke Financial and Accounting Officer)
/s/ DONALD GLICKMAN Director and Vice President April 7, 1999
- ---------------------------------------------------
Donald Glickman
/s/ JOHN F. LEHMAN Director April 7, 1999
- ---------------------------------------------------
John F. Lehman
/s/ GEORGE SAWYER Chairman of the Board of Directors April 7, 1999
- ---------------------------------------------------
George Sawyer
/s/ KEITH OSTER Director and Secretary April 7, 1999
- ---------------------------------------------------
Keith Oster
</TABLE>
II-6
<PAGE> 153
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director April , 1999
- ---------------------------------------------------
Joseph A. Stroud
Director April , 1999
- ---------------------------------------------------
William Paul
Director April , 1999
- ---------------------------------------------------
Oliver C. Boileau, Jr.
Director April , 1999
- ---------------------------------------------------
Thomas G. Pownall
/s/ THOMAS F. TREINEN Director April 7, 1999
- ---------------------------------------------------
Thomas F. Treinen
/s/ JACK B. WATSON Director April 7, 1999
- ---------------------------------------------------
Jack B. Watson
Director April , 1999
- ---------------------------------------------------
Stephen Eisenstein
</TABLE>
II-7
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Downers Grove, State of
Illinois, on the 7th day of April, 1999.
SCOT, INCORPORATED
By: /s/ SAMUEL LEVIN
------------------------------------
Samuel Levin, President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Samuel
Levin, Keith Oster and John T. Vinke his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SAMUEL LEVIN Director and President (Principal April 7, 1999
- --------------------------------------------------- Executive Officer)
Samuel Levin
/s/ MARY LOUISE GRAHAM Director and Vice President -- April 7, 1999
- --------------------------------------------------- Finance
Mary Louise Graham
/s/ JOHN T. VINKE Director April 7, 1999
- ---------------------------------------------------
John T. Vinke
/s/ THOMAS F. TREINEN Director April 7, 1999
- ---------------------------------------------------
Thomas F. Treinen
/s/ ROBERT S. RITCHIE Director April 7, 1999
- ---------------------------------------------------
Robert S. Ritchie
</TABLE>
II-8
<PAGE> 155
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Purchase Agreement, dated as of December 11, 1998, among SDI
Acquisition Corp. and BT Alex. Brown Incorporated and
Paribas Corporation.
2.1(a) Amended and Restated Agreement and Plan of Merger, dated as
of June 19, 1998, between the Company and SDI Acquisition
Corp.
2.2(b) Amendment No. 1, dated as of October 27, 1998, to the
Amended and Restated Agreement and Plan of Merger between
the Company and SDI Acquisition Corp.
2.3(c) Guaranty Agreement, dated as of June 19, 1998, between J.F.
Lehman Equity Investors I, L.P. and the Company
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
3.3 Certificate of Incorporation of Scot, Incorporated
3.4 Bylaws of Scot, Incorporated
4.1 Indenture, dated as of December 15, 1998, among SDI
Acquisition Corp., the Guarantors named therein and United
States Trust Company of New York, as Trustee.
4.2 First Supplemental Indenture, dated as of December 15, 1998,
among the Company, the Guarantors named therein and the
United States Trust Company of New York, as Trustee.
4.3 Form of 11 3/8% Senior Subordinated Note due 2008, Series A
(see Exhibit A of the First Supplemental Indenture in
Exhibit 4.2).
4.4 Form of 11 3/8% Senior Subordinated Note due 2008, Series B
(see Exhibit B of the First Supplemental Indenture in
Exhibit 4.2).
4.5 Registration Rights Agreement, dated as of December 15,
1998, among SDI Acquisition Corp., as Issuer and BT Alex.
Brown Incorporated and Paribas Corporation as Initial
Purchasers.
5.1* Opinion of Gibson, Dunn & Crutcher LLP, including consent
8.1* Opinion of Gibson, Dunn & Crutcher LLP with regard to
federal income tax consequences of the Exchange Offer
10.1 Assumption Agreement, dated as of December 15, 1998, by the
Company and Scot, Incorporated, assuming, among other
things, the obligations of SDI Acquisition Corp. under the
Purchase Agreement and the Registration Rights Agreement
10.2 Credit Agreement, dated as of December 15, 1998, among the
Company, various banks and Bankers Trust Company, as Lead
Arranger and Administrative Agent.
10.3 Security Agreement, dated as of December 15, 1998, by the
Company and Scot, Incorporated in favor of Bankers Trust
Company.
10.4 Pledge Agreement, dated as of December 15, 1998, by the
Company and Scot, Incorporated in favor of Bankers Trust
Company.
10.5 Subsidiaries Guarantee, dated as of December 15, 1998, by
Scot, Incorporated in favor of Bankers Trust Company.
10.6 Management Agreement, dated as of December 15, 1998, between
the Company and J.F. Lehman & Company
10.7 Management Services Agreement, dated as of December 15,
1998, by and between the Company and J.F. Lehman & Company
10.8 Subscription Agreement, dated as of September 7, 1998, among
the Company, Paribas Principal Inc., J.F. Lehman Equity
Investors I, L.P. and JFL Co-Invest Partners I, L.P.
</TABLE>
1
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.9 Amendment No. 1 to Subscription Agreement, dated as of
December 3, 1998, among the Company, Paribas Principal Inc.,
J.F. Lehman Equity Investors I, L.P. and JFL Co-Invest
Partners I, L.P.
10.10 Amendment No. 2 to Subscription Agreement, dated as of
December 15, 1998, by and between the Company, Paribas
Principal Inc., J.F. Lehman Equity Investors I, L.P. and JFL
Co-Invest Partners I, L.P.
10.11 Stockholders Agreement, dated as of December 15, 1998, among
the Company, J.F. Lehman & Co., J.F. Lehman Equity Investors
I, L.P., JFL Co-Invest Partners I, L.P., the Neubauer Family
Trust, by Walter Neubauer trustee, and the Treinen Family
Trust, by Thomas F. Treinen trustee.
10.12 Pledge Agreement, dated as of December 15, 1998, between the
Neubauer Family Trust, by Walter Neubauer, trustee and J.F.
Lehman & Company.
10.13 Rollover Stockholders Agreement, dated as of December 15,
1998, among the Company, J.F. Lehman & Co., the Neubauer
Family Trust, by Walter Neubauer trustee, and the Treinen
Family Trust, by Thomas F. Treinen trustee.
10.14 Pledge Agreement, dated as of December 15, 1998, between
Thomas Treinen Family Trust, by Thomas F. Treinen, trustee
and J.F. Lehman & Company.
10.15 Registration Rights Agreement, dated as of December 15,
1998, among the Company, J.F. Lehman Equity Investors I,
L.P., JFL Co-Invest Partners I, L.P., Paribas Principal
Inc., the Neubauer Family Trust, by Walter Neubauer trustee,
and the Treinen Family Trust, by Thomas F. Treinen trustee.
10.16(d) Lease dated May 1, 1991 between the Company and Placerita
Land and Farming Company.
10.17(d) Letter Agreement dated June 8, 1990 between the Company and
Hermetic Seal Corporation.
10.18(d) Master Purchase Agreement, dated May 15, 1990, between the
Company and TRW Inc. (confidential treatment granted as to
part).
10.19(d) Technology License Agreement dated November 7, 1990 between
the Company and Davey Bickford Smith.
10.20(e) Amended and Restated 1991 Stock Incentive Plan of the
Company
10.21(d) Special Devices, Incorporated 401(k) Plan.
10.22(e) First Amendment to Master Purchase Agreement, dated February
25, 1993, between the Company and TRW, Inc. (confidential
treatment granted as to part).
10.23(f) Letter Agreement, dated November 30, 1994 between the
Company and Hermetic Seal Corporation (confidential
treatment granted as to part).
10.24(f) Employment Agreement dated September 7, 1994, between the
Company, Scot, Incorporated and Samuel Levin.
10.25(g) Second Amendment to Master Purchase Agreement, dated March
8, 1995, between the Company and TRW, Inc. (confidential
treatment granted as to part).
10.26(h) Supply Agreement dated as of November 14, 1995 between the
Company and Autoliv International, Inc. (confidential
treatment requested as to part).
10.27(i) Development Agreement, dated August 28, 1996, between
Company and the City of Moorpark.
10.28(j) Purchase Agreement, dated September 30, 1997, between the
Company and Hermetic Seal Corporation (confidential
treatment requested as to part).
12.1 Statement of Computation of Ratios of Earnings to Fixed
Charges
21.1 Subsidiaries of the Company
23.1* Consent of Gibson, Dunn & Crutcher LLP (to be included in
Exhibit 5.1)
</TABLE>
2
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
23.2 Consent of KPMG LLP
24.1 Powers of Attorney (see pages II-6 or II-8 of this
Registration Statement)
25.1 Form T-1 Statement of Eligibility of United States Trust
Company of New York to act as trustee under the Indenture
27 Financial Data Schedules
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* To be filed by amendment.
(a) Previously filed as Appendix A to the Company's Proxy Statement on Schedule
14A filed with the Commission on August 18, 1998 and incorporated by
reference herein.
(b) Previously filed as Appendix B to the Company's Proxy Statement on Schedule
14A filed with the Commission on December 10, 1998 and incorporated by
reference herein.
(c) Previously filed as Exhibit 2.3 to the Company's Current Report on Form 8-K
filed with the Commission on July 10, 1998 and incorporated by reference
herein.
(d) Previously filed as an exhibit to Registration Statement on Form S-1 (File
No. 33-40903) and incorporated herein by reference.
(e) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1994 and incorporated herein by
reference.
(f) Previously filed as an exhibit to Amendment No. 1 on Form 10-K/A for the
fiscal year ended October 31, 1994 and incorporated herein by reference.
(g) Previously filed as an exhibit to Registration Statement on Form S-1 (File
No. 33-89902) and incorporated herein by reference.
(h) Previously filed as an exhibit to Annual Report on Form 10-K for the fiscal
year ended October 31, 1995 and incorporated herein by reference.
(i) Previously filed as an exhibit to Annual Report on Form 10-K for the fiscal
year ended October 31, 1996 and incorporated herein by reference.
(j) Previously filed as an exhibit to Annual Report on Form 10-K for the fiscal
year ended October 31, 1997 and incorporated herein by reference.
3
<PAGE> 1
EXHIBIT 1.1
SDI ACQUISITION CORP.
$100,000,000
11 3/8% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
December 11, 1998
BT ALEX. BROWN INCORPORATED
Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
PARIBAS CORPORATION
787 Seventh Avenue
New York, New York 10019
Ladies and Gentlemen:
SDI Acquisition Corp., a Delaware corporation ("SDI Acquisition"),
hereby confirms its agreement with you (the "Initial Purchasers"), as set forth
below.
1. The Securities. Subject to the terms and conditions herein
contained, SDI Acquisition proposes to issue and sell to the Initial Purchasers
$100,000,000 aggregate principal amount of its 11 3/8% Senior Subordinated Notes
due 2008 (the "Notes").
The Notes are being sold in connection with the recapitalization
(the "Recapitalization") of Special Devices, Incorporated, a Delaware
corporation (the "Company"), pursuant to the Amended and Restated Agreement and
Plan of Merger dated as of June 19, 1998 by and between the Company and SDI
Acquisition (as amended through the date hereof and together with all ancillary
agreements entered into in connection therewith, the "Recapitalization
Agreement"). The Recapitalization Agreement provides for the merger (the
"Merger") of SDI Acquisition with and into the Company with the Company
surviving the Merger. The time of the consummation of the Recapitalization and
the Merger is referred to herein as the "Effective Time."
The Recapitalization will be financed with the proceeds of (i) a new
credit facility consisting of a revolving credit facility in the amount of $25.0
million and a $70.0 million senior term loan provided under a Credit Agreement,
dated as of the Closing Date (as defined in Section 3 below), among SDI
Acquisition, Bankers Trust Company, as lead arranger and administrative agent,
and the other lending institutions party thereto (the "Credit Agreement"); (ii)
the issuance of Notes; and (iii) an equity contribution of approximately $127.8
million in the aggregate consisting of (a) $74.0 million contributed by the New
Investor Group (as defined in the Final Memorandum) and (b) $53.8 million from
the Equity Rollover (as defined in the Final
<PAGE> 2
Memorandum) by the Continuing Shareholders (as defined in the Final Memorandum).
The Recapitalization and items (i), (ii) and (iii) above are sometimes
collectively referred to herein as the "Transactions" and the Recapitalization
Agreement and the Credit Agreement are sometimes collectively referred to herein
as the "Other Transaction Documents."
Immediately after the Effective Time, the Company and the Guarantor
(as defined below) will execute an assumption agreement (the "Assumption
Agreement"), substantially in the form attached hereto as Exhibit A, pursuant to
which (i) the Company, as survivor of the Merger, will assume all of the
obligations of SDI Acquisition under this Agreement, and Scot, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company (the "Guarantor"), will
become a party to this Agreement and unconditionally guarantee the Notes (the
"Guarantee") on an unsecured, senior subordinated basis and (ii) the Company, as
the surviving corporation in the Merger, will assume all of the obligations of
SDI Acquisition under the Registration Rights Agreement by and among SDI
Acquisition and the Initial Purchasers, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit B (the "Registration Rights
Agreement"), and Scot, Inc. will become a party to the Registration Rights
Agreement.
The Notes and the Guarantee are collectively referred to herein as
the "Securities." The Notes are to be issued under an indenture (the
"Indenture") to be dated as of December 15, 1998 by and between SDI Acquisition
and United States Trust Company of New York, a New York banking corporation, as
trustee (the "Trustee"). Immediately after the Effective Time, the Company, the
Guarantor and the Trustee will enter into a first supplemental indenture to the
Indenture (the "First Supplemental Indenture") providing for the express
assumption by the Company, as survivor of the Merger, of the covenants,
agreements and undertakings of SDI Acquisition in the Indenture and under the
Notes, and the guarantee of the Notes by the Guarantor. The Company and the
Guarantor will issue the Securities pursuant to the First Supplemental
Indenture. References to this Agreement as of and after the Effective Time will
refer to this Agreement together with the Assumption Agreement, references to
the Indenture as of and after the Effective Time will refer to the Indenture and
the First Supplemental Indenture, and references to the Registration Rights
Agreement as of and after the Effective Time will refer to the Registration
Rights Agreement together with the Assumption Agreement.
The Notes will be offered and sold to the Initial Purchasers (the
"Offering") without being registered under the Securities Act of 1933, as
amended (the "Act"), in reliance on exemptions therefrom.
In connection with the sale of the Securities, SDI Acquisition has
prepared a preliminary offering memorandum dated November 25, 1998 (the
"Preliminary Memorandum"), and a final offering memorandum dated December 11,
1998 (the "Final Memorandum"; the Preliminary Memorandum and the Final
Memorandum each herein being referred to as a "Memorandum") setting forth or
including a description of the terms of the Securities, the terms of the
offering of the Securities, a description of the Company and its Subsidiary (as
defined in Section 2(b) below) and any material developments relating to the
Company or its Subsidiary occurring after the date of the most recent historical
financial statements included therein.
2
<PAGE> 3
SDI Acquisition understands that the Initial Purchasers propose to
make an offering of the Securities only on the terms and in the manner set forth
in the Final Memorandum and Section 8 hereof as soon as the Initial Purchasers
deem advisable after this Agreement has been executed and delivered to persons
in the United States whom the Initial Purchasers reasonably believe to be
qualified institutional buyers ("Qualified Institutional Buyers" or "QIBs") as
defined in Rule 144A under the Act, as such rule may be amended from time to
time ("Rule 144A"), in transactions under Rule 144A and outside the United
States to certain persons in reliance on Regulation S under the Act ("Regulation
S").
The Initial Purchasers and their direct and indirect transferees of
the Securities will be entitled to the benefits of the Registration Rights
Agreement, pursuant to which SDI Acquisition will agree, among other things, to
file a registration statement (the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") registering the Securities or the
Exchange Notes (as defined in the Registration Rights Agreement) and related
guarantees under the Act.
2. Representations and Warranties. SDI Acquisition and, as of the
Effective Time, the Company and the Guarantor, jointly and severally, represent
and warrant to and agree with the Initial Purchasers that:
(a) Neither the Final Memorandum nor any amendment or supplement
thereto as of the date thereof and at all times subsequent thereto up to
the Closing Date contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
set forth in this Section 2(a) do not apply to statements or omissions
made in reliance upon and in conformity with information relating to the
Initial Purchasers furnished to the Company in writing by the Initial
Purchasers expressly for use in the Final Memorandum or any amendment or
supplement thereto.
(b) As of the Closing Date, the Company will have the authorized,
issued and outstanding capitalization set forth in the Final Memorandum;
as of the date hereof the only subsidiary of the Company is Scot, Inc.
(the "Subsidiary"); all of the outstanding shares of capital stock of the
Company and the Subsidiary have been, and as of the Closing Date will be,
duly authorized and validly issued, are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights; except
as set forth or referred to in the Final memorandum and except as provided
in the agreements listed in Schedule 2 attached hereto (the "Stockholders
Agreements") all of the outstanding shares of capital stock of the Company
and of the Subsidiary will be free and clear of all liens, encumbrances,
equities and claims or restrictions on transferability (other than those
imposed by the Act and the securities or "Blue Sky" laws of certain
jurisdictions) or voting; except as set forth or referred to in the Final
Memorandum, and except as provided in the Stockholders Agreements, there
are no (i) options, warrants or other rights to purchase, (ii) agreements
or other obligations to issue or (iii) other rights to convert any
obligation into, or exchange any securities for, shares of capital stock
of or ownership interests in the Company or the Subsidiary outstanding.
Except for the
3
<PAGE> 4
Subsidiary or as disclosed or referred to in the Final Memorandum, neither
the Company nor the Subsidiary own, directly or indirectly, any shares of
capital stock or any other equity or long-term debt securities or have any
equity interest in any firm, partnership, joint venture or other entity.
(c) Each of SDI Acquisition, the Company and the Subsidiary is duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
own its properties and conduct its business as now conducted and as
described in the Final Memorandum; each of SDI Acquisition, the Company
and the Subsidiary is duly qualified to do business as a foreign
corporation in all other jurisdictions where the ownership or leasing of
its properties or the conduct of its business requires such qualification,
except where the failure to be so qualified would not, individually or in
the aggregate, be reasonably expected to have a material adverse effect on
the general affairs, management, business, condition (financial or
otherwise) or results of operations of the Company and the Subsidiary,
taken as a whole (any such event, a "Material Adverse Effect").
(d) SDI Acquisition has and immediately after the Effective Time,
the Company will have all requisite corporate power and authority to
execute, deliver and perform its obligations under the Notes, the Exchange
Notes and the Private Exchange Notes (as defined in the Registration
Rights Agreement). The Notes, when issued, will be in the form
contemplated by the Indenture and the First Supplemental Indenture. The
Notes, the Exchange Notes and the Private Exchange Notes have each been
duly and validly authorized by SDI Acquisition and, immediately after the
Effective Time, will have been duly and validly authorized by the Company
and, when executed by SDI Acquisition and the Company, as the case may be,
and authenticated by the Trustee in accordance with the provisions of the
Indenture and, in the case of the Notes, when delivered to and paid for by
the Initial Purchasers in accordance with the terms of this Agreement
(assuming the due authorization, execution and delivery thereof by all
other parties thereto), will constitute valid and legally binding
obligations of SDI Acquisition and, immediately after the Effective Time,
of the Company, as the case may be, entitled to the benefits of the
Indenture and enforceable against SDI Acquisition and the Company, as the
case may be, in accordance with their terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or transfer, or other similar laws now
or hereafter in effect relating to creditors' rights generally, (ii)
general principles of equity (whether considered in a proceeding in equity
or at law) and the discretion of the court before which any proceeding
therefor may be brought, and (iii) an implied covenant of good faith.
(e) Immediately after the Effective Time, the Guarantor will have
all requisite corporate power and authority to execute, deliver and
perform its obligations under the Guarantee, its guarantee of the Exchange
Notes (the "Exchange Notes Guarantee") and its guarantee of the Private
Exchange Notes (the "Private Exchange Notes Guarantee"). The Guarantee,
when issued, will be in the form contemplated by the Indenture. The
Guarantee, the Exchange Notes Guarantee and the Private Exchange Notes
Guarantee will each be duly and validly authorized by the Guarantor and,
in the case of the Guarantee,
4
<PAGE> 5
when delivered to and paid for by the Initial Purchasers in accordance
with the terms of this Agreement (assuming the due authorization,
execution and delivery thereof by all other parties thereto), will
constitute valid and legally binding obligations of the Guarantor,
entitled to the benefits of the Indenture, and enforceable against the
Guarantor in accordance with its terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or transfer, or other similar laws now
or hereafter in effect relating to creditors' rights generally, (ii)
general principles of equity (whether considered in a proceeding in equity
or at law) and the discretion of the court before which any proceeding
therefor may be brought, and (iii) an implied covenant of good faith.
(f) SDI Acquisition has and, immediately after the Effective Time,
each of the Company and the Guarantor will have all requisite corporate
power and authority to execute, deliver and perform its obligations under
the Indenture. The Indenture, in all material respects, meets the
requirements for qualification under the Trust Indenture Act of 1939, as
amended (the "TIA"). The Indenture has been duly and validly authorized by
SDI Acquisition. Immediately after the Effective Time, the First
Supplemental Indenture will have been duly and validly authorized by each
of the Company and the Guarantor. Assuming the due authorization,
execution and delivery of the Indenture and the First Supplemental
Indenture by the Trustee, each of the Indenture and the First Supplemental
Indenture will have been duly executed and delivered and, as applicable,
will constitute valid and legally binding agreements of SDI Acquisition
and, immediately after the Effective Time, the Company and the Guarantor,
enforceable against SDI Acquisition and, at and as of the Effective Time,
the Company and the Guarantor, in accordance with its terms, except that
the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or transfer, or other
similar laws now or hereafter in effect relating to creditors' rights
generally, (ii) general principles of equity (whether considered in a
proceeding in equity or at law) and the discretion of the court before
which any proceeding therefor may be brought, and (iii) an implied
covenant of good faith.
(g) SDI Acquisition has and, immediately after the Effective Time,
the Company and the Guarantor will have all requisite corporate power and
authority to execute, deliver and perform their respective obligations
under the Registration Rights Agreement. The Registration Rights Agreement
has been duly and validly authorized by SDI Acquisition and, immediately
after the Effective Time, will have been duly and validly authorized by
each of the Company and the Guarantor and, when executed and delivered by
SDI Acquisition and, immediately after the Effective Time, assumed by each
of the Company and the Guarantor, will have been duly executed and
delivered and will constitute a valid and legally binding agreement of SDI
Acquisition and, immediately after the Effective Time, each of the Company
and the Guarantor, enforceable against SDI Acquisition and, immediately
after the Effective Time, each of the Company and the Guarantor in
accordance with its terms, except that (A) the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer, or other similar laws now or hereafter
in effect relating to creditors' rights generally, (ii) general principles
of equity (whether considered in a proceeding in equity or at law) and
5
<PAGE> 6
the discretion of the court before which any proceeding therefor may be
brought, and (iii) an implied covenant of good faith and (B) any rights to
indemnity or contribution thereunder may be limited by federal and state
securities laws and public policy considerations.
(h) SDI Acquisition has and, at and as of the Effective Time, the
Company and the Guarantor will have, all requisite corporate power and
authority to execute, deliver and perform their respective obligations
under this Agreement and to consummate the transactions contemplated
hereby. This Agreement and the transactions contemplated hereby have been
duly and validly authorized by SDI Acquisition and, at and as of the
Effective Time, will have been duly and validly authorized by each of the
Company and the Guarantor. This Agreement has been duly and validly
executed and delivered by SDI Acquisition.
(i) Immediately after the Effective Time, each of the Company and
the Guarantor will have all requisite corporate power and authority to
execute, deliver and perform its respective obligations under the
Assumption Agreement and to consummate the transactions contemplated
thereby. Immediately after the Effective Time, the Assumption Agreement
and the transactions contemplated thereby have been duly and validly
authorized by each of the Company and the Guarantor and, when executed and
delivered by each of the Company and the Guarantor, will have been duly
executed and delivered by and (to the extent such Assumption Agreement
pertains to obligations under the Registration Rights Agreement) will
constitute a valid and legally binding agreement of each of the Company
and the Guarantor, enforceable against each of the Company and the
Guarantor in accordance with its terms, except that (i) the enforcement
thereof may be subject to (A) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (B) general
principles of equity and the discretion of the court before which any
proceeding therefor may be brought and (ii) any rights to indemnity or
contribution thereunder may be limited by federal and state securities
laws and public policy considerations.
(j) SDI Acquisition has all requisite corporate power and authority
to execute, deliver and perform its obligations under the Other
Transaction Documents and to consummate the transactions contemplated
thereby. On or prior to the Closing Date, the Other Transaction Documents
and the consummation by SDI Acquisition of the transactions contemplated
thereby will have been duly and validly authorized by SDI Acquisition and,
when executed and delivered by SDI Acquisition (assuming due
authorization, execution and delivery thereof of all other parties
thereto), will constitute a valid and legally binding agreement of SDI
Acquisition, enforceable against SDI Acquisition in accordance with its
respective terms, except that the enforcement thereof may be subject to
each of (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or transfer, or other similar laws now or hereafter in effect
relating to creditors' rights generally, (ii) general principles of equity
(whether considered in a proceeding in equity or at law) and the
discretion of the court before which any proceeding therefor may be
brought, and (iii) an implied covenant of good faith.
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<PAGE> 7
(k) Except as set forth in the Final Memorandum, no consent,
approval, authorization or order of any court or governmental agency or
body, or third party is required for the issuance and sale by SDI
Acquisition of the Notes to the Initial Purchasers or the consummation by
SDI Acquisition, the Company and the Subsidiary of the other transactions
contemplated hereby, except such as have been obtained and such as may be
required under state securities or "Blue Sky" laws in connection with the
purchase and resale of the Notes by the Initial Purchasers or those the
failure of which to obtain would not reasonably be expected to cause a
Material Adverse Effect. Except as set forth in the Final Memorandum, none
of SDI Acquisition or to the knowledge of SDI Acquisition after due
inquiry, the Company or the Subsidiary is (i) in violation of its
certificate of incorporation or bylaws (or similar organizational
document), (ii) in breach or violation of any statute, judgment, decree,
order, rule or regulation applicable to any of them or any of their
respective properties or assets, except for any such breach or violation
which would not, individually or in the aggregate, be reasonably expected
to have a Material Adverse Effect, or (iii) in breach of or default under
(nor has any event occurred which, with notice or passage of time or both,
would constitute a default under) or in violation of any of the terms or
provisions of any indenture, mortgage, deed of trust, loan agreement,
note, lease, license, franchise agreement, permit, certificate, contract
or other agreement or instrument to which any of them is a party or to
which any of them or their respective properties or assets is subject
(collectively, "Contracts"), except for any such breach, default,
violation or event which would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect.
(l) The execution, delivery and performance by SDI Acquisition and,
immediately after the Effective Time, by the Company and the Guarantor (to
the extent each is a party thereto) of this Agreement, the Indenture, the
Registration Rights Agreement, the Assumption Agreement, the First
Supplemental Indenture, and the Other Transaction Documents and the
consummation by SDI Acquisition and, immediately after the Effective Time,
by the Company and the Guarantor (to the extent each is a party thereto)
of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and sale of the Notes to the Initial Purchasers)
will not conflict with or constitute or result in a breach of or a default
under (or an event which with notice or passage of time or both would
constitute a default under) or violation of any of (i) the terms or
provisions of any Contract, except for any such conflict, breach,
violation, default or event which would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect, (ii)
the certificate of incorporation or bylaws (or similar organizational
document) of SDI Acquisition, the Company or the Subsidiary (after giving
effect to the Recapitalization), or (iii) (assuming compliance with all
applicable state securities or "Blue Sky" laws and assuming the accuracy
of the representations and warranties of the Initial Purchasers and the
compliance by the Initial Purchasers with their agreements, in each case,
set forth in Section 8 hereof) any statute, judgment, decree, order, rule
or regulation applicable to SDI Acquisition, the Company or the Subsidiary
or any of their respective properties or assets, except for any such
conflict, breach or violation which would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect.
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<PAGE> 8
(m) The audited consolidated financial statements of the Company and
the Subsidiary included in the Final Memorandum present fairly in all
material respects the financial position or results of operations and cash
flows of the Company and the Subsidiary at the dates and for the periods
to which they relate and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis, except as
otherwise stated therein. The summary and selected financial data in the
Final Memorandum present fairly in all material respects the information
shown therein and have been prepared and compiled on a basis consistent
with the audited financial statements included therein, except as
otherwise stated therein. KPMG Peat Marwick LLP (the "Independent
Accountants") is an independent public accounting firm within the meaning
of the Act and the rules and regulations promulgated thereunder.
(n) The unaudited pro forma consolidated balance sheet as of October
31, 1998 and the unaudited pro forma consolidated statements for the year
ended October 31, 1998 (including the notes thereto) and the other pro
forma financial information included in the Final Memorandum (i) comply as
to form in all material respects with the applicable requirements of
Regulation S-X promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements except with respect to "EBITDA" and related measures, and (iii)
have been properly computed on the bases described therein; the
assumptions used in the preparation of the pro forma financial data and
other pro forma financial information included in the Final Memorandum are
believed by the Company to be reasonable, and the adjustments used therein
are believed by the Company to be appropriate to give effect to the
transactions or circumstances referred to therein.
(o) There is not pending or, to the knowledge of SDI Acquisition
after due inquiry and immediately after the Effective Time, to the
knowledge of the Company or the Subsidiary, threatened any action, suit,
proceeding, inquiry or investigation to which SDI Acquisition or,
immediately after the Effective Time, the Company or the Subsidiary is a
party, or to which the property or assets of SDI Acquisition or,
immediately after the Effective Time, the Company or the Subsidiary are
subject, before or brought by any court, arbitrator or governmental agency
or body that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect or that seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale of
the Securities to be sold hereunder or the consummation of the other
transactions described in the Final Memorandum.
(p) To the knowledge of SDI Acquisition after due inquiry, the
Company and the Subsidiary own or possess and, as of the Effective Time,
will own or possess all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations and
filings with, all federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals, presently required or necessary to own or lease, as the case
may be, and to operate its respective properties and to carry on its
respective businesses as now or proposed to be conducted as set forth in
the Final Memorandum ("Permits"), except where the failure to obtain such
8
<PAGE> 9
Permits would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect; to the knowledge of SDI
Acquisition after due inquiry, each of the Company and the Subsidiary has
fulfilled and performed all of its obligations with respect to such
Permits and, to the knowledge of SDI Acquisition after due inquiry, no
event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such Permit; and to the
knowledge of SDI Acquisition after due inquiry, none of the Company or the
Subsidiary has received any notice of any proceeding relating to
revocation or modification of any such Permit, except as described in the
Final Memorandum and except where such revocation or modification would
not, individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect.
(q) Since the date of the most recent financial statements appearing
in the Final Memorandum, except as described therein or contemplated
thereby (including, without limitation, in connection with or relating to
the Recapitalization or the Stockholders Agreements), (i) none of SDI
Acquisition, the Company or the Subsidiary has incurred any liabilities or
obligations, direct or contingent, or entered into or agreed to enter into
any transactions or contracts (written or oral) not in the ordinary course
of business which liabilities, obligations, transactions or contracts
would, individually or in the aggregate, be reasonably expected to be
material to the general affairs, management, business, condition
(financial or otherwise), or results of operations of the Company and its
Subsidiary, taken as a whole, (ii) none of SDI Acquisition, the Company or
the Subsidiary has purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any kind
on its capital stock (other than with respect to the Subsidiary, the
purchase of, or dividend or distribution on, capital stock owned by the
Company), and (iii) there has not been any change in the capital stock or
long-term indebtedness of SDI Acquisition, the Company or the Subsidiary.
(r) Each of SDI Acquisition, the Company and the Subsidiary has
filed all necessary federal, state and foreign income and franchise tax
returns, except where the failure to so file such returns would not,
individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect, and has paid all taxes shown as due thereon; and
other than tax deficiencies which SDI Acquisition, the Company or the
Subsidiary is contesting in good faith and for which SDI Acquisition, the
Company or the Subsidiary has provided adequate reserves in accordance
with generally accepted accounting principles, there is no tax deficiency
that has been asserted against SDI Acquisition, the Company or the
Subsidiary that would be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect.
(s) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which SDI Acquisition,
after due inquiry, believes to be reliable and accurate.
(t) None of SDI Acquisition, the Company, the Subsidiary or any
agent acting on their behalf has taken or will take any action that might
cause this Agreement or the sale of the Notes to violate Regulation T, U
or X of the Board of Governors of the Federal
9
<PAGE> 10
Reserve System, in each case as in effect, or as the same may hereafter be
in effect, on the Closing Date.
(u) Each of the Company and the Subsidiary has and, at and as of the
Effective Time, will have good and marketable title to all real property
and good title to all personal property described in the Final Memorandum
as being owned by it and good and marketable title to a leasehold estate
in the real and personal property described in the Final Memorandum as
being leased by it free and clear of all liens, charges, encumbrances or
restrictions, except as described in the Final Memorandum or to the extent
the failure to have such title or the existence of such liens, charges,
encumbrances or restrictions would not, individually or in the aggregate,
be reasonably expected to have a Material Adverse Effect. All leases,
contracts and agreements to which the Company or the Subsidiary is a party
or by which any of them is bound (A) are valid and enforceable against the
Company or the Subsidiary except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer, or other similar laws now or hereafter
in effect relating to creditors' rights generally, (ii) general principles
of equity (whether considered in a proceeding in equity or at law) and the
discretion of the court before which any proceeding therefor may be
brought, and (iii) an implied covenant of good faith, and (B) are in full
force and effect with only such exceptions as would not, individually or
in the aggregate, be reasonably expected to have a Material Adverse
Effect. The Company and the Subsidiary own or possess and, at and as of
the Effective Time, will own or possess adequate licenses or other rights
to use all patents, trademarks, service marks, trade names, copyrights and
know-how necessary to conduct the businesses now or proposed to be
operated by them as described in the Final Memorandum, and none of the
Company or the Subsidiary has received any notice of infringement of or
conflict with (or knows of any such infringement of or conflict with,
except as described or referred to in the Final Memorandum) asserted
rights of others with respect to any patents, trademarks, service marks,
trade names, copyrights or know-how which, if such assertion of
infringement or conflict were sustained, would be reasonably expected to
have a Material Adverse Effect.
(v) There are no legal or governmental proceedings involving or
affecting the Company or the Subsidiary or any of their respective
properties or assets which would be required to be described in a
prospectus pursuant to the Act that are not described or referred to in
the Final Memorandum, nor are there any material contracts or other
documents which would be required to be described in a prospectus pursuant
to the Act that are not described or referred to in the Final Memorandum.
(w) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect (A) each of the
Company and the Subsidiary is in compliance with and not subject to
liability under applicable Environmental Laws (as defined below), (B) each
of the Company and the Subsidiary has made all filings and provided all
notices required under any applicable Environmental Law, and has and is in
compliance with all Permits required under any applicable Environmental
Laws and each of them is in full force and effect, (C) there is no civil,
criminal or administrative action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or
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<PAGE> 11
demand letter or request for information pending or, to the knowledge of
the Company or the Subsidiary, threatened against the Company or the
Subsidiary under any Environmental Law, (D) no lien, charge, encumbrance
or restriction has been recorded under any Environmental Law with respect
to any assets, facility or property owned, operated, leased or controlled
by the Company or the Subsidiary, (E) none of the Company or the
Subsidiary has received notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"),
or any comparable state law, and (F) no property or facility of the
Company or the Subsidiary is (i) listed or proposed for listing on the
National Priorities List under CERCLA or (ii) listed in the Comprehensive
Environmental Response, Compensation, Liability Information System List
promulgated pursuant to CERCLA, or on any comparable list maintained by
any state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or
regulations, codes, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered thereunder, relating to pollution or
protection of public or employee health and safety or the environment,
including, without limitation, laws relating to (i) emissions, discharges,
releases or threatened releases of hazardous materials into the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), (ii) the manufacture,
processing, distribution, use, generation, treatment, storage, disposal,
transport or handling of hazardous materials, and (iii) underground and
above ground storage tanks and related piping, and emissions, discharges,
releases or threatened releases therefrom.
(x) There is no strike, labor dispute, slowdown or work stoppage
with the employees of the Company or the Subsidiary which is pending or,
to the knowledge of the Company, the Guarantor or SDI Acquisition after
due inquiry, threatened, except for such as would not reasonably be
expected to have a Material Adverse Effect.
(y) Each of the Company and the Subsidiary carries insurance in such
amounts and covering such risks as the Company believes to be reasonably
adequate for the conduct of its business and the value of its properties.
(z) None of SDI Acquisition or to the knowledge of SDI Acquisition
after due inquiry, the Company or the Subsidiary has any liability for any
prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other
plan which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), to which SDI Acquisition, the Company or the
Subsidiary makes or ever has made a contribution and in which any employee
of SDI Acquisition, the Company or the Subsidiary is or has ever been a
participant, except for such as would not reasonably be expected to have a
Material Adverse Effect. With respect to such plans, each of SDI
Acquisition, and to the knowledge of SDI Acquisition after due inquiry,
the Company and the Subsidiary is in compliance in all material respects
with all applicable provisions of ERISA.
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(aa) Each of SDI Acquisition, and to the knowledge of SDI
Acquisition after due inquiry, the Company and the Subsidiary (i) makes
and keeps accurate books and records and (ii) maintains internal
accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization,
(B) transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization, and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(bb) None of SDI Acquisition, the Company or the Subsidiary will be
an "investment company" or "promoter" or "principal underwriter" for an
"investment company," as such terms are defined in the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder.
(cc) The Securities, the Indenture, the Registration Rights
Agreement and each of the Other Transaction Documents will conform in all
material respects to the descriptions thereof in the Final Memorandum.
(dd) No holder of securities of SDI Acquisition, the Company or the
Subsidiary will be entitled to have such securities registered under the
registration statements required to be filed by the Company and the
Guarantor pursuant to the Registration Rights Agreement other than as
expressly permitted thereby.
(ee) Immediately after the consummation of the transactions
contemplated by this Agreement, the Indenture and each of the Other
Transaction Documents, the fair value and present fair saleable value of
the assets of each of the Company and the Subsidiary (each on a
consolidated basis) will exceed the sum of its stated liabilities and
identified contingent liabilities; none of the Company or the Subsidiary
(each on a consolidated basis) is, nor will any of the Company or the
Subsidiary (each on a consolidated basis) be, after giving effect to the
execution, delivery and performance of this Agreement, the Indenture and
each of the Other Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby, (a) left with unreasonably
small capital with which to carry on its business as it is proposed to be
conducted, (b) generally unable to pay its debts (contingent or otherwise)
as they mature, or (c) otherwise insolvent.
(ff) None of SDI Acquisition, the Company, the Subsidiary or any of
their respective Affiliates (as defined in Rule 501(b) of Regulation D
under the Act) has directly, or through any agent, (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of, any
"security" (as defined in the Act) which is or could be integrated with
the sale of the Securities in a manner that would require the registration
under the Act of the Securities or (ii) engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation
D under the Act) in connection with the offering of the Securities or in
any manner involving a public offering within the meaning of Section 4(2)
of the Act. Assuming the accuracy of the representations and warranties of
the Initial Purchasers and the compliance by the Initial Purchasers with
their agreements, in each case, set forth in Section 8 hereof, it is not
necessary in connection
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<PAGE> 13
with the offer, sale and delivery of the Securities to the Initial
Purchasers in the manner contemplated by this Agreement to register any of
the Securities under the Act or to qualify the Indenture under the TIA.
(gg) No securities of SDI Acquisition, the Company or the Subsidiary
are of the same class (within the meaning of Rule 144A under the Act) as
the Notes and the Guarantee and listed on a national securities exchange
registered under Section 6 of the Exchange Act, or quoted in a U.S.
automated inter-dealer quotation system.
(hh) None of SDI Acquisition, the Company or the Subsidiary has
taken, nor will any of them take, directly or indirectly, any action
designed to, or that might be reasonably expected to, cause or result in
stabilization or manipulation of the price of the Securities.
(ii) None of SDI Acquisition, the Company, the Subsidiary, any of
their respective Affiliates or any person acting on its or their behalf
(other than the Initial Purchasers) has engaged in any "directed selling
efforts" (as that term is defined in Regulation S) with respect to the
Notes or the Guarantee; SDI Acquisition, the Company, the Subsidiary and
their respective Affiliates and any person acting on its or their behalf
(other than the Initial Purchasers) have complied with the offering
restrictions requirement of Regulation S.
Any certificate signed by any officer of SDI Acquisition, the
Company or the Subsidiary and delivered to the Initial Purchasers or to counsel
for the Initial Purchasers shall be deemed a joint and several representation
and warranty by SDI Acquisition, the Company and the Subsidiary to the Initial
Purchasers as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, SDI Acquisition agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers, jointly
and not severally, agree to purchase the Securities from SDI Acquisition at
97.0% of their principal amount, in the respective principal amounts set forth
opposite their names on Schedule 1 hereto. One or more certificates in
definitive form for the Securities that the Initial Purchasers have agreed to
purchase hereunder, and in such denomination or denominations and registered in
such name or names as the Initial Purchasers request upon notice to SDI
Acquisition at least 36 hours prior to the Closing Date, shall be delivered by
or on behalf of SDI Acquisition to the Initial Purchasers, against payment by or
on behalf of the Initial Purchasers of the purchase price therefor by wire
transfer (same day funds), net of the overnight cost of such funds, to such
account or accounts as SDI Acquisition shall specify prior to the Closing Date,
or by such means as the parties hereto shall agree prior to the Closing Date.
Such delivery of and payment for the Securities shall be made at the offices of
White & Case LLP, 1144 Avenue of the Americas, New York, New York at 10:00 a.m.,
New York time, on December 15, 1998, or at such other place, time or date as the
Initial Purchasers, on the one hand, and SDI Acquisition, on the other hand, may
agree upon, such time and date of delivery against payment being herein referred
to as the "Closing Date." SDI Acquisition will make such certificate or
certificates for the Notes available for checking and packaging by the Initial
Purchasers at the offices of BT Alex. Brown Incorporated in New York, New York,
or at such other place as BT Alex. Brown Incorporated may designate, at least 24
hours prior to the Closing Date.
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<PAGE> 14
4. Offering by the Initial Purchasers. The Initial Purchasers
propose to make an offering of the Securities at the price and upon the terms
set forth in the Final Memorandum, as soon as practicable after this Agreement
is entered into and as in the judgment of the Initial Purchasers is advisable.
5. Covenants of the SDI Acquisition, the Company and the Guarantor.
SDI Acquisition and, at and as of the Effective Time, the Company and the
Guarantor, jointly and severally, covenant and agree with the Initial Purchasers
that:
(a) Prior to the completion of the distribution by the Initial
Purchasers of the Securities or the Private Exchange Notes and Private
Exchange Notes Guarantee (which in no event will be prior to the Closing
Date), SDI Acquisition will not and, at and after the Effective Time, the
Company and the Guarantor will not, amend or supplement the Final
Memorandum or any amendment or supplement thereto of which the Initial
Purchasers shall not previously have been advised and furnished a copy for
a reasonable period of time prior to the proposed amendment or supplement
and as to which the Initial Purchasers shall not have given their consent.
SDI Acquisition will and, at and after the Effective Time, the Company and
the Guarantor will, promptly, upon the reasonable request of the Initial
Purchasers or counsel for the Initial Purchasers, make any amendments or
supplements to the Preliminary Memorandum or the Final Memorandum that may
be necessary or advisable in connection with the resale of the Securities
by the Initial Purchasers in accordance with Section 8 hereof.
(b) Prior to the completion of the distribution by the Initial
Purchasers of the Securities or the Private Exchange Notes and Private
Exchange Notes Guarantee (which in no event will be prior to the Closing
Date), SDI Acquisition will and, at and after the Effective Time, the
Company and the Guarantor will, cooperate with the Initial Purchasers in
arranging for the qualification of the Securities for offering and sale
under the securities or "Blue Sky" laws of which jurisdictions as the
Initial Purchasers may designate and will continue such qualifications in
effect for as long as may reasonably be necessary to complete the resale
of the Securities; provided, however, that in connection therewith, none
of SDI Acquisition, the Company or the Guarantor shall be required to
qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or subject itself to taxation in
excess of a nominal dollar amount in any such jurisdiction where it is not
then so subject.
(c) If, at any time prior to the completion of the distribution by
the Initial Purchasers of the Securities or the Private Exchange Notes and
Private Exchange Notes Guarantee, any event occurs or information becomes
known as a result of which the Final Memorandum as then amended or
supplemented would include any untrue statement of a material fact, or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
or if for any other reason it is necessary at any time to amend or
supplement the Final Memorandum to comply with applicable law, SDI
Acquisition will and, at and after the Effective Time, the Company and the
Guarantor will promptly notify the Initial Purchasers thereof and will
prepare, at the expense of SDI Acquisition and, at and after the Effective
Time, the
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<PAGE> 15
Company and the Guarantor, an amendment or supplement to the Final
Memorandum that corrects such statement or omission or effects such
compliance.
(d) Prior to the completion of the distribution by the Initial
Purchasers of the Securities or the Private Exchange Notes and Private
Exchange Notes Guarantee (which in no event will be prior to the Closing
Date), SDI Acquisition will and, at and after the Effective Time, the
Company and the Guarantor will, without charge, provide to the Initial
Purchasers and to counsel for the Initial Purchasers as many copies of the
Preliminary Memorandum and the Final Memorandum or any amendment or
supplement thereto as the Initial Purchasers may reasonably request.
(e) SDI Acquisition will and, at and after the Effective Time, the
Company and the Guarantor will, apply the net proceeds from the sale of
the Securities as set forth under "Sources and Uses of Funds" in the Final
Memorandum.
(f) For so long as any of the Securities remain outstanding, SDI
Acquisition will and, at and after the Effective Time, the Company and the
Guarantor will, furnish to the Initial Purchasers copies of all reports
and other communications (financial or otherwise) furnished by SDI
Acquisition and, at and after the Effective Time, the Company and the
Guarantor, to the Trustee or to the holders of the Securities and, as soon
as available, copies of any reports or financial statements furnished to
or filed by SDI Acquisition or, at and after the Effective Time, the
Company or the Guarantor, with the Commission or any national securities
exchange on which any class of securities of any of SDI Acquisition and,
at and after the Effective Time, the Company and the Guarantor, may be
listed.
(g) Prior to the Closing Date, SDI Acquisition and, at and after the
Effective Time, the Company will furnish to the Initial Purchasers, as
soon as they have been prepared, a copy of any available unaudited interim
financial statements of the Company for any period subsequent to the
period covered by the most recent financial statements appearing in the
Final Memorandum.
(h) None of SDI Acquisition or any of its Affiliates or, at and
after the Effective Time, the Company, the Guarantor or any of their
Affiliates will sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any "security" (as defined in the Act) which could
be integrated with the sale of the Securities in a manner which would
require the registration under the Act of the Securities.
(i) SDI Acquisition will not and, at and after the Effective Time,
the Company will not, and will not permit the Subsidiary to, engage in any
form of general solicitation or general advertising (as those terms are
used in Regulation D under the Act) in connection with the offering of the
Securities or in any manner involving a public offering within the meaning
of Section 4(2) of the Act.
(j) For so long as any of the Securities remain outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Act, SDI Acquisition will and, at and after the Effective Time, the
Company and the Guarantor will, make available at
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<PAGE> 16
their expense, upon request, to any holder of such Securities and any
prospective purchasers thereof the information specified in Rule
144A(d)(4) under the Act, unless the Company is then subject to Section 13
or 15(d) of the Exchange Act.
(k) SDI Acquisition will and, at and after the Effective Time, the
Company and the Guarantor will, use their reasonable best efforts to (i)
permit the Securities to be designated PORTAL securities in accordance
with the rules and regulations adopted by the NASD relating to trading in
the Private Offerings, Resales and Trading through Automated Linkages
market (the "PORTAL Market") and (ii) permit the Securities to be eligible
for clearance and settlement through The Depository Trust Company.
(l) In connection with Securities offered and sold in an "offshore
transaction" (as defined in Regulation S), SDI Acquisition will not and,
at and after the Effective Time, the Company and the Guarantor will not,
register any transfer of such Securities not made in accordance with the
provisions of Regulation S and will not, except in accordance with the
provisions of Regulation S, if applicable, issue any such Securities in
definitive form.
6. Expenses. SDI Acquisition agrees to pay all costs and expenses
incident to the performance of their obligations under this Agreement, whether
or not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing, word processing or other production of documents
with respect to the transactions contemplated hereby, including any costs of
printing the Preliminary Memorandum and the Final Memorandum and any amendment
or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements
relating to the delivery to the Initial Purchasers of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by SDI Acquisition, (iv) preparation
(including printing), issuance and delivery to the Initial Purchasers of the
Securities, (v) the qualification of the Securities under state securities and
"Blue Sky" laws, including filing fees and reasonable fees and disbursements of
Cahill Gordon & Reindel, counsel for the Initial Purchasers, relating thereto,
(vi) expenses in connection with any meetings with prospective investors in the
Securities, (vii) fees and expenses of the Trustee including fees and expenses
of its counsel, (viii) all expenses and listing fees incurred in connection with
the application for quotation of the Securities on the PORTAL Market, and (ix)
any fees charged by investment rating agencies for the rating of the Notes. If
the sale of the Notes provided for herein is not consummated because any
condition to the obligations of the Initial Purchasers set forth in Section 7
hereof is not satisfied, because this Agreement is terminated or because of any
failure, refusal or inability on the part of SDI Acquisition, the Company or the
Guarantor to perform all their obligations and satisfy all conditions on their
part to be performed or satisfied hereunder (other than solely by reason of a
default by the Initial Purchasers of their obligations hereunder after all
conditions hereunder have been satisfied in accordance herewith), each of SDI
Acquisition and, at and after the Effective Time, the Company and the Guarantor,
jointly and severally, agrees to promptly reimburse the Initial Purchasers upon
demand for all reasonable out-of-pocket expenses (including reasonable fees,
disbursements and charges of Cahill Gordon & Reindel, counsel for the Initial
Purchasers) that shall have been incurred by the Initial Purchasers in
connection with the proposed purchase and sale of the Securities. Except as
specifically set forth in this Section 6, the Initial Purchasers shall pay their
own costs and expenses incurred in
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connection with the proposed purchase and sale of the Securities, including the
costs and expenses of their counsel.
7. Conditions of the Initial Purchasers' Obligations. The obligation
of the Initial Purchasers to purchase and pay for the Notes shall, in their sole
discretion, be subject to the satisfaction or waiver of the following conditions
on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchasers shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchasers, of Paul, Weiss, Rifkind, Wharton & Garrison, special outside
counsel for SDI Acquisition and, at and as of the Effective Time, the
Company and the Guarantor, in form and substance satisfactory to counsel
for the Initial Purchasers, substantially in the form attached hereto as
Exhibit C.
(b) On the Closing Date, the Initial Purchasers shall have received
the opinion, in form and substance satisfactory to the Initial Purchasers,
dated as of the Closing Date and addressed to the Initial Purchasers, of
Cahill Gordon & Reindel, counsel for the Initial Purchasers, with respect
to certain legal matters relating to this Agreement and such other related
matters as the Initial Purchasers may reasonably require. In rendering
such opinion, Cahill Gordon & Reindel shall have received and may rely
upon such certificates and other documents and information as it may
reasonably request to pass upon such matters.
(c) The Initial Purchasers shall have received from the Independent
Accountants a comfort letter or letters dated the date hereof and the
Closing Date, in form and substance reasonably satisfactory to counsel for
the Initial Purchasers.
(d) The representations and warranties of SDI Acquisition contained
in this Agreement shall be true and correct on and as of the date hereof
and on and as of the Closing Date as if made on and as of the Closing
Date; the statements of officers of SDI Acquisition, the Company and the
Guarantor made pursuant to any certificate delivered in accordance with
the provisions hereof shall be true and correct on and as of the date made
and on and as of the Closing Date; SDI Acquisition, the Company and the
Guarantor shall have performed all covenants and agreements and satisfied
all conditions on their part to be performed or satisfied hereunder at or
prior to the Closing Date; and, except as described in the Final
Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), subsequent to the date of the most recent financial
statements in such Final Memorandum, there shall have been no event or
development, and no information shall have become known, that,
individually or in the aggregate, has had or would be reasonably likely to
have a Material Adverse Effect.
(e) The sale of the Securities hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(f) Subsequent to the date of the most recent financial statements
in the Final Memorandum (exclusive of any amendment or supplement thereto
after the date hereof), none of the Company or the Subsidiary shall have
sustained any loss or interference with
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<PAGE> 18
respect to its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any strike, labor dispute, slow down or work stoppage or from any legal or
governmental proceeding, order or decree, which loss or interference,
individually or in the aggregate, has or would be reasonably likely to
have a Material Adverse Effect.
(g) The Initial Purchasers shall have received a certificate of SDI
Acquisition, dated the Closing Date, signed on behalf of SDI Acquisition
by its Chief Executive Officer, President or any Senior Vice President and
the Chief Financial Officer, to the effect that:
(i) The representations and warranties of SDI Acquisition
contained in this Agreement are true and correct on and as of the
date hereof and on and as of the Closing Date, and SDI Acquisition
has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or
prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the
date of the most recent financial statements in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date
hereof), no event or development has occurred, and no information
has become known, that, individually or in the aggregate, has had or
would be reasonably likely to have a Material Adverse Effect; and
(iii) The sale of the Securities hereunder has not been enjoined
(temporarily or permanently).
(h) The Initial Purchasers shall have received a certificate of each
of the Company and the Guarantor, dated as of the Closing Date, signed on
behalf of the Company by its President and Secretary and of the Guarantor
by its Chairman of the Board, President and Chief Executive Officer or any
Vice President and the Chief Financial Officer, to the effect that:
(i) The representations and warranties of the Company or the
Guarantor contained in this Agreement are true and correct as of the
Closing Date, and each of the Company and the Guarantor have
performed all covenants and agreements and satisfied all conditions
on its part to be performed or satisfied hereunder at or prior to
the Closing Date;
(ii) At the Closing Date, since the date hereof or since the
date of the most recent financial statements in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date
hereof), no event or events have occurred, no information has become
known nor does any condition exist that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect; and
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<PAGE> 19
(iii) The sale of the Notes hereunder has not been enjoined
(temporarily or permanently).
(i) The Indenture shall have been duly executed and delivered by SDI
Acquisition and the Trustee. The First Supplemental Indenture shall have
been duly executed and delivered by the Company and the Guarantor and the
Securities shall have been duly executed and delivered by the Company and
the Guarantor and duly authenticated by the Trustee.
(j) On the Closing Date, the Initial Purchasers shall have received
the Registration Rights Agreement executed by SDI Acquisition and such
agreement shall be in full force and effect at all times from and after
the Closing Date.
(k) On or before the Closing Date, (i) the Merger shall have been
consummated and (ii) the Initial Purchasers and counsel for the Initial
Purchasers shall have received executed copies of the Recapitalization
Agreement, as in effect on the Closing Date, and such other documents,
opinions and reliance letters as they shall have reasonably requested.
(l) The Assumption Agreement shall have been duly authorized,
executed and delivered by the Company and the Guarantor and such agreement
shall be in full force and effect at all times from and after the Closing
Date.
(m) On or before the Closing Date, (i) the Initial Purchasers and
counsel for the Initial Purchasers shall have received executed copies of
the Credit Agreement, dated the Closing Date, including any schedules,
amendments or waivers thereto, and such other documents, opinions and
reliance letters as they shall have reasonably requested, and (ii) after
giving effect to the transactions contemplated by this Agreement and the
application of the proceeds received by SDI Acquisition from the sale of
the Notes, no condition that would constitute a default or event of
default under the Credit Agreement shall exist.
(n) On the Closing Date, each of the Transactions shall have been
concurrently consummated.
(o) On or prior to the Closing Date, the Initial Purchasers shall
have received a solvency opinion from Houlihan, Lokey, Howard & Zufkin
Financial Advisors, Inc., which solvency opinion shall be in form and
substance reasonably satisfactory to the Initial Purchasers and shall set
forth in the conclusions that, after giving effect to the Transactions,
the Company and its Subsidiary on a consolidated basis, is not insolvent,
will not be rendered insolvent by the indebtedness incurred in connection
therewith, will not be left with unreasonably small capital with which to
engage in their business and will not have incurred debts beyond their
ability to pay such debts as they mature.
On or before the Closing Date, the Initial Purchasers and counsel
for the Initial Purchasers shall have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the business,
corporate, legal and financial affairs of SDI Acquisition,
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<PAGE> 20
the Company and the Subsidiary as they shall have heretofore reasonably
requested from SDI Acquisition and the Company.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchasers and counsel for the Initial Purchasers. SDI Acquisition and
the Company shall furnish to the Initial Purchasers such conformed copies of
such documents, opinions, certificates, letters, schedules and instruments in
such quantities as the Initial Purchasers shall reasonably request.
8. Offering of Securities; Restrictions on Transfer. (a) Each of the
Initial Purchasers represents and warrants (as to itself only) that it is a QIB.
Each of the Initial Purchasers agrees (as to itself only) that (i) it has not
and will not solicit offers for, or offer or sell, the Securities by any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Act; (ii) it has and will solicit offers for
the Securities only from, and will offer the Securities only to (A) in the case
of offers inside the United States, persons whom such Initial Purchaser
reasonably believes to be QIBs or, if any such person is buying for one or more
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to the Initial Purchasers that each such
account is a QIB, to whom notice has been given that such sale or delivery is
being made in reliance on Rule 144A, and, in each case, in transactions under
Rule 144A, and (B) in the case of offers outside the United States, persons
other than "U.S. persons" (as defined in Regulation S) ("foreign purchasers,"
which term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)); provided, however, that, in the case of this clause (B),
in purchasing such Securities such persons are deemed to have represented and
agreed as provided under the caption "Transfer Restrictions" contained in the
Final Memorandum (or, if the Final Memorandum is not in existence, in the most
recent Memorandum); (iii) it will take reasonable steps to inform, and cause
each of its U.S. affiliates to take reasonable steps to inform, persons
acquiring Securities from it or any its affiliates, as the case may be, in the
United States that the Securities (A) have not been and will not be registered
under the Act, (B) are being sold to such persons without registration under the
Act in reliance on Rule 144A or in accordance with another exemption from
registration under the Act, as the case may be, and (C) may not be offered, sold
or otherwise transferred except (1) to SDI Acquisition and, at and after the
Effective Time, the Company, (2) outside the United States in accordance with
Regulation S or (3) inside the United States in accordance with (x) Rule 144A to
a person whom such Initial Purchaser reasonably believes is a QIB that is
purchasing such Securities for its own account or for the account of a QIB to
whom notice is given that the offer, sale or transfer is being made in reliance
on Rule 144A or (y) pursuant to another available exemption from registration
under the Act; and (iv) it will cause to be mailed to each purchaser of the
Securities, in connection with the original distribution of the Securities, a
copy of the Final Memorandum.
(b) Each of the Initial Purchasers represents and warrants (as to
itself only) with respect to offers and sales outside the United States that (i)
it has and will comply with all applicable laws and regulations in each
jurisdiction in which it acquires, offers, sells or delivers the Securities or
has in its possession or distributes any Memorandum or any such other material,
in
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<PAGE> 21
all cases at its own expense; (ii) the Securities have not been and will not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except pursuant to an exemption from the registration
requirements of the Act; (iii) it has offered the Securities and will offer and
sell the Securities (A) as part of its distribution at any time and (B)
otherwise until 40 days after the later of the commencement of the offering and
the Closing Date, only in accordance with Rule 903 of Regulation S and,
accordingly, neither it nor any persons acting on its behalf have engaged or
will engage in any "directed selling efforts" (within the meaning of Regulation
S) with respect to the Securities, and any such persons have complied and will
comply with the offering restrictions requirement of Regulation S; and (iv) it
agrees that, at or prior to confirmation of sales of the Securities, it will
have sent to each distributor, dealer or person receiving a selling concession,
fee or other remuneration that purchases Securities from it during the
restricted period a confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been registered under the United
States Securities Act of 1933 (the "Securities Act") and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of the distribution of the Securities
at any time or (ii) otherwise until 40 days after the later of the
commencement of the offering and the closing date of the offering, except
in either case in accordance with Regulation S (or Rule 144A if available)
under the Securities Act. Terms used above have the meaning given to them
in Regulation S."
Terms used in this Section 8 and not defined in this Agreement have
the meanings given to them in Regulation S.
9. Indemnification and Contribution. (a) SDI Acquisition and, at and
after the Effective Time, the Company and the Guarantor, jointly and severally
agree to indemnify and hold harmless the Initial Purchasers and the affiliates,
directors, officers, agents, representatives and employees of any Initial
Purchaser or their affiliates, and each other person, if any, who controls any
Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, against any losses, claims, damages or liabilities to which
the Initial Purchasers or such controlling person may become subject under the
Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in any Memorandum or any amendment or supplement
thereto; or
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto, a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading,
and, subject to the last sentence of this paragraph, will reimburse, as
incurred, the Initial Purchasers and each such other person for any reasonable
legal or other expenses incurred by the Initial Purchasers or such other person
in connection with investigating, defending against or
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<PAGE> 22
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, SDI Acquisition and, at and
after the Effective Time, the Company and the Guarantor will not be liable in
any such case (A) to the extent that any such loss, claim, damage, or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in any Memorandum or any amendment or
supplement thereto in reliance upon and in conformity with written information
concerning the Initial Purchasers furnished to SDI Acquisition by the Initial
Purchasers specifically for use therein, (B) with respect to the Preliminary
Memorandum, to the extent that any such loss, claim, damage or liability arises
solely from the fact that the Initial Purchasers sold Securities to a person to
whom there was not sent or given a copy of the Final Memorandum (as amended or
supplemented) at or prior to the written confirmation of such sale if SDI
Acquisition shall have previously furnished copies thereof to the Initial
Purchasers in accordance with Section 5(d) hereof and the Final Memorandum (as
amended or supplemented) would have corrected any such untrue statement or
omission, or (C) where amounts are paid in settlement of claims without its
written consent (which consent shall not be unreasonably withheld). This
indemnity agreement will be in addition to any liability that SDI Acquisition,
the Company and the Guarantor may otherwise have to the indemnified parties. SDI
Acquisition and, at and after the Effective Time, the Company and the Guarantor
shall not be liable under this Section 9 for any settlement of any claim or
action effected without its prior written consent, which shall not be
unreasonably withheld. In the event that SDI Acquisition, the Company or the
Guarantor reimburses the Initial Purchasers or any other person hereunder for
any expenses incurred in connection with a lawsuit, claim or other proceeding
for which indemnification is sought, the Initial Purchasers hereby agree to
refund such reimbursement of expenses to the extent that the Initial Purchasers
or such other person are not entitled to indemnification pursuant to this
Agreement, as determined by a final non-appealable judicial determination.
(b) Each of the Initial Purchasers, severally and not jointly,
agrees to indemnify and hold harmless SDI Acquisition and, at and after the
Effective Time, the Company and the Guarantor, their directors, their officers
and each person, if any, who controls SDI Acquisition, the Company or the
Guarantor within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which SDI
Acquisition, the Company and the Guarantor or any such director, officer or
controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any Memorandum or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated in any Memorandum or any
amendment or supplement thereto, or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information concerning the
Initial Purchasers, furnished to SDI Acquisition by the Initial Purchasers
specifically for use therein; and subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any reasonable
legal or other expenses incurred by SDI Acquisition and, at and after the
Effective Time, the Company or the Guarantor or any such director, officer or
controlling person in connection with investigating or defending against or
appearing as a third party witness in
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<PAGE> 23
connection with any such loss, claim, damage, liability or action in respect
thereof. This indemnity agreement will be in addition to any liability that the
Initial Purchasers may otherwise have to the indemnified parties. The Initial
Purchasers shall not be liable under this Section 9 for any settlement of any
claim or action effected without its consent, which shall not be unreasonably
withheld. SDI Acquisition and, at and after the Effective Time, the Company or
the Guarantor, shall not, without the prior written consent of the Initial
Purchasers, effect any settlement or compromise of any pending or threatened
proceeding in respect of which the Initial Purchasers are or could have been a
party, or indemnity could have been sought hereunder by the Initial Purchasers,
unless such settlement (A) includes an unconditional written release of the
Initial Purchasers, in form and substance reasonably satisfactory to the Initial
Purchasers, from all liability on claims that are the subject matter of such
proceeding and (B) does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of the Initial Purchasers.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action for which such indemnified
party is entitled to indemnification under this Section 9, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party of the commencement
thereof in writing; but the omission to so notify the indemnifying party (i)
will not relieve it from any liability under paragraph (a) or (b) above unless
and to the extent such failure results in material prejudice to the indemnifying
party and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraphs (a) and (b) above. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to it and/or other indemnified parties that
are different from or additional to those available to the indemnifying party,
or (iii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after receipt by the indemnifying party of notice of the
institution of such action, then, in each such case, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the
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<PAGE> 24
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Initial Purchasers in the case of paragraph (a) of this
Section 9 or SDI Acquisition and, at and after the Effective Time, the Company
or the Guarantor, in the case of paragraph (b) of this Section 9, representing
the indemnified parties under such paragraph (a) or paragraph (b), as the case
may be, who are parties to such action or actions) or (ii) the indemnifying
party has authorized in writing the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the prior written consent of the indemnifying
party (which consent shall not be unreasonably withheld), unless such
indemnified party waived in writing its rights under this Section 9, in which
case the indemnified party may effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable to, or insufficient
to hold harmless, an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof), each indemnifying party, in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party or
parties on the other from the offering of the Notes or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the indemnifying
party or parties on the one hand and the indemnified party or parties on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by SDI Acquisition,
the Company and the Guarantor on the one hand and the Initial Purchasers on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (before deducting expenses) received by SDI Acquisition, the
Company and the Guarantor bear to the total discounts and commissions received
by the Initial Purchasers. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by SDI Acquisition, on the one
hand, or the Initial Purchasers on the other, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or alleged statement or omission, and any other equitable
considerations appropriate in the circumstances. SDI Acquisition, the Company,
the Guarantor and the Initial Purchasers agree that it would not be equitable if
the amount of such contribution were determined by pro rata or per capita
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). Notwithstanding any other provision of this paragraph (d), the Initial
Purchasers shall not be obligated to make contributions hereunder that in the
aggregate exceed the total discounts, commissions and other compensation
received by the Initial Purchasers under this Agreement, less the aggregate
amount of any damages that the Initial Purchasers have otherwise been required
to pay by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact,
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and no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), the affiliates, directors, officers, agents, representatives and
employees of an Initial Purchaser or their affiliates and each person, if any,
who controls an Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchasers, and each director of SDI Acquisition, the Company or the
Guarantor, each officer of SDI Acquisition, the Company or the Guarantor and
each person, if any, who controls SDI Acquisition, the Company or the Guarantor
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
shall have the same rights to contribution as SDI Acquisition.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of SDI Acquisition, the
Company and the Guarantor, their respective officers and the Initial Purchasers
set forth in this Agreement or made by or on behalf of them pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the SDI Acquisition, the Company or the
Guarantor, any of their respective officers or directors, the Initial Purchasers
or any other person referred to in Section 9 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 6, 9 and 15 hereof shall remain in
full force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
discretion of the Initial Purchasers by notice to SDI Acquisition, given prior
to the Closing Date in the event that SDI Acquisition, the Company or the
Guarantor shall have failed, refused or been unable to perform all obligations
and satisfy all conditions on their part to be performed or satisfied hereunder
at or prior thereto or, if at or prior to the Closing Date:
(i) any of SDI Acquisition, the Company or the Subsidiary shall
have sustained any loss or interference with respect to its businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any strike, labor dispute,
slow down or work stoppage or any legal or governmental proceeding, which
loss or interference, in the sole judgment of the Initial Purchasers, has
had or has a Material Adverse Effect, or there shall have been, in the
sole judgment of the Initial Purchasers, any event or development that,
individually or in the aggregate, has had or would be reasonably likely to
have a Material Adverse Effect (including without limitation a change in
control of SDI Acquisition, the Company or the Subsidiary), except in each
case as described or referred to in the Final Memorandum (exclusive of any
amendment or supplement thereto);
(ii) trading in securities of SDI Acquisition or the Company or in
securities generally on the New York Stock Exchange, American Stock
Exchange or the NASDAQ National Market shall have been suspended or
minimum or maximum prices shall have been established on any such exchange
or market;
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<PAGE> 26
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency, or (C) any material adverse change in the financial
markets of the United States which, in the case of (A), (B) or (C) above
and in the sole judgment of the Initial Purchasers, makes it impracticable
or inadvisable to proceed with the offering or the delivery of the
Securities as contemplated by the Final Memorandum; or
(v) any securities of SDI Acquisition or the Company shall have
been downgraded or placed on any "watch list" for possible downgrading by
any nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchasers. The statements
set forth in the third and seventh paragraphs under the heading "Private
Placement" in the Final Memorandum (to the extent such statements relate to the
Initial Purchasers) constitute the only information furnished by the Initial
Purchasers to SDI Acquisition for the purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing and,
if sent to the Initial Purchasers, shall be mailed or delivered to (i) BT Alex.
Brown Incorporated, 130 Liberty Street, New York, New York 10006, Attention:
Corporate Finance Department; if sent to SDI Acquisition, the Company or the
Guarantor shall be mailed or delivered to Special Devices, Incorporated at 16830
West Placerita Canyon Road, Newhall, California 91321, Attention: Chief
Financial Officer; with a copy to Paul, Weiss, Rifkind, Wharton & Garrison, 1285
Avenue of the Americas, New York, New York 10019, Attention: Paul D. Ginsberg,
Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; and one business
day after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchasers, SDI Acquisition, the Company and the
Guarantor and their respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or in
respect of this Agreement, or any provisions herein contained; this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person except that (i) the indemnities of SDI Acquisition, the Company and the
Guarantor contained in Section 9 of this Agreement shall
26
<PAGE> 27
also be for the benefit of affiliates, directors, officers, agents,
representatives and employees of an Initial Purchaser or their affiliates and
any person or persons who control any of the Initial Purchasers within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchasers contained in Section 9 of this Agreement
shall also be for the benefit of the directors of SDI Acquisition, the Company
or the Guarantor, its officers and any person or persons who control SDI
Acquisition, the Company or the Guarantor within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No purchaser of Securities from the
Initial Purchasers will be deemed a successor because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
16. Assumption Permitted. The assumption by the Company and the
Subsidiary pursuant to the Assumption Agreement of the obligations of SDI
Acquisition hereunder shall be permitted without the written consent of any of
the parties hereto.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
27
<PAGE> 28
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among SDI Acquisition
and the Initial Purchasers as of the date first written above.
Very truly yours,
SDI ACQUISITION CORP.
By:/s/ Keith Oster
----------------------------------
Keith Oster, Secretary
The foregoing Agreement is hereby confirmed and accepted as of the date first
written above.
BT ALEX. BROWN INCORPORATED
By:/s/ Paul Higbee
------------------------------------
Paul Higbee, Managing Director
PARIBAS CORPORATION
By:/s/ Robert Howard
------------------------------------
Robert Howard, Authorized Signatory
28
<PAGE> 29
SCHEDULE 1
<TABLE>
<CAPTION>
Initial Purchaser Principal Amount of Notes
- ----------------- -------------------------
<S> <C>
BT Alex. Brown Incorporated $ 65,200,000
Paribas Corporation $ 34,800,000
------------
Total $100,000,000
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SPECIAL DEVICES, INCORPORATED
1. Name. The name of the corporation is Special Devices, Incorporated (the
"Corporation").
2. Address; Registered Office and Agent. The address of the Corporation's
registered office is 1013 Centre Road, City of Wilmington, County of New Castle,
State of Delaware; and its registered agent at such address is Corporation
Service Company.
3. Purposes. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
4. Number of Shares. The total number of shares of stock that the
Corporation shall have authority to issue is 22,000,000 consisting of two
classes of shares designated, respectively, "Common Stock" and "Preferred
Stock," and referred to herein either as Common Stock or Common Shares, and
Preferred Stock or Preferred Shares, respectively. The number of shares of
Common Stock shall be 20,000,000 and shall have a par value of $.01 per share,
and the number of shares of Preferred Stock shall be 2,000,000 and shall have a
par value of $.01 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix or alter the number of shares of any
series of Preferred Stock, the designation of any such series, the voting
rights, full or limited, or any series of Preferred Stock and the other rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock and, within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, to increase or decrease
(but not below the number of shares of such series then outstanding) the number
of shares of any such series subsequent to the issuance of shares of that
series.
5. Name and Mailing Address of Incorporator. The name and mailing address
of the incorporator are: Kasey R. Hume, 400 S. Hope Street, 15th Floor, Los
Angeles, California 90071.
6. Election of Directors. Members of the Board of Directors of the
Corporation (the "Board") may be elected either by written ballot or by voice
vote.
7. Limitation of Liability. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, provided that this provision shall
not eliminate or limit the liability of a director (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of
<PAGE> 2
law, (c) under section 174 of the General Corporation Law or (d) for any
transaction from which the director derived any improper personal benefits.
Any repeal or modification of the foregoing provision shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
8. Indemnification.
8.1 To the extent not prohibited by law, the Corporation shall
indemnify any person who is or was made, or threatened to be made, a party to
any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Section 8.
8.2 The Corporation shall, from time to time, reimburse or advance
to any director or officer or other person entitled to indemnification hereunder
the funds necessary for payment of expenses, including attorneys' fees and
disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that, if required by
the General Corporation Law, such expenses incurred by or on behalf of any
director or officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 The rights to indemnification and reimbursement or advancement
of expenses provided by, or granted pursuant to, this Section 8 shall not be
deemed exclusive of any other rights to which a person seeking indemnification
or reimbursement or advancement of expenses may have or hereafter be entitled
under any statute, this Certificate of Incorporation, the By-laws of the
Corporation (the "By-laws"), any agreement, any vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
8.4 The rights to indemnification and reimbursement or advancement
of expenses provided by, or granted pursuant to, this Section 8 shall continue
as to a person who has
2
<PAGE> 3
ceased to be a director or officer (or other person indemnified hereunder) and
shall inure to the benefit of the executors, administrators, legatees and
distributees of such person.
8.5 The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Section 8, the By-laws or under section 145 of the
General Corporation Law or any other provision of law.
8.6 The provisions of this Section 8 shall be a contract between the
Corporation, on the one hand, and each director and officer who serves in such
capacity at any time while this Section 8 is in effect and any other person
entitled to indemnification hereunder, on the other hand, pursuant to which the
Corporation and each such director, officer, or other person intend to be, and
shall be, legally bound. No repeal or modification of this Section 8 shall
affect any rights or obligations with respect to any state of facts then or
theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
8.7 The rights to indemnification and reimbursement or advancement
of expenses provided by, or granted pursuant to, this Section 8 shall be
enforceable by any person entitled to such indemnification or reimbursement or
advancement of expenses in any court of competent jurisdiction. The burden of
proving that such indemnification or reimbursement or advancement of expenses is
not appropriate shall be on the Corporation. Neither the failure of the
Corporation (including its Board, its independent legal counsel and its
stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Corporation
(including its Board, its independent legal counsel and its stockholders) that
such person is not entitled to such indemnification or reimbursement or
advancement of expenses shall constitute a defense to the action or create a
presumption that such person is not so entitled. Such a person shall also be
indemnified for any expenses incurred in connection with successfully
establishing his or her right to such indemnification or reimbursement or
advancement of expenses, in whole or in part, in any such proceeding.
8.8 Any director or officer of the Corporation serving in any
capacity of (a) another corporation of which a majority of the shares entitled
to vote in the election of its directors is held, directly or indirectly, by the
Corporation or (b) any employee benefit plan of the Corporation or any
corporation referred to in clause (a) shall be deemed to be doing so at the
request of the Corporation.
8.9 Any person entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to this Section 8 may
elect to have the right to indemnification or reimbursement or advancement of
expenses interpreted on the basis of the applicable law in effect at the time of
the occurrence of the event or events giving rise to the
3
<PAGE> 4
applicable Proceeding, to the extent permitted by law, or on the basis of the
applicable law in effect at the time such indemnification or reimbursement or
advancement of expenses is sought. Such election shall be made, by a notice in
writing to the Corporation, at the time indemnification or reimbursement or
advancement of expenses is sought; provided, however, that if no such notice is
given, the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
9. Adoption, Amendment and/or Repeal of By-Laws. The Board may from time
to time adopt, amend or repeal the By-laws of the Corporation; provided,
however, that any By-laws adopted or amended by the Board may be amended or
repealed, and any By-laws may be adopted, by the stockholders of the Corporation
by vote of a majority of the holders of shares of stock of the Corporation
entitled to vote in the election of directors of the Corporation.
4
<PAGE> 1
EXHIBIT 3.2
By-Laws
of
SDI Acquisition Corp.
(A Delaware Corporation)
ARTICLE I
DEFINITIONS
As used in these By-laws, unless the context otherwise requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "By-laws" means the initial by-laws of the Corporation, as amended
from time to time.
1.5 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.6 "Chairman" means the Chairman of the Board of Directors of the
Corporation.
1.7 "Corporation" means SDI Acquisition Corp.
1.8 "Directors" means directors of the Corporation.
1.9 "Entire Board" means all directors of the Corporation in office,
whether or not present at a meeting of the Board, but disregarding vacancies.
1.10 "General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended from time to time.
1.11 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.12 "President" means the President of the Corporation.
1.13 "Secretary" means the Secretary of the Corporation.
1.14 "Stockholders" means stockholders of the Corporation.
1.15 "Treasurer" means the Treasurer of the Corporation.
1
<PAGE> 2
1.16 "Vice President" means a Vice President of the Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 Place of Meetings. Every meeting of stockholders shall be held at the
office of the Corporation or at such other place within or without the State of
Delaware as shall be specified or fixed in the notice of such meeting or in the
waiver of notice thereof.
2.2 Annual Meeting. A meeting of stockholders shall be held annually for
the election of Directors and the transaction of other business at such hour and
on such business day as may be determined by the Board of Directors and
designated in the notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If the annual meeting
of stockholders for the election of Directors and the transaction of other
business is not held within the months specified in Section 2.2 hereof, the
Board shall call a meeting of stockholders for the election of Directors and the
transaction of other business as soon thereafter as convenient.
2.4 Other Special Meetings. A special meeting of stockholders (other than
a special meeting for the election of Directors), unless otherwise prescribed by
statute, may be called at any time by the Board or by the President or by the
Secretary. At any special meeting of stockholders only such business may be
transacted as is related to the purpose or purposes of such meeting set forth in
the notice thereof given pursuant to Section 2.6 hereof or in any waiver of
notice thereof given pursuant to Section 2.7 hereof.
2.5 Fixing Record Date. For the purpose of (a) determining the
Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders
or any adjournment thereof, (ii) unless otherwise provided in the Certificate of
Incorporation to express consent to corporate action in writing without a
meeting or (iii) to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock; or (b) any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date was adopted by the Board and which
record date shall not be (x) in the case of clause (a)(i) above, more than sixty
nor less than ten days before the date of such meeting, (y) in the case of
clause (a)(ii) above, more than 10 days after the date upon which the resolution
fixing the record date was adopted by the Board and (z) in the case of clause
(a)(iii) or (b) above, more than sixty days prior to such action. If no such
record date is fixed:
2.5.1 the record date for determining Stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held;
2.5.2 the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting (unless
otherwise provided in the Certificate of Incorporation), when no prior
action by the Board is required under the General
2
<PAGE> 3
Corporation Law, shall be the first day on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of
stockholders are recorded; and when prior action by the Board is required
under the General Corporation Law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board
adopts the resolution taking such prior action; and
2.5.3 the record date for determining stockholders for any purpose
other than those specified in Sections 2.5.1 and 2.5.2 shall be at the
close of business on the day on which the Board adopts the resolution
relating thereto.
When a determination of Stockholders entitled to notice of or to vote at any
meeting of Stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting. Delivery made to the Corporation's
registered office in accordance with Section 2.5.2 shall be by hand or by
certified or registered mail, return receipt requested.
2.6 Notice of Meetings of Stockholders. Except as otherwise provided in
Sections 2.5 and 2.7 hereof, whenever under the provisions of any statute, the
Certificate of Incorporation or these By-laws, Stockholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten nor more than sixty days before the date of the meeting, to each
Stockholder entitled to notice of or to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
with postage prepaid, directed to the Stockholder at his or her address as it
appears on the records of the Corporation. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the Corporation that the notice
required by this Section 2.6 has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted at the meeting as originally called. If, however, the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Stockholder of record entitled to vote at the
meeting.
2.7 Waivers of Notice. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in
writing, signed by the Stockholder or Stockholders entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a Stockholder at a meeting shall
constitute a waiver of notice of such meeting except when the Stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened. Neither the
3
<PAGE> 4
business to be transacted at, nor the purpose of, any regular or special meeting
of the Stockholders need be specified in any written waiver of notice unless so
required by statute, the Certificate of Incorporation or these By-laws.
2.8 List of Stockholders. The Secretary shall prepare and make, or cause
to be prepared and made, at least ten days before every meeting of Stockholders,
a complete list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of shares registered in the name of each Stockholder. Such list shall be open to
the examination of any Stockholder, the Stockholder's agent, or attorney, at the
Stockholder's expense, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any Stockholder who is present. The Corporation shall maintain the
Stockholder list in written form or in another form capable of conversion into
written form within a reasonable time. Upon the willful neglect or refusal of
the Directors to produce such a list at any meeting for the election of
Directors, they shall be ineligible for election to any office at such meeting.
The stock ledger shall be the only evidence as to who are the Stockholders
entitled to examine the stock ledger, the list of Stockholders or the books of
the Corporation, or to vote in person or by proxy at any meeting of
Stockholders.
2.9 Quorum of Stockholders; Adjournment. Except as otherwise provided by
any statute, the Certificate of Incorporation or these By-laws, the holders of
one-third of all outstanding shares of stock entitled to vote at any meeting of
Stockholders, present in person or represented by proxy, shall constitute a
quorum for the transaction of any business at such meeting. When a quorum is
once present to organize a meeting of Stockholders, it is not broken by the
subsequent withdrawal of any Stockholders. The holders of a majority of the
shares of stock present in person or represented by proxy at any meeting of
Stockholders, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Shares of its own
stock belonging to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
2.10 Voting; Proxies. Unless otherwise provided in the Certificate of
Incorporation, every Stockholder of record shall be entitled at every meeting of
Stockholders to one vote for each share of capital stock standing in his or her
name on the record of Stockholders determined in accordance with Section 2.5
hereof. If the Certificate of Incorporation provides for more or less than one
vote for any share on any matter, each reference in the By-laws or the General
Corporation Law to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the General Corporation Law shall apply in determining
whether any shares of capital stock may be voted and the persons, if any,
entitled to vote such shares; but the Corporation shall be protected in
4
<PAGE> 5
assuming that the persons in whose names shares of capital stock stand on the
stock ledger of the Corporation are entitled to vote such shares. Holders of
redeemable shares of stock are not entitled to vote after the notice of
redemption is mailed to such holders and a sum sufficient to redeem the stocks
has been deposited with a bank, trust company, or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares of stock. At any meeting of Stockholders (at which a
quorum was present to organize the meeting), all matters, except as otherwise
provided by statute or by the Certificate of Incorporation or by these By-laws,
shall be decided by a majority of the votes cast at such meeting by the holders
of shares present in person or represented by proxy and entitled to vote
thereon, whether or not a quorum is present when the vote is taken. All
elections of Directors shall be by written ballot unless otherwise provided in
the Certificate of Incorporation. In voting on any other question on which a
vote by ballot is required by law or is demanded by any Stockholder entitled to
vote, the voting shall be by ballot. Each ballot shall be signed by the
Stockholder voting or the Stockholder's proxy and shall state the number of
shares voted. On all other questions, the voting may be viva voce. Each
Stockholder entitled to vote at a meeting of Stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such Stockholder by proxy. The validity and
enforceability of any proxy shall be determined in accordance with Section 212
of the General Corporation Law. A Stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary.
2.11 Voting Procedures and Inspectors of Election at Meetings of
Stockholders. The Board, in advance of any meeting of Stockholders, may appoint
one or more inspectors to act at the meeting and make a written report thereof.
The Board may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate has been appointed
or is able to act at a meeting, the person presiding at the meeting may appoint,
and on the request of any Stockholder entitled to vote thereat shall appoint,
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall (a) ascertain the number of
shares outstanding and the voting power of each, (b) determine the shares
represented at the meeting and the validity of proxies and ballots, (c) count
all votes and ballots, (d) determine and retain for a reasonable period a record
of the disposition of any challenges made to any determination by the
inspectors, and (e) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties. Unless otherwise provided by the
Board, the date and time of the opening and the closing of the polls for each
matter upon which the Stockholders will vote at a meeting shall be determined by
the person presiding at the meeting and shall be announced at the meeting. No
ballot, proxies or votes, or any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery of the State of Delaware upon application by a Stockholder shall
determine otherwise.
2.12 Organization. At each meeting of Stockholders, the President, or in
the absence of the President, the Chairman, or if there is no Chairman or if
there be one and the Chairman is
5
<PAGE> 6
absent, a Vice President, and in case more than one Vice President shall be
present, that Vice President designated by the Board (or in the absence of any
such designation, the most senior Vice President, based on age, present), shall
act as chairman of the meeting. The Secretary, or in his or her absence, one of
the Assistant Secretaries, shall act as secretary of the meeting. In case none
of the officers above designated to act as chairman or secretary of the meeting,
respectively, shall be present, a chairman or a secretary of the meeting, as the
case may be, shall be chosen by a majority of the votes cast at such meeting by
the holders of shares of capital stock present in person or represented by proxy
and entitled to vote at the meeting.
2.13 Order of Business. The order of business at all meetings of
Stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.14 Written Consent of Stockholders Without a Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered (by hand or by certified or registered mail, return receipt
requested) to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within 60
days of the earliest dated consent delivered in the manner required by this
Section 2.14, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation as aforesaid. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those Stockholders who have not consented in writing.
ARTICLE 3
DIRECTORS
3.1 General Powers. Except as otherwise provided in the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or these
By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by these By-laws, the Board may exercise all powers and
perform all acts that are not required, by these By-laws or the Certificate of
Incorporation or by statute, to be exercised and performed by the Stockholders.
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3.2 Number; Qualification; Term of Office. The Board shall consist of one
or more members. The number of Directors shall be fixed initially by the
incorporator and may thereafter be changed from time to time by action of the
stockholders or by action of the Board. Directors need not be stockholders. Each
Director shall hold office until a successor is elected and qualified or until
the Director's death, resignation or removal.
3.3 Election. Directors shall, except as otherwise required by statute or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares entitled to vote in the
election.
3.4 Newly Created Directorships and Vacancies. Unless otherwise provided
in the Certificate of Incorporation, newly created Directorships resulting from
an increase in the number of Directors and vacancies occurring in the Board for
any other reason, including the removal of Directors without cause, may be
filled by the affirmative votes of a majority of the entire Board, although less
than a quorum, or by a sole remaining Director, or may be elected by a plurality
of the votes cast by the holders of shares of capital stock entitled to vote in
the election at a special meeting of stockholders called for that purpose. A
Director elected to fill a vacancy shall be elected to hold office until a
successor is elected and qualified, or until the Director's earlier death,
resignation or removal.
3.5 Resignation. Any Director may resign at any time by written notice to
the Corporation. Such resignation shall take effect at the time therein
specified, and, unless otherwise specified in such resignation, the acceptance
of such resignation shall not be necessary to make it effective.
3.6 Removal. Subject to the provisions of Section 141(k) of the General
Corporation Law, any or all of the Directors may be removed with or without
cause by vote of the holders of a majority of the shares then entitled to vote
at an election of Directors.
3.7 Compensation. Each Director, in consideration of his or her service as
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at Directors' meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable
out-of-pocket expenses, if any, incurred by such Director in connection with the
performance of his or her duties. Each Director who shall serve as a member of
any committee of Directors in consideration of serving as such shall be entitled
to such additional amount per annum or such fees for attendance at committee
meetings, or both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred by
such Director in the performance of his or her duties. Nothing contained in this
Section 3.7 shall preclude any Director from serving the Corporation or its
subsidiaries in any other capacity and receiving proper compensation therefor.
3.8 Times and Places of Meetings. The Board may hold meetings, both
regular and special, either within or without the State of Delaware. The times
and places for holding meetings of the Board may be fixed from time to time by
resolution of the Board or (unless contrary to a resolution of the Board) in the
notice of the meeting.
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3.9 Annual Meetings. On the day when and at the place where the annual
meeting of stockholders for the election of Directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in Section 3.11
hereof for special meetings of the Board or in a waiver of notice thereof.
3.10 Regular Meetings. Regular meetings of the Board may be held without
notice at such times and at such places as shall from time to time be determined
by the Board.
3.11 Special Meetings. Special meetings of the Board may be called by the
Chairman, the President or the Secretary or by any two or more Directors then
serving on at least one day's notice to each Director given by one of the means
specified in Section 3.14 hereof other than by mail, or on at least three days'
notice if given by mail. Special meetings shall be called by the Chairman,
President or Secretary in like manner and on like notice on the written request
of any two or more of the Directors then serving.
3.12 Telephone Meetings. Directors or members of any committee designated
by the Board may participate in a meeting of the Board or of such committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
3.13 Adjourned Meetings. A majority of the Directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. At least one day's
notice of any adjourned meeting of the Board shall be given to each Director
whether or not present at the time of the adjournment, if such notice shall be
given by one of the means specified in Section 3.14 hereof other than by mail,
or at least three days' notice if by mail. Any business may be transacted at an
adjourned meeting that might have been transacted at the meeting as originally
called.
3.14 Notice Procedure. Subject to Sections 3.11 and 3.17 hereof, whenever,
under the provisions of any statute, the Certificate of Incorporation or these
By-laws, notice is required to be given to any Director, such notice shall be
deemed given effectively if given in person or by telephone, by mail addressed
to such Director at such Director's address as it appears on the records of the
Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or
similar means addressed as aforesaid.
3.15 Waiver of Notice. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in
writing, signed by the person or persons entitled to said notice, whether before
or after the event as to which such notice is required, shall be deemed
equivalent to notice. Attendance by a person at a meeting shall constitute a
waiver of notice of such meeting except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Directors or a
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committee of Directors need be specified in any written waiver of notice unless
so required by statute, the Certificate of Incorporation or these By-laws.
3.16 Organization. At each meeting of the Board, the Chairman, or in the
absence of the Chairman, the President, or in the absence of the President, a
chairman chosen by a majority of the Directors present, shall preside. The
Secretary shall act as secretary at each meeting of the Board. In case the
Secretary shall be absent from any meeting of the Board, an Assistant Secretary
shall perform the duties of secretary at such meeting; and in the absence from
any such meeting of the Secretary and all Assistant Secretaries, the person
presiding at the meeting may appoint any person to act as secretary of the
meeting.
3.17 Quorum of Directors. The presence in person of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business at any meeting of the Board, but a majority of a smaller
number may adjourn any such meeting to a later date.
3.18 Action by Majority Vote. Except as otherwise expressly required by
statute, the Certificate of Incorporation or these By-laws, the act of a
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board.
3.19 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all Directors or members of such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE 4
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a vote of a majority of the entire
Board, designate one or more committees, each committee to consist of one or
more of the Directors of the Corporation. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. If a member of a committee
shall be absent from any meeting, or disqualified from voting thereat, the
remaining member or members present and not disqualified from voting, whether or
not such member or members constitute a quorum, may, by a unanimous vote,
appoint another member of the Board to act at the meeting in the place of any
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the Board passed as aforesaid, shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
impressed on all papers that may require it, but no such committee shall have
the power or authority of the Board in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation under section
251 or section 252 of the General Corporation Law, recommending to the
stockholders (a) the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, or (b) a dissolution of the Corporation
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or a revocation of a dissolution, or amending the By-laws of the Corporation;
and, unless the resolution designating it expressly so provides, no such
committee shall have the power and authority to declare a dividend, to authorize
the issuance of stock or to adopt a certificate of ownership and merger pursuant
to Section 253 of the General Corporation Law. Unless otherwise specified in the
resolution of the Board designating a committee, at all meetings of such
committee a majority of the total number of members of the committee shall
constitute a quorum for the transaction of business, and the vote of a majority
of the members of the committee present at any meeting at which there is a
quorum shall be the act of the committee. Each committee shall keep regular
minutes of its meetings. Unless the Board otherwise provides, each committee
designated by the Board may make, alter and repeal rules for the conduct of its
business. In the absence of such rules each committee shall conduct its business
in the same manner as the Board conducts its business pursuant to Article 3 of
these By-laws.
ARTICLE 5
OFFICERS
5.1 Positions. The officers of the Corporation shall be a President, a
Secretary, a Treasurer and such other officers as the Board may appoint,
including a Chairman, one or more Vice Presidents and one or more Assistant
Secretaries and Assistant Treasurers, who shall exercise such powers and perform
such duties as shall be determined from time to time by the Board. The Board may
designate one or more Vice Presidents as Executive Vice Presidents and may use
descriptive words or phrases to designate the standing, seniority or areas of
special competence of the Vice Presidents elected or appointed by it. Any number
of offices may be held by the same person unless the Certificate of
Incorporation or these By-laws otherwise provide.
5.2 Appointment. The officers of the Corporation shall be chosen by the
Board at its annual meeting or at such other time or times as the Board shall
determine.
5.3 Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board. No officer shall be prevented from receiving a
salary or other compensation by reason of the fact that the officer is also a
Director.
5.4 Term of Office. Each officer of the Corporation shall hold office for
the term for which he or she is elected and until such officer's successor is
chosen and qualifies or until such officer's earlier death, resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. Such resignation shall take effect at the date of receipt of such
notice or at such later time as is therein specified, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. The resignation of an officer shall be without prejudice to the
contract rights of the Corporation, if any. Any officer elected or appointed by
the Board may be removed at any time, with or without cause, by vote of a
majority of the entire Board. Any vacancy occurring in any office of the
Corporation shall be filled by the Board. The removal of an officer without
cause shall be without prejudice to the officer's contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
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5.5 Fidelity Bonds. The Corporation may secure the fidelity of any
or all of its officers or agents by bond or otherwise.
5.6 Chairman. The Chairman, if one shall have been appointed, shall
preside at all meetings of the Board and shall exercise such powers and perform
such other duties as shall be determined from time to time by the Board.
5.7 President. The President shall be the Chief Executive Officer of the
Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of Directors. The President shall preside at all meetings
of the Stockholders and at all meetings of the Board at which the Chairman (if
there be one) is not present. The President may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts and other instruments except
in cases in which the signing and execution thereof shall be expressly delegated
by the Board or by these By-laws to some other officer or agent of the
Corporation or shall be required by statute otherwise to be signed or executed
and, in general, the President shall perform all duties incident to the office
of President of a corporation and such other duties as may from time to time be
assigned to the President by the Board.
5.8 Vice Presidents. At the request of the President, or, in the
President's absence, at the request of the Board, the Vice Presidents shall (in
such order as may be designated by the Board, or, in the absence of any such
designation, in order of seniority based on age) perform all of the duties of
the President and, in so performing, shall have all the powers of, and be
subject to all restrictions upon, the President. Any Vice President may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall be expressly delegated by the Board or by these By-laws to some other
officer or agent of the Corporation, or shall be required by statute otherwise
to be signed or executed, and each Vice President shall perform such other
duties as from time to time may be assigned to such Vice President by the Board
or by the President.
5.9 Secretary. The Secretary shall attend all meetings of the Board and of
the Stockholders and shall record all the proceedings of the meetings of the
Board and of the stockholders in a book to be kept for that purpose, and shall
perform like duties for committees of the Board, when required. The Secretary
shall give, or cause to be given, notice of all special meetings of the Board
and of the stockholders and shall perform such other duties as may be prescribed
by the Board or by the President, under whose supervision the Secretary shall
be. The Secretary shall have custody of the corporate seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to impress
the same on any instrument requiring it, and when so impressed the seal may be
attested by the signature of the Secretary or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to impress
the seal of the Corporation and to attest the same by such officer's signature.
The Secretary or an Assistant Secretary may also attest all instruments signed
by the President or any Vice President. The Secretary shall have charge of all
the books, records and papers of the Corporation relating to its organization
and management, shall see that the reports, statements and other documents
required by statute are properly kept and filed and, in general, shall perform
all duties incident to
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the office of Secretary of a corporation and such other duties as may from time
to time be assigned to the Secretary by the Board or by the President.
5.10 Treasurer. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys and valuable effects in the name and to the
credit of the Corporation in such depositaries as may be designated by the
Board; against proper vouchers, cause such funds to be disbursed by checks or
drafts on the authorized depositaries of the Corporation signed in such manner
as shall be determined by the Board and be responsible for the accuracy of the
amounts of all moneys so disbursed; regularly enter or cause to be entered in
books or other records maintained for the purpose full and adequate account of
all moneys received or paid for the account of the Corporation; have the right
to require from time to time reports or statements giving such information as
the Treasurer may desire with respect to any and all financial transactions of
the Corporation from the officers or agents transacting the same; render to the
President or the Board, whenever the President or the Board shall require the
Treasurer so to do, an account of the financial condition of the Corporation and
of all financial transactions of the Corporation; exhibit at all reasonable
times the records and books of account to any of the Directors upon application
at the office of the Corporation where such records and books are kept; disburse
the funds of the Corporation as ordered by the Board; and, in general, perform
all duties incident to the office of Treasurer of a corporation and such other
duties as may from time to time be assigned to the Treasurer by the Board or the
President.
5.11 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries
and Assistant Treasurers shall perform such duties as shall be assigned to them
by the Secretary or by the Treasurer, respectively, or by the Board or by the
President.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board, except as otherwise provided in
these By-laws, may prospectively or retroactively authorize any officer or
officers, employee or employees or agent or agents, in the name and on behalf of
the Corporation, to enter into any contract or execute and deliver any
instrument, and any such authority may be general or confined to specific
instances, or otherwise limited.
6.2 Loans. The Board may prospectively or retroactively authorize the
President or any other officer, employee or agent of the Corporation to effect
loans and advances at any time for the Corporation from any bank, trust company
or other institution, or from any firm, corporation or individual, and for such
loans and advances the person so authorized may make, execute and deliver
promissory notes, bonds or other certificates or evidences of indebtedness of
the Corporation, and, when authorized by the Board so to do, may pledge and
hypothecate or transfer any securities or other property of the Corporation as
security for any such loans or advances. Such authority conferred by the Board
may be general or confined to specific instances, or otherwise limited.
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6.3 Checks, Drafts, Etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all evidences of
indebtedness of the Corporation shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board.
6.4 Deposits. The funds of the Corporation not otherwise employed shall be
deposited from time to time to the order of the Corporation with such banks,
trust companies, investment banking firms, financial institutions or other
depositaries as the Board may select or as may be selected by an officer,
employee or agent of the Corporation to whom such power to select may from time
to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital stock of the
Corporation shall be represented by certificates in such form (consistent with
the provisions of Section 158 of the General Corporation Law) as shall be
approved by the Board. Such certificates shall be signed by the Chairman, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and may be impressed with the seal of
the Corporation or a facsimile thereof. The signatures of the officers upon a
certificate may be facsimiles, if the certificate is countersigned by a transfer
agent or registrar other than the Corporation itself or its employee. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon any certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may, unless otherwise ordered by the Board, be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by the holder's duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled," with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation. No transfer of shares of capital stock shall be valid as against
the Corporation, its stockholders and creditors for any purpose, except to
render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of the
Corporation by an entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
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7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any
shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his or her legal representatives, to make proof
satisfactory to the Board of such loss, destruction, theft or mutilation and to
advertise such fact in such manner as the Board may require, and to give the
Corporation and its transfer agents and registrars, or such of them as the Board
may require, a bond in such form, in such sums and with such surety or sureties
as the Board may direct, to indemnify the Corporation and its transfer agents
and registrars against any claim that may be made against any of them on account
of the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 Rules and Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws or with the
Certificate of Incorporation, concerning the issue, transfer and registration of
certificates representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock or any successor or transferee of the
holder, including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or registration of
transfer of capital stock of the Corporation may be imposed either by the
Certificate of Incorporation or by an agreement among any number of stockholders
or among such stockholders and the Corporation. No restriction so imposed shall
be binding with respect to capital stock issued prior to the adoption of the
restriction unless the holders of such capital stock are parties to an agreement
or voted in favor of the restriction.
7.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate
of Incorporation and of law, the Board:
7.7.1 may declare and pay dividends or make other distributions on
the outstanding shares of capital stock in such amounts and at such time
or times as it, in its discretion, shall deem advisable giving due
consideration to the condition of the affairs of the Corporation;
7.7.2 may use and apply, in its discretion, any of the surplus of
the Corporation in purchasing or acquiring any shares of capital stock of
the Corporation, or purchase warrants therefor, in accordance with law, or
any of its bonds, debentures, notes, scrip or other securities or
evidences of indebtedness; and
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7.7.3 may set aside from time to time out of such surplus or net
profits such sum or sums as, in its discretion, it may think proper, as a
reserve fund to meet contingencies, or for equalizing dividends or for the
purpose of maintaining or increasing the property or business of the
Corporation, or for any purpose it may think conducive to the best
interests of the Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnity Undertaking. To the extent not prohibited by law, the
Corporation shall indemnify any person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a Director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Article 8.
8.2 Advancement of Expenses. The Corporation shall, from time to time,
reimburse or advance to any Director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of expenses, including
attorneys' fees and disbursements, incurred in connection with any Proceeding,
in advance of the final disposition of such Proceeding; provided, however, that,
if required by the General Corporation Law, such expenses incurred by or on
behalf of any Director or officer or other person may be paid in advance of the
final disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such Director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 Rights Not Exclusive. The rights to indemnification and reimbursement
or advancement of expenses provided by, or granted pursuant to, this Article 8
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, the Certificate of Incorporation, these
By-laws, any agreement, any vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
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8.4 Continuation of Benefits. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall continue as to a person who has ceased to be a Director or
officer (or other person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees of such person.
8.5 Insurance. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Article 8, the Certificate of Incorporation or
under section 145 of the General Corporation Law or any other provision of law.
8.6 Binding Effect. The provisions of this Article 8 shall be a contract
between the Corporation, on the one hand, and each Director and officer who
serves in such capacity at any time while this Article 8 is in effect and any
other person entitled to indemnification hereunder, on the other hand, pursuant
to which the Corporation and each such Director, officer or other person intend
to be, and shall be legally bound. No repeal or modification of this Article 8
shall affect any rights or obligations with respect to any state of facts then
or theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
8.7 Procedural Rights. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article 8
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel and its stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that such person is not entitled
to such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such person is
not so entitled. Such a person shall also be indemnified for any expenses
incurred in connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
8.8 Service Deemed at Corporation's Request. Any Director or officer of
the Corporation serving in any capacity (a) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
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8.9 Election of Applicable Law. Any person entitled to be indemnified or
to reimbursement or advancement of expenses as a matter of right pursuant to
this Article 8 may elect to have the right to indemnification or reimbursement
or advancement of expenses interpreted on the basis of the applicable law in
effect at the time of the occurrence of the event or events giving rise to the
applicable Proceeding, to the extent permitted by law, or on the basis of the
applicable law in effect at the time such indemnification or reimbursement or
advancement of expenses is sought. Such election shall be made, by a notice in
writing to the Corporation, at the time indemnification or reimbursement or
advancement of expenses is sought; provided, however, that if no such notice is
given, the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. There shall be kept at the principal office of the
Corporation correct and complete records and books of account recording the
financial transactions of the Corporation and minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at its principal office, or at the office of the transfer agent or
registrar of the Corporation, a record containing the names and addresses of all
stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
9.2 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise provided by law,
the Board shall determine from time to time whether, and, if allowed, when and
under what conditions and regulations, the accounts, books, minutes and other
records of the Corporation, or any of them, shall be open to the stockholders
for inspection.
ARTICLE 10
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
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ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and may be changed, by
resolution of the Board.
ARTICLE 12
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the President, any
Vice President, the Secretary or the Treasurer, or any one of them, may execute
and deliver on behalf of the Corporation proxies respecting any and all shares
or other ownership interests of any Other Entity owned by the Corporation
appointing such person or persons as the officer executing the same shall deem
proper to represent and vote the shares or other ownership interests so owned at
any and all meetings of holders of shares or other ownership interests, whether
general or special, and/or to execute and deliver consents respecting such
shares or other ownership interests; or any of the aforesaid officers may attend
any meeting of the holders of shares or other ownership interests of such Other
Entity and thereat vote or exercise any or all other powers of the Corporation
as the holder of such shares or other ownership interests.
ARTICLE 13
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the following
provisions of this Article 13 shall be effective during an emergency, which is
defined as when a quorum of the Corporation's Directors cannot be readily
assembled because of some catastrophic event. During such emergency:
13.1 Notice to Board Members. Any one member of the Board or any one of
the following officers: Chairman, President, any Vice President, Secretary, or
Treasurer, may call a meeting of the Board. Notice of such meeting need be given
only to those Directors whom it is practicable to reach, and may be given in any
practical manner, including by publication and radio. Such notice shall be given
at least six hours prior to commencement of the meeting.
13.2 Temporary Directors and Quorum. One or more officers of the
Corporation present at the emergency Board meeting, as is necessary to achieve a
quorum, shall be considered to be Directors for the meeting, and shall so serve
in order of rank, and within the same rank, in order of seniority. In the event
that less than a quorum of the Directors are present (including any officers who
are to serve as Directors for the meeting), those Directors present (including
the officers serving as Directors) shall constitute a quorum.
13.3 Actions Permitted To Be Taken. The Board as constituted in Section
13.2, and after notice as set forth in Section 13.1 may:
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13.3.1 prescribe emergency powers to any officer of the Corporation;
13.3.2 delegate to any officer or Director, any of the powers of the
Board;
13.3.3 designate lines of succession of officers and agents, in the
event that any of them are unable to discharge their duties;
13.3.4 relocate the principal place of business, or designate
successive or simultaneous principal places of business; and
13.3.5 take any other convenient, helpful or necessary action to
carry on the business of the Corporation.
ARTICLE 14
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may be adopted by
a vote of the holders of shares entitled to vote in the election of Directors or
by the Board. Any By-laws adopted or amended by the Board may be amended or
repealed by the Stockholders entitled to vote thereon.
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EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
TOCS ACQUISITION CORPORATION
ARTICLE I
NAME OF CORPORATION
The name of this corporation is:
TOCS Acquisition Corporation
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
and the name of its registered agent at that address is Corporation Service
Company.
ARTICLE III
PURPOSE
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The corporation shall be authorized to issue one class of stock to be
designated Common Stock; the total number of shares which the corporation shall
have authority to issue is one thousand (1,000), and each such share shall have
a par value of one cent ($0.01).
<PAGE> 2
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator of the corporation is:
Leslie A. Mussett
c/o Gibson, Dunn & Crutcher LLP
2029 Century Park East, 40th Floor
Los Angeles, California 90067
ARTICLE VI
BOARD POWER REGARDING BYLAWS
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind the bylaws of the corporation.
ARTICLE VII
ELECTION OF DIRECTORS
Elections of directors need not be by written ballot unless the bylaws
of the corporation shall so provide.
ARTICLE VIII
LIMITATION OF DIRECTOR LIABILITY
To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or may hereafter be amended, a director of the corporation
shall not be liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. If the Delaware General Corporation
Law is amended after the date of the filing of this Certificate of Incorporation
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended from time to time. No repeal or
modification of this Article VII by the stockholders shall adversely affect any
right or protection of a director of the corporation existing by virtue of this
Article VIII at the time of such repeal or modification.
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ARTICLE XI
CORPORATE POWER
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
ARTICLE X
CREDITOR COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of to any compromise or
arrangement and to any reorganization of this corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders, of this corporation, as the case may be, and also on this
corporation.
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EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATOR
TOCS ACQUISITION CORPORATION
(a Delaware corporation)
Thomas F. Treinen hereby certifies as follows:
FIRST: Thomas F. Treinen is President of TOCS Acquisition Corporation,
a Delaware corporation (the "Corporation").
SECOND: Article I of the Certificate of Incorporation of this
Corporation is hereby amended to read in its entirety as follows:
"The name of this corporation is:
Scot, Incorporated."
THIRD: The foregoing amendment of the Certificate of Incorporation of
this Corporation has been duly approved by the sole stockholder of the
Corporation by written consent in accordance with Sections 228 and 242 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Thomas F. Treinen, its President, as of this 8th day
of September 1994.
----------------------------
Thomas F. Treinen, President
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
SCOT, INCORPORATED
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1.01 Registered Office. The registered office of Scot,
Incorporated (hereinafter called the Corporation) in the State of Delaware shall
be at 9 East Loockerman Street, City of Dover, County of Kent, and the name of
the registered agent in charge thereof shall be National Registered Agents, Inc.
SECTION 1.02 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (hereinafter called the Board) may from time
to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
SECTION 2.02 Special Meetings. A special meeting of the stockholders
for the transaction of any proper business may be called at any time by the
Board or by the President.
SECTION 2.03 Place of Meetings. All meetings of the stockholders shall
be held at such places, within or without the State of Delaware, as may from
time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
SECTION 2.04 Notice of Meetings. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States
<PAGE> 2
mail, in a postage prepaid envelope, directed to him at his post office address
furnished by him to the Secretary of the Corporation for such purpose or, if he
shall not have furnished to the Secretary his address for such purpose, then at
his post office address last known to the Secretary, or by transmitting a notice
thereof to him at such address by telegraph, cable, or wireless. Except as
otherwise expressly required by law, no publication of any notice of a meeting
of the stockholders shall be required. Every notice of a meeting of the
stockholders shall state the place, date and hour of the meeting, and, in the
case of a special meeting, shall also state the purpose or purposes for which
the meeting is called. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall have waived such notice and
such notice shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, except as a stockholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise expressly required by law, notice of any adjourned
meeting of the stockholders need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the election
of directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at, or to act as secretary of, such meeting may adjourn such meeting from time
to time. At any such adjourned meeting at which a quorum is present any business
may be transacted which might have been transacted at the meeting as originally
called.
SECTION 2.06 Voting.
(a) Each stockholder shall, at each meeting of the
stockholders, be entitled to vote in person or by proxy each share or fractional
share of the stock of the Corporation having voting rights on the matter in
question and which shall have been held by him and registered in his name on the
books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of
these Bylaws as the record date for the determination of
stockholders entitled to notice of and to vote at such
meeting, or
(ii) if no such record date shall have been so fixed,
then (a) at the close of business on the day next preceding
the day on which notice of the meeting shall be given or (b)
if notice of the meeting shall be waived, at the close of
business on the day next preceding the day on which the
meeting shall be held.
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(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledgee to vote thereon, in which case
only the pledgee, or his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions of
the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.
SECTION 2.07 List of Stockholders. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 2.08 Judges. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and
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according to the best of his ability. Such judges shall decide upon the
qualification of the voters and shall report the number of shares represented at
the meeting and entitled to vote on such question, shall conduct and accept the
votes, and, when the voting is completed, shall ascertain and report the number
of shares voted respectively for and against the question. Reports of judges
shall be in writing and subscribed and delivered by them to the Secretary of the
Corporation. The judges need not be stockholders of the Corporation, and any
officer of the Corporation may be a judge on any question other than a vote for
or against a proposal in which he shall have a material interest.
SECTION 2.09 Action Without Meeting. Any action required to be taken at
any annual or special meeting of stockholders of the Corporation, or any action
that may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers. The property, business and affairs of the
Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of directors shall
be three (3). Directors need not be stockholders. Each of the directors of the
Corporation shall hold office until his successor shall have been duly elected
and shall qualify or until he shall resign or shall have been removed in the
manner hereinafter provided.
SECTION 3.03 Election of Directors. Subject to the provisions of the
Certificate of Incorporation, the directors shall be elected annually by the
stockholders of the Corporation and the persons receiving the greatest number of
votes, up to the number of directors to be elected, shall be the directors.
SECTION 3.04 Resignations. Any director of the Corporation may resign
at any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate
of Incorporation, any vacancy in the Board, whether because of death,
resignation, disqualification, an increase in the number of directors, or any
other cause, may be filled by vote of the majority of the remaining directors,
although less than a quorum. Each
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director so chosen to fill a vacancy shall hold office until his successor shall
have been elected and shall qualify or until he shall resign or shall have been
removed in the manner hereinafter provided.
SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a regular meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting shall be held at the same hour
and place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
SECTION 3.09 Special Meetings. Special meetings of the Board shall be
held whenever called by the President or a majority of the authorized number of
directors. Except as otherwise provided by law or by these Bylaws, notice of the
time and place of each such special meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at least five (5)
days before the day on which the meeting is to be held, or shall be sent to him
or her at such place by telegraph or cable or be delivered personally not less
than forty-eight (48) hours before the time at which the meeting is to be held.
Except where otherwise required by law or by these Bylaws, notice of the purpose
of a special meeting need not be given. Notice of any meeting of the Board shall
not be required to be given to any director who is present at such meeting,
except a director who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 3.10 Quorum and Manner of Acting. Except as otherwise provided
in these Bylaws or by law, the presence of a majority of the authorized number
of directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need
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not be given. The directors shall act only as a Board, and the individual
directors shall have no power as such.
SECTION 3.11 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 3.12 Removal of Directors. Subject to the provisions of the
Certificate of Incorporation, any director may be removed at any time, either
with or without cause, by the affirmative vote of the stockholders having a
majority of the voting power of the Corporation given at a special meeting of
the stockholders called for the purpose.
SECTION 3.13 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him because of his attendance at any
meetings of the Board or Committees of the Board. Neither the payment of such
compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
SECTION 3.14 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and except as otherwise
limited by law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers that may
require it. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member.
ARTICLE IV
OFFICERS
SECTION 4.01 Number. The officers of the Corporation shall be a
President and a Secretary, and one or more other officers if the Board so elects
(the number thereof, their respective titles, and their responsibilities to be
determined by the Board).
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SECTION 4.02 Election, Term of Office and Qualifications. The officers
of the Corporation, except such officers as may be appointed in accordance with
Section 4.03, shall be elected annually by the Board at the first meeting
thereof held after the election thereof. Each officer shall hold office until
his successor shall have been duly chosen and shall qualify or until his
resignation or removal in the manner hereinafter provided.
SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to the
officers specified in Section 4.01, the Board may appoint other assistants,
agents and employees as it may deem necessary or advisable, each of whom shall
hold office for such period, have such authority, and perform such duties as the
Board may from time to time determine. The Board may delegate to any officer of
the Corporation or any committee of the Board the power to appoint, remove and
prescribe the duties of any such assistants, agents or employees.
SECTION 4.04 Removal. Any officer, assistant, agent or employee of the
Corporation may be removed, with or without cause, at any time: (i) in the case
of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (ii) in the case of an officer, assistant, agent or
employee, by any officer of the Corporation or committee of the Board upon whom
or which such power of removal may be conferred by the Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at any
time by giving written notice of his resignation to the Board or the Secretary
of the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, upon receipt thereof by the Board or
the Secretary, as the case may be; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.06 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 The President. The President shall have, subject to the
control of the Board, general and active supervision and management over the
business of the Corporation and over its several officers, assistants, agents
and employees.
SECTION 4.08 The Secretary. The Secretary shall, if present, record the
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.
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SECTION 4.09 Compensation. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board. None of such officers
shall be prevented from receiving such compensation by reason of the fact that
he is also a director of the Corporation. Nothing contained herein shall
preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason of
the fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving proper compensation therefor.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 Execution of Contracts. The Board, except as in these
Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other orders
for payment of money, notes or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, the President or the Secretary
(or any other officer or officers, assistant or assistants, agent or agents, or
attorney or attorneys of the Corporation who shall from time to time be
determined by the Board) may endorse, assign and deliver checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation.
SECTION 5.04 General and Special Bank Accounts. The Board may from time
to time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may select
or as may be selected by any officer or officers, assistant or assistants, agent
or agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board.
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The Board may make such special rules and regulations with respect to such bank
accounts, not inconsistent with the provisions of these Bylaws, as it may deem
expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President and by the Secretary. Any of or all of the signatures on the
certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 6.04.
SECTION 6.02 Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.03, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry of
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
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SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In
any case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any other change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders or expressing consent to corporate action without a meeting the
Board shall not fix such a record date, the record date for determining
stockholders for such purpose shall be the close of business on the day on which
the Board shall adopt the resolution relating thereto. A determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01 Action, Etc. Other Than by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
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SECTION 7.02 Actions, Etc., by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 7.03 Determination of Right of Indemnification. Any
indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 7.01 and 7.02. Such determination shall be made (i)
by the Board by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
SECTION 7.04 Indemnification Against Expenses of Successful Party.
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 7.05 Prepaid Expenses. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation as authorized in this Article. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board deems appropriate.
SECTION 7.06 Other Rights and Remedies. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which those
seeking
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indemnification may be entitled under any Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.07 Insurance. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article.
SECTION 7.08 Constituent Corporations. For the purposes of this
Article, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article with respect to
the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
SECTION 7.09 Other Enterprises, Fines, and Serving at Corporation's
Request. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Waiver of Notices. Whenever notice is required to be given
by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
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SECTION 8.02 Amendments. These Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made, (i) by the Board, by vote of a
majority of the number of directors then in office as directors, acting at any
meeting of the Board, or (ii) by the stockholders, at any annual meeting of
stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Any Bylaws made or
altered by the stockholders may be altered or repealed by either the Board or
the stockholders.
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EXHIBIT 4.1
INDENTURE dated as of December 15, 1998, among SDI ACQUISITION
CORP., a Delaware corporation ("SDI Acquisition"), as issuer, the GUARANTORS
named herein and UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking
corporation, as trustee (the "Trustee").
The Securities are being sold in connection with the
Recapitalization of Special Devices, Incorporated, a Delaware corporation
("Special Devices"), pursuant to the Recapitalization Agreement. The
Recapitalization Agreement provides for the merger (the "Merger") of SDI
Acquisition with and into Special Devices with Special Devices surviving the
Merger. The time of the consummation of the Recapitalization and the Merger is
referred to herein as the "Effective Time."
Immediately after the Effective Time, (i) Special Devices and Scot,
Inc., a Delaware corporation and a wholly owned subsidiary of Special Devices
("Scot, Inc."), will execute an assumption agreement (the "Assumption
Agreement"), pursuant to which Special Devices, as survivor of the Merger, will
(a) assume all of the obligations of SDI Acquisition under this Indenture, and
cause Scot, Inc. to become a party to this Indenture as a Guarantor and
unconditionally guarantee the Securities on an unsecured, senior subordinated
basis; (b) assume all of the obligations of SDI Acquisition under the Purchase
Agreement, dated as of December 11, 1998, by and among SDI Acquisition and the
Initial Purchasers (the "Purchase Agreement"), and cause Scot, Inc. to become a
party to the Purchase Agreement as a guarantor; and (c) assume all of the
obligations of SDI Acquisition under the Registration Rights Agreement, dated as
of December 15, 1998, by and among SDI Acquisition and the Initial Purchasers
(the "Registration Rights Agreement") and cause Scot, Inc. to become a party to
the Registration Rights Agreement as a guarantor; and (ii) Special Devices,
Scot, Inc. and the Trustee will enter into a first supplemental indenture to
this Indenture (the "First Supplemental Indenture") providing for the express
assumption by Special Devices, as survivor of the Merger, of the covenants,
agreements and undertakings of SDI Acquisition in the Indenture, under the
Securities, and the guarantee of the Securities by Scot, Inc.
As used herein, the "Company" shall mean SDI Acquisition prior to
the Effective Time and Special Devices as of and after the execution and
delivery of the First Supplemental Indenture. References to this Indenture as of
and after the execution and delivery of the First Supplemental Indenture will
refer to this Indenture and the First Supplemental Indenture and references to
each of the Purchase Agreement and the Registration Rights Agreement as of and
after the Effective Time will refer to such agreement together with the
Assumption Agreement.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
<PAGE> 2
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. The
term "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;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Affiliate Transaction" see Section 4.03.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary
of the Company; or (b) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $500,000,
(ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company, or the consolidation or merger
of the Company with any other Person, in each case as permitted under Section
5.01, (iii) any disposition of property of the Company or any of its Restricted
Subsidiaries that, in the reasonable judgment of the Company, has become
uneconomic, damaged, obsolete or worn out, (iv) the sale of inventory in the
ordinary course of business, (v) the sale or discount, in each case without
recourse (other than recourse for a breach of a
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representation or warranty) of accounts receivable arising in the ordinary
course of business, but only in connection with the compromise or collection
thereof, (vi) sales of Cash Equivalents, (vii) surrender or waiver of contract
rights or the settlement, release or surrender of contract, tort or other claims
of any kind, (viii) granting of Liens not prohibited by this Indenture, (ix) to
the extent such would constitute an Asset Sale, transfers of leasehold
improvements, fixtures, consumables or other equipment made in connection with
the relocation to the Moorpark Facility, (x) the licensing of intellectual
property, including, without limitation, licensing in connection with any
European joint venture, (xi) the sale, lease, conveyance, disposition or other
transfer of Permitted Investments or the Capital Stock of or any Investment in
any Unrestricted Subsidiary, (xii) leases or subleases to third persons not
interfering in any material respect with the business of the Company or any of
its Restricted Subsidiaries and (xiii) the making of any Permitted Investments
or other Restricted Payments permitted by the covenant described under Section
4.06.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means a day that is not a Saturday, a Sunday or a day
on which banking institutions in New York, New York are not required to be open.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership,
membership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or
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Moody's; (iii) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having one of the two highest
ratings obtainable from S&P or Moody's; (iv) certificates of deposit or bankers'
acceptances maturing within one year from the date of acquisition thereof issued
by any bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
or any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds with assets of $5,000,000 or greater.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company and its Restricted Subsidiaries, taken as a whole, to
any Person or group of related Persons for purposes of Section 13(d) of the
Exchange Act (a "Group"), together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of this Indenture) other than to a
Subsidiary of the Company, the Principals and their Related Parties; (ii) the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of this Indenture); (iii) any Person or Group
(other than the Principals and their Related Parties) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing more
than 50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company; or (iv) the replacement of a majority
of the Board of Directors of the Company over a two-year period from the
directors who constituted the Board of Directors of the Company at the beginning
of such period, and such replacement shall not have been approved by a vote of
at least a majority of the Board of Directors of the Company then still in
office who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors was
previously so approved.
"Change of Control Payment Date" see Section 4.14(c).
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" has the meaning ascribed to such term in the introductory
paragraphs to this Indenture, until a successor to Special Devices shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Company" shall mean such successor.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to
the extent Consolidated Net Income has been reduced thereby, (A) all income
taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary or nonrecurring gains or losses or taxes attributable to Asset
Sales and other sales or dispositions outside the ordinary course of business to
the extent that gains or losses from such transactions have been excluded from
the computation of Consolidated Net
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Income), (B) Consolidated Interest Expense and (C) Consolidated Non-cash Charges
less any non-cash items increasing Consolidated Net Income for such period, all
as determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to
any Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") for which financial statements
are available to Consolidated Fixed Charges of such Person for the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or other dispositions or Asset
Acquisitions (including, without limitation, any Asset Acquisition giving rise
to the need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Exchange Act)
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale or other disposition during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
other disposition or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. If since the beginning of
such period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Acquisition or Asset Sale or other
disposition that would have required adjustment pursuant to this definition,
then the Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto as if such Asset Acquisition or Asset Sale or other
disposition had occurred at the beginning of the applicable Four Quarter Period.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the average rate of interest on such Indebtedness in effect on the 30
Business Days preceding the Transaction Date; (2) if interest on any
Indebtedness actually
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incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; and (3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to any Person for
any period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person and, in the case of the Company, any series of
Preferred Stock of the Guarantors (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state and
local income tax rate of such Person, expressed as a decimal; provided that
Consolidated Fixed Charges shall not include (x) gain or loss from the
extinguishment of debt, including, without limitation, write-off of debt
issuance costs, commissions, fees and expenses, (y) amortization of debt
issuance costs, commissions, fees and expenses or (z) customary commitment,
administrative and transaction fees or charges.
"Consolidated Interest Expense" means, with respect to any Person
for any period, the sum of, without duplication: (i) the aggregate of the
interest expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
deferred financing costs, (b) the net costs under Interest Swap Obligations, (c)
all capitalized interest and (d) the interest portion of any deferred payment
obligation; and (ii) the interest component of Capitalized Lease Obligations
accrued by such Person and its Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or other sales of assets outside the ordinary course
of business of the Company or abandonments or reserves relating thereto (other
than after-tax gains from sales of Unrestricted Subsidiaries and other
Investments made in compliance with Section 4.06, but only to the extent not
already included in clause (z) of the first paragraph of Section 4.06, (b)
after-tax items classified as extraordinary or nonrecurring gains or losses, (c)
solely for purposes of calculating Consolidated Net Income for the covenant
described in Section 4.06, the net income of any Person acquired in a "pooling
of interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary of the referent Person or is merged or consolidated with the referent
Person or any Restricted Subsidiary of the referent Person, (d) the net income
(but not loss) of any Restricted Subsidiary of the referent Person to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is restricted by a contract, operation of law or
otherwise, except to the extent that such net income is actually paid to the
Company or one of its Restricted Subsidiaries by loans, advances, intercompany
transfers, principal payments or otherwise; provided, however, that for purposes
of determining compliance with the covenant described in Section 4.04, any net
income of such
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Restricted Subsidiary, which net income is subject to any restriction permitted
under clause (8) of Section 4.16, shall be included, (e) the net income of any
Person, other than a Restricted Subsidiary of the referent Person, except to the
extent of cash dividends or distributions paid to the referent Person or to a
Restricted Subsidiary of the referent Person by such Person, (f) any restoration
to income of any contingency reserve, except to the extent that provision for
such reserve was made out of Consolidated Net Income accrued at any time
following the Issue Date, (g) income or loss attributable to discontinued
operations (including, without limitation, operations disposed of during such
period whether or not such operations were classified as discontinued), (h) in
the case of a successor to the referent Person by consolidation or merger or as
a transferee of the referent Person's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets, and (i)
the fees, expenses and other costs incurred in connection with the
Recapitalization, including payments to management contemplated by the
Recapitalization Agreement.
"Consolidated Non-cash Charges" means, with respect to any Person,
for any period, (a) the sum of (i) the aggregate depreciation, amortization and
other non-cash expenses or charges of such Person and its Restricted
Subsidiaries reducing Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period (including amortization of goodwill, the non-cash
costs of agreements evidencing Interest Swap Obligations, Currency Agreements,
license agreements, noncompetition agreements, non-cash amortization of
Capitalized Lease Obligations or management fees and organization costs), (ii)
expenses and charges relating to any equity offering or incurrence of
Indebtedness permitted to be incurred by this Indenture (including any such
expenses or charges relating to the Recapitalization), (iii) the amount of any
restructuring charge or reserve, (iv) unrealized gains and losses from hedging,
foreign currency or commodities translations and transactions, and (v) the
amount of any reduction representing a minority interest in Guarantors, minus
(b) any cash payment with respect to which a charge or reserve referred to in
clause (a) was taken in a prior period, in each case, determined on a
consolidated basis in accordance with GAAP.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 13.02 or such other address as the Trustee may
give notice to the Company.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Defeasance Trust Payment" see Section 8.02.
"Depositary" means, with respect to the Securities issued in the
form of one or more Global Securities, DTC or another Person designated as
Depositary by the Company, which must be a clearing agency registered under the
Exchange Act.
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"Designated Senior Indebtedness" means (i) Indebtedness under or in
respect of the New Credit Facility and (ii) any other Indebtedness constituting
Senior Indebtedness which, at the time of determination, has an aggregate
principal amount of at least $25,000,000 and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the sole option
of the holder thereof on or prior to the final maturity date of the Securities;
provided that any Capital Stock that would not constitute Disqualified Capital
Stock but for provisions therein giving holders thereof the right to cause the
issuer thereof to repurchase or redeem such Capital Stock upon the occurrence of
an "Asset Sale" or "Change of Control" occurring prior to the final stated
maturity of the Securities will not constitute Disqualified Capital Stock if the
"Asset Sale" or "Change of Control" provisions applicable to such Capital Stock,
taken as a whole, are not materially more favorable to the holders of such
Capital Stock than the provisions described in Sections 4.05 and 4.14.
"DTC" means The Depository Trust Company.
"Effective Time" has the meaning ascribed to such term in the
introductory paragraphs to this Indenture.
"Event of Default" see Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"Exchange Offer" has the meaning provided in the Registration
Rights Agreement.
"Exchange Securities" means the 11 3/8% Senior Subordinated Notes
due 2008, Series B, to be issued in exchange for the Initial Securities pursuant
to the Registration Rights Agreement.
"fair market value" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting in
good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"Final Maturity Date" means December 15, 2008.
"First Supplemental Indenture" has the meaning ascribed to such term
in the introductory paragraphs to this Indenture.
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"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"Global Securities" means one or more IAI Global Securities, Reg.
S Global Securities and 144A Global Securities.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness or other obligations.
"Guarantee" means the guarantee of the Obligations of the Company
with respect to the Securities by each Guarantor pursuant to the terms of this
Indenture, a form of which is attached hereto as part of Exhibits A and B. When
used as a verb, "Guarantee" shall have a corresponding meaning.
"Guarantor" means each of (i) Scot, Inc. as of the Effective Time
and (ii) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees to
be bound by the terms of this Indenture as a Guarantor; provided that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the terms
of this Indenture.
"Guarantor Senior Indebtedness" means with respect to any Guarantor,
the principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Indebtedness" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all
obligations (including guarantees thereof) of every nature of such Guarantor
under the New Credit Facility, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations (including guarantees thereof) under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior
Indebtedness" shall not include (i) any Indebtedness of such Guarantor to a
Restricted Subsidiary of such Guarantor or any Affiliate of such Guarantor or
any of such Affiliate's
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Subsidiaries (other than an Affiliate which is also a lender or an Affiliate of
a lender under the New Credit Facility), (ii) Indebtedness to, or guaranteed on
behalf of, any shareholder (other than a shareholder which is also a lender or
an Affiliate of a lender under the New Credit Facility), director, officer or
employee of such Guarantor or any Restricted Subsidiary of such Guarantor
(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by such Guarantor, (vi) that portion of any Indebtedness
incurred in violation of the provisions set forth in Section 4.04 (but, as to
any such obligation, no such violation shall be deemed to exist for purposes of
this clause (vi) if the holder(s) of such obligation or their representative and
the Trustee shall have received an Officers' Certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of Section 4.04), (vii) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of Title
11, United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of such Guarantor.
"Holder" means the registered holder of any Security.
"IAI Global Security" means a permanent global security in
registered form representing the aggregate principal amount of Securities sold
to Institutional Accredited Investors.
"incur" see Section 4.04.
"Indebtedness" means with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money, (ii) all
indebtedness of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capitalized Lease Obligations of such Person,
(iv) all obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all obligations under
any title retention agreement, (v) all obligations for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the obligation
so secured, (viii) all obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Senior
Subordinated Indenture, and if such price is based upon, or
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measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined in good faith by the Board of Directors of the
issuer of such Disqualified Capital Stock. Notwithstanding the foregoing, the
term "Indebtedness" shall not include: (a) trade accounts payable and other
accrued liabilities arising in the ordinary course of business, (b) Obligations
of such Person other than principal, (c) any liability for federal, state or
local taxes or other taxes or by such Person and (d) Obligations of such Person
with respect to performance and surety bonds and completion guarantees in the
ordinary course of business, and the accretion of original issue discount will
not be considered the incurrence of Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Independent Financial Advisor" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Initial Securities" means the 11 3/8% Senior Subordinated Notes due
2008, Series A, of the Company.
"Initial Purchasers" means BT Alex. Brown Incorporated and
Paribas Corporation.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest" means, with respect to any Securities, the sum of any
cash interest and any Liquidated Damages on such Securities.
"Interest Payment Date" means each semiannual interest payment date
on June 15 and December 15 of each year, commencing June 15, 1999.
"Interest Record Date" for the interest payable on any Interest
Payment Date (except a date for payment of defaulted interest) means the June 1
or December 1 (whether or not a Business Day), as the case may be, immediately
preceding such Interest Payment Date.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any
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other Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of
the Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means December 15, 1998, the date of first issuance of
the Securities.
"JFL Equity" means J.F. Lehman Equity Investors I, L.P.
"Lehman" means J.F. Lehman & Company, Inc.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Liquidated Damages" has the meaning provided in the Registration
Rights Agreement.
"Merger" has the meaning ascribed to such term in the
introductory paragraphs to this Indenture.
"Moody's" means Moody's Investors Service, Inc.
"Moorpark Facility" means the Company's new production facility
located in Moorpark, California.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest or dividends) received by the Company or any of its Restricted
Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses
and fees relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions), (b) taxes paid or
payable relating to such Asset Sale, (c) repayment of Indebtedness that is
secured by such assets or required to be repaid in connection with such Asset
Sale, (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale and (e) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a
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beneficial interest in the assets that are subject to the Asset Sale (by way of
holding Capital Stock of the Person owning such assets or otherwise).
"Net Proceeds Offer" see Section 4.05(a).
"Net Proceeds Offer Amount" see Section 4.05(a).
"Net Proceeds Offer Payment Date" see Section 4.05(a).
"Net Proceeds Offer Trigger Date" see Section 4.05(a).
"New Credit Facility" means the Credit Agreement dated as of the
Issue Date, among the Company, the lenders party thereto in their capacities as
lenders thereunder and Bankers Trust Company, as lead arranger, administrative
agent and a lender, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
"Newhall Facility" means the Company's existing facility located in
Newhall, California, from which operations are expected to be relocated to the
Moorpark Facility.
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering" means the offer and sale of the $100,000,000 aggregate
principal amount of Initial Securities to the Initial Purchasers.
"Officer" of any Person means the Chairman of the Board, the
President, any Executive Vice President, Senior Vice President or Vice President
(whether or not such title is preceded or followed by one or more words or
phrases), the Treasurer or any Assistant Treasurer or the Secretary or any
Assistant Secretary of such Person.
"Officers' Certificate" of any Person means a certificate signed on
behalf of such Person or the general partner, in the case of a limited
partnership, or member, in the case of a limited liability company, of such
Person by the Chairman of the Board, the President, any Executive Vice
President, Senior Vice President or Vice President (whether or not such title is
preceded or followed by one or more words or phrases) and by the Treasurer or
any Assistant Treasurer or the Secretary or any Assistant Secretary of such
Person, that meets the requirements set forth in Sections 13.04 and 13.05 of
this Indenture.
"144A Global Security" means a permanent global security in
registered form representing the aggregate principal amount of Securities sold
in reliance on Rule 144A.
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"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee and the Company. The counsel may be an
employee of or counsel to the Company or the Trustee.
"Other Asset Sale Indebtedness" has the meaning set forth in
Section 4.05(a).
"Participant" has the meaning set forth in Section 2.15.
"Paying Agent" has the meaning provided in Section 2.03.
"Payment Blockage Notice" see Section 8.02.
"Payment Blockage Period" see Section 8.02.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Securities in an aggregate principal
amount of $100,000,000 and the related Guarantees;
(ii) Indebtedness incurred pursuant to the New Credit Facility in an
aggregate principal amount at any time outstanding not to exceed (a) $70,000,000
with respect to Indebtedness under a term loan facility, less the amount of all
mandatory principal payments actually made by the Company in respect of such
term loans with the Net Cash Proceeds of an Asset Sale pursuant to Section 4.05
and (b) the greater of (x) $25,000,000 (reduced by the amount of any required
permanent repayments or commitment reductions made with the Net Cash Proceeds of
an Asset Sale pursuant to Section 4.05) and (y) 60% of inventory plus 85% of
accounts receivable (each as determined in accordance with GAAP, but excluding
accounts receivable that are past due by more than 60 days, other than by reason
of any laws governing insolvency or bankruptcy) as of the end of the last fiscal
quarter for which financial statements have been prepared;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid or
permanent reductions thereof;
(iv) Interest Swap Obligations of the Company or any of its
Restricted Subsidiaries covering Indebtedness of the Company or any of its
Restricted Subsidiaries; provided, however, that such Interest Swap Obligations
are entered into to protect the Company and its Restricted Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance with this
Indenture to the extent the notional principal amount of such Interest Swap
Obligation does not exceed the principal amount of the Indebtedness to which
such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
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(vi) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Wholly Owned Restricted Subsidiary of the Company for so long as
such Indebtedness is held by the Company, a Wholly Owned Restricted Subsidiary
of the Company or the lenders or collateral agent under any senior secured
Indebtedness permitted to be incurred under this Indenture, in each case subject
to no Lien held by a Person other than the Company or such other lenders or
collateral agent, a Wholly Owned Restricted Subsidiary of the Company or such
other lenders or collateral agent; provided that if as of any date any Person
other than the Company, a Wholly Owned Restricted Subsidiary of the Company or
the lenders or collateral agent under the New Credit Facility owns or holds any
such Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness pursuant to this clause (vi);
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a Wholly
Owned Restricted Subsidiary of the Company or the lenders or collateral agent
under any senior secured Indebtedness permitted to be incurred under this
Indenture, in each case subject to no Lien held by such Person other than a
Wholly Owned Restricted Subsidiary or such other lenders or collateral agent;
provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted
Subsidiary of the Company which is not a Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under this Indenture and the Securities and (b) if as of any date any Person
other than a Wholly Owned Restricted Subsidiary of the Company or such other
lenders or collateral agent owns or holds any such Indebtedness or any Person
holds a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
Company pursuant to this clause (vii);
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient funds in
the ordinary course of business; provided, however, that such Indebtedness is
extinguished within five Business Days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the Company or
such Restricted Subsidiary, as the case may be, issued in the ordinary course of
business of the Company or such Restricted Subsidiary, including, without
limitation, in order to provide security for workers' compensation claims or
payment obligations in connection with self-insurance or similar requirements in
the ordinary course of business and other Indebtedness with respect to workers'
compensation claims, self- insurance obligations, performance, surety and
similar bonds and completion guarantees provided by the Company or any
Restricted Subsidiary in the ordinary course of business;
(x) Indebtedness (A) represented by Capitalized Lease Obligations
and (B) Purchase Money Indebtedness of the Company and its Restricted
Subsidiaries or under purchase money mortgages or secured by purchase money
security interests, in the case of (A) or (B) incurred for the purpose of
leasing or financing or refinancing all or any part of the purchase price or
cost of construction or improvement of any property (real or personal) or other
assets that are used or useful in the business of the Company or such Restricted
Subsidiary (whether through the direct purchase of assets or the Capital Stock
of any Person owning such assets and whether such Indebtedness is owed to the
seller or Person carrying out such construction or improvement or to any third
party), so long as (x) such Indebtedness is not secured by any
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property or assets of the Company or any Restricted Subsidiary other than the
property or assets so leased, acquired (directly or indirectly), constructed or
improved and (y) such Indebtedness is created within 90 days of the acquisition
or completion of construction or improvement of the related property or asset
provided that the aggregate principal amount of Indebtedness under clauses (A)
and (B) does not exceed $10,000,000 and any Refinancing of Indebtedness
permitted under clause (A) or (B) the aggregate of which does not exceed
$10,000,000;
(xi) Refinancing Indebtedness;
(xii) guarantees of Indebtedness otherwise permitted under this
Indenture;
(xiii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10,000,000 at any
one time outstanding (which amount may, but need not, be incurred in whole or in
part under the New Credit Facility);
(xiv) Indebtedness arising from any agreement entered into by the
Company or any of its Restricted Subsidiaries providing for indemnification,
purchase price adjustment or similar obligations, in each case incurred or
assumed in connection with any Asset Sale;
(xv) Indebtedness arising from a Sale and Leaseback Transaction or
from the creation of a mortgage, in either case with respect to the Moorpark
Facility in an amount not to exceed $25,000,000; provided that the Net Cash
Proceeds from such Sale and Leaseback Transaction or from the creation of such
mortgage are applied in accordance with Section 4.05(a)(iii)(A) as if such
transaction were an Asset Sale thereunder; provided, further, however that any
Net Cash Proceeds remaining after the foregoing proviso is complied with shall
be applied in accordance with the other provisions described in Section 4.05 as
if such transaction were an Asset Sale thereunder; and
(xvi) Indebtedness arising from a Sale and Leaseback Transaction or
from the creation of a mortgage, in either case with respect to the Company's
facility in Mesa, Arizona in an amount not to exceed $15,000,000; provided that
the Net Cash Proceeds from such Sale and Leaseback Transaction or from the
creation of such mortgage are applied in accordance with Section 4.05(a)(iii)(A)
as if such transaction were an Asset Sale thereunder; provided, further, however
that any Net Cash Proceeds remaining after the foregoing proviso is complied
with shall be applied in accordance with the other provisions described in
Section 4.05 as if such transaction were an Asset Sale thereunder.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Restricted Subsidiary of the Company or that
will merge or consolidate into the Company or a Restricted Subsidiary of the
Company, (ii) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment to the extent
held by a Restricted Subsidiary that is not a Guarantor is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Securities and this Indenture; (iii) investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of the Company
and its Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $1,000,000 at any one time outstanding; (v)
Currency Agreements and Interest Swap Obligations entered into in the ordinary
course of the Company's or its Restricted Subsidiaries' businesses and otherwise
in compliance with this Indenture; (vi) Investments in securities of trade
creditors or customers received
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pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in good faith
settlement of delinquent obligations of such trade creditors or customers; (vii)
Investments made pursuant to the Recapitalization; (viii) guarantees of
Indebtedness otherwise permitted under this Indenture; (ix) obligations of one
or more officers or other employees of the Company or any of its Restricted
Subsidiaries in connection with such officer's or employee's acquisition of
shares of Common Stock of the Company so long as no cash is paid by the Company
or any of its Restricted Subsidiaries to such officers or employees in
connection with the acquisition of any such obligations; (x) Investments made by
the Company or its Restricted Subsidiaries as a result of consideration received
in connection with an Asset Sale made in compliance with Section 4.05; (xi)
additional Investments not to exceed an amount equal to (a) $10,000,000 plus (b)
to the extent not previously reinvested under this clause (xi), any return of
capital realized on a Permitted Investment made pursuant to this clause (xi);
provided that in no event shall the aggregate amount of Investments pursuant to
clauses (a) and (b) of this clause (xi) exceed $10,000,000 in the aggregate at
any one time outstanding; (xii) any acquisition of assets solely in exchange for
the issuance of Qualified Capital Stock of the Company; (xiii) commission,
travel, payroll, entertainment, relocation and similar advances to officers and
employees of the Company or any Restricted Subsidiary made in the ordinary
course of business; and (xiv) Investments in one or more joint ventures relating
to the Company's expansion into the European market not to exceed an amount
equal to (a) $4,000,000 plus (b) to the extent not previously reinvested under
this clause (xiv) any return of capital realized on a Permitted Investment made
pursuant to this clause (xiv); provided that in no event shall the aggregate
amount of Investments pursuant to clauses (a) and (b) of this clause (xiv)
exceed $4,000,000 in the aggregate at any one time outstanding.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of credit
issued in the ordinary course of business in connection therewith, or to secure
the performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries;
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(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company; provided, however, that (A)
the related purchase money Indebtedness shall not exceed the cost of the
acquisition, construction or improvement of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired whether
through the direct acquisition of such property or assets or indirectly through
the acquisition of the Capital Stock of any Person owning such property or
assets constructed or improved and (B) the Lien securing such Indebtedness shall
be created within 90 days of such acquisition or completion of construction or
improvement;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(xii) Liens securing Capitalized Lease Obligations and Purchase
Money Indebtedness permitted pursuant to Section 4.04; provided, however, that
in the case of Purchase Money Indebtedness (A) the Indebtedness shall not exceed
the cost of such property or assets and shall not be secured by any property or
assets of the Company or any Restricted Subsidiary of the Company other than the
property and assets so acquired or constructed and (B) the Lien securing such
Indebtedness shall be created within 180 days of such acquisition or
construction or, in the case of a Refinancing of any Purchase Money
Indebtedness, within 180 days of such Refinancing;
(xiii) Liens securing Indebtedness under Currency Agreements;
(xiv) any lease or sublease to a third party;
(xv) Liens placed upon assets of a Restricted Subsidiary of the
Company not organized under the laws of the United States or any subdivision
thereof to service the Indebtedness of such Restricted Subsidiary that is
otherwise permitted under this Indenture;
(xvi) Liens securing Acquired Indebtedness incurred in accordance
with Section 4.04; provided that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and were
not granted in anticipation of the incurrence of such Acquired Indebtedness by
the Company or a Restricted Subsidiary of the Company and (B) such Liens do
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not extend to or cover any property or assets of the Company or of any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary of the Company;
(xvii) Liens on property existing at the time of acquisition thereof
by the Company or any Restricted Subsidiary of the Company; provided that such
Liens were not incurred in connection with, or in contemplation of, such
acquisition;
(xviii) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $5,000,000 at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of advances
of credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company or
such Restricted Subsidiary;
(xix) Liens on materials, inventory or consumables and the proceeds
therefrom securing trade payables relating to such materials, inventory or
consumables;
(xx) Liens in favor of customs and revenues authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xxi) Liens in connection with workmen's compensation obligations
and general liability exposure of the Company and its Restricted Subsidiaries;
(xxii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or assets
which are not leased pursuant to such Capitalized Lease Obligation;
(xxiii) Liens for judgments, attachments, seizures or levies not to
exceed $500,000 in the aggregate at any one time;
(xxiv) Liens on property or assets of the Company or any of its
Restricted Subsidiaries securing Indebtedness incurred under clause (xiii) of
the definition of "Permitted Indebtedness" and any guarantees relating thereto;
and
(xxv) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (i) through (xxiv) provided that the
Lien so extended, renewed or replaced does not extend to any additional property
or assets.
"Person" means an individual, partnership, corporation,
unincorporated organization, limited liability company, trust or joint venture,
or a governmental agency or political subdivision thereof.
"Physical Securities" means one or more certificated Securities in
registered form.
"Preferred Stock" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"principal" of a debt security means the principal of the security,
plus, when appropriate, the premium, if any, on the security.
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"Principals" means (i) Lehman, JFL Equity and each Affiliate of
Lehman and JFL Equity as of the Issue Date; (ii) each officer or employee of
Lehman or any such member referred to in clause (i) as of the Issue Date; and
(iii) each of the foregoing's family members, legal representatives or
guardians, heirs and legatees and trusts, partnerships and corporations the sole
beneficiaries, partners or shareholders, as the case may be, of which are family
members.
"Private Exchange Securities" means the Private Exchange Securities
as defined in the Registration Rights Agreement and any similar securities
issued in compliance with Section 2.02 in accordance with any other registration
rights agreement.
"Private Placement Legend" means the legend initially set forth on
the Initial Securities in the form set forth on Exhibit A hereto.
"Proceeds Purchase Date" see Section 4.05(b).
"Purchase Agreement" has the meaning ascribed to such term in the
introductory paragraphs to this Indenture.
"Purchase Money Indebtedness" means Indebtedness of the Company and
its Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"Qualified Proceeds" means any of the following or any combination
of the following: (i) cash, (ii) Cash Equivalents, (iii) assets that are used or
usable in the business of the Company and its Subsidiaries as existing on the
Issue Date or a business reasonably related or complementary thereto and (iv)
Capital Stock of any Person engaged primarily in the business of the Company and
its Subsidiaries as existing on the Issue Date or a business reasonably related
or complementary thereto if, in connection with the receipt by the Company or
any Restricted Subsidiary of the Company of such Capital Stock (A) such Person
becomes a Restricted Subsidiary or (B) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or any Restricted Subsidiary of
the Company.
"Recapitalization" means the recapitalization of Special Devices
pursuant to which SDI Acquisition will be merged with and into Special Devices.
"Recapitalization Agreement" means the Amended and Restated
Agreement and Plan of Merger dated as of June 19, 1998 by and between Special
Devices and SDI Acquisition (as amended through the date hereof and together
with all ancillary agreements entered into in connection therewith).
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"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
"Reference Date" see Section 4.06.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness (whose proceeds are applied within 60 days
after the incurrence thereof) in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or
any Restricted Subsidiary of the Company of Indebtedness incurred in accordance
with Section 4.04 (other than pursuant to clause (ii), (iv), (v), (vi), (vii),
(viii), (ix), (x), (xii), (xiii), (xiv), (xv) or (xvi) of the definition of
Permitted Indebtedness), in each case that does not (1) result in an increase in
the aggregate principal amount (or accreted value, if applicable) of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any penalties, interest or premium required to be paid under the
terms of the instrument governing such Indebtedness and plus the amount of
reasonable fees, discounts, commissions and other expenses incurred by the
Company in connection with such Refinancing) or (2) create Indebtedness with (A)
a Weighted Average Life to Maturity that is less than the Weighted Average Life
to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being Refinanced is solely Indebtedness of the Company,
then such Refinancing Indebtedness shall be Indebtedness solely of the Company
and (y) if such Indebtedness being Refinanced is subordinate or junior to the
Securities, then such Refinancing Indebtedness shall be subordinate or junior to
the Securities at least to substantially the same extent and in substantially
the same manner as the Indebtedness being Refinanced.
"Reg. S Global Security" means a global security in registered form
representing the aggregate principal amount of Securities sold pursuant to
Regulation S under the Securities Act.
"Registrar" see Section 2.03.
"Registration" means a registered exchange offer for the Securities
by the Company or other registration of the Securities under the Securities Act
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
"Registration Date" see Section 4.12.
"Registration Rights Agreement" has the meaning ascribed to such
term in the introductory paragraphs to this Indenture.
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"Related Party" with respect to any Principal means (A) any
controlling stockholder or 80% (or more) owned Subsidiary of such Principal or
(B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
"Replacement Assets" see Section 4.05(a).
"Representative" means the indenture trustee or other trustee, agent
or representative in respect of any Designated Senior Indebtedness; provided
that if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Indebtedness in respect of any Designated
Senior Indebtedness.
"Restricted Payment" see Section 4.06.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether or not any Security constitutes a Restricted Security.
"Restricted Subsidiary" of any Person means any Subsidiary of such
Person which at the time of determination is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Corporation.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"Scot, Inc." has the meaning ascribed to such term in the
introductory paragraphs to this Indenture.
"SDI Acquisition" has the meaning ascribed to such term in the
introductory paragraphs to this Indenture.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities" means, collectively, the Initial Securities, the
Private Exchange Securities and the Unrestricted Securities treated as a single
class of securities, as amended or supplemented from time to time in accordance
with the terms of this Indenture.
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"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute or statutes thereto.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities. Without limiting the
generality of the foregoing, "Senior Indebtedness" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, (x) all obligations (including guarantees thereof) of every nature of the
Company under the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, (y) all Interest Swap
Obligations (including guarantees thereof) and (z) all obligations (including
guarantees thereof) under Currency Agreements, in each case whether outstanding
on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) any Indebtedness of the Company to a
Subsidiary of the Company or any Affiliate of the Company or any of such
Affiliate's Subsidiaries (other than an Affiliate which is also a lender or an
Affiliate of a lender under the New Credit Facility), (ii) Indebtedness to, or
guaranteed on behalf of, any shareholder (other than a shareholder which is also
a lender or an Affiliate of a lender under the New Credit Facility), director,
officer or employee of the Company or any Subsidiary of the Company (including,
without limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by the Company, (vi) that portion of any Indebtedness incurred in violation of
Section 4.04 (but, as to any such obligation, no such violation shall be deemed
to exist for purposes of this clause (vi) if the holder(s) of such obligation or
their representative and the Trustee shall have received an Officers'
Certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit indebtedness, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of
Section 4.04), (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company.
"Shelf Registration Statement" has the meaning provided in the
Registration Rights Agreement.
"Significant Subsidiary", with respect to any Person, means any
Restricted Subsidiary of such Person that satisfies the criteria for a
"Significant Subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Exchange Act.
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"Special Devices" has the meaning ascribed to such term in the
introductory paragraphs to this Indenture.
"Subsidiary" with respect to any Person, means (i) any corporation
of which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" see Section 5.01.
"TIA" means the Trust Indenture Act of 1939, as amended, as in
effect on the date of this Indenture (except as provided in Section 10.03) until
such time as this Indenture is qualified under the TIA, and thereafter as in
effect on the date on which this Indenture is qualified under the TIA.
"Trustee" means the party named as such in the first paragraph of
this Indenture until a successor replaces it in accordance with the provisions
of this Indenture and thereafter means such successor.
"Trust Officer" means any officer within Corporate Trust
Administration (or any successor group of the Trustee), and also means, with
respect to a particular corporate trust matter, any other officer to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject, or in the case of a successor trustee, an officer assigned
to the department, division or group performing the corporation trust work of
such successor and assigned to administer this Indenture.
"United States Government Obligations" means direct non-callable
obligations of the United States for the payment of which the full faith and
credit of the United States is pledged.
"United States Legal Tender" means such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"Unrestricted Securities" means one or more Securities that do not
and are not required to bear the Private Placement Legend in the form set forth
in Exhibit A hereto, including, without limitation, the Exchange Securities and
any Securities registered under the Securities Act pursuant to and in accordance
with the Registration Rights Agreement.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of
such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided that (x) the
Company certifies to the Trustee that such designation
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complies with Section 4.06 and (y) each Subsidiary to be so designated and each
of its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.04
and (y) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons pursuant to applicable law) are owned by such Person or
any Wholly Owned Restricted Subsidiary of such Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and the Guarantees.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, a
Guarantor or any other obligor on the Securities.
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All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with generally accepted accounting principles in effect from
time to time, and any other reference in this Indenture to "generally accepted
accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Initial Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit A hereto,
which is hereby incorporated in and expressly made a part of this Indenture. The
Exchange Securities and the Trustee's certificate of authentication thereof
shall be substantially in the form of Exhibit B hereto, which is hereby
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule or
usage. The Company shall approve the forms of the Securities and any notation,
legend or endorsement on them. Each Security shall be dated the date of its
issuance and shall show the date of its authentication. Global Securities shall
bear the legend set forth in Exhibit C hereto. The aggregate principal amount of
the Global Securities may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depositary,
as hereinafter provided.
SECTION 2.02. Execution and Authentication.
Two Officers, including no more than one signing solely as Assistant
Secretary, shall sign, or one Officer (other than as an Assistant Secretary)
shall sign and the Secretary or an Assistant Secretary (each of whom shall, in
each case, have been duly authorized by all requisite
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corporate actions) shall attest to such Officer's signature, the Securities of
the Company by manual or facsimile signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Securities issued by SDI
Acquisition for original issue in an aggregate principal amount not to exceed
$150,000,000 in one or more series; provided that the aggregate principal amount
of Initial Securities on the Issue Date shall not exceed $100,000,000; and
provided further that the Company complies with Section 4.04, (ii) upon
cancellation of the Initial Securities issued by SDI Acquisition, Initial
Securities issued by Special Devices for original issue in an aggregate amount
not to exceed $150,000,000 in one or more series; provided that the aggregate
principal amount of Initial Securities on the Issue Date shall not exceed
$100,000,000, and provided further that the Company complies with Section 4.04,
(iii) Private Exchange Securities from time to time only in exchange for a like
principal amount of the same type of Initial Securities and (iv) Unrestricted
Securities from time to time (A) in exchange for a like principal amount of the
same type of Initial Securities or a like principal amount of the same type of
Private Exchange Securities or (B) as the Company may determine in accordance
with this Indenture, in each case upon a written order of the Company in the
form of an Officers' Certificate. Each such written order shall specify the
amount of and the type of Securities to be authenticated and the date on which
the Securities are to be authenticated, whether the Securities are to be Initial
Securities, Private Exchange Securities or Unrestricted Securities and whether
the Securities are to be issued as Physical Securities or Global Securities and
such other information as the Trustee may reasonably request. The aggregate
principal amount of Securities outstanding at any time may not exceed
$150,000,000, except as provided in Sections 2.07 and 2.08.
In the event that the Company shall issue and the Trustee shall
authenticate any Securities issued under this Indenture subsequent to the Issue
Date pursuant to clauses (ii) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its reasonable best efforts to obtain
the same "CUSIP" number for such Securities as is printed on the Securities
outstanding at such time; provided, however, that if any series of Securities
issued under this Indenture subsequent to the Issue Date is determined, pursuant
to an Opinion of Counsel of the Company in a form reasonably satisfactory to the
Trustee to be a different class of security than the Securities outstanding at
such time for federal income tax purposes, the Company may obtain a "CUSIP"
number for such Securities that is different than the "CUSIP" number printed on
the Securities then outstanding.
Notwithstanding the foregoing, all Securities issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Securities may vote or consent) as one class and no series of Securities
will have the right to vote or consent as a separate class on any matter.
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The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent shall
have the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange (the "Registrar"), (b)
Securities may be presented or surrendered for payment (the "Paying Agent") and
(c) notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may appoint one
or more co-Registrars and one or more additional Paying Agents. The term "Paying
Agent" includes any additional Paying Agent and the term "Registrar" includes
any co-Registrar. Except as provided herein, the Company or any Guarantor may
act as Paying Agent, Registrar or co-Registrar.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which shall incorporate the provisions
of the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fail to maintain a Registrar or Paying
Agent, or fail to give the foregoing notice, the Trustee shall act as such and
shall be entitled to appropriate compensation in accordance with Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed. The Company initially appoints DTC to act as Depositary with respect
to the Global Notes.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities, and shall notify the Trustee of
any Default by the Company in making any such payment. The Company at any time
may require a Paying Agent to distribute all assets held by it to the Trustee
and account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent (if
other than the Company), the Paying Agent shall have no further liability for
such assets. If the Company or any Guarantor or any of their respective
Affiliates acts as Paying Agent, it shall, on or before each due date of the
principal of or interest on the Securities,
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segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee at least five days before each Interest Record Date and at such other
times as the Trustee may request in writing a list as of such date and in such
form as the Trustee may reasonably require of the names and addresses of
Holders, which list may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar with a request to register the transfer of such
Securities or to exchange such Securities for an equal principal amount of
Securities of other authorized denominations of the same series, the Registrar
shall register the transfer or make the exchange as requested if its
requirements for such transaction are met; provided, however, that the
Securities surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Securities (and
each of the Guarantors shall execute a Guarantee thereon) at the Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith payable by the transferor of such Securities (other than any such
transfer taxes or other governmental charge payable upon exchanges or transfers
pursuant to Section 2.10, 3.06, 4.05, 4.14 or 10.05). The Registrar shall not be
required to register the transfer or exchange of any Security (i) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
pursuant to Article Three hereof, except the unredeemed portion of any Security
being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee and any Agent shall treat the person in whose
name the Security is registered as the owner thereof for all purposes whether or
not the Security shall be overdue, and neither the Company, the Trustee nor any
Agent shall be affected by notice to the contrary. Any Holder of a beneficial
interest in a Global Security shall, by acceptance of such beneficial interest
in a Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Depositary (or its agent), and that ownership of a beneficial interest in a
Global Security shall be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
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If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements for replacement of Securities
are met. If required by the Company or the Trustee, such Holder must provide an
indemnity bond or other indemnity, sufficient in the judgment of both the
Company and the Trustee, to protect the Company, the Trustee and any Agent from
any loss which any of them may suffer if a Security is replaced. The Company may
charge such Holder for its reasonable expenses in replacing a Security,
including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company and the Guarantors.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those canceled by it, those delivered
to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date, Proceeds Purchase Date or the Final
Maturity Date the Paying Agent holds money sufficient to pay all of the
principal and interest due on the Securities payable on that date, and is not
prohibited from paying such money to the Holders pursuant to the terms of this
Indenture, then on and after that date such Securities cease to be outstanding
and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, a Guarantor or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that a Trust Officer of the Trustee actually knows are so owned shall
be disregarded.
The Company shall notify the Trustee, in writing, when the Company,
a Guarantor or any of their respective Affiliates repurchases or otherwise
acquires Securities and of the aggregate principal amount of such Securities so
repurchased or otherwise acquired.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the
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Company in the form of an Officers' Certificate. The Officers' Certificate shall
specify the amount of temporary Securities to be authenticated and the date on
which the temporary Securities are to be authenticated.
Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company consider
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate upon receipt of a written order
of the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel, and at the written direction of the Company,
dispose of and deliver evidence of such disposal of all Securities surrendered
for transfer, exchange, payment or cancellation. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities that it has paid or
delivered to the Trustee for cancellation. If the Company or any Guarantor shall
acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
The Company shall pay interest on overdue principal from time to
time on demand at the applicable rate of interest then borne by the Securities.
The Company shall, to the extent lawful, pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the rate of
interest then borne by the Securities.
If the Company defaults in a payment of interest on the Securities,
it shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day preceding the date
fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to
the expiration of the 30-day period set forth in Section 6.01(i) shall be paid
to Holders as of the Interest Record Date for the Interest Payment Date for
which interest has not been paid.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities will use a "CUSIP" number and
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to
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Holders; provided, however, that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities. The Company shall
promptly notify the Trustee of any changes in CUSIP numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m., New York time, on each Interest Payment Date,
Redemption Date, Proceeds Purchase Date and the Final Maturity Date, the Company
shall deposit with the Paying Agent in immediately available funds money
sufficient to make cash payments, if any, due on such Interest Payment Date,
Redemption Date, Proceeds Purchase Date or Final Maturity Date, as the case may
be, in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date, Redemption Date, Proceeds Purchase Date
or Final Maturity Date, as the case may be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the
name of the Depositary or the nominee of such Depositary, (ii) be delivered to
the Trustee as custodian for such Depositary and (iii) bear legends as set forth
in Exhibit C.
Members of, or participants in, the Depositary ("Participants")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Security, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of the
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or impair, as between the
Depositary and Participants, the operation of customary practices governing the
exercise of the rights of a beneficial holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depositary, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depositary and the provisions of Section 2.16; provided,
however, that Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for any Global Security and a successor Depositary is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depositary to issue Physical Securities.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and deliver, to each beneficial
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owner identified by the Depositary in exchange for its beneficial interest in
the Global Securities, an equal aggregate principal amount of Physical
Securities of authorized denominations.
(d) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Securities.
SECTION 2.16. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When Physical
Securities are presented to the Registrar with a request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal principal
amount of Physical Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
the requirements under this Indenture as set forth in this Section 2.16 for such
transactions are met; provided, however, that the Physical Securities presented
or surrendered for Registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing; and
(II) in the case of Physical Securities the offer and sale of which
have not been registered under the Securities Act, such Physical
Securities shall be accompanied, in the sole discretion of the Company, by
the following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar
by a Holder for Registration in the name of such Holder,
without transfer, a certification from such Holder to that
effect (substantially in the form of Exhibit D hereto); or
(B) if such Physical Security is being transferred to a QIB in
accordance with Rule 144A, a certification to that effect
(substantially in the form of Exhibit D hereto); or
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and a transferee letter of representation
substantially in the form of Exhibit E hereto and, at the
option of the Company, an
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Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(D) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification
to that effect (substantially in the form of Exhibit D hereto)
and, at the option of the Company, an Opinion of Counsel
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(E) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially
in the form of Exhibit D hereto) and, at the option of the
Company, an Opinion of Counsel reasonably acceptable to the
Company to the effect that such transfer is in compliance with
the Securities Act.
(b) Restrictions on Transfer of a Physical Security for a Beneficial
Interest in a Global Security. A Physical Security the offer and sale of which
has not been registered under the Securities Act may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar of a Physical
Security, duly endorsed or accompanied by appropriate instruments of transfer,
in form satisfactory to the Registrar, together with:
(A) certification, substantially in the form of Exhibit D hereto,
that such Physical Security is being transferred (I) to a QIB
or (II) to an Accredited Investor and, with respect to (II),
at the option of the Company, an Opinion of Counsel reasonably
acceptable to the Company to the effect that such transfer is
in compliance with the Securities Act; and
(B) written instructions directing the Registrar to make, or to
direct the Depositary to make, an endorsement on the
applicable Global Security to reflect an increase in the
aggregate amount of the Securities represented by the Global
Security,
then the Registrar shall cancel such Physical Security and cause, or direct the
Depositary to cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Registrar, the principal amount of
Securities represented by the applicable Global Security to be increased
accordingly. If no Global Security is then outstanding, the Company shall,
unless either of the events in the proviso to Section 2.15(b) have occurred and
are continuing, issue and the Trustee shall, upon written instructions from the
Company in accordance with Section 2.02, authenticate such a Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depositary in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor. Upon receipt by the Registrar of written instructions, or
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such other instruction as is customary for the Depositary, from the Depositary
or its nominee, requesting the Registration of transfer of an interest in a
Global Security to another type of Global Security, together with the applicable
Global Securities (or, if the applicable type of Global Security required to
represent the interest as requested to be transferred is not then outstanding,
only the Global Security representing the interest being transferred), the
Registrar shall cancel such Global Securities (or Global Security) and the
Company shall issue and the Trustee shall, upon written instructions from the
Company in accordance with Section 2.02, authenticate new Global Securities of
the types so canceled (or the type so canceled and applicable type required to
represent the interest as requested to be transferred) reflecting the applicable
increase and decrease of the principal amount of Securities represented by such
types of Global Securities, giving effect to such transfer. If the applicable
type of Global Security required to represent the interest as requested to be
transferred is not outstanding at the time of such request, the Company shall
issue and the Trustee shall, upon written instructions from the Company in
accordance with Section 2.02, authenticate a new Global Security of such type in
principal amount equal to the principal amount of the interest requested to be
transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Physical Security.
(i) Any Person having a beneficial interest in a Global Security may
upon request exchange such beneficial interest for a Physical Security;
provided, however, that prior to the Registration, a transferee that is a QIB or
Institutional Accredited Investor may not exchange a beneficial interest in
Global Security for a Physical Security. Upon receipt by the Registrar of
written instructions, or such other form of instructions as is customary for the
Depositary, from the Depositary or its nominee on behalf of any Person (subject
to the previous sentence) having a beneficial interest in a Global Security and
upon receipt by the Trustee of a written order or such other form of
instructions as is customary for the Depositary or the Person designated by the
Depositary as having such a beneficial interest containing registration
instructions and, in the case of any such transfer or exchange of a beneficial
interest in Securities the offer and sale of which have not been registered
under the Securities Act, the following additional information and documents:
(A) if such beneficial interest is being transferred in reliance
on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and, at the option of the Company, an
Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(B) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially
in the form of Exhibit D hereto) and, at the option of the
Company, an Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in compliance with
the Securities Act,
then the Registrar will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Registrar, the aggregate principal amount of the applicable Global
Security to be reduced and, following such reduction, the Company will
execute and, upon receipt of an authentication order in the form of an
Officers'
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Certificate in accordance with Section 2.02, the Trustee will authenticate
and deliver to the transferee a Physical Security in the appropriate
principal amount.
(ii) Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 2.16(d) shall be registered in such
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Registrar in writing. The Registrar shall deliver such Physical
Securities to the Persons in whose names such Physical Securities are so
registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless, and the Trustee is hereby authorized to
deliver Securities without the Private Placement Legend if, (i) there is
delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act; (ii) such Security has been sold pursuant to
an effective registration statement under the Securities Act (including pursuant
to a Registration); or (iii) the date of such transfer, exchange or replacement
is two years after the later of (x) the Issue Date and (y) the last date that
the Company or any affiliate (as defined in Rule 144 under the Securities Act)
of the Company was the owner of such Securities (or any predecessor thereto).
(g) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Trustee shall have no obligation or duty to monitor, determine
or inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Participants or
beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
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ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to paragraph 7 or
8 of the Securities at the applicable redemption price set forth thereon, it
shall notify the Trustee in writing of the Redemption Date and the principal
amount of Securities to be redeemed, together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed at any time,
the Trustee shall select such Securities for redemption in compliance with the
requirements of the principal national securities exchange, if any, on which
such Securities are listed or, if such Securities are not then listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no
Securities of a principal amount of $1,000 or less shall be redeemed in part;
provided, further, that if a partial redemption is made with the proceeds of a
Public Equity Offering, selection of the Securities or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to DTC procedures), unless such
method is otherwise prohibited.
Securities and portions of them that the Trustee so selects shall be
in amounts of $1,000 principal amount or integral multiples thereof. The Trustee
shall promptly notify the Company in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities
called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each Holder
whose Securities are to be redeemed at such Holder's registered address.
Each notice of redemption shall identify the Securities to be
redeemed (including the CUSIP number thereon) and shall state:
(1) the paragraph of the Securities pursuant to which the Securities are
being redeemed;
(2) the Redemption Date;
(3) the redemption price;
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(4) the name and address of the Paying Agent to which the Securities are
to be surrendered for redemption;
(5) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making the redemption payment,
interest on Securities called for redemption ceases to accrue on and after the
Redemption Date and the only remaining right of the Holders is to receive
payment of the redemption price upon surrender to the Paying Agent; and
(7) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the Redemption
Date, upon surrender of such Security, a new Security or Securities in principal
amount equal to the unredeemed portion thereof will be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense; provided that the Company shall give notice of redemption to the
Trustee at least 10 days before the date the notice of redemption is requested
by the Company to be mailed to the Holders (unless a shorter notice period shall
be agreed to by the Trustee in writing).
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price, plus accrued interest thereon, if any, to the Redemption Date,
but interest installments whose maturity is on or prior to such Redemption Date
shall be payable to the Holders of record at the close of business on the
relevant Interest Record Date. The Trustee or Paying Agent shall promptly return
to the Company any money deposited with the Trustee or the Paying Agent by the
Issuers in excess of the amount necessary to pay the redemption price of, and
accrued and unpaid interest on, all Notes to be redeemed.
SECTION 3.05. Deposit of Redemption Price.
Prior to 10:00 a.m, New York time, on the Redemption Date, the
Company shall deposit with the Paying Agent (or if the Company is Paying Agent,
shall, on or before the Redemption Date, segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest, if any, on all
Securities to be redeemed on that date other than Securities or portions thereof
called for redemption on that date which have been delivered by the Company to
the Trustee for cancellation.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Securities or the portions of Securities called for redemption. If a
Security is redeemed on or after an Interest Record Date but on or prior to the
related Interest Payment Date, then any accrued and unpaid interest shall be
paid to the person in whose name such Security was registered at the close of
business on such
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record date. Upon surrender of a Security for redemption in accordance with the
notice given pursuant to Section 3.03 hereof, such Security shall be purchased
by the Company at the redemption price, together with accrued and unpaid
interest to the redemption date.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit with the Paying Agent money sufficient to pay the
redemption price thereof, the principal and accrued and unpaid interest, if any,
thereon shall, until paid or duly provided for, bear interest as provided in
Sections 2.12 and 4.01 with respect to any payment default.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities in the manner provided in the Securities and the Registration Rights
Agreement. An installment of principal or interest shall be considered paid on
the date due if the Trustee or Paying Agent (other than the Company, a Guarantor
or any of their respective Affiliates) holds on that date money designated for
and sufficient to pay the installment in full and is not prohibited from paying
such money to the Holders of the Securities pursuant to the terms of this
Indenture.
The Company shall pay cash interest on overdue principal at the same
rate per annum borne by the applicable Securities. The Company shall pay cash
interest on overdue installments of interest at the same rate per annum borne by
the applicable Securities, to the extent lawful, as provided in Section 2.12.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13. The
Company hereby initially designates the Trustee at its address set forth in
Section 13.02 as its office or agency in the Borough of Manhattan, The City of
New York, for such purposes.
SECTION 4.03. Limitations on Transactions with Affiliates
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(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that, taken as a whole, are
not materially less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $2,500,000 shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $7,500,000, the Company or such Restricted Subsidiary, as the
case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of the financial terms of such transaction or series
of related transactions, taken as a whole, to the Company or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) above shall not apply
to (i) reasonable fees and compensation paid to, indemnity provided for the
benefit of and benefit plans provided for, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary of the Company as
determined in good faith by the Company's or such Restricted Subsidiary's Board
of Directors or senior management; (ii) transactions exclusively between or
among the Company and any of its Restricted Subsidiaries or exclusively between
or among such Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by this Indenture; (iii) the transactions and payments
contemplated by any agreement as in effect as of the Issue Date (including,
without limitation, the Recapitalization Agreement) or any amendment thereto in
any replacement agreement therefor so long as any such amendment or replacement
agreement, taken as a whole, is not more disadvantageous to the Holders in any
material respect than the original agreement as in effect on the Issue Date;
(iv) the payment to the Principals or their Related Parties and affiliates of
annual management and advisory fees and related expenses; provided that the
amount of such fees shall not exceed $1,000,000 in any fiscal year; (v) loans
and advances (or guarantees of third party loans) to officers or employees of
the Company or any of its Restricted Subsidiaries in the ordinary course of
business not to exceed $500,000 at any time outstanding; (vi) the payment of
fees and expenses related to the Recapitalization; (vii) Permitted Investments
and Restricted Payments permitted by this Indenture; (viii) any employment
agreement, collective bargaining agreement, employee benefit plan, related trust
agreement, indemnification agreement, benefit plan or similar arrangement for
the benefit of directors, officers entered into in the ordinary course of
business; (ix) the lease (expired) between the Company and Placerita Land and
Farming Company relating to the Newhall Facility, on a month-to-month basis, as
in effect in all material respects on the Issue Date subject to annual increases
based on the Consumers Price Index; and (x) purchases of parts and components
from Ordnance Products, Inc. and Multi-Screw, Inc. consistent with past
practice.
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(c) In addition, the last sentence of paragraph (a) shall not apply
to (i) payments by the Company or any of its Restricted Subsidiaries to the
Principals or their Related Parties and Affiliates for any financial advisory,
financing, underwriting or placement services or in respect of other investment
banking activities, including in connection with acquisition or divestitures,
which payments are approved by the Board of Directors of the Company in good
faith, and (ii) Indebtedness permitted by paragraph (xiii) of the definition of
"Permitted Indebtedness."
SECTION 4.04. Limitation on Incurrence of Additional Indebtedness.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur") any Indebtedness
(other than Permitted Indebtedness); provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company and/or any
Guarantor may incur Indebtedness (including, without limitation, Acquired
Indebtedness) if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than (a) 2.0 to 1.0 if the date of such
incurrence is on or prior to December 15, 2000, or (b) 2.25 to 1.0 if the date
of such incurrence is after December 15, 2000.
For the purposes of determining compliance with this Section 4.04,
in the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness or is otherwise entitled to be incurred
pursuant to this Section 4.04, the Company shall, in its sole discretion,
classify (or reclassify) such item of Indebtedness in any manner that complies
with this Section 4.04 and such items of Indebtedness will be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof. Accrual of interest or accretion of accreted value will not be
deemed to be an incurrence of Indebtedness for purposes of this Section 4.04.
SECTION 4.05. Limitation on Asset Sales.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or the
applicable Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 75% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such Asset
Sale shall be in the form of Qualified Proceeds; provided that the amount of (x)
any liabilities of the Company or any Restricted Subsidiary of the Company (as
shown on the Company's or on such Restricted Subsidiary's most recent balance
sheet) (other than liabilities that are by their terms subordinated to the
Securities or, in the case of a Restricted Subsidiary, its Guarantee) that are
assumed by the transferee of any such assets and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received) within 180 days after receipt,
shall be deemed to be cash for the purposes of this clause (ii); provided,
further, however, that (A) this clause (ii) shall not apply to any sale of
Capital Stock of or other
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Investments in Unrestricted Subsidiaries or (B) any Sale and Leaseback
Transaction and (iii) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 360 days of receipt thereof either (A) to
prepay any Senior Indebtedness or Guarantor Senior Indebtedness or Indebtedness
of a Restricted Subsidiary that is not a Guarantor (and, in the case of any
Senior Indebtedness or Guarantor Senior Indebtedness or Indebtedness of a
Restricted Subsidiary that is not a Guarantor under any revolving credit
facility, including the New Credit Facility, effect a permanent reduction in the
availability under such revolving credit facility) or effect a permanent
reduction in the availability under any revolving credit facility regardless of
the fact that no prepayment is required in order to do so (in which case no
prepayment shall be required), (B) to make an investment in properties and
assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that are used or usable in the business
of the Company and its Subsidiaries as existing on the Issue Date or in
businesses reasonably related or complementary thereto ("Replacement Assets"),
it being understood that (i) the receipt of Qualified Proceeds (other than cash
or Cash Equivalents) and (ii) the payment of expenses related to the relocation
to the Moorpark Facility (including, without limitation, reimbursement to the
Company of expenses incurred prior to the Issue Date) are deemed to be a valid
application of such Qualified Proceeds pursuant to this clause (iii)(B), or (C)
a combination of prepayment and investment permitted by the foregoing clauses
(iii)(A) and (iii)(B). On the 361st day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the immediately
preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate
amount of Net Cash Proceeds which have not been applied on or before such Net
Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and
(iii)(C) of the immediately preceding sentence (each a "Net Proceeds Offer
Amount") shall be applied by the Company or such Restricted Subsidiary to make
an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds
Offer Payment Date") not less than 20 Business Days nor more than 30 Business
Days following the date that notice of the Net Proceeds Offer is mailed to the
Holders, from all Holders, together with holders of other Indebtedness that is
not by its terms subordinated to the Securities (the "Other Asset Sale
Indebtedness") of the Company or any Restricted Subsidiary to whom an offer of
Net Cash Proceeds relating to such Asset Sale must be made pursuant to the terms
of the instruments governing such Other Asset Sale Indebtedness on a pro rata
basis, that amount of Securities and such Other Asset Sale Indebtedness equal to
the Net Proceeds Offer Amount at a price equal to 100% of the principal amount
of the Securities or such Other Asset Sale Indebtedness (as the case may be) to
be purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest or dividends received with respect to
any such non-cash consideration), then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this Section 4.05. Notwithstanding the
foregoing, the Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of
$10,000,000 resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of
$10,000,000, shall be applied as required pursuant to this paragraph). Upon
completion of a
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Net Proceeds Offer, the amount of Net Cash Proceeds and the amount of aggregate
unutilized Net Proceeds Offer Amount will be reset to zero. Accordingly, to the
extent that any Net Proceeds remain after consummation of a Net Proceeds Offer,
the Company may use such Net Proceeds for any purpose not prohibited by this
Indenture.
In the event of the transfer of substantially all (but not all) of
the property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed for purposes of this Section 4.05 to have
sold the properties and assets of the Company and its Restricted Subsidiaries
not so transferred, and shall comply with the provisions of this Section 4.05
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 4.05.
Each Net Proceeds Offer will be mailed to the record Holders as
shown on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Securities in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Securities in an amount exceeding the Net Proceeds Offer Amount, Securities of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law.
(b) Subject to the deferral of the Net Proceeds Offer Trigger Date
contained in the first paragraph of subsection (a) above, each notice of a Net
Proceeds Offer pursuant to this Section 4.05 shall be mailed or caused to be
mailed, by first class mail, by the Company not more than 25 days after the Net
Proceeds Offer Trigger Date to all Holders at their last registered addresses as
of a date within 15 days of the mailing of such notice, with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Securities pursuant to the Net Proceeds Offer and
shall state the following terms:
(1) that the Net Proceeds Offer is being made pursuant to Section 4.05 and
that all Securities tendered will be accepted for payment; provided, however,
that if the aggregate principal amount of Securities tendered in a Net Proceeds
Offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall
select the Securities to be purchased on a pro rata basis based on the amounts
tendered (with such adjustments as may be deemed appropriate by the Company so
that only Securities in denominations of $1,000 or multiples thereof shall be
purchased);
(2) the purchase price (including the amount of accrued interest) and the
purchase date (which shall be at least 20 and not more than 30 Business Days
from the date of mailing of notice of such Net Proceeds Offer, or such longer
period as required by law) (the "Proceeds Purchase Date");
(3) that any Security not tendered will continue to accrue interest;
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(4) that, unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Net Proceeds Offer shall cease to
accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Security purchased pursuant to a Net
Proceeds Offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Security
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day prior to the Proceeds Purchase
Date;
(6) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than five Business Days prior to the Proceeds Purchase
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Securities the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to have
such Security purchased; and
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased portion of
the Securities surrendered; provided that each Security purchased and each new
Security issued shall be in an original principal amount of $1,000 or integral
multiples thereof;
On or before 10:00 a.m., New York time, on the Proceeds Purchase
Date, the Company shall (i) accept for payment Securities or portions thereof
validly tendered pursuant to the Net Proceeds Offer which are to be purchased in
accordance with item (b)(1) above, (ii) deposit with the Paying Agent United
States Legal Tender sufficient to pay the purchase price plus accrued interest,
if any, of all Securities to be purchased and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof being purchased by the Company. The Paying Agent
shall promptly mail to the Holders of Securities so accepted payment in an
amount equal to the purchase price plus accrued interest, if any. For purposes
of this Section 4.05, the Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to a
Net Proceeds Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.05, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.05 by virtue thereof.
SECTION 4.06. Limitation on Restricted Payments.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b)
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purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company or any warrants, rights or options to purchase or acquire shares of
any class of such Capital Stock, (c) make any principal payment on, purchase,
defease, redeem, prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness of the Company that is subordinate or junior in
right of payment to the Securities (except the prepayment, purchase, repurchase
or other acquisition or retirement of Indebtedness in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of prepayment, purchase, repurchase or other
acquisition or retirement) or (d) make any Investment (other than Permitted
Investments) (each of the foregoing actions set forth in clauses (a), (b), (c)
and (d) being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto, (i) a Default or
an Event of Default shall have occurred and be continuing or (ii) the Company is
not able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.04 or (iii) the aggregate
amount of Restricted Payments (including such proposed Restricted Payment) made
subsequent to the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company) shall
exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company earned subsequent to the Issue Date through the last day of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such proposed Restricted Payment (the
"Reference Date") (treating such period as a single accounting period); plus (x)
100% of the aggregate net cash proceeds received by the Company from any Person
(other than a Restricted Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference Date of (i)
Qualified Capital Stock of the Company and (ii) Indebtedness or Disqualified
Capital Stock that has been converted into or exchanged for Qualified Capital
Stock together with the aggregate net cash proceeds received by the Company or
any Restricted Subsidiary at the time of such conversion or exchange; plus (y)
without duplication of any amounts included in clause (iii)(x) above, 100% of
the aggregate net cash proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock (excluding, in the case of
clauses (iii)(x) and (y), any net cash proceeds from a Public Equity Offering to
the extent used to redeem the Securities); plus (z) without duplication, the sum
of (1) the aggregate amount returned in cash on or with respect to Investments
(other than Permitted Investments) made subsequent to the Issue Date whether
through interest payments, principal payments, dividends or other distributions
or payments, (2) the net cash proceeds received by the Company or any of its
Restricted Subsidiaries from the disposition of all or any portion of such
Investments (other than to a Restricted Subsidiary of the Company) and (3) upon
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair
market value of such Subsidiary; provided, however, that the sum of clauses (1),
(2) and (3) above shall not exceed the aggregate amount of all such Investments
made subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
or the consummation of any irrevocable redemption within 60 days after the date
of declaration of such dividend or the giving of such irrevocable redemption if
the dividend or redemption would have been permitted on the date of declaration
or the giving of such irrevocable redemption; (2) if no Default or Event
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of Default shall have occurred and be continuing, the acquisition of any shares
of Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the application (within
10 Business Days of the sale thereof) of net proceeds of a sale for cash (other
than to a Restricted Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company; (3) if no Default or Event of Default shall have occurred
and be continuing, the purchase, redemption, repayment, retirement, defeasance
or other acquisition of any Indebtedness of the Company that is subordinate or
junior in right of payment to the Securities either (i) solely in exchange for
shares of Qualified Capital Stock of the Company, (ii) through the application
(within 60 days of the sale thereof) of net proceeds of a sale for cash (other
than to a Restricted Subsidiary of the Company) of (A) shares of Qualified
Capital Stock of the Company or (B) Refinancing Indebtedness or (iii) solely in
exchange for the issuance of Refinancing Indebtedness; (4) so long as no Default
or Event of Default shall have occurred and be continuing, repurchases by the
Company of Common Stock of the Company from directors, officers or employees of
the Company or any of its Subsidiaries or their authorized representatives upon
the death, disability or termination of employment of such officers or
employees, in an aggregate amount not to exceed, in any calendar year, the sum
of $1.0 million (provided that if at the time of any such repurchase the
Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to
1.0 then such amount may be up to $3.0 million) and the net cash proceeds
received by the Company after the Issue Date from the sale of Qualified Capital
Stock to employees, directors or officers of the Company and its Subsidiaries
that occurs in such fiscal year (to the extent such proceeds do not provide the
basis for any other Restricted Payment); and (5) repurchases of Capital Stock
deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price of such options.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the second
paragraph of this Section 4.06, amounts expended pursuant to clauses (1),
(2)(ii), 3(ii)(A) and (4) of such paragraph shall be included in such
calculation. Notwithstanding the foregoing, in determining whether any
Restricted Payment is permitted by this Section 4.06, the Company may allocate
or reallocate all or any portion of such Restricted Payment among clauses (1)
through (5) of the second preceding paragraph or among such clauses and the
first paragraph of this Section 4.06; provided that at the time of such
allocation or reallocation, all such Restricted Payments, or allocated portions
thereof, would be permitted under the various provisions of this Section 4.06.
In making the computations required by this Section 4.06, (i) the
Company may use audited financial statements for the portions of the relevant
period for which audited financial statements are available on the date of
determination and unaudited financial statements and other current financial
data based on the books and records of the Company for the remaining portion of
such period and (ii) the Company will be permitted to rely in good faith on the
financial statements and other financial data derived from its books and records
that are available on the date of determination. If the Company makes a
Restricted Payment that, at the time of the
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making of such Restricted Payment, would in the good faith determination of the
Company be permitted under the requirements of this Indenture, such Restricted
Payment will be deemed to have been made in compliance with this Indenture
notwithstanding any subsequent adjustments made in good faith to the Company's
financial statements which adjustments affect any of the financial data used to
make the calculations with respect to such Restricted Payment.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of its Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as are not in the aggregate
reasonably likely to have a material adverse effect on the financial condition
or results of operations of the Company and its Restricted Subsidiaries, taken
as a whole.
SECTION 4.08. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Restricted Subsidiary or upon the income, profits or property of the Company or
any Restricted Subsidiary and (2) all lawful claims for labor, materials and
supplies which, in each case, if unpaid, might by law become a material
liability, or Lien upon the property, of the Company or any Restricted
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made.
SECTION 4.09. Notice of Defaults.
Upon becoming aware of any Default or Event of Default, the Company
shall promptly deliver an Officers' Certificate to the Trustee specifying the
Default or Event of Default.
SECTION 4.10. Maintenance of Properties and Insurance.
(a) Subject to Article Five, the Company shall cause all material
properties owned by or leased to it or any Restricted Subsidiary and used or
useful in the conduct of its business or the business of any Restricted
Subsidiary to be maintained and kept in normal condition, repair and working
order (other than ordinary wear and tear) and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.10 shall prevent the Company or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors of the Company or the
Restricted Subsidiary concerned, or of
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an Officer (or other agent employed by the Company or of any Restricted
Subsidiary) of the Company or such Restricted Subsidiary having managerial
responsibility for any such property, desirable in the conduct of the business
of the Company or any Restricted Subsidiary.
(b) The Company shall maintain, and shall cause the Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions as, in the judgment of the Company, may be
necessary.
SECTION 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 90 days after the
close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer of the
Company stating that a review of the activities of the Company has been made
under the supervision of the signing officers with a view to determining whether
a Default or Event of Default has occurred and whether or not the signers know
of any Default or Event of Default by the Company that occurred during such
fiscal year and is continuing. If they do know of such a Default or Event of
Default, the certificate shall describe all such Defaults or Events of Default,
their status and the action the Company is taking or proposes to take with
respect thereto. The first certificate to be delivered by the Company pursuant
to this Section 4.11 shall be for the fiscal year ending October 31, 1999.
SECTION 4.12. Reports to Holders.
At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf Registration
Statement (the "Registration Date") and (ii) the date 180 days after the Issue
Date, in either case, whether or not the Company is then required to file
reports with the Commission, the Company will file with the Commission (to the
extent accepted by the Commission) annual reports containing the information
required to be contained in Form 10-K promulgated under the Exchange Act,
quarterly reports containing the information required to be contained in Form
10-Q promulgated under the Exchange Act and from time to time such other
information as is required to be contained in Form 8-K promulgated under the
Exchange Act. The Company will also be required (a) to supply the Trustee and
each Holder of Securities, or supply to the Trustee for forwarding to each such
Holder, without cost to such Holder, copies of such reports and other documents
within 15 days after the date on which the Company files such reports and
documents with the Commission or the date on which the Company would be required
to file such reports and documents if the Company were so required and (b) if
filing such reports and documents with the Commission is not accepted by the
Commission or is prohibited under the Exchange Act, to supply at the Company's
cost copies of such reports and documents to any prospective Holder of
Securities promptly upon written request. In addition, at all times prior to the
earlier of the Registration Date and the date 180 days after the Issue Date, the
Company will, at its cost, deliver to each Holder of the Securities quarterly
and annual reports substantially equivalent to those that would be required by
the Exchange Act. Furthermore, at all times prior to the Registration Date, the
Company will supply at the Company's cost copies of such reports and documents
to any prospective Holder of Securities promptly upon written request and as
required by Rule 144A(d)(4) under the Securities Act.
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SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company and each Guarantor hereby expressly waive all
benefit or advantage of any such law, and covenants that it shall not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.14. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder will
have the right to require that the Company purchase all or a portion of such
Holder's Securities pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase.
(b) Prior to the mailing of the notice referred to below, but in any
event within 30 days following any Change of Control, the Company covenants to
(i) repay in full and terminate all commitments under Indebtedness under the New
Credit Facility and all other Senior Indebtedness the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate all
commitments under all Indebtedness under the New Credit Facility and all other
such Senior Indebtedness and to repay the Indebtedness owed to each lender which
has accepted such offer or (ii) obtain the requisite consents under the New
Credit Facility and all other such Senior Indebtedness to permit the repurchase
of the Securities as provided below. The Company shall first comply with the
covenant in the immediately preceding sentence before it shall be required to
repurchase Securities pursuant to the provisions described below. The Company's
failure to comply with the covenant described in the second preceding sentence
shall constitute an Event of Default described in clause (iii) and not in clause
(ii) of Section 6.01.
(c) Within 30 days following the date upon which the Change of
Control occurred, the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Securities tendered and not withdrawn will be accepted
for payment;
(2) the purchase price (including the amount of accrued interest) and the
purchase date, which must be no earlier than 30 days nor later than 60 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue interest;
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(4) that, unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the Change of
Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than five Business Days prior to the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Securities the Holder
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Securities purchased;
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased portion of
the Securities surrendered; provided that each Security purchased and each new
Security issued shall be in an original principal amount of $1,000 or integral
multiples thereof; and
(8) the circumstances and relevant facts regarding such Change of Control.
On or before 10:00 a.m., New York time, on the Change of Control
Payment Date, the Company shall (i) accept for payment Securities or portions
thereof validly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent United States Legal Tender sufficient to pay the purchase
price plus accrued interest, if any, of all Securities so tendered and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price plus accrued interest,
if any, and the Trustee shall promptly authenticate and mail to such Holders new
Securities equal in principal amount to any unpurchased portion of the
Securities surrendered. Any Securities not so accepted shall be promptly mailed
by the Company to the Holder thereof. For purposes of this Section 4.14, the
Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to a
Change of Control Offer shall be returned by the Trustee to the Company.
The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with this
Section 4.14, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.14 by virtue thereof.
SECTION 4.15. Prohibition on Incurrence of Senior Subordinated Debt.
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Neither the Company nor the Guarantors will incur or suffer to exist
Indebtedness that is senior in right of payment to the Securities or the
Guarantees, as the case may be, and subordinate in right of payment to any other
Indebtedness of the Company or the Guarantors, as the case may be.
SECTION 4.16. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to (a) pay dividends or
make any other distributions on or in respect of its Capital Stock; (b) make
loans or advances or to pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company; or (c) transfer any
of its property or assets to the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of: (1) this Indenture and the Securities; (2) any security or pledge
agreements, leases or options (or similar agreements) containing customary
restrictions on transfers of the assets encumbered thereby or leased or subject
to option or on the transfer or subletting of the leasehold interest represented
thereby; (3) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person so
acquired; (4) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date; (5) any contracts for
the sale of assets, including, without limitation, any restriction with respect
to a Restricted Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary, pending the closing of such sale or disposition;
provided that any such restriction relates solely to the assets that are the
subject of such agreement; (6) restrictions on cash or other deposits or net
worth and prohibitions on assignment imposed by leases entered into in the
ordinary course of business; (7) customary provisions in joint venture
agreements and other similar agreements; (8) the New Credit Facility and any
instruments issued pursuant thereto; (9) any agreement or instrument governing
Capital Stock of any Person that is acquired; (10) purchase money obligations
for assets acquired in the ordinary course of business that impose restrictions
of the nature described in (c) above on the property so acquired; (11) Liens
permitted to be incurred pursuant to the provisions of Section 4.18; (12) any
agreement relating to a Sale and Leaseback Transaction or Capitalized Lease
Obligation, but only on the property subject to such Sale and Leaseback
Transaction or such Capitalized Lease Obligation and only to the extent that
such restrictions or encumbrances are customary with respect to such
arrangements; (13) any licensing or technology transfer agreement entered into
in the ordinary course of business, including, without limitation, those entered
into in connection with any European joint venture; (14) applicable law; and
(15) any encumbrances or restrictions imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of contracts, instruments or obligations referred to in clauses (1)
through (13); provided that the dividend and other transfer restrictions imposed
under such contract, instrument, agreement or obligation as amended, modified,
restated, renewed, increased, supplemented, refunded, replaced or Refinanced
are, taken as a whole, in the good faith judgment of the Board of Directors of
the Company, whose judgment shall be conclusively binding, not materially more
restrictive than
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those contained in such contract, instrument, agreement or obligation
immediately prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or Refinancing.
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company will not permit any of its Restricted Subsidiaries that
are not Guarantors to issue to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company) Preferred Stock or permit any Person
(other than the Company or a Wholly Owned Restricted Subsidiary of the Company)
to own any Preferred Stock of any Restricted Subsidiary of the Company that is
not a Guarantor.
SECTION 4.18. Limitation on Liens.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Securities, the Securities are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Securities are equally
and ratably secured, except in the case of either clause (i) or (ii) for (A)
Liens existing as of the Issue Date to the extent and in the manner such Liens
are in effect on the Issue Date; (B) Liens securing Senior Indebtedness and
Liens securing Guarantor Senior Indebtedness; (C) Liens securing the Securities
and the Guarantees; (D) Liens of the Company or a Wholly Owned Restricted
Subsidiary of the Company on assets of any Subsidiary of the Company; (E) Liens
securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under this Indenture and
which has been incurred in accordance with the provisions of this Indenture;
provided, however, that such Liens (I) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (II) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted
Liens.
SECTION 4.19. Limitation of Guarantees by Restricted Subsidiaries.
The Company will not permit any of its Restricted Subsidiaries that
are organized under the laws of the United States or a subdivision thereof,
directly or indirectly, by way of the pledge of any intercompany note or
otherwise, to guarantee any Indebtedness of the Company unless, in any such
case, (a) such Restricted Subsidiary executes and delivers a supplemental
indenture to this Indenture providing a Guarantee by such Restricted Subsidiary
and (b) if any such guarantee of such Restricted Subsidiary is provided in
respect of Indebtedness that is expressly subordinated to the Securities, such
guarantee or other instrument provided by such Restricted Subsidiary in respect
of such subordinated Indebtedness shall be subordinated to the Guarantee
pursuant to subordination provisions no less favorable to the Holders of the
Securities than those contained in this Indenture.
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Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon: (i) the unconditional release of
such Restricted Subsidiary from its liability in respect of the Indebtedness in
connection with which such Guarantee was executed and delivered pursuant to the
preceding paragraph; (ii) any sale or other disposition (by merger or otherwise)
to any Person which is not a Restricted Subsidiary of the Company of all of the
Company's Capital Stock in, or all or substantially all of the assets of, such
Restricted Subsidiary; provided that such sale or disposition of such Capital
Stock or assets is otherwise in compliance with the terms of this Indenture;
(iii) the designation of such Subsidiary as an Unrestricted Subsidiary in
accordance with the provisions of this Indenture; or (iv) the sale or other
disposition of shares of Capital Stock of such Subsidiary to a Person other than
the Company or a Restricted Subsidiary such that such Subsidiary ceases to
constitute a Subsidiary of the Company, provided such disposition is otherwise
in accordance with the provisions of this Indenture.
SECTION 4.20. Conduct of Business.
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or reasonably related or
complementary to the businesses in which the Company and its Restricted
Subsidiaries are engaged on the Issue Date (as determined in good faith by the
Board of Directors of the Company).
SECTION 4.21. Corporate Existence.
Except as otherwise permitted by Article Five, the Company shall do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other existence
of each of its Restricted Subsidiaries in accordance with the respective
organizational documents of each Restricted Subsidiary and the rights (charter
and statutory) of the Company and each of its Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right or
corporate existence of any Restricted Subsidiary if the Board of Directors of
the Company shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Restricted Subsidiaries,
taken as a whole, and that the loss thereof is not, and will not be, adverse in
any material respect to the Holders.
ARTICLE FIVE
MERGERS; SUCCESSORS
SECTION 5.01. Merger, Consolidation and Sale of Assets.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person (other than in
connection with the Recapitalization), or sell, assign, transfer, lease, convey
or otherwise dispose of (or cause or permit any Restricted Subsidiary of the
Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or
substantially all of the Company's assets (determined on a consolidated basis
for the Company and the Company's Restricted Subsidiaries) whether as an
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entirety or substantially as an entirety to any Person unless: (i) either (1)
the Company shall be the surviving or continuing corporation or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and of the Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the Trustee,
the due and punctual payment of the principal of, and premium, if any, and
interest on all of the Securities and the performance of every covenant of the
Securities, this Indenture and the Registration Rights Agreement on the part of
the Company to be performed or observed; (ii) immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be, shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.04; (iii) immediately before and immediately
after giving effect to such transaction and the assumption contemplated by
clause (i)(2)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
and any Lien granted in connection with or in respect of the transaction), no
Default or Event of Default shall have occurred or be continuing; and (iv) the
Company or the Surviving Entity shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with the applicable provisions of this
Indenture and that all conditions precedent in this Indenture relating to such
transaction have been satisfied.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (a) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its property and assets to the Company or any other Restricted Subsidiary and
(b) the Company may merge with an Affiliate incorporated solely for the purpose
of reincorporating the Company in another jurisdiction.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Each Guarantor (other than any Guarantor whose Guarantee is to be
released in accordance with the terms of the Guarantee and this Indenture in
connection with any transaction complying with the provisions of Section 4.05)
will not, and the Company will not cause or permit any Guarantor to, consolidate
with or merge with or into any Person other than the Company or any other
Guarantor unless: (i) the entity formed by or surviving any such consolidation
or merger (if other than the Guarantor) or to which such sale, lease, conveyance
or other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia; (ii) such entity assumes by
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supplemental indenture all of the obligations of the Guarantor on the Guarantee;
(iii) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on a
pro forma basis, the Company could satisfy the provisions of clause (ii) of the
first paragraph of this Section 5.01. Notwithstanding the foregoing clause (iv),
(a) any Guarantor may consolidate with, merge into or transfer all or part of
its property and assets to the Company or any other Guarantor and (b) any
Guarantor formed solely for the purpose of merging with and into any other
Person, may merge with or into such Person.
SECTION 5.02. Successor Substituted.
Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Securities with the same effect as if such surviving
entity had been named as such.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for purposes of
this Indenture:
(i) the failure to pay interest on any Securities when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by the subordination provisions
of this Indenture);
(ii) the failure to pay the principal on any Securities, when such
principal becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Securities tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not
such payment shall be prohibited by the subordination provisions of this
Indenture);
(iii) a default in the observance or performance of any other covenant
or agreement contained in this Indenture which default continues for a period of
60 days after the Company receives written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the Holders of at
least 25% of the outstanding principal amount of the Securities (except in the
case of a default with respect to Section 5.01, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of any
Indebtedness of the Company or
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any Restricted Subsidiary of the Company and such failure continues for a period
of 20 days or more, or the acceleration of the final stated maturity of any such
Indebtedness (which acceleration is not rescinded, annulled or otherwise cured
within 20 days after receipt by the Company or such Restricted Subsidiary of
notice of any such acceleration) if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
in default for failure to pay principal at final maturity or which has been
accelerated, in each case with respect to which the 20-day period described
above has passed, aggregates $7,500,000 or more at any time;
(v) one or more judgments in an aggregate amount in excess of
$7,500,000 (net of any amounts with respect to which a reputable insurance
company has acknowledged liability in writing) shall have been rendered against
the Company or any of its Significant Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 60 days after such judgment or
judgments become final and nonappealable;
(vi) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding;
(b) consents to the entry of an order for relief against it in an involuntary
case or proceeding; (c) consents or acquiesces in the institution of a
bankruptcy or insolvency proceeding against it; (d) consents to the appointment
of a Custodian of it or for all or substantially all of its property; or (e)
makes a general assignment for the benefit of its creditors, or any of them
takes any action to authorize or effect any of the foregoing;
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (a) is for relief against the Company or any
Significant Subsidiary in an involuntary case or proceeding; (b) appoints a
Custodian of the Company or any Significant Subsidiary for all or substantially
all of its property; or (c) orders the liquidation of the Company or any
Significant Subsidiary; and in each case the order or decree remains unstayed
and in effect for 60 days; provided, however, that if the entry of such order or
decree is appealed and dismissed on appeal, then the Event of Default hereunder
by reason of the entry of such order or decree shall be deemed to have been
cured; or
(viii) any of the Guarantees of a Guarantor that is a Significant
Subsidiary ceases to be in full force and effect or any of such Guarantees is
declared to be null and void and unenforceable or any of such Guarantees is
found to be invalid or any of such Guarantors denies its liability under its
Guarantee (other than by reason of release of a Guarantor in accordance with the
terms of this Indenture).
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (vi) or (vii) of Section 6.01 with respect to the Company) shall occur
and be continuing, the Trustee or the Holders of at least 25% in principal
amount of outstanding Securities may declare the principal of and accrued
interest on all the Securities to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that it
is a "notice of acceleration" (the "Acceleration Notice"), and the same (i)
shall become immediately due and payable or (ii) if there are any amounts
outstanding under the New Credit Facility, shall become immediately due and
payable upon the first to occur of an acceleration under the New Credit
Facility, or five Business Days after receipt by the Company and the
Representative under the
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New Credit Facility of such Acceleration Notice but only if such Event of
Default is then continuing. If an Event of Default specified in clause (vi) or
(vii) of Section 6.01 with respect to the Company occurs and is continuing, then
all unpaid principal of, and premium, if any, and accrued and unpaid interest on
all of the outstanding Securities shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder.
At any time after a declaration of acceleration with respect to the
Securities as described in the preceding paragraph, the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and (v) in
the event of the cure or waiver of an Event of Default of the type described in
clause (vii) of Section 6.01, the Trustee shall have received an Officers'
Certificate and an Opinion of Counsel that such Event of Default has been cured
or waived. No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Holder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, the Holders of not less
than a majority in aggregate principal amount of the outstanding Securities by
written notice to the Trustee may waive an existing Default or Event of Default
and its consequences, except a Default in the payment of the principal of or
interest on any Securities. The Company shall deliver to the Trustee an
Officers' Certificate stating that the requisite percentage of Holders have
consented to such waiver and attaching copies of such consents. In case of any
such waiver, the Company, the Trustee and the Holders shall be restored to their
former positions and rights hereunder and under the Securities, respectively.
This paragraph of this Section 6.04 shall be in lieu of Section 316(a)(1)(B) of
the TIA and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded
from this Indenture and the Securities, as permitted by the TIA.
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Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Securities, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal
amount of the then outstanding Securities may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture or that the
Trustee determines may be unduly prejudicial to the rights of another Holder, or
that may involve the Trustee in personal liability; provided, however, that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. In the event the Trustee takes any action or
follows any direction pursuant to this Indenture, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against any loss or
expense caused by taking such action or following such direction. This Section
6.05 shall be in lieu of Section 316(a)(1)(A) of the TIA, and such Section
316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and the
Securities, as permitted by the TIA.
SECTION 6.06. Limitation on Suits.
A Holder may not pursue any remedy with respect to this Indenture or
the Securities unless:
(i) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
the outstanding Securities make a written request to the Trustee to pursue a
remedy;
(iii) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the outstanding Securities do not give the Trustee a direction which,
in the opinion of the Trustee, is inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and premium, if any or interest on
a Security, on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such
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payment on or after such respective dates, shall not be impaired or affected
without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in Section 6.01(i) or (ii) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor on the Securities for the whole amount of principal and
accrued interest remaining unpaid, together with interest overdue on principal
and to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the
Securities and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company or any other
obligor upon the Securities, their respective creditors or their respective
property and shall be entitled and empowered to collect and receive any moneys
or other property payable or deliverable on any such claims and to distribute
the same, and any Custodian in any such judicial proceedings is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Securities
for principal and interest, respectively; and
Third: to the Company.
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The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by
a Holder or group of Holders of more than 10% in aggregate principal amount of
the outstanding Securities, or to any suit instituted by any Holder for the
enforcement or the payment of the principal or interest on any Securities on or
after the respective due dates expressed in the Security.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of such
duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions conforming to the requirements
of this Indenture; however, in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine such certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(2) The Trustee shall not be liable for any error of judgment made in good
faith by a Trust Officer, unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
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(3) The Trustee shall not be liable with respect to any action it takes or
omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive from such Holders an indemnity
satisfactory to it in its sole discretion against such risk, liability, loss,
fee or expense which might be incurred by it in compliance with such request or
direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and/or an Opinion of Counsel, which shall conform
to the provisions of Section 13.05. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence of
any agent or attorney (other than an agent who is an employee of the
Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel of its selection and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein shall
be sufficiently evidenced by an Officers' Certificate and any resolution
of the Board of Directors may be sufficiently evidenced by a Board
Resolution.
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(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney.
(i) The Trustee shall not be deemed to have notice of any Event of
Default unless a Trust Officer of the Trustee has actual knowledge thereof
or unless the Trustee shall have received written notice thereof at the
Corporate Trust Office of the Trustee, and such notice references the
Securities and this Indenture.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, subject to
Section 7.10 hereof. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
any document issued in connection with the sale of Securities or any statement
in the Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and the
Trustee knows of such Defaults or Events of Default, the Trustee shall mail to
each Holder notice of the Default or Event of Default within 30 days after the
occurrence thereof. Except in the case of a Default or an Event of Default in
payment of principal of or interest on any Security or a Default or Event of
Default in complying with Section 5.01, the Trustee may withhold the notice if
and so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interest of Holders. This Section 7.05 shall be
in lieu of the proviso to Section 315(b) of the TIA and such proviso to Section
315(b) of the TIA is hereby expressly excluded from this Indenture and the
Securities, as permitted by the TIA.
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SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each December 15 of each year beginning with
1999, the Trustee shall, to the extent that any of the events described in TIA
Section 313(a) occurred within the previous twelve months, but not otherwise,
mail to each Holder a brief report dated as of such date that complies with TIA
Section 313(a). The Trustee also shall comply with TIA Sections 313(b),
313(c) and 313(d).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the SEC and each securities exchange, if
any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any securities exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances (including fees, disbursements and expenses of its agents and
counsel) incurred or made by it in addition to the compensation for its services
except any such disbursements, expenses and advances as may be attributable to
the Trustee's negligence or bad faith. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents,
accountants, experts and counsel and any taxes or other expenses incurred by a
trust created pursuant to Section 9.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless
against any and all loss, damage, claims, liability or expense, including taxes
(other than franchise taxes imposed on the Trustee and taxes based upon,
measured by or determined by the income of the Trustee), arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent that such loss, damage, claim,
liability or expense is due to its own negligence or bad faith. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. However, the failure by the Trustee to so notify
the Company shall not relieve the Company of their obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's expense; provided, however,
that the Company's reimbursement obligation with respect to counsel employed by
the Trustee will be limited to the reasonable fees and expenses of such counsel.
The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee as a result of the
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violation of this Indenture by the Trustee, or arising out of the Trustee's
negligence or willful misconduct.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a Lien prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee, except
money or property held in trust to pay principal of or interest on particular
Securities.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(vi) or (vii) occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Nine and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent under any
Bankruptcy Law;
(c) a custodian or other public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
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If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible
to act as Trustee under TIA Sections 310(a)(1) and 310(a)(2). The Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition. If the Trustee has or
shall acquire any "conflicting interest" within the meaning of TIA Section
310(b), the Trustee and the Company shall comply with the provisions of TIA
Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 7.10, the Trustee
shall resign immediately in the manner and with the effect hereinbefore
specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against the Company.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each Holder of
the Securities by his acceptance thereof likewise covenant and agree, (i) that
all Securities shall be
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issued subject to the provisions of this Article Eight; and each Person holding
any Security, whether upon original issue or upon transfer, assignment or
exchange thereof, accepts and agrees that all payments of the principal of and
interest on the Securities by the Company shall, to the extent and in the manner
set forth in this Article Eight, be subordinated and junior in right of payment
to the prior payment in full in cash or Cash Equivalents of all amounts payable
under Senior Indebtedness of the Company, whether outstanding on the Issue Date
or thereafter incurred, and (ii) that the subordination is for the benefit of,
and shall be enforceable directly by, the holders of Senior Indebtedness, and
that each holder of Senior Indebtedness whether now outstanding or hereafter
created, incurred, assumed or guaranteed shall be deemed to have acquired Senior
Indebtedness in reliance upon the covenants and provisions contained in this
Indenture and the Securities.
SECTION 8.02. No Payment on Securities in Certain Circumstances.
If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by acceleration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Indebtedness,
no payment of any kind or character shall be made by or on behalf of the Company
or any other Person on its behalf with respect to any Obligations on the
Securities or to acquire any of the Securities for cash or property or otherwise
(except that holders of the Securities may receive payments from a trust
described under Article Nine so long as, on the date or dates the respective
amounts were paid into the trust, such payments were made with respect to the
Securities in accordance with the provisions of Article Nine and without
violating the provisions of Article Eight or Article Twelve of this Indenture (a
"Defeasance Trust Payment").
In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness then
outstanding to accelerate the maturity thereof and if the Representative for the
respective issue of Designated Senior Indebtedness gives written notice of the
event of default to the Trustee (a "Payment Blockage Notice"), then, unless and
until all events of default have been cured or waived or have ceased to exist or
the Trustee receives notice from the Representative for the respective issue of
Designated Senior Indebtedness terminating the Payment Blockage Period, during
the 180 days after the delivery of such Payment Blockage Notice (the "Payment
Blockage Period"), neither the Company nor any other Person on either of their
behalf shall (x) make any payment of any kind or character with respect to any
Obligations on the Securities or (y) acquire any of the Securities for cash or
property or otherwise (except that holders of the Securities may receive
Defeasance Trust Payments).
Notwithstanding anything herein to the contrary, in no event will a
Payment Blockage Period extend beyond 180 days from the date the Payment
Blockage Notice is delivered and only one such Payment Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness shall be, or be made, the
basis for commencement of a second Payment Blockage Period by the Representative
of such Designated Senior Indebtedness whether or not within a
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period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such Payment
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).
In the event that, notwithstanding the foregoing provisions of this
Section 8.02 prohibiting such payment or distribution, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities (excluding any Defeasance Trust
Payment), shall be received by the Trustee or any Holder of Securities at a time
when such payment or distribution is prohibited by the first two paragraphs of
this Section 8.02 and before all Obligations in respect of Senior Indebtedness
of the Company are paid in full in cash or Cash Equivalents, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Senior Indebtedness of the Company
(pro rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives, or to the trustee
or trustees or agent or agents under any indenture pursuant to which any of such
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of such Senior Indebtedness remaining
unpaid until all such Senior Indebtedness has been paid in full in cash or Cash
Equivalents after giving effect to any prior or concurrent payment, distribution
or provision therefor to or for the holders of such Senior Indebtedness.
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any total or partial liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Indebtedness
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Indebtedness whether or not such interest is
an allowed claim in such proceeding) shall first be paid in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Indebtedness, before any payment or distribution of any kind
or character is made on account of any Obligations on the Securities, or for the
acquisition of any of the Securities for cash or property or otherwise (except
that holders of the Securities may receive Defeasance Trust Payments). Before
any payment may be made by, or on behalf of, the Company of any Obligations on
the Securities upon any such dissolution or winding-up or total liquidation or
reorganization, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any Defeasance Trust Payment), to which the Holders of the Securities
or the Trustee on their behalf would be entitled, but for the subordination
provisions of this Indenture, shall be made by the Company or by any receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Indebtedness of
the Company (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders) or their representatives or to the
trustee or trustees or agent or agents under any agreement or
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indenture pursuant to which any of such Senior Indebtedness may have been
issued, as their respective interests may appear, to the extent necessary to pay
all such Senior Indebtedness in full in cash or Cash Equivalents after giving
effect to any prior or concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities (excluding any Defeasance Trust Payment), shall be received by the
Trustee or any Holder of Securities at a time when such payment or distribution
is prohibited by Section 8.03(a) and before all Obligations in respect of Senior
Indebtedness of the Company are paid in full in cash or Cash Equivalents, such
payment or distribution shall be received and held in trust for the benefit of,
and shall be paid over or delivered to, the holders of Senior Indebtedness of
the Company (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders) or their representatives, or to the
trustee or trustees or agent or agents under any indenture pursuant to which any
of such Senior Indebtedness may have been issued, as their respective interests
may appear, for application to the payment of such Senior Indebtedness remaining
unpaid until all such Senior Indebtedness has been paid in full in cash or Cash
Equivalents after giving effect to any prior or concurrent payment, distribution
or provision therefor to or for the holders of such Senior Indebtedness.
(c) To the extent any payment of Senior Indebtedness (whether by or
on behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then, if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Indebtedness or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment has not occurred.
The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 8.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 8.04. Subrogation.
Upon the payment in full in cash or Cash Equivalents of all Senior
Indebtedness of the Company, the Holders of the Securities shall be subrogated
to the rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of and interest on the Securities shall be paid
in full in cash or Cash Equivalents; and, for the purposes of such subrogation,
no payments or distributions to the holders of the Senior Indebtedness of the
Company of any cash, property or securities to which the Holders of the
Securities or the Trustee
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on their behalf would be entitled except for the provisions of this Article
Eight, and no payment over pursuant to the provisions of this Article Eight to
the holders of Senior Indebtedness of the Company by Holders of the Securities
or the Trustee on their behalf shall, as between the Company, its creditors
other than holders of Senior Indebtedness of the Company, and the Holders of the
Securities, be deemed to be a payment by the Company to or on account of the
Senior Indebtedness of the Company. It is understood that the provisions of this
Article Eight are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities, on the one hand, and the
holders of the Senior Indebtedness of the Company, on the other hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article Eight shall have been applied, pursuant to the provisions of this
Article Eight, to the payment of all amounts payable under Senior Indebtedness,
then and in such case, the Holders of the Securities shall be entitled to
receive from the holders of such Senior Indebtedness any payments or
distributions received by such holders of Senior Indebtedness in excess of the
amount required to make payment in full in cash of such Senior Indebtedness.
SECTION 8.05. Obligations of the Company Unconditional.
Nothing contained in this Article Eight or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company and the Holders of the Securities, the obligation of the Company, which
is absolute and unconditional, to pay to the Holders of the Securities the
principal of and interest on the Securities as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the Holders of the Securities and creditors of the
Company other than the holders of the Senior Indebtedness of the Company, nor
shall anything herein or therein prevent the Holder of any Security or the
Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Eight of the holders of the Senior Indebtedness of the
Company in respect of cash, property or securities of the Company received upon
the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained
in this Article Eight shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Indebtedness of the
Company then due and payable shall first be paid in full in cash or Cash
Equivalents before the Holders of the Securities or the Trustee are entitled to
receive any direct or indirect payment from, or on behalf of, the Company on
account of any Obligations on the Securities.
SECTION 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Eight (although the failure to give any such notice shall not affect the
subordination provisions set forth in this Article Eight). The Trustee shall not
be charged with knowledge of the existence of any event of default with respect
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to any Senior Indebtedness of the Company or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company, or by a holder of Senior
Indebtedness or trustee or agent therefor; and prior to the receipt of any such
written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 8.06 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Security), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority
to receive any moneys from the Company and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date (although the
receipt of such moneys by any Holder of Securities shall otherwise be subject to
the provisions of this Article Eight). Nothing contained in this Section 8.06
shall limit the right of the holders of Senior Indebtedness of the Company to
recover payments from Holders as contemplated by Section 8.02 or 8.03. The
Trustee shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself or itself to be a holder of any Senior Indebtedness
of the Company (or a trustee on behalf of, or other representative of, such
holder) to establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness of the Company to participate in any payment or distribution
pursuant to this Article Eight, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness of the Company held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Eight, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets or securities referred to
in this Article Eight, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness of the Company and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Eight.
SECTION 8.08. Trustee's Relation to Senior Indebtedness.
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The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Eight with respect to any Senior Indebtedness of the
Company which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Indebtedness of the
Company, and nothing in this Indenture shall deprive the Trustee or any Paying
Agent of any of its rights as such holder.
With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Eight, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness of
the Company shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness of the Company (except as provided in Section 8.03(b)). The Trustee
shall not be liable to any such holders if the Trustee shall in good faith
mistakenly pay over or distribute to Holders of Securities or to the Company or
to any other person cash, property or securities to which any holders of Senior
Indebtedness of the Company shall be entitled by virtue of this Article Eight or
otherwise.
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness
of the Company to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with. The provisions of this Article Eight are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness of the Company.
SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination of
Securities.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Eight, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
liquidation or reorganization of the Company (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of the Company, the filing of a claim for the unpaid balance
of its or his Securities in the form required in those proceedings. If the
Trustee does not file a proper claim or proof of debt in the form required in
any proceeding referred to in Section 6.09 prior to 30 days before the
expiration of the time to file such claim or claims, then any of the holders of
the Senior Indebtedness or their Representative is hereby authorized to file an
appropriate claim for and on behalf of the Holders of said Securities. Nothing
herein contained shall be deemed to authorize the Trustee or the holders of
Senior Indebtedness or their Representative to authorize or consent to or accept
or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee or the holders of Senior
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Indebtedness or their Representative to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 8.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Eight shall not be
construed as preventing the occurrence of an Event of Default specified in
clauses (a), (b) or (c) of Section 6.01.
SECTION 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Eight shall apply to amounts due to the
Trustee, in its capacity as such, pursuant to other sections in this Indenture.
SECTION 8.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Indebtedness of the Company may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Eight or the obligations hereunder of the Holders of the Securities to the
holders of Senior Indebtedness of the Company, do any one or more of the
following: (a) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, such Senior Indebtedness or any instrument
evidencing the same or any agreement under which such Senior Indebtedness is
outstanding or secured; (b) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing such Senior Indebtedness; (c)
release any Person liable in any manner for the collection of such Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against the
Company and any other Person.
SECTION 8.14. Subordination Provisions Not Applicable to Money Held in
Trust for Holders.
All money and United States Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Article Nine shall be
for the sole benefit of the Holders and shall not be subject to this Article
Eight.
SECTION 8.15. Amendments.
As long as the New Credit Facility is outstanding or any amounts are
outstanding thereunder, the provisions of this Article Eight (and the definition
used herein) shall not be amended or modified without the written consent of the
majority of the lenders under the New Credit Facility.
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
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SECTION 9.01. Termination of the Company's Obligations.
The Company may terminate its obligations under the Securities and
this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 9.01, if all Securities previously authenticated and
delivered (other than destroyed, lost or stolen Securities which have been
replaced or paid or Securities for whose payment United States Legal Tender or
non-callable United States Government Obligations, or a combination thereof, has
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 9.05) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder, or if:
(a) either (i) pursuant to Article Three, the Company shall have
given notice to the Trustee and mailed a notice of redemption to each
Holder of the redemption of all of the Securities under arrangements
satisfactory to the Trustee for the giving of such notice or (ii) all
Securities have otherwise become due and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders for that purpose, United States Legal Tender or
non-callable United States Government Obligations, or a combination
thereof, in such amount as is sufficient without consideration of
reinvestment of such interest, to pay principal and interest on the
outstanding Securities to maturity or redemption, as well as the Trustee's
fees and expenses; provided that the Trustee shall have been irrevocably
instructed to apply such United States Legal Tender to the payment of said
principal and interest with respect to the Securities; provided, further,
that no deposits made pursuant to this Section 9.01(b) shall cause the
Trustee to have a conflicting interest as defined in and for the purposes
of the TIA; provided, further, that from and after the time of deposit,
the money deposited shall not be subject to the rights of holders of
Senior Indebtedness pursuant to the provisions of Article Eight and
provided, further, that, as confirmed by an Opinion of Counsel, no such
deposit shall result in the Company, the Trustee or the trust becoming or
being deemed to be an "investment company" under the Investment Company
Act of 1940;
(c) no Default or Event of Default with respect to this Indenture or
the Securities shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will
not result in a breach or violation of, or constitute a default under, any
other material instrument to which the Company is a party or by which it
is bound (other than a Default or Event of Default resulting from the
incurrence of Indebtedness, all or a portion of which will be used to
defease the Securities concurrently with such incurrence);
(d) the Company shall have paid all other sums payable by it
hereunder; and
(e) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for or relating
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to the termination of the Company's obligations under the Securities and
this Indenture have been complied with. Such Opinion of Counsel shall also
state that such satisfaction and discharge does not result in a default
under any agreement or instrument then known to such counsel that binds or
affects the Company.
Notwithstanding the foregoing paragraph, the Company's obligations
in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 9.05 and 9.06 shall
survive until the Securities are no longer outstanding pursuant to the last
paragraph of Section 2.08. After the Securities are no longer outstanding, the
Company's obligations in Sections 7.07, 9.05 and 9.06 shall survive.
After such delivery or irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities and this Indenture except for those surviving obligations
specified above.
SECTION 9.02. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option by Board Resolution of the Board
of Directors of the Company, at any time, elect to have either paragraph (b) or
(c) below be applied to all outstanding Securities upon compliance with the
conditions set forth in Section 9.03.
(b) Upon exercise under paragraph (a) hereof of the option
applicable to this paragraph (b), the Company and, if it so selects, each of the
Guarantors, shall, subject to the satisfaction of the conditions set forth in
Section 9.03, be deemed to have been discharged from its obligations with
respect to all outstanding Securities on the date the conditions set forth below
are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Securities, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 9.04
hereof and the other Sections of this Indenture referred to in (i) and (ii)
below, and to have satisfied all its other obligations under such Securities and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), and Holders of the
Securities and any amounts deposited under Section 9.03 hereof shall cease to be
subject to any obligations to, or the rights of, any holder of Senior
Indebtedness under Article Eight or otherwise, except for the following
provisions, which shall survive until otherwise terminated or discharged
hereunder:
(i) the rights of Holders of outstanding Securities to receive
solely from the trust fund described in Section 9.04 hereof, and as more fully
set forth in such Section, payments in respect of the principal of and interest
on such Securities when such payments are due;
(ii) the Company's obligations with respect to such Securities under
Article Two and Section 4.02 hereof;
(iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith; and
(iv) this Article Nine.
Subject to compliance with this Article Nine, the Company may exercise its
option under this paragraph (b) notwithstanding the prior exercise of its option
under paragraph (c) hereof.
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(c) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03 hereof, be released
from its obligations under the covenants contained in Sections 4.03 through
4.06, inclusive, Sections 4.08 through 4.10, inclusive, Sections 4.12 through
4.20, inclusive, and Article Five hereof with respect to the outstanding
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Securities shall
not be deemed outstanding for accounting purposes) and Holders of the Securities
and any amounts deposited under Section 8.03 hereof shall cease to be subject to
any obligations to, or the rights of, any holder of Senior Indebtedness under
Article Eight or otherwise. For this purpose, such Covenant Defeasance means
that, with respect to the outstanding Securities, the Company may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event or Default
under Section 6.01(iii) hereof, but, except as specified above, the remainder of
this Indenture and such Securities shall be unaffected thereby. In addition,
upon the Company's exercise under paragraph (a) hereof of the option applicable
to this paragraph (c), subject to the satisfaction of the conditions set forth
in Section 9.03 hereof, Sections 6.01(iii), 6.01(iv) and 6.01(v) shall not
constitute Events of Default.
SECTION 9.03. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 9.02(b) or 9.02(c) hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders cash in United States Legal Tender,
non-callable United States Government Obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Securities on the
stated date for payment thereof or on the applicable redemption date, as
the case may be;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or here has been published by, the Internal Revenue Service
a ruling or (B) since the date of this Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect
that, and based thereon such Opinion of Counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
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(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Sections 6.01(vi) and
(vii) are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under this Indenture
(other than a Default or Event of Default resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the
Securities concurrently with such incurrence) or any other material
agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, subject to customary assumptions and
conclusions, after the 91st day following the deposit, the trust funds (i)
assuming no intervening bankruptcy or insolvency of the Company between
the date of deposit and the 91st day following the deposit and that no
Holder is an insider of the Company, will not be part of any "estate"
formed by the bankruptcy or reorganization of the Company or subject to
the "automatic stay" under the Bankruptcy Code or, (ii) in the case of
Covenant Defeasance, will be subject to a Lien in favor of the Trustee for
the benefit of the Holders.
Notwithstanding the foregoing, the Opinion of Counsel required by clause (b)
above with respect to a Legal Defeasance need not be delivered if all Securities
not theretofore delivered to the Trustee for cancellation (x) have become due
and payable, (y) will become due and payable on the maturity date within one
year or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense of, the Company.
SECTION 9.04. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust United States Legal
Tender or United States Government Obligations deposited with it pursuant to
Article Eight, and shall apply the deposited United States Legal Tender and the
money from United States Government
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Obligations in accordance with this Indenture to the payment of principal of and
interest on the Securities. The Trustee shall be under no obligation to invest
said United States Legal Tender or United States Government Obligations except
as it may agree with the Company.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the United States Legal Tender or
United States Government Obligations deposited pursuant to Section 9.03 hereof
or the principal and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article Nine to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any United States Legal Tender or United States Government Obligations
held by it as provided in Section 9.03 hereof which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
SECTION 9.05. Repayment to Company.
Subject to this Article Nine, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess United States Legal Tender
or United States Government Obligations held by them at any time and thereupon
shall be relieved from all liability with respect to such money. The Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for two years;
provided that the Trustee or such Paying Agent, before being required to make
any payment, may at the expense of the Company cause to be published once in a
newspaper of general circulation in The City of New York or mail to each Holder
entitled to such money notice that such money remains unclaimed and that after a
date specified therein which shall be at least 30 days from the date of such
publication or mailing any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Holders entitled to such
money must look to the Company for payment as general creditors unless an
applicable law designates another Person.
SECTION 9.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
Legal Tender or United States Government Obligations in accordance with this
Article Nine by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article Nine until such time as the
Trustee or Paying Agent is permitted to apply all such United States Legal
Tender or United States Government Obligations in accordance with Article Nine;
provided that if the Company has made any payment of interest on or principal of
any Securities because of the reinstatement of their obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from
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the United States Legal Tender or United States Government Obligations held by
the Trustee or Paying Agent.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Company and each Guarantor, when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any Holder:
(a) to evidence the succession of another Person to the Company or
any Guarantor and the assumption by any such successor of the covenants of
the Company or any Guarantor in this Indenture and in the Securities;
(b) to add to the covenants of the Company or any Guarantor for the
benefit of the Holders, or to surrender any right or power herein
conferred upon the Company or any Guarantor;
(c) to add additional Events of Defaults;
(d) to provide for uncertificated Securities in addition to or in
place of the certificated Securities;
(e) to evidence and provide for the acceptance of appointment under
this Indenture by a successor Trustee;
(f) to secure the Securities or any Guarantee pursuant to the
requirements of Section 4.18 or otherwise;
(g) to cure any ambiguity, to correct or supplement any provision in
this Indenture that may be defective or inconsistent with any other
provisions in this Indenture, or to make any other provisions with respect
to matters or questions arising under this Indenture; provided that such
actions taken pursuant to this clause (g) do not, in the opinion of the
Trustee, adversely affect the interests of the Holders in any material
respect;
(h) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the TIA;
(i) to release any Guarantor from its Guarantee (including in
connection with a sale of all of the Capital Stock or all or substantially
all of the assets of such Guarantor) or to add a Guarantor, in each case
pursuant to the requirements of Section 4.19; or
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(j) to provide for the issuance of Securities subsequent to the
Issue Date pursuant to Section 2.02;
provided, however, that the Company deliver to the Trustee an Opinion of Counsel
stating that such amendment or supplement does not adversely affect the rights
of any Holder and otherwise complies with the provisions of this Section 10.01.
In formulating its opinion on the matters in clause (g), the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an Opinion of Counsel.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and each Guarantor, when
authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Securities, or waive
compliance with any provision hereof or thereof, with the written consent of the
Holders of at least a majority in principal amount of the outstanding Securities
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Securities). However, without the
consent of each Holder affected, an amendment, supplement or waiver, including a
waiver pursuant to Section 6.04, may not:
(a) reduce the amount of Securities whose Holders must consent to an
amendment;
(b) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any
Securities;
(c) reduce the principal of or change or have the effect of changing
the fixed maturity of any Securities, or change the date on which any
Securities may be subject to redemption or repurchase, or reduce the
redemption or repurchase price therefor;
(d) make any Securities payable in money other than that stated in
the Securities;
(e) make any change in the express provisions of this Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Security on or after the due date thereof or to bring
suit to enforce such payment, or permitting Holders of a majority in
principal amount of Securities to waive Defaults or Events of Default;
(f) after the Company's obligation to purchase Securities arises
hereunder, amend, change or modify in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the
event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or, after such
Change of Control has occurred or such Asset Sale has been consummated,
modify any of the provisions or definitions with respect thereto;
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(g) modify or change any provision of this Indenture or the related
definitions affecting the subordination or ranking of the Securities in a
manner which adversely affects the Holders; or
(h) release any Guarantor from any of its obligations under its
Guarantee or this Indenture otherwise than in accordance with the terms of
this Indenture.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 10.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of that Security or portion of that Security that evidences
the same debt as the consenting Holder's Security, even if notation of the
consent is not made on any Security. Subject to the following paragraph, any
such Holder or subsequent Holder may revoke the consent as to such Holder's
Security or portion of such Security by notice to the Trustee or the Company
received before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders of Securities entitled to consent to
any amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (a)
through (h) of Section 10.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
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SECTION 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determine, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
each Guarantor, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
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ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally guarantees to each Holder of a
Security authenticated by the Trustee and to the Trustee and its successors and
assigns that: the principal of and interest on the Securities will be promptly
paid in full when due, subject to any applicable grace period, whether at
maturity, by acceleration or otherwise, and interest on the overdue principal
and interest on any overdue interest on the Securities and all other obligations
of the Company to the Holders or the Trustee hereunder or under the Securities
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; subject, however, to the limitations set forth in Section
11.03. Each Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Securities or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Securities with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of such Guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that the Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to return to
the Company or any Guarantor or any custodian, trustee, liquidator or other
similar official acting in relation to the Company or a Guarantor, any amount
paid by the Company or a Guarantor to the Trustee or such Holder, the Guarantee,
to the extent theretofore discharged, shall be reinstated in full force and
effect. Each Guarantor further agrees that, as between such Guarantor, on the
one hand, and the Holders and the Trustee, on the other hand, (x) the maturity
of the obligations guaranteed hereby may be accelerated as provided in Article
Six for the purpose of the Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Six, such obligations (whether or not due and payable)
shall become due and payable by such Guarantor for the purpose of the Guarantee.
SECTION 11.02. Severability.
In case any provision of this Article Eleven shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirm that it is the intention of all such parties that the
Guarantee does not constitute a fraudulent transfer or conveyance for purposes
of Title 11 of the United States Code, as
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amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar U.S. Federal or state or other applicable law. To effectuate
the foregoing intention, each Holder and each Guarantor hereby irrevocably agree
that the obligations of a Guarantor under its Guarantee shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor, and after giving effect to any collections from
or payments made by or on behalf of such Guarantor in respect of the obligations
of such Guarantor pursuant to Section 11.04, result in the obligations of such
Guarantor not constituting such a fraudulent transfer or conveyance.
SECTION 11.04. Execution of Guarantee.
To further evidence the Guarantee to the Holders, each Guarantor
hereby agrees to execute a guarantee to be endorsed on and made a part of each
Security ordered to be authenticated and delivered by the Trustee. Each
Guarantor hereby agrees that its guarantee set forth in Section 11.01 shall
remain in full force and effect notwithstanding any failure to endorse on each
Security a guarantee. Each such guarantee shall be signed on behalf of each
Guarantor by its Chairman of the Board, its President or one of its Vice
Presidents prior to the authentication of the Security on which it is endorsed,
and the delivery of such Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of such guarantee on behalf of
such Guarantor. Such signature upon the guarantee may be a manual or facsimile
signature of such officer and may be imprinted or otherwise reproduced on the
guarantee, and in case such officer who shall have signed the guarantee shall
cease to be such officer before the Security on which such guarantee is endorsed
shall have been authenticated and delivered by the Trustee or disposed of by the
Company, such Security nevertheless may be authenticated and delivered or
disposed of as though the Person who signed the guarantee had not ceased to be
such officer of such Guarantor.
SECTION 11.05. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under the Guarantee or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of such Guarantor shall be made
before, the payment in full in cash of all outstanding Senior Indebtedness and
Guarantor Senior Indebtedness in accordance with the provisions provided
therefor in this Indenture.
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ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Senior Indebtedness.
Each Guarantor covenants and agrees, and the Trustee and each Holder
of the Securities by its acceptance thereof likewise covenant and agrees, (i)
that the Guarantee shall be issued subject to the provisions of this Article
Twelve; and each Person holding any Security, whether upon original issue or
upon transfer, assignment or exchange thereof, accepts and agrees that all
payments of the principal of and interest on the Securities pursuant to the
Guarantee made by or on behalf of the Guarantor shall, to the extent and in the
manner set forth in this Article Twelve, be subordinated and junior in right of
payment to the prior payment in full in cash or Cash Equivalents of all amounts
payable under Guarantor Senior Indebtedness of such Guarantor, whether
outstanding on the Issue Date or thereafter incurred, and (ii) that the
subordination is for the benefit of, and shall be enforceable directly by, the
holders of Guarantor Senior Indebtedness, and that each holder of Guarantor
Senior Indebtedness whether now outstanding or hereafter created, incurred,
assumed or guaranteed shall be deemed to have acquired Guarantor Senior
Indebtedness in reliance upon the covenants and provisions contained in this
Indenture and the Guarantees.
SECTION 12.02. Payment Over of Proceeds upon Dissolution, etc.; No Payment
in Certain Circumstances
(a) Upon any payment or distribution of assets of the Guarantor of
any kind or character, whether in cash, property or securities, to creditors
upon any total or partial liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Guarantor
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Guarantor or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Guarantor Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Guarantor Senior Indebtedness whether or
not such interest is an allowed claim in such proceeding) shall first be paid in
full in cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Guarantor Senior Indebtedness, before any payment
or distribution of any kind or character is made by or on behalf of the
Guarantor on account of any Obligations on the Guarantee or for the acquisition
of any of the Securities for cash or property or otherwise (except that holders
of the Securities may receive Defeasance Trust Payments). Before any payment may
be made by, or on behalf of, the Guarantor of any Obligations on the Securities
upon any such dissolution or winding-up or total liquidation or reorganization,
any payment or distribution of assets or securities of the Guarantor of any kind
or character, whether in cash, property or securities, to which the Holders of
the Securities or the Trustee on their behalf would be entitled, but for the
subordination provisions of this Indenture, shall be made by the Guarantor or by
any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, directly to the holders of the Guarantor
Senior Indebtedness of the Guarantor (pro rata to such holders on the basis of
the respective amounts of such Guarantor Senior Indebtedness held by such
holders) or their
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representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Guarantor Senior Indebtedness in full in
cash or Cash Equivalents after giving effect to any prior or concurrent payment,
distribution or provision therefor to or for the holders of such Guarantor
Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Guarantor of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or any Holder of
Securities at a time when such payment or distribution is prohibited by Section
12.02(a) and before all Obligations in respect of the Guarantor Senior
Indebtedness of the Guarantor are paid in full in cash or Cash Equivalents, such
payment or distribution shall be received and held in trust for the benefit of,
and shall be paid over or delivered to, the holders of such Guarantor Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
such Guarantor Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Guarantor Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of such Guarantor Senior Indebtedness remaining unpaid until all such
Guarantor Senior Indebtedness has been paid in full in cash or Cash Equivalents
after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Guarantor Senior Indebtedness.
(c) To the extent any payment of Guarantor Senior Indebtedness of a
Guarantor (whether by or on behalf of such Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, the Guarantor
Senior Indebtedness or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment has not occurred.
The consolidation of the Guarantor with, or the merger of the
Guarantor with or into, another corporation or the liquidation or dissolution of
the Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 12.02
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by acceleration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Guarantor Senior
Indebtedness, no payment of any kind or character shall be made by or on behalf
of the Guarantor or any other Person on its behalf with respect to any
Obligations on
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the Guarantee or to acquire any of the Securities for cash or property or
otherwise (except that holders of the Securities may receive Defeasance Trust
Payments).
In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness then
outstanding to accelerate the maturity thereof and if the Representative for the
respective issue of Designated Senior Indebtedness gives a Payment Blockage
Notice to the Trustee, then, unless and until all events of default have been
cured or waived or have ceased to exist or the Trustee receives notice from the
Representative for the respective issue of Designated Senior Indebtedness
terminating the Payment Blockage Period, during the Payment Blockage Period,
neither the Guarantor, nor any other Person on the Guarantor's behalf, shall (x)
make any payment of any kind or character with respect to any Obligations on the
Guarantee or (y) acquire any of the Securities for cash or property or otherwise
(except that holders of the Securities may receive Defeasance Trust Payments).
Notwithstanding anything herein to the contrary, in no event will a
Payment Blockage Period extend beyond 180 days from the date the Payment
Blockage Notice is delivered and only one such Payment Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness shall be, or be made, the
basis for commencement of a second Payment Blockage Period by the Representative
of such Designated Senior Indebtedness whether or not within a period of 360
consecutive days, unless such event of default shall have been cured or waived
for a period of not less than 90 consecutive days (it being acknowledged that
any subsequent action, or any breach of any financial covenants for a period
commencing after the date of commencement of such Payment Blockage Period that,
in either case, would give rise to an event of default pursuant to any
provisions under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose).
In the event that, notwithstanding the provisions of the two
paragraphs preceding the immediately preceding paragraph of this Section 12.02
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Guarantor of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or any Holder of
Securities at a time when such payment or distribution is prohibited by the two
paragraphs preceding the immediately preceding paragraph of this Section 12.02
and before all Obligations in respect of the Guarantor Senior Indebtedness of
the Guarantor are paid in full in cash or Cash Equivalents, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the holders of such Guarantor Senior Indebtedness
(pro rata to such holders on the basis of the respective amounts of such
Guarantor Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Guarantor Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of such Guarantor Senior Indebtedness remaining unpaid until all such
Guarantor Senior Indebtedness has been paid in full in cash or Cash Equivalents
after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Guarantor Senior Indebtedness.
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SECTION 12.03. Subrogation.
Upon the payment in full in cash or Cash Equivalents of all
Guarantor Senior Indebtedness of a Guarantor, the Holders of the Securities
shall be subrogated to the rights of the holders of such Guarantor Senior
Indebtedness to receive payments or distributions of cash, property or
securities of such Guarantor made on such Guarantor Senior Indebtedness until
the principal of and interest on the Securities shall be paid in full in cash or
Cash Equivalents; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Guarantor Senior Indebtedness of any cash,
property or securities to which the Holders of the Securities or the Trustee on
their behalf would be entitled except for the provisions of this Article Twelve,
and no payment over pursuant to the provisions of this Article Twelve to the
holders of such Guarantor Senior Indebtedness by Holders of the Securities or
the Trustee on their behalf shall, as between such Guarantor, its creditors
other than holders of such Guarantor Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment by such Guarantor to or on account of such
Guarantor Senior Indebtedness. It is understood that the provisions of this
Article Twelve are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities, on the one hand, and the
holders of Guarantor Senior Indebtedness of any such Guarantor on the other
hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article Twelve shall have been applied, pursuant to the provisions of this
Article Twelve, to the payment of all amounts payable under Guarantor Senior
Indebtedness of the Guarantors, then and in such case, the Holders of the
Securities shall be entitled to receive from the holders of such Guarantor
Senior Indebtedness any payments or distributions received by such holders of
Guarantor Senior Indebtedness in excess of the amount required to make payment
in full in cash of such Guarantor Senior Indebtedness.
SECTION 12.04. Obligations of Guarantors Unconditional.
Subject to Sections 11.03 and 8.02, nothing contained in this
Article Twelve or elsewhere in this Indenture or in the Securities is intended
to or shall impair, as among any Guarantor and the Holders of the Securities,
the obligation of such Guarantor, which is absolute and unconditional, to pay to
the Holders of the Securities the principal of and interest on the Securities as
and when the same shall become due and payable in accordance with the terms of
the Guarantee, or is intended to or shall affect the relative rights of the such
Guarantor of the Securities and creditors of any Guarantor other than the
holders of Guarantor Senior Indebtedness of such Guarantor, as the case may be,
nor shall anything herein or therein prevent the Holder of any Security or the
Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Twelve of the holders of Guarantor Senior Indebtedness in
respect of cash, property or securities of such Guarantor received upon the
exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained
in this Article Twelve shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Guarantor Senior Indebtedness
of each Guarantor then due and payable shall first be paid in full in cash or
Cash
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Equivalents before the Holders of the Securities or the Trustee are entitled to
receive any direct or indirect payment from, or on behalf of, such Guarantor on
account of any Obligations on the Securities pursuant to the Guarantee.
SECTION 12.05. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Twelve (although the failure to give any such notice shall not affect
the subordination provisions set forth in this Article Twelve). The Trustee
shall not be charged with knowledge of the existence of any event of default
with respect to any Guarantor Senior Indebtedness of a Guarantor or of any other
facts which would prohibit the making of any payment to or by the Trustee unless
and until the Trustee shall have received notice in writing at its Corporate
Trust Office to that effect signed by an Officer of the Company, or by a holder
of Guarantor Senior Indebtedness of a Guarantor or trustee or agent therefor;
and prior to the receipt of any such written notice, the Trustee shall, subject
to Article Seven, be entitled to assume that no such facts exist; provided,
however, that if the Trustee shall not have received the notice provided for in
this Section 12.05 at least two Business Days prior to the date upon which by
the terms of this Indenture any moneys shall become payable for any purpose
(including, without limitation, the payment of the principal of or interest on
any Security), then, regardless of anything herein to the contrary, the Trustee
shall have full power and authority to receive any moneys from the Guarantor and
to apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such prior date (although the receipt of such moneys by any Holder of Securities
shall otherwise be subject to the provisions of this Article Twelve). Nothing
contained in this Section 12.05 shall limit the right of the holders of
Guarantor Senior Indebtedness of a Guarantor to recover payments as contemplated
by Section 12.02. The Trustee shall be entitled to rely on the delivery to it of
a written notice by a Person representing himself or itself to be a holder of
any Guarantor Senior Indebtedness of a Guarantor (or a trustee on behalf of, or
other representative of, such holder) to establish that such notice has been
given by a holder of such Guarantor Senior Indebtedness or a trustee or
representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness of a Guarantor to participate in any payment or
distribution pursuant to this Article Twelve, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Guarantor Senior Indebtedness held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution and
any other facts pertinent to the rights of such Person under this Article
Twelve, and if such evidence is not furnished, the Trustee may defer any payment
to such Person pending judicial determination as to the right of such Person to
receive such payment.
SECTION 12.06. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets or securities of a
Guarantor referred to in this Article Twelve, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy,
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dissolution, winding-up, liquidation or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, delivered to
the Trustee or to the Holders of the Securities for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of
Guarantor Senior Indebtedness of such Guarantor and other indebtedness of such
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
Twelve.
SECTION 12.07. Trustee's Relation to Guarantor Senior Indebtedness of a
Guarantor.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to any Guarantor Senior
Indebtedness of a Guarantor which may at any time be held by them in their
individual or any other capacity to the same extent as any other holder of
Guarantor Senior Indebtedness of such Guarantor, and nothing in this Indenture
shall deprive the Trustee or any Paying Agent of any of its rights as such
holder.
With respect to the holders of Guarantor Senior Indebtedness of any
Guarantor, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article Twelve,
and no implied covenants or obligations with respect to the holders of such
Guarantor Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness of any Guarantor (except as provided in
Section 12.02(b)). The Trustee shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Company or to any other person cash, property or securities
to which any holders of Guarantor Senior Indebtedness of a Guarantor shall be
entitled by virtue of this Article Twelve or otherwise.
SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions of
Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness of a Guarantor to enforce subordination as provided herein shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of such Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by such Guarantor with the terms of
this Indenture, regardless of any knowledge thereof which any such holder may
have or otherwise be charged with. The provisions of this Article Twelve are
intended to be for the benefit of, and shall be enforceable directly by, the
holders of Guarantor Senior Indebtedness of any Guarantor.
SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of
Guarantee.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Twelve, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
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liquidation or reorganization of any Guarantor (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon an
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of any Guarantor, the filing of a claim
for the unpaid balance of its or his Securities in the form required in those
proceedings. If the Trustee does not file a proper claim or proof of debt in the
form required in any proceeding referred to in Section 6.09 prior to 30 days
before the expiration of the time to file such claim or claims, then any of the
holders of the Guarantor Senior Indebtedness or their Representative is hereby
authorized to file an appropriate claim for and on behalf of the Holders of said
Securities. Nothing herein contained shall be deemed to authorize the Trustee or
the holders of Guarantor Senior Indebtedness or their Representative to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee or the holders
of Guarantor Senior Indebtedness or their Representative to vote in respect of
the claim of any Holder in any such proceeding.
SECTION 12.10. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Twelve shall not be
construed as preventing the occurrence of an Event of Default.
SECTION 12.11. Trustee's Compensation Not Prejudiced.
Nothing in this Article Twelve shall apply to amounts due to the
Trustee, in its capacity as such, pursuant to other sections in this Indenture.
SECTION 12.12. No Waiver of Guarantee Subordination Provisions.
Without in any way limiting the generality of Section 12.08, the
holders of Guarantor Senior Indebtedness of any Guarantor, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in this
Article Twelve or the obligations hereunder of the Holders of the Securities to
the holders of such Guarantor Senior Indebtedness, may do any one or more of the
following: (a) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, such Guarantor Senior Indebtedness or any
instrument evidencing the same or any agreement under which such Guarantor
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing such
Guarantor Senior Indebtedness; (c) release any Person liable in any manner for
the collection of such Guarantor Senior Indebtedness; and (d) exercise or
refrain from exercising any rights against the Guarantor and any other Person.
SECTION 12.13. Amendments.
As long as the New Credit Facility is outstanding or any amounts are
outstanding thereunder, the provisions of this Article Twelve (and the
definition used herein) shall not be amended or modified without the written
consent of the majority of the lenders under the New Credit Facility.
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ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of any indenture subject to the TIA. If any provision of
this Indenture modifies any TIA provision that may be so modified, such TIA
provision shall be deemed to apply to this Indenture as so modified. If any
provision of this Indenture excludes any TIA provision that may be so excluded,
such TIA provision shall be excluded from this Indenture.
The provisions of TIA Sections 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
SECTION 13.02. Notices.
Any notice or communication shall be sufficiently given if in
writing and delivered in person, by facsimile and confirmed by overnight
courier, or mailed by first-class mail addressed as follows:
if to the Company and the Guarantors:
Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: Chief Financial Officer
Facsimile: (805) 254-4721
Telephone: (805) 259-0753
with copies to:
J.F. Lehman & Company
450 Park Avenue
New York, New York 10022
Attention: Keith Oster
Facsimile: (212) 634-1155
Telephone: (212) 634-0100
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Paul D. Ginsberg, Esq.
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Facsimile: (212) 757-3990
Telephone: (212) 373-3000
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
25th Floor
New York, New York 10036
Attention: Corporate Trust Department
Facsimile: (212) 852-1626
Telephone: (212) 852-1674
Each party by notice to the others may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to
a Holder, including any notice delivered in connection with TIA Section 310(b),
TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed
to such Holder at the address as set forth on the list maintained pursuant to
Section 2.05 and shall be sufficiently given to him if so mailed within the time
prescribed. To the extent required by the TIA, any notice or communication shall
also be mailed to any Person described in TIA Section 313(c).
Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Except for
a notice to the Trustee, which is deemed given only when received, if a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities. The
Company, the Trustee, the Registrar and any other person shall have the
protection of TIA Section 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take or refrain from taking any action under this Indenture after the date
hereof, the Company shall furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance satisfactory to the
Trustee stating that, in the opinion of the signers, all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have been
complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with, and such other opinions as the Trustee may
reasonably require.
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SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with; provided, however, that with
respect to matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Paying Agent or Registrar may make reasonable rules for its
functions.
SECTION 13.07. Governing Law.
This Indenture and the Securities will be governed by, and construed
in accordance with, the laws of the State of New York but without giving effect
to applicable principles of conflicts of law to the extent that the application
of the law of another jurisdiction would be required thereby.
SECTION 13.08. No Recourse Against Others.
No director, officer, employee, stockholder or member of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities or this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Securities.
SECTION 13.09. Successors.
All agreements of a party to this Indenture contained in this
Indenture shall bind such party's successors.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
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SECTION 13.11. Severability.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby, and a Holder shall have no claim therefor against any party hereto.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 13.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
[Signature Pages Follow]
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
COMPANY:
SDI ACQUISITION CORP.
By:/s/ Keith Oster
----------------------------------------
Keith Oster, Secretary
GUARANTOR:
[NOT APPLICABLE]
By:
----------------------------------------
Name:
Title:
TRUSTEE:
UNITED STATES TRUST COMPANY OF NEW YORK
By:/s/ Gerard F. Ganey
----------------------------------------
Gerard F. Ganey, Senior Vice President
95
<PAGE> 1
EXHIBIT 4.2
FIRST SUPPLEMENTAL INDENTURE, dated as of December 15, 1998, among
SPECIAL DEVICES, INCORPORATED, a Delaware corporation (the "Company"), SCOT,
INC., a Delaware corporation and a wholly owned subsidiary of the Company
("Scot"), and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the
"Trustee").
WHEREAS, SDI Acquisition Corp., a Delaware corporation ("SDI
Acquisition"), has heretofore executed and delivered to the Trustee an Indenture
dated as of December 15, 1998 (the "Indenture"), providing for the issuance of
its 11 3/8% Senior Subordinated Notes due 2008, Series A in the principal amount
of $100,000,000 (the "Initial Securities") and its 11 3/8% Senior Subordinated
Notes due 2008, Series B (the "Exchange Securities" and, together with the
Initial Securities, the "Securities"); and
WHEREAS, SDI Acquisition has merged with and into the Company and,
in connection herewith, the Company has assumed by operation of law all of SDI
Acquisition's debts, liabilities, duties and obligations, including SDI
Acquisition's obligations in respect of the Securities and under the Indenture;
and
WHEREAS, Scot is required pursuant to the Indenture to become a
party thereto and to guarantee the obligations of the Company in respect of the
Securities and under the Indenture on a senior subordinated basis (the
"Guarantee") as the Guarantor; and
WHEREAS, the Company and Scot desire by this First Supplemental
Indenture, pursuant to and as contemplated by Sections 5.01 and 10.01 of the
Indenture, to expressly assume the covenants, agreements and undertakings of SDI
Acquisition and a Guarantor, respectively, in the Indenture and under the
Securities; and
WHEREAS, the execution and delivery of this First Supplemental
Indenture and the notes evidencing the Initial Securities and the Exchange
Securities substantially in the form attached hereto as Exhibits A and B,
respectively, have been authorized by a resolution of the Board of Directors of
the Company; and
WHEREAS, the execution and delivery of this First Supplemental
Indenture and the guarantee evidencing the Guarantee substantially in the form
attached hereto in Exhibits A and B, have been authorized by a resolution of the
Board of Directors of Scot; and
WHEREAS, the Company and Scot authorize the Trustee to cancel the
11 3/8% Senior Subordinated Notes due 2008, Series A and the 11 3/8% Senior
Subordinated Notes due 2008, Series B of SDI Acquisition and to authenticate
$100,000,000 principal amount of 11 3/8% Senior Subordinated Notes due 2008,
Series A and 11 3/8% Senior Subordinated Notes due 2008, Series B of the
Company, each series as guaranteed by Scot, in replacement thereof; and
WHEREAS, all conditions and requirements necessary to make each of
this First Supplemental Indenture and the Securities a valid, binding and legal
instrument in accordance with its terms upon the Company and the Trustee, and
each of this First Supplemental Indenture and the Guarantee a valid, binding and
legal instrument in accordance with its terms upon Scot and the Trustee, have
been performed and fulfilled by the applicable parties hereto and the
<PAGE> 2
execution and delivery thereof have been in all respects duly authorized by the
applicable parties hereto.
NOW, THEREFORE, in consideration of the above premises, each party
agrees, for the benefit of the others and for the equal and ratable benefit of
the Holders of the Securities, as follows:
ARTICLE ONE
ASSUMPTION OF OBLIGATIONS
SECTION 1.01. Assumption of Obligations of SDI Acquisition.
(a) The Company hereby expressly and unconditionally assumes each
and every covenant, agreement and undertaking of SDI Acquisition in the
Indenture as if the Company had been the original issuer of the Securities and
also hereby expressly and unconditionally assumes each and every covenant,
agreement and undertaking in each Security outstanding on the date of this First
Supplemental Indenture.
(b) Promptly following the execution and delivery of this First
Supplemental Indenture, the Trustee shall, upon the written order of the Company
in the form of an Officers' Certificate of the Company, authenticate and deliver
Initial Securities substantially in the form of Exhibit A hereto in replacement
of the outstanding Initial Securities, and, upon delivery of certificates
representing the Initial Notes of SDI Acquisition to the Trustee for
cancellation, the Trustee shall cancel such Initial Notes of SDI Acquisition,
and the third sentence of Section 2.11 of the Indenture shall not apply to such
cancellation.
SECTION 1.02. Assumption of Obligations of the Guarantor.
Scot hereby expressly and unconditionally assumes each and every
covenant, agreement and undertaking of a Guarantor in the Indenture and also
hereby expressly and unconditionally assumes each and every covenant, agreement
and undertaking relating to a Guarantor in each Security outstanding on the date
of this First Supplemental Indenture.
SECTION 1.03. Exchange of Outstanding Securities; Exhibits.
Exhibits A, B, C, D and E of the Indenture are hereby deleted and
replaced in their entirety by Exhibits A, B, C, D and E, respectively, hereto.
ARTICLE TWO
MISCELLANEOUS PROVISIONS
SECTION 2.01. Terms Defined.
2
<PAGE> 3
For all purposes of this First Supplemental Indenture, except as
otherwise defined or unless the context otherwise requires, terms used in
capitalized form in this First Supplemental Indenture and defined in the
Indenture have the meanings specified in the Indenture.
SECTION 2.02. Indenture.
Except as amended hereby, the Indenture, the Securities and the
Guarantee are in all respects ratified and confirmed and all the terms shall
remain in full force and effect.
SECTION 2.03. Governing Law.
THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
SECTION 2.04. Successors.
All agreements of the Company and Scot in this First Supplemental
Indenture, the Securities and the Guarantee shall bind their respective
successors. All agreements of the Trustee in this First Supplemental Indenture
shall bind its successors.
SECTION 2.05. Duplicate Originals.
The parties may sign any number of copies of this First Supplemental
Indenture. Each signed copy shall be an original, but all of them together shall
represent the same agreement.
SECTION 2.06. Trustee Disclaimer.
The Trustee accepts the amendment of the Indenture effected by this
First Supplemental Indenture and agrees to execute the trust created by the
Indenture as hereby amended, but only upon the terms and conditions set forth in
the Indenture, including the terms and provisions defining and limiting the
liabilities and responsibilities of the Trustee, which terms and provisions
shall in like manner define and limit its liabilities and responsibilities in
the performance of the trust created by the Indenture as hereby amended and,
without limiting the generality of the foregoing, the Trustee shall not be
responsible in any manner whatsoever for or with respect to any of the recitals
or statements contained herein, all of which recitals or statements are made
solely by the Company and Scot, or for or with respect to (i) the validity of
the terms of this First Supplemental Indenture or any of the terms or provisions
hereof, (ii) the proper authorization hereof by the Company and Scot by
corporate action or otherwise, (iii) the due execution hereof by the Company and
Scot or (iv) the consequences (direct or indirect and whether deliberate or
inadvertent) of any amendment herein provided for, and the Trustee makes no
representation with respect to any such matters.
3
<PAGE> 4
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the date first written
above.
SPECIAL DEVICES, INCORPORATED,
as issuer
By:/s/ Keith Oster
---------------------------------------
Keith Oster, Secretary
SCOT, INC.,
as Guarantor
By: /s/John T. Vinke
---------------------------------------
John T. Vinke, Executive Vice President
and Chief Financial Officer and Assistant
Secretary
UNITED STATES TRUST COMPANY OF NEW YORK
By:/s/ Gerard F. Ganey
---------------------------------------
Gerard F. Ganey, Senior Vice President
4
<PAGE> 5
EXHIBIT A
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT
TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN
EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000 FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION
WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSE (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
A-1
<PAGE> 6
SPECIAL DEVICES, INCORPORATED
11 3/8% Senior Subordinated Note
due 2008, Series A
CUSIP No.:[_______]
No. [_________] $[____________]
SPECIAL DEVICES, INCORPORATED, a Delaware corporation (the
"Company", which term includes any successor), for value received promises to
pay to Cede & Co. or registered assigns, the principal sum of [__________]
Dollars, on December 15, 2008.
Interest Payment Dates: June 15 and December 15, commencing on
June 15, 1999.
Interest Record Dates: June 1 and December 1.
Reference is made to the further provisions of this Security
contained herein and the Indenture (as defined), which will for all purposes
have the same effect as if set forth at this place.
A-2
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
SPECIAL DEVICES, INCORPORATED
By: _____________________________________
Name:
Title
By: _____________________________________
Name:
Title
Dated: [_____________________]
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11 3/8% Senior Subordinated Notes due 2008,
Series A, described in the within-mentioned Indenture.
Dated: [_____________________]
UNITED STATES TRUST COMPANY OF NEW YORK, as
Trustee
By:_____________________________________________
Authorized Signatory
A-3
<PAGE> 8
(REVERSE OF SECURITY)
SPECIAL DEVICES, INCORPORATED
11 3/8% Senior Subordinated Note
due 2008, Series A
1. Interest.
The Company promises to pay interest on the principal amount of this
Security at the rate per annum shown above. Cash interest on the Securities will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from December 15, 1998. The Company will pay interest
semi-annually in arrears on each Interest Payment Date, commencing June 15,
1999. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
In addition, the Company shall pay interest on overdue principal and
on overdue installments of interest (without regard to any applicable grace
periods) to the extent lawful from time to time on demand, in each case at the
rate borne by this Security.
The Securities are not entitled to the benefit of any mandatory
sinking fund.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in United States Legal Tender (as defined in the Indenture referred to
below). However, the Company may pay principal and interest by wire transfer of
Federal funds (provided that the Paying Agent shall have received wire
instructions on or prior to the relevant Interest Record Date), or interest by
check payable in such United States Legal Tender. The Company may deliver any
such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York (the "Trustee")
will act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to the Holders. The Company may, subject to certain
exceptions, act as Registrar.
A-4
<PAGE> 9
4. Indenture.
The Company issued the Securities under an Indenture, dated as of
December 15, 1998 and the First Supplemental Indenture dated as of December 15,
1998 (collectively, the "Indenture"), by and among the Company, the Guarantors
and the Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. This Security is one of a duly authorized issue
of Securities of the Company designated as its 11 3/8% Senior Subordinated Notes
due 2008 issued under the Indenture. The aggregate principal amount of
Securities which may be issued under the Indenture is limited (except as
otherwise provided in the Indenture) to $150,000,000 in one or more series;
provided that the aggregate principal amount of Initial Securities on the Issue
Date shall not exceed $100,000,000. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of
the Indenture (except as otherwise indicated in the Indenture) until such time
as the Indenture is qualified under the TIA, and thereafter as in effect on the
date on which the Indenture is qualified under the TIA. Notwithstanding anything
to the contrary herein, the Securities are subject to all such terms, and
holders of Securities are referred to the Indenture and the TIA for a statement
of them.
5. Subordination.
The Securities are unsecured obligations of the Company and are
subordinated in right of payment to all Senior Indebtedness of the Company to
the extent and in the manner provided in the Indenture. Each Holder of a
Security, by accepting a Security, agrees to such subordination, authorizes the
Trustee to give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose. The Securities will rank pari passu in right
of payment with any future senior subordinated indebtedness of the Company and
will rank senior in right of payment to any other subordinated obligations of
the Company.
6. Guarantee.
The obligations of the Company hereunder are guaranteed on a senior
subordinated basis by the Guarantors. The Guarantee by the Guarantors is
subordinated in right of payment to all Guarantor Senior Indebtedness of the
Guarantors to the same extent that the Securities are subordinated to Senior
Indebtedness of the Company.
7. Optional Redemption.
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after December 15, 2003, upon
not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on December 15 of the year set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
A-5
<PAGE> 10
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003......................................... 105.688%
2004......................................... 104.266%
2005......................................... 102.844%
2006......................................... 101.422%
2007 and thereafter.......................... 100.000%
</TABLE>
8. Optional Redemption upon Public Equity Offerings.
At any time, or from time to time, on or prior to December 15, 2001,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings (as defined below) to redeem up to 35% of the sum of (i) the
initial aggregate principal amount of Securities issued in the Offering and (ii)
the respective initial aggregate principal amounts of Securities issued under
the Indenture after the Issue Date, at a redemption price equal to 111.375% of
the principal amount thereof plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption; provided that at least
65% of the sum of (i) the initial aggregate principal amount of Securities
issued in the Offering and (ii) the respective initial aggregate principal
amounts of Securities issued under the Indenture after the Issue Date remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means
an underwritten public offering of Qualified Capital Stock of the Company
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act.
9. Selection and Notice of Redemption.
In the event that less than all of the Securities are to be redeemed
at any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Securities are listed or, if such Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Securities of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made with
the proceeds of a Public Equity Offering, selection of the Securities or
portions thereof for redemption shall be made by the Trustee only on a pro rata
basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Securities to be redeemed at its
registered address. If any Security is to be redeemed in part only, the notice
of redemption that relates to such Security shall state the portion of the
principal amount thereof
A-6
<PAGE> 11
to be redeemed. A new Security in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Security. On and after the redemption date,
interest will cease to accrue on Securities or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
10. Change of Control Offer.
Following the occurrence of a Change of Control, the Company shall,
within 30 days, make a Change of Control Offer for all Securities then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the Change
of Control Payment Date (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date).
11. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make a
Net Proceeds Offer for Securities at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Net Proceeds Offer Payment Date (subject to the right of Holders of record
on the Interest Relevant Record Date to receive interest due on the relevant
Interest Payment Date) with the excess proceeds of certain asset dispositions.
12. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange of any Securities or portions thereof selected for redemption, except
the unredeemed portion of any security being redeemed in part.
13. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
A-7
<PAGE> 12
14. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed
for two years, the Trustee and the Paying Agent will repay the funds to the
Company at its written request. After that, all liability of the Trustee and
such Paying Agent with respect to such funds shall cease.
15. Legal Defeasance and Covenant Defeasance.
The Company may be discharged from its obligations under the
Indenture and the Securities, except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
16. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture and the Securities may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that does
not materially adversely affect the rights of any Holder of a Security.
17. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets or to engage in transactions with affiliates or certain other related
persons. The limitations are subject to a number of important qualifications and
exceptions. The Company must report quarterly to the Trustee on compliance with
such limitations.
18. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may
A-8
<PAGE> 13
withhold from Holders of Securities notice of certain continuing Defaults or
Events of Default if it determines that withholding notice is in their interest.
19. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company or its respective Affiliates as if it were not the Trustee.
20. No Recourse Against Others.
No director, officer, employee, stockholder or incorporator of the
Company, as such, shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
21. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
22. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
24. Registration Rights.
Pursuant to the Registration Rights Agreement, the Company will be
obligated upon the occurrence of certain events to consummate an exchange offer
pursuant to which the Holder of this Security shall have the right to exchange
this Security for a 11 3/8% Senior Subordinated Note due 2008, Series B, of the
Company which has been registered under the Securities Act, in like principal
amount and having terms identical in all material respects to the Initial
Securities. The Holders shall be entitled to receive certain additional interest
payments in
A-9
<PAGE> 14
the event such exchange offer is not consummated and upon certain other
conditions, all pursuant to and in accordance with the terms of the Registration
Rights Agreement.
25. Governing Law.
The Indenture and the Securities will be governed by, and construed
in accordance with, the laws of the State of New York but without giving effect
to applicable principles of conflicts of law to the extent that the application
of the law of another jurisdiction would be required thereby.
A-10
<PAGE> 15
[FORM OF GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (capitalized terms used herein have the meanings given
such terms in the Indenture referred to in the Security upon which this notation
is endorsed) hereby unconditionally guarantees on a senior subordinated basis
(such guaranty being referred to herein as the "Guarantee") the due and punctual
payment of the principal of, premium, if any, and interest on the Securities,
whether at maturity, by acceleration or otherwise, the due and punctual payment
of interest on the overdue principal, premium and interest on the Securities,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee, all in accordance with the terms set forth in
Article Eleven of the Indenture.
The obligations of the Guarantor to the Holders of Securities and to
the Trustee pursuant to the Guarantee and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Guarantor Senior Indebtedness of the Guarantor, to the
extent and in the manner provided in Article Eleven and Article Twelve of the
Indenture.
This Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which this
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
[_______________________________]
By:______________________________
Name:
Title:
<PAGE> 16
ASSIGNMENT FORM
I or we assign and transfer this Security to
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: ___________________ Signed:____________________________
Signed exactly as name appears on the other
side of this Security)
Signature Guarantee:___________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE> 17
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate
box:
Section 4.05 [______]Section 4.14 [______]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the
amount: $_____________
Dated:___________________ Your Signature:_______________________________
(Signed exactly as name appears on the other
side of this Security)
Signature Guarantee:
_________________________
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
<PAGE> 18
EXHIBIT B
[FORM OF SERIES B SECURITY]
SPECIAL DEVICES, INCORPORATED
11 3/8% Senior Subordinated Note
due 2008, Series B
CUSIP No.:[_______]
No. [_________] $[____________]
SPECIAL DEVICES, INCORPORATED, a Delaware corporation (the
"Company", which term includes any successor), for value received promises to
pay to Cede & Co. or registered assigns, the principal sum of [__________]
Dollars, on December 15, 2008.
Interest Payment Dates: June 15 and December 15, commencing on
June 15, 1999.
Interest Record Dates: June 1 and December 1.
Reference is made to the further provisions of this Security
contained herein and the Indenture (as defined), which will for all purposes
have the same effect as if set forth at this place.
B-1
<PAGE> 19
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
SPECIAL DEVICES, INCORPORATED
By:________________________________________
Name:
Title
By:________________________________________
Name:
Title
Dated: [_____________________]
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11 3/8% Senior Subordinated Notes due 2008,
Series B, described in the within-mentioned Indenture.
Dated: [_____________________]
UNITED STATES TRUST COMPANY OF NEW YORK, as
Trustee
By:_______________________________________________
Authorized Signatory
B-2
<PAGE> 20
(REVERSE OF SECURITY)
SPECIAL DEVICES, INCORPORATED
11 3/8% Senior Subordinated Note
due 2008, Series B
1. Interest.
The Company promises to pay interest on the principal amount of this
Security at the rate per annum shown above. Cash interest on the Securities will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from December 15, 1998. The Company will pay interest
semi-annually in arrears on each Interest Payment Date, commencing June 15,
1999. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
In addition, the Company shall pay interest on overdue principal and
on overdue installments of interest (without regard to any applicable grace
periods) to the extent lawful from time to time on demand, in each case at the
rate borne by this Security.
The Securities are not entitled to the benefit of any mandatory
sinking fund.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are canceled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in United States Legal Tender (as defined in the Indenture referred to
below). However, the Company may pay principal and interest by wire transfer of
Federal funds (provided that the Paying Agent shall have received wire
instructions on or prior to the relevant Interest Record Date), or interest by
check payable in such United States Legal Tender. The Company may deliver any
such interest payment to the Paying Agent or to a Holder at the Holder's
registered address.
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York (the "Trustee")
will act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to the Holders. The Company may, subject to certain
exceptions, act as Registrar.
B-3
<PAGE> 21
4. Indenture.
The Company issued the Securities under an Indenture, dated as of
December 15, 1998 and the First Supplemental Indenture dated as of December 15,
1998 (collectively, the "Indenture"), by and among the Company, the Guarantors
and the Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. This Security is one of a duly authorized issue
of Securities of the Company designated as its 11 3/8% Senior Subordinated Notes
due 2008 issued under the Indenture. The aggregate principal amount of
Securities which may be issued under the Indenture is limited (except as
otherwise provided in the Indenture) to $150,000,000 in one or more series;
provided that the aggregate principal amount of Initial Securities on the Issue
Date shall not exceed $100,000,000. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of
the Indenture (except as otherwise indicated in the Indenture) until such time
as the Indenture is qualified under the TIA, and thereafter as in effect on the
date on which the Indenture is qualified under the TIA. Notwithstanding anything
to the contrary herein, the Securities are subject to all such terms, and
holders of Securities are referred to the Indenture and the TIA for a statement
of them.
5. Subordination.
The Securities are unsecured obligations of the Company and are
subordinated in right of payment to all Senior Indebtedness of the Company to
the extent and in the manner provided in the Indenture. Each Holder of a
Security, by accepting a Security, agrees to such subordination, authorizes the
Trustee to give effect to such subordination and appoints the Trustee as
attorney-in-fact for such purpose. The Securities will rank pari passu in right
of payment with any future senior subordinated indebtedness of the Company and
will rank senior in right of payment to any other subordinated obligations of
the Company.
6. Guarantee.
The obligations of the Company hereunder are guaranteed on a senior
subordinated basis by the Guarantors. The Guarantee by the Guarantors is
subordinated in right of payment to all Guarantor Senior Indebtedness of the
Guarantors to the same extent that the Securities are subordinated to Senior
Indebtedness of the Company.
7. Optional Redemption.
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after December 15, 2003, upon
not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on December 15 of the year set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
B-4
<PAGE> 22
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003......................................... 105.688%
2004......................................... 104.266%
2005......................................... 102.844%
2006......................................... 101.422%
2007 and thereafter.......................... 100.000%
</TABLE>
8. Optional Redemption upon Public Equity Offerings.
At any time, or from time to time, on or prior to December 15, 2001,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings (as defined below) to redeem up to 35% of the sum of (i) the
initial aggregate principal amount of Securities issued in the Offering and (ii)
the respective initial aggregate principal amounts of Securities issued under
the Indenture after the Issue Date, at a redemption price equal to 111.375% of
the principal amount thereof plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of redemption; provided that at least
65% of the sum of (i) the initial aggregate principal amount of Securities
issued in the Offering and (ii) the respective initial aggregate principal
amounts of Securities issued under the Indenture after the Issue Date remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means
an underwritten public offering of Qualified Capital Stock of the Company
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act.
9. Selection and Notice of Redemption.
In the event that less than all of the Securities are to be redeemed
at any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Securities are listed or, if such Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Securities of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made with
the proceeds of a Public Equity Offering, selection of the Securities or
portions thereof for redemption shall be made by the Trustee only on a pro rata
basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Securities to be redeemed at its
registered address. If any Security is to be redeemed in part only, the notice
of redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof
B-5
<PAGE> 23
will be issued in the name of the Holder thereof upon cancellation of the
original Security. On and after the redemption date, interest will cease to
accrue on Securities or portions thereof called for redemption as long as the
Company has deposited with the Paying Agent funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
10. Change of Control Offer.
Following the occurrence of a Change of Control, the Company shall,
within 30 days, make a Change of Control Offer for all Securities then
outstanding at a purchase price in cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the Change
of Control Payment Date (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant Interest
Payment Date).
11. Limitation on Disposition of Assets.
The Company is, subject to certain conditions, obligated to make a
Net Proceeds Offer for Securities at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Net Proceeds Offer Payment Date (subject to the right of Holders of record
on the Interest Relevant Record Date to receive interest due on the relevant
Interest Payment Date) with the excess proceeds of certain asset dispositions.
12. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange of any Securities or portions thereof selected for redemption, except
the unredeemed portion of any security being redeemed in part.
13. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
14. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed
for two years, the Trustee and the Paying Agent will repay the funds to the
Company at its written request. After that, all liability of the Trustee and
such Paying Agent with respect to such funds shall cease.
15. Legal Defeasance and Covenant Defeasance.
B-6
<PAGE> 24
The Company may be discharged from its obligations under the
Indenture and the Securities, except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
16. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture and the Securities may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that does
not materially adversely affect the rights of any Holder of a Security.
17. Restrictive Covenants.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets or to engage in transactions with affiliates or certain other related
persons. The limitations are subject to a number of important qualifications and
exceptions. The Company must report quarterly to the Trustee on compliance with
such limitations.
18. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
19. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company or its respective Affiliates as if it were not the Trustee.
B-7
<PAGE> 25
20. No Recourse Against Others.
No director, officer, employee, stockholder or incorporator of the
Company, as such, shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
21. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
22. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
24. Governing Law.
The Indenture and the Securities will be governed by, and construed
in accordance with, the laws of the State of New York but without giving effect
of applicable principles of conflicts of law to the extent that the application
of the law of another jurisdiction would be required thereby.
B-8
<PAGE> 26
[FORM OF GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantor (capitalized terms used herein have the meanings given
such terms in the Indenture referred to in the Security upon which this notation
is endorsed) hereby unconditionally guarantees on a senior subordinated basis
(such guaranty being referred to herein as the "Guarantee") the due and punctual
payment of the principal of, premium, if any, and interest on the Securities,
whether at maturity, by acceleration or otherwise, the due and punctual payment
of interest on the overdue principal, premium and interest on the Securities,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee, all in accordance with the terms set forth in
Article Eleven of the Indenture.
The obligations of the Guarantor to the Holders of Securities and to
the Trustee pursuant to the Guarantee and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Guarantor Senior Indebtedness of the Guarantor, to the
extent and in the manner provided in Article Eleven and Article Twelve of the
Indenture.
This Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which this
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
[_______________________________]
By:______________________________
Name:
Title:
<PAGE> 27
ASSIGNMENT FORM
I or we assign and transfer this Security to
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint _______________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:____________________________________
Signed exactly as name appears on the other
side of this Security)
Signature Guarantee: _____________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE> 28
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate
box:
Section 4.05 [______]Section 4.14 [______]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the
amount: $_____________
Dated:___________________ Your Signature:_______________________________
(Signed exactly as name appears on the other
side of this Security)
Signature Guarantee:
_________________________
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
<PAGE> 1
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is dated as of
December 15, 1998, among SDI ACQUISITION CORP., a Delaware corporation, as
issuer ("SDI Acquisition"), and BT ALEX. BROWN INCORPORATED and PARIBAS
CORPORATION, as initial purchasers (the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement by and among SDI Acquisition and the Initial Purchasers, dated as of
December 11, 1998 (the "Purchase Agreement"), which provides for, among other
things, the sale by SDI Acquisition to the Initial Purchasers of $100,000,000
aggregate principal amount of the SDI Acquisition's 11 3/8% Senior Subordinated
Notes due 2008 (the "Notes"). The Notes and the Guarantee (as defined below) are
to be issued under an indenture (the "Indenture") to be dated as of December 15,
1998 by and between SDI Acquisition and United States Trust Company of New York,
a New York banking corporation, as Trustee. In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Issuers have agreed to
provide the registration rights set forth in this Agreement for the benefit of
the Initial Purchasers and any subsequent holder or holders of the Notes. The
execution and delivery of this Agreement by SDI Acquisition is a condition to
the Initial Purchasers' obligation to purchase the Notes under the Purchase
Agreement.
The Notes are being sold in connection with the recapitalization
(the "Recapitalization") of Special Devices, Incorporated, a Delaware
corporation (the "Company"), pursuant to the Amended and Restated Agreement and
Plan of Merger dated as of June 19, 1998 by and between the Company and SDI
Acquisition (as amended through the date hereof and together with all ancillary
agreements entered into in connection therewith, the "Recapitalization
Agreement"). The Recapitalization Agreement provides for the merger (the
"Merger") of SDI Acquisition with and into the Company with the Company
surviving the Merger. The time of the consummation of the Recapitalization and
the Merger is referred to herein as the "Effective Time."
Immediately after the Effective Time, (i) the Company and the
Guarantor (as defined below) will execute an assumption agreement (the
"Assumption Agreement"), substantially in the form attached hereto as Exhibit A,
pursuant to which the Company, as survivor of the Merger, will (a) assume all of
the obligations of SDI Acquisition under this Agreement, and cause Scot, Inc., a
Delaware corporation and a wholly owned subsidiary of the Company, to become a
party to this Agreement as a guarantor (the "Guarantor") and unconditionally
guarantee the Notes (the "Guarantee") on an unsecured, senior subordinated basis
and (b) assume all of the obligations of SDI Acquisition under the Purchase
Agreement and cause Scot, Inc. to become a party to the Purchase Agreement as a
guarantor; and (ii) the Company, the Guarantor and the Trustee will enter into a
first supplemental indenture to the Indenture (the "First Supplemental
Indenture") providing for the express assumption by the Company, as survivor of
the Merger, of the covenants, agreements and undertakings of SDI Acquisition in
the Indenture and under the Notes, and the guarantee of the Notes by the
Guarantor. References to this Agreement as of and after the Effective Time will
refer to this Registration Rights Agreement together with the Assumption
Agreement, references to the Purchase Agreement as of and after the Effective
Time will refer to the Registration Rights Agreement
<PAGE> 2
together with the Assumption Agreement, and references to the Indenture as of
and after the Effective Time will refer to the Indenture and the First
Supplemental Indenture. As used herein, the "Issuers" shall mean SDI Acquisition
prior to the Effective Time and, at and as of the Effective Time, the Company
and the Guarantor.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Assumption Agreement: See the introductory paragraphs hereto.
Applicable Period: See Section 2(b) hereof.
Business Day: Any day that is not a Saturday, Sunday or a day on
which banking institutions in New York are authorized or required by law to
be closed.
Closing Date: The Closing Date as defined in the Purchase Agreement.
Company: See the introductory paragraphs hereto.
Effectiveness Date: The 180th day after the Issue Date; provided,
however, that with respect to any Shelf Registration, the Effectiveness Date
shall be the 90th day after the Filing Date with respect thereto.
Effectiveness Period: See Section 3 hereof.
Effective Time: See the introductory paragraphs hereto.
Event Date: See Section 4 hereof.
Exchange Act: The Securities Exchange Act of 1934, and the rules
and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Offer Registration Statement: See Section 2(a) hereof.
2
<PAGE> 3
Filing Date: (A) If no Exchange Offer Registration Statement has
been filed by the Issuers pursuant to this Agreement, the 120th day after the
Issue Date; provided, however, that if a Shelf Notice is given within 10 days
after the Filing Date, then the Filing Date with respect to the Initial Shelf
Registration shall be the 15th day after the delivery of such Shelf Notice; and
(B) in each other case (which may be applicable notwithstanding the consummation
of the Exchange Offer), the 30th day after the delivery of a Shelf Notice.
Guarantee: See the introductory paragraphs hereto.
Guarantor: See the introductory paragraphs hereto.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Persons: See Section 7(c) hereof.
Indenture: See the introductory paragraphs hereto.
Information: See Section 5(n) hereof.
Initial Purchasers: See the introductory paragraphs hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(n) hereof.
Issue Date: December 15, 1998, the date of original issuance of
the Notes.
Issuers: See the introductory paragraphs hereto.
Liquidated Damages: See Section 4 hereof.
Merger: See the introductory paragraphs hereto.
NASD: See Section 5(s) hereof.
Notes: See the introductory paragraphs hereto.
Offering Memorandum: The final offering memorandum of the
Company dated December 11, 1998, in respect of the offering of the Securities.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2(b) hereof.
3
<PAGE> 4
Person: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
under the Securities Act and any term sheet filed pursuant to Rule 434 under the
Securities Act), as amended or supplemented by any prospectus supplement, and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereof.
Recapitalization: See the introductory paragraphs hereof.
Recapitalization Agreement: See the introductory paragraphs hereof.
Records: See Section 5(n) hereof.
Registrable Notes: Each Security upon its original issuance and at
all times subsequent thereto, each Exchange Note (and the related Guarantees) as
to which Section 2(c)(iv) hereof is applicable upon original issuance and at all
times subsequent thereto and each Private Exchange Note (and the related
Guarantees) upon original issuance thereof and at all times subsequent thereto,
until the earliest to occur of (i) a Registration Statement (other than, with
respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable,
the Exchange Offer Registration Statement) covering such Security, Exchange Note
or Private Exchange Note has been declared effective by the SEC and such
Security, Exchange Note or such Private Exchange Note (and the related
Guarantees), as the case may be, has been disposed of in accordance with such
effective Registration Statement, (ii) such Security has been exchanged pursuant
to the Exchange Offer for an Exchange Note or Exchange Notes (and the related
Guarantees) that may be resold without restriction under state and federal
securities laws, (iii) such Security, Exchange Note or Private Exchange Note
(and the related Guarantees), as the case may be, ceases to be outstanding for
purposes of the Indenture, or (iv) such Security, Exchange Note or Private
Exchange Note (and the related Guarantees), as the case may be, in the
reasonable opinion of SDI Acquisition and, at and after the Effective Time, the
Company, may be resold without restriction pursuant to Rule 144(k) under the
Securities Act.
Registration Statement: See Section 4(c) hereof.
Registration Statement: Any registration statement of the Issuers
that covers any of the Notes, the Exchange Notes or the Private Exchange Notes
(and the related Guarantees)
4
<PAGE> 5
filed with the SEC under the Securities Act, including the Prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 under the Securities Act.
Rule 144A: Rule 144A under the Securities Act.
Rule 405: Rule 405 under the Securities Act.
Rule 415: Rule 415 under the Securities Act.
Rule 424: Rule 424 under the Securities Act.
SDI Acquisition: See the introductory paragraphs hereto.
SEC: The Securities and Exchange Commission.
Securities: See the introductory paragraphs hereto.
Securities Act: The Securities Act of 1933, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2 hereof.
Shelf Registration: See Section 3(b) hereof.
Subsequent Shelf Registration: See Section 3(b) hereof.
Supplemental Indenture: See the introductory paragraphs hereto.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and the trustee (if
any) under any indenture governing the Exchange Notes and Private Exchange
Notes (and the related Guarantees).
Underwritten registration or underwritten offering: A registration
in which securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
Except as otherwise specifically provided, all references in this
Agreement to acts, laws, statutes, rules, regulations, releases, forms,
no-action letters and other regulatory requirements (collectively, "Regulatory
Requirements") shall be deemed to refer also to any amendments thereto and all
subsequent Regulatory Requirements adopted as a replacement thereto having
substantially the same effect therewith; provided that Rule 144 shall not be
deemed to amend or replace Rule 144A.
5
<PAGE> 6
2. Exchange Offer
(a) The Issuers shall file with the SEC, no later than the Filing
Date, a Registration Statement (the "Exchange Offer Registration Statement") on
an appropriate registration form with respect to a registered offer (the
"Exchange Offer") to exchange any and all of the Registrable Notes for a like
aggregate principal amount of notes of SDI Acquisition and, at and after the
Effective Time, the Company, guaranteed by the Guarantor at and after the
Effective Time, that are identical in all material respects to the Securities,
except that the Exchange Notes shall contain no restrictive legend thereon (the
"Exchange Notes"), and which are entitled to the benefits of the Indenture or a
trust indenture which is identical in all material respects to the Indenture
(other than such changes to the Indenture or any such identical trust indenture
as are necessary to comply with the TIA) and which, in either case, has been
qualified under the TIA. The Exchange Offer shall comply with all applicable
tender offer rules and regulations under the Exchange Act and other applicable
law. The Issuers shall use their reasonable best efforts to (x) cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer
open for at least 20 Business Days (or longer if required by applicable law)
after the date that notice of the Exchange Offer is mailed to Holders; and (z)
consummate the Exchange Offer on or prior to the 35th day following the date on
which the Exchange Offer Registration Statement is declared effective by the
SEC. If, after the Exchange Offer Registration Statement is initially declared
effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes
thereunder is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, the Exchange
Offer Registration Statement shall be deemed not to have become effective for
purposes of this Agreement, unless such interference is cured within five
Business Days.
Each Holder (including, without limitation, each Participating
Broker-Dealer) who participates in the Exchange Offer will be required to
represent to SDI Acquisition and, at and after the Effective Time, the Company,
in writing (which may be contained in the applicable letter of transmittal)
that: (i) any Exchange Notes acquired in exchange for Registrable Notes tendered
is being acquired in the ordinary course of business of the Person receiving
such Exchange Notes, whether or not such recipient is such Holder itself; (ii)
neither such Holder nor, to the actual knowledge of such Holder, any other
Person receiving Exchange Notes from such Holder is engaging in or intends to
engage in a distribution of the Exchange Notes; (iii) at the time of the
consummation of the Exchange Offer neither such Holder nor, to the actual
knowledge of such Holder, any other Person receiving Exchange Notes from such
Holder has an arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes in violation of the provisions of the
Securities Act; (iv) neither the Holder nor, to the actual knowledge of such
Holder, any other Person is an "affiliate" (as defined in Rule 405) of SDI
Acquisition and, at and after the Effective Time, the Company, or, if it is an
affiliate of SDI Acquisition and, at and after the Effective Time, the Company,
it will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable; and (v) if such Holder is a
Participating Broker-Dealer, such Holder has acquired the Registrable Notes as a
result of market-making activities or other trading activities and that it will
comply with the applicable provisions of the Securities Act.
6
<PAGE> 7
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Notes that are Private Exchange
Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange
Notes held by Participating Broker-Dealers (as defined), and the Issuers shall
have no further obligation to register Registrable Notes (other than Private
Exchange Notes and Exchange Notes as to which clause 2(c)(iv) hereof applies)
pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement.
(b) The Issuers shall include within the Prospectus contained in the
Exchange Offer Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies represent the
prevailing views of the staff of the SEC. Such "Plan of Distribution" section
shall also expressly permit, to the extent permitted by applicable policies and
regulations of the SEC, the use of the Prospectus by all Persons subject to the
prospectus delivery requirements of the Securities Act, including, to the extent
permitted by applicable policies and regulations of the SEC, all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes in compliance with
the Securities Act.
In accordance with Section 5 hereof, the Issuers shall use their
reasonable best efforts to keep the Exchange Offer Registration Statement
effective and to amend and supplement the Prospectus contained therein in order
to permit such Prospectus to be lawfully delivered by all Persons subject to the
prospectus delivery requirements of the Securities Act during the period
required by the Securities Act for use in connection with any resale of Exchange
Notes; provided that such period shall not be less than 90 days after such
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
If, prior to consummation of the Exchange Offer, any Holder holds
any Notes acquired by it that have, or that are reasonably likely to be
determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Exchange
Offer, SDI Acquisition and, at and after the Effective Time, the Company, upon
the request of any such Holder shall simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to any such Holder, in
exchange (the "Private Exchange") for such Notes held by any such Holder, a like
principal amount of notes (the "Private Exchange Notes") of SDI Acquisition and,
at and after the Effective Time, the Company, guaranteed by the Guarantor at and
after the Effective Time, that are identical in all material respects to the
Exchange Notes except for the placement of a restrictive legend on such Private
Exchange Notes.
7
<PAGE> 8
The Private Exchange Notes shall be issued pursuant to the same indenture as the
Exchange Notes and bear the same CUSIP number as the Exchange Notes.
In connection with the Exchange Offer, the Issuers shall:
(1) mail, or cause to be mailed, to each Holder of record entitled
to participate in the Exchange Offer a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(2) use their reasonable best efforts to keep the Exchange Offer
open for not less than 20 Business Days after the date that notice of the
Exchange Offer is mailed to Holders (or longer if required by applicable
law);
(3) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(4) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York time, on the last Business Day on which
the Exchange Offer remains open; and
(5) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Issuers shall:
(1) accept for exchange all Registrable Notes validly tendered and
not validly withdrawn pursuant to the Exchange Offer and the Private
Exchange, if any;
(2) deliver to the Trustee for cancellation all Registrable Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Securities, Exchange Notes or Private Exchange Notes, as the
case may be, equal in principal amount to the Securities of such Holder so
accepted for exchange; provided that, in the case of any Notes held in
global form by a depositary, authentication and delivery to such
depositary of one or more replacement Notes in global form in an
equivalent principal amount thereto for the account of such Holders in
accordance with the Indenture shall satisfy such authentication and
delivery requirement.
The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange, as
the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC; (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency which
might materially impair the ability of the Issuers to proceed with the Exchange
Offer or the Private Exchange, and no material adverse development shall have
occurred in any existing action
8
<PAGE> 9
or proceeding with respect to the Issuers; (iii) all governmental approvals
shall have been obtained, which approvals the Issuers deem necessary for the
consummation of the Exchange Offer or Private Exchange; and (iv) the conditions
precedent to the Issuers' obligations under this Agreement shall have been
fulfilled.
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture and which, in either case, has been qualified under the TIA or
is exempt from such qualification and shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture.
The Indenture or such indenture shall provide that the Exchange Notes, the
Private Exchange Notes and the Securities shall vote and consent together on all
matters as one class and that none of the Exchange Notes, the Private Exchange
Notes or the Securities will have the right to vote or consent as a separate
class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Issuers are not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not consummated on or prior to
the 210th day after the Issue Date, (iii) any holder of Private Exchange Notes
so requests in writing to SDI Acquisition and, at and after the Effective Time,
the Company, on or prior to the 60th day after the consummation of the Exchange
Offer, or (iv) in the case of any Holder that participates in the Exchange
Offer, such Holder does not receive Exchange Notes on the date of the exchange
that may be sold without restriction under state and federal securities laws
(other than due solely to the status of such Holder as an affiliate of SDI
Acquisition and, at and after the Effective Time, the Company, under Rule 405
and such Holder so requests by written notice to SDI Acquisition and, at and
after the Effective Time, the Company, of such event on or prior to the 60th day
after the consummation of the Exchange Offer), then in the case of each of
clauses (i) to and including (iv) of this sentence, SDI Acquisition and, at and
after the Effective Time, the Company, shall promptly deliver to the Holders and
the Trustee written notice thereof (the "Shelf Notice") and shall file a Shelf
Registration pursuant to Section 3 hereof.
3. Shelf Registration
If at any time a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Issuers shall file with the SEC a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange
Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is
applicable (the "Initial Shelf Registration"). The Issuers shall use their
reasonable best efforts to file with the SEC the Initial Shelf Registration on
or before the applicable Filing Date. The Initial Shelf Registration shall be on
Form S-1 or another appropriate form permitting registration of such Registrable
Notes for resale by Holders in the manner or manners designated by them
(including, without limitation, one or more underwritten offerings). The Issuers
shall not permit any securities other than the Registrable Notes to be included
in the Initial Shelf Registration or any Subsequent Shelf Registration (as
defined below).
9
<PAGE> 10
In accordance with Section 5 hereof, the Issuers shall use their
reasonable best efforts to cause the Initial Shelf Registration to be declared
effective under the Securities Act on or prior to the Effectiveness Date and to
keep the Initial Shelf Registration continuously effective under the Securities
Act until the date which is two years from the Issue Date (the "Effectiveness
Period"), or such shorter period ending on the earliest to occur of (i) all
Registrable Notes covered by the Initial Shelf Registration being sold in the
manner set forth and as contemplated in the Initial Shelf Registration or (ii) a
Subsequent Shelf Registration covering all of the Registrable Notes covered by
and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf
Registration being declared effective under the Securities Act (iii) the date on
which, in the written opinion of counsel to SDI Acquisition and, at and after
the Effective Time, the Company, all outstanding Registrable Notes held by
persons that are not affiliates of any of the Issuers may be resold without
registration under the Securities Act pursuant to Rule 144(k) under the
Securities Act; provided, however, that the Effectiveness Period in respect of
the Initial Shelf Registration shall be extended to the extent required to
permit dealers to comply with the applicable prospectus delivery requirements of
Rule 174 under the Securities Act and as otherwise provided in Section 3(b)
hereof.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Issuers shall use
their reasonable best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof, and in any event shall within 30 days of
such cessation of effectiveness amend the Initial Shelf Registration in a manner
to obtain the withdrawal of the order suspending the effectiveness thereof, or
file an additional "shelf" Registration Statement pursuant to Rule 415 covering
all of the Registrable Notes covered by and not sold under the Initial Shelf
Registration or an earlier Subsequent Shelf Registration (each, a "Subsequent
Shelf Registration"). If a Subsequent Shelf Registration is filed, the Issuers
shall use their reasonable best efforts to cause the Subsequent Shelf
Registration to be declared effective under the Securities Act as soon as
practicable after such filing and to keep such subsequent Shelf Registration
continuously effective for a period equal to the number of days in the
Effectiveness Period less the aggregate number of days during which the Initial
Shelf Registration or any Subsequent Shelf Registration was previously
continuously effective. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Issuers shall promptly
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
(d) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Registrable Notes may include any
of its Registrable Notes in any Shelf Registration unless and until such Holder
furnishes to SDI Acquisition and, at and after the Effective Time, the Company,
in writing within 30 days after receipt of a request therefor, the information
specified in Item 507 and 508 (as applicable) of Regulation S-K under
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<PAGE> 11
the Securities Act and any other applicable rules, regulations or policies of
the SEC for use in connection with any Shelf Registration or Prospectus included
therein, on a form to be provided by SDI Acquisition and, at and after the
Effective Time, the Company. No Holder of Registrable Notes shall be entitled to
Liquidated Damages pursuant to Section 4 hereof unless and until such Holder
shall have provided all such information. Each selling Holder agrees to furnish
promptly to SDI Acquisition and, at and after the Effective Time, the Company,
additional information to be disclosed in order to make the information
previously furnished to SDI Acquisition and, at and after the Effective Time,
the Company, by such Holder, not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
4. Liquidated Damages
(a) The Issuers and the Initial Purchasers agree that the Holders
will suffer damages if the Issuers fail to fulfill their obligations under
Section 2 or Section 3 hereof and that it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, SDI Acquisition and, at and
after the Effective Time, the Company, agrees to pay, as liquidated damages,
additional interest on the Notes ("Liquidated Damages") under the circumstances
and to the extent set forth below (each of which shall be given independent
effect):
(i) if (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration has been filed on or prior to the
applicable Filing Date or (B) notwithstanding that the Issuers have
consummated or will consummate the Exchange Offer, the Issuers are
required to file a Shelf Registration and such Shelf Registration is not
filed on or prior to the Filing Date applicable thereto, then, commencing
on the day after any such Filing Date, Liquidated Damages shall accrue on
the principal amount of the Securities at a rate of 0.50% per annum for
the first 90 days immediately following each such Filing Date, and such
Liquidated Damages rate shall increase by an additional 0.50% per annum at
the beginning of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration is declared effective by the SEC on or
prior to the relevant Effectiveness Date or (B) notwithstanding that the
Issuers have consummated or will consummate the Exchange Offer, the
Issuers are required to file a Shelf Registration and such Shelf
Registration is not declared effective by the SEC on or prior to the
Effectiveness Date in respect of such Shelf Registration, then, commencing
on the day after such Effectiveness Date, Liquidated Damages shall accrue
on the principal amount of the Securities at a rate of 0.50% per annum for
the first 90 days immediately following the day after such Effectiveness
Date, and such Liquidated Damages rate shall increase by an additional
0.50% per annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Issuers have not exchanged Exchange Notes for
all Securities validly tendered in accordance with the terms of the
Exchange Offer on or prior to the 35th day after the date on which the
Exchange Offer Registration Statement relating thereto was declared
effective or (B) if applicable, a Shelf Registration has been declared
effective and such Shelf Registration ceases to be effective at any time
during the
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<PAGE> 12
Effectiveness Period, then Liquidated Damages shall accrue on the
principal amount of the Securities at a rate of 0.50% per annum for the
first 90 days commencing on (x) the 36th day after such effective date, in
the case of (A) above, or (y) the day such Shelf Registration ceases to be
effective in the case of (B) above, and such Liquidated Damages rate shall
increase by an additional 0.50% per annum at the beginning of each such
subsequent 90-day period;
provided, however, that the Liquidated Damages rate on the Notes may not exceed
at any one time in the aggregate 1.00% per annum; provided, further, however,
that (1) upon the filing of the applicable Exchange Offer Registration Statement
or the applicable Shelf Registration as required hereunder (in the case of
clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange
Offer Registration Statement or the applicable Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4), or (3) upon
the exchange of the applicable Exchange Notes for all Securities tendered (in
the case of clause (iii)(A) of this Section 4), or upon the effectiveness of the
applicable Shelf Registration Statement which had ceased to remain effective (in
the case of clause (iii)(B) of this Section 4), Liquidated Damages on the Notes
in respect of which such events relate as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
(b) SDI Acquisition and, at and after the Effective Time, the
Company, shall notify the Trustee within three Business Days after each and
every date on which an event occurs in respect of which Liquidated Damages are
required to be paid (an "Event Date"). Any amounts of Liquidated Damages due
pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in
cash semiannually on each June 15 and December 15 (to the holders of record on
the June 1 and December 1 immediately preceding such dates), commencing with the
first such date occurring after any such Liquidated Damages commences to accrue.
The amount of Liquidated Damages will be determined by multiplying the
applicable Liquidated Damages rate by the principal amount of the Registrable
Notes, multiplied by a fraction, the numerator of which is the number of days
such Liquidated Damages rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed), and the denominator of
which is 360.
(c) Suspension of Liquidated Damages for Good Cause. Liquidated
Damages shall not accrue with respect to an event listed in Sections 4(a)(i)(B),
(ii)(B) and (iii)(B) hereof (each, a "Registration Default") if: (i) such
Registration Default under Section 4(a)(iii)(B) hereof occurs because of the
filing of a post-effective amendment to such Registration Statement to
incorporate annual audited financial information with respect to the Issuers
where such post-effective amendment is not yet effective and needs to be
declared effective to permit Holders to use the related Prospectus, (ii) such
Registration Default occurs because of the occurrence of other material events
or developments with respect to the Issuers that would need to be described in
such Registration Statement or the related Prospectus the effectiveness of such
Registration Statement is reasonably required to be suspended while such
Registration Statement and related Prospectus are amended or supplemented to
reflect such events or developments, (iii) such Registration Default results
from the suspension of the effectiveness of such Registration Statement because
of the existence of material events or developments with respect to SDI
Acquisition and, at and after the Effective Time, the Company, or any of its
Affiliates the
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<PAGE> 13
disclosure of which SDI Acquisition and, at and after the Effective Time, the
Company, determines in good faith would have a material adverse effect on the
business, operations or prospects of SDI Acquisition and, at and after the
Effective Time, the Company, or (iv) such Registration Default results from the
suspension of the effectiveness of such Registration Statement because SDI
Acquisition and, at and after the Effective Time, the Company, does not wish to
disclose publicly a pending material business transaction that has not yet been
publicly disclosed; provided, however, that if any such Registration Default
exists and continues on more than an aggregate of 60 days in any calendar year,
Liquidated Damages shall accrue in accordance with Section 4(a) hereof from the
61st day on which any such Registration Default exists and continue until the
date on which such Registration Default is cured, for which Liquidated Damages
shall be payable in accordance with Section 4(b) hereof.
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant
to Section 2 or 3 hereof, the Issuers shall effect such registrations to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by the Issuers hereunder each of the
Issuers shall:
(a) Prepare and file with the SEC prior to the applicable Filing
Date, a Registration Statement or Registration Statements as prescribed by
Section 2 or 3 hereof, and use its reasonable best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that, if (1) such filing is pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period relating thereto, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto,
the Issuers shall furnish to and afford the Holders of the Registrable Notes
included in such Registration Statement (with respect to a Registration
Statement filed pursuant to Section 3 hereof) or each such Participating
Broker-Dealer (with respect to any such Registration Statement), as the case may
be, their counsel and the managing underwriters, if any, a reasonable
opportunity to review copies of all such documents (including copies of any
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed (in each case at least five days prior to such filing, or
such later date as is reasonable under the circumstances). The Issuers shall not
file any Registration Statement or Prospectus or any amendments or supplements
thereto if the Holders of a majority in aggregate principal amount of the
Registrable Notes included in such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object on a timely basis, except for any
Registration Statement or amendment thereto or related Prospectus or supplement
thereto (a copy of which has been previously furnished as provided in the
preceding sentence) which counsel to the Issuers has advised the Issuers in
writing is required to be filed in order to comply with applicable law.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer Registration
Statement, as
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<PAGE> 14
the case may be, as may be necessary to keep such Shelf Registration Statement
or Exchange Offer Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period, respectively, and in any case,
except for such periods as to which Liquidated Damages do not accrue pursuant to
Section 4(c) hereof; cause the related Prospectus to be supplemented by any
Prospectus supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424; and comply with the provisions of the Securities Act
and the Exchange Act applicable to each of them with respect to the disposition
of all securities covered by such Registration Statement as so amended or in
such Prospectus as so supplemented and with respect to the subsequent resale of
any securities being sold by a Participating Broker-Dealer covered by any such
Prospectus. The Issuers shall be deemed not to have used their reasonable best
efforts to keep a Registration Statement effective during the Effectiveness
Period or the Applicable Period, as the case may be, relating thereto if any
Issuer voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless such action is required by applicable
law or permitted by this Agreement.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period relating thereto from whom SDI Acquisition
and, at and after the Effective Time, the Company, has received written notice
that it will be a Participating Broker-Dealer in the Exchange Offer, notify the
selling Holders of Registrable Notes (with respect to a Registration Statement
filed pursuant to Section 3 hereof), or each such Participating Broker-Dealer
(with respect to any such Registration Statement), as the case may be, their
counsel and the managing underwriters, if any, promptly (but in any event within
one day), and confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective under the Securities Act (including in such notice a
written statement that any Holder may, upon request, obtain, at the sole expense
of the Issuers, one conformed copy of such Registration Statement or
post-effective amendment including financial statements and schedules, documents
incorporated or deemed to be incorporated by reference and exhibits), (ii) of
the issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or the initiation of any proceedings for that purpose,
(iii) if at any time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Notes or resales of
Exchange Notes by Participating Broker-Dealers the representations and
warranties of the Issuers contained in any agreement (including any underwriting
agreement) contemplated by Section 5(m) hereof cease to be true and correct in
all material respects, (iv) of the receipt by any Issuer of any notification
with respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable Notes or the
Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale
in any jurisdiction, or the initiation or threatening of any proceeding for such
purpose, (v) of the happening of any event, the existence of any condition or
any information becoming known that makes any statement made in such
Registration Statement or related
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<PAGE> 15
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in or amendments or supplements to such Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(vi) of the Issuers' determination that a post-effective amendment to a
Registration Statement would be appropriate; except, in the case of clauses
(iii), (iv), (v) and (vi), with respect to any event, development or transaction
permitted to be kept confidential without the accrual of Liquidated Damages
under Section 4(c)(iii) hereof, SDI Acquisition and, at and after the Effective
Time, the Company, shall not be required to describe such event, development or
transaction in the written notice provided.
(d) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, use its reasonable best efforts to prevent
the issuance of any order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any of the
Registrable Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued,
to use its reasonable best efforts to obtain the withdrawal of any such order at
the earliest practicable moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested during the Effectiveness Period by the managing underwriter or
underwriters (if any), the Holders of a majority in aggregate principal amount
of the Registrable Notes being sold in connection with an underwritten offering
or any Participating Broker-Dealer, (i) as promptly as practicable incorporate
in a prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such Holders, any Participating
Broker-Dealer or counsel for any of them reasonably request to be included
therein, (ii) make all required filings of such prospectus supplement or such
post-effective amendment as soon as practicable after SDI Acquisition and, at
and after the Effective Time, the Company, has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment, and (iii) supplement or make amendments to such Registration
Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, furnish to each selling Holder of
Registrable Notes (with respect to a Registration Statement filed pursuant to
Section 3 hereof) and to each such Participating Broker-Dealer who so requests
(with respect to any such Registration Statement) and to their respective
counsel and each managing underwriter, if any, at the sole expense of the
Issuers, one conformed copy of the Registration Statement or Registration
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<PAGE> 16
Statements and each post-effective amendment thereto, including financial
statements and schedules, and, if requested, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, deliver to each selling Holder of
Registrable Notes (with respect to a Registration Statement filed pursuant to
Section 3 hereof), or each such Participating Broker-Dealer (with respect to any
such Registration Statement), as the case may be, their respective counsel, and
the underwriters, if any, at the sole expense of the Issuers, as many copies of
the Prospectus or Prospectuses (including each form of preliminary prospectus)
and each amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to the
last paragraph of this Section 5, the Issuers hereby consent to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders of Registrable Notes or each such Participating Broker-Dealer, as the
case may be, and the underwriters or agents, if any, and dealers (if any), in
connection with the offering and sale of the Registrable Notes covered by, or
the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Offer Registration Statement
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its reasonable best efforts to register or qualify, and
to cooperate with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Notes for offer and sale under the securities
or Blue Sky laws of such jurisdictions within the United States as any selling
Holder, Participating Broker-Dealer, or the managing underwriter or underwriters
reasonably request in writing; provided, however, that where Exchange Notes held
by Participating Broker-Dealers or Registrable Notes are offered other than
through an underwritten offering, the Issuers agree to cause their counsel to
perform Blue Sky investigations and file registrations and qualifications
required to be filed pursuant to this Section 5(h), keep each such registration
or qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that no Issuer shall be required to (A) qualify generally to
do business in any jurisdiction where it is not then so qualified, (B) take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject, or (C) subject itself to taxation
in excess of a nominal dollar amount in any such jurisdiction where it is not
then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to
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<PAGE> 17
facilitate the timely preparation and delivery of certificates representing
Registrable Notes to be sold, which certificates shall not bear any restrictive
legends and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such Registrable Notes to be in such denominations (subject
to applicable requirements contained in the Indenture) and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
request.
(j) Subject to the proviso in (h) above, use its reasonable best
efforts to cause the Registrable Notes covered by the Registration Statement to
be registered with or approved by such other governmental agencies or
authorities as may be reasonably necessary to enable the seller or sellers
thereof or the underwriter or underwriters, if any, to consummate the
disposition of such Registrable Notes, except as may be required solely as a
consequence of the nature of such selling Holder's business, in which case SDI
Acquisition and, at and after the Effective Time, the Company, will cooperate in
all reasonable respects with the filing of such Registration Statement and the
granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof (except with respect to any
event, development or transaction permitted to be kept confidential without the
accrual of Liquidated Damages under Section 4(c)(iii) hereof for the period
during which such Liquidated Damages do not accrue), as promptly as practicable
prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole
expense of the Issuers, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Notes being sold thereunder (with respect to a Registration
Statement filed pursuant to Section 3 hereof) or to the purchasers of the
Exchange Notes to whom such Prospectus will be delivered by a Participating
Broker-Dealer (with respect to any such Registration Statement), any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing, the Issuers shall not be required
to amend or supplement a Registration Statement, any related Prospectus or any
document incorporated therein by reference, in the event that, and for a period
not to exceed an aggregate of 60 days in any calendar year if, (i) an event
occurs and is continuing as a result of which the Shelf Registration would, in
SDI Acquisition's or, at and after the Effective Time, the Company's, good faith
judgment, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and (ii) (a) SDI
Acquisition and, at and after the Effective Time, the Company, determines in its
good faith judgment that the disclosure of such event at such time would have a
material adverse effect on the business, operations or prospects of SDI
Acquisition and, at and after the Effective Time, the Company, or (b) the
disclosure otherwise relates to a pending material business transaction that has
not yet been publicly disclosed.
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<PAGE> 18
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates for
the Registrable Notes in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Notes.
(m) In connection with any underwritten offering of Registrable
Notes pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in underwritten offerings of debt securities similar to the
Securities in form and substance reasonably satisfactory to SDI Acquisition and,
at and after the Effective Time, the Company, and take all such other actions as
are reasonably requested by the managing underwriter or underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Notes and, in such connection, (i) make such representations and warranties to,
and covenants with, the underwriters with respect to the business of SDI
Acquisition and, at and after the Effective Time, the Company and the
subsidiaries of the Company (including any acquired business, properties or
entity, if applicable), and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings of debt securities similar to the Securities, and confirm
the same in writing if and when requested in form and substance reasonably
satisfactory to SDI Acquisition and, at and after the Effective Time, the
Company; (ii) obtain the written opinions of counsel to SDI Acquisition and, at
and after the Effective Time, the Company, and written updates thereof in form,
scope and substance reasonably satisfactory to the managing underwriter or
underwriters, addressed to the underwriters covering the matters customarily
covered in opinions reasonably requested in underwritten offerings and such
other matters as may be reasonably requested by the managing underwriter or
underwriters; (iii) use its reasonable best efforts to obtain "cold comfort"
letters and updates thereof in form, scope and substance reasonably satisfactory
to the managing underwriter or underwriters from the independent public
accountants of SDI Acquisition and, at and after the Effective Time, the
Company, (and, if necessary, any other independent public accountants of SDI
Acquisition and, at and after the Effective Time, the Company, any subsidiary of
the Company or of any business acquired by SDI Acquisition and, at and after the
Effective Time, the Company, for which financial statements and financial data
are, or are required to be, included or incorporated by reference in the
Registration Statement), addressed to each of the underwriters, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings of debt
securities similar to the Securities and such other matters as reasonably
requested by the managing underwriter or underwriters as permitted by the
Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
no less favorable to the sellers and underwriters, if any, than those set forth
in Section 7 hereof (or such other provisions and procedures acceptable to
Holders of a majority in aggregate principal amount of Registrable Notes covered
by such Registration Statement and the managing underwriter or underwriters or
agents, if any). The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer
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<PAGE> 19
who seeks to sell Exchange Notes during the Applicable Period, make available
for inspection by any selling Holder of such Registrable Notes being sold (with
respect to a Registration Statement filed pursuant to Section 3 hereof), or each
such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and any
attorney, accountant or other agent retained by any such selling Holder or each
such Participating Broker-Dealer (with respect to any such Registration
Statement), as the case may be, or underwriter (collectively, the "Inspectors"),
upon written request, at the offices where normally kept, during reasonable
business hours, all pertinent financial and other records, pertinent corporate
documents and pertinent instruments of SDI Acquisition and, at and after the
Effective Time, the Company and subsidiaries of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the officers, directors and
employees of SDI Acquisition and, at and after the Effective Time, the Company,
and any of its subsidiaries to supply all information ("Information") reasonably
requested by any such Inspector in connection with such due diligence
responsibilities. Each Inspector shall agree in writing that it will keep the
Records and Information confidential and that it will not disclose any of the
Records that SDI Acquisition and, at and after the Effective Time, the Company,
determines, in good faith, to be confidential and notifies the Inspectors in
writing are confidential unless (i) the disclosure of such Records or
Information is necessary to avoid or correct a material misstatement or material
omission in such Registration Statement or Prospectus, (ii) the release of such
Records or Information is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction, or (iii) the information in such Records or
Information has been made generally available to the public other than by an
Inspector or an "affiliate" (as defined in Rule 405) thereof; provided, however,
that prior notice shall be provided as soon as practicable to SDI Acquisition
and, at and after the Effective Time, the Company, of the potential disclosure
of any information by such Inspector pursuant to clauses (i) or (ii) of this
sentence to permit SDI Acquisition and, at and after the Effective Time, the
Company, to obtain a protective order (or waive the provisions of this paragraph
(n)) and that such Inspector shall take such actions as are reasonably necessary
to protect the confidentiality of such information (if practicable) to the
extent such action is otherwise not inconsistent with, an impairment of or in
derogation of the rights and interests of the Holder or any Inspector.
(o) Use their reasonable best efforts to provide an indenture
trustee for the Registrable Notes or the Exchange Notes, as the case may be, and
use their reasonable best efforts to cause the Indenture or the trust indenture
provided for in Section 2(a) hereof, as the case may be, to be qualified under
the TIA not later than the effective date of the first Registration Statement
relating to the Registrable Notes; and in connection therewith, cooperate with
the trustee under any such indenture and the Holders of the Registrable Notes,
to effect such changes (if any) to such indenture as may be required for such
indenture to be so qualified in accordance with the terms of the TIA; and
execute, and use its reasonable best efforts to cause such trustee to execute,
all documents as may be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable such indenture to be so
qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders with regard to any applicable
Registration Statement, a consolidated earnings statement satisfying the
provisions of Section 11(a) of the Securities Act
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and Rule 158 thereunder (or any similar rule promulgated under the Securities
Act) no later than 45 days after the end of any fiscal quarter (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i) commencing
at the end of any fiscal quarter in which Registrable Notes are sold to
underwriters in a firm commitment or best efforts underwritten offering and (ii)
if not sold to underwriters in such an offering, commencing on the first day of
the first fiscal quarter of SDI Acquisition and, immediately after the Effective
Time, of the Company, after the effective date of a Registration Statement,
which statements shall cover said 12-month periods.
(q) Upon consummation of the Exchange Offer or a Private Exchange,
obtain an opinion of counsel to SDI Acquisition and, at and after the Effective
Time, the Company, in a form customary for underwritten transactions, addressed
to the Trustee for the benefit of all Holders of Registrable Notes participating
in the Exchange Offer or the Private Exchange, as the case may be, that the
Exchange Notes or Private Exchange Notes, as the case may be, the related
Guarantees and the related indenture constitute legal, valid and binding
obligations of the Issuers, enforceable against them in accordance with their
respective terms, subject to customary exceptions and qualifications.
(r ) If the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to SDI
Acquisition and, at and after the Effective Time, the Company (or to such other
Person as directed by the Issuers), in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be, SDI Acquisition and, at and after
the Effective Time, the Company, shall mark, or cause to be marked, on such
Registrable Notes that such Registrable Notes are being canceled in exchange for
the Exchange Notes or the Private Exchange Notes, as the case may be; in no
event shall such Registrable Notes be marked as paid or otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD").
(t) Use its reasonable best efforts to take all other steps
reasonably necessary to effect the registration of the Exchange Notes and/or
Registrable Notes covered by a Registration Statement contemplated hereby.
The covenants of the Issuers under Sections 5(c), (d), (f), (g),
(j), (k) and (n) with respect to an Exchange Offer Registration Statement shall
terminate as of the end of the Applicable Period. The covenants of the Issuers
under Sections 5(c), (d), (e), (f), (g), (j), (k) and (n) with respect to a
Shelf Registration shall terminate as of the end of the Effectiveness Period.
SDI Acquisition and, at and after the Effective Time, the Company,
may require each seller of Registrable Notes as to which any registration is
being effected to furnish to SDI Acquisition and, at and after the Effective
Time, the Company, such information regarding such seller and the distribution
of such Registrable Notes as SDI Acquisition and, at and after the Effective
Time, the Company, may, from time to time, reasonably request. SDI Acquisition
and, at and after the Effective Time, the Company, may exclude from such
registration the Registrable
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<PAGE> 21
Notes of any seller so long as such seller fails to furnish such information
within a reasonable time after receiving such request. Each seller as to which
any Shelf Registration is being effected agrees to furnish promptly to SDI
Acquisition and, at and after the Effective Time, the Company, all information
required to be disclosed in order to make the information previously furnished
to SDI Acquisition and, at and after the Effective Time, the Company, by such
seller not materially misleading.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of SDI Acquisition and, at and after
the Effective Time, the Company, then such Holder shall have the right to
require (i) the insertion therein of language, in form and substance reasonably
satisfactory to such Holder, to the effect that the holding by such Holder of
such securities is not to be construed as a recommendation by such Holder of the
investment quality of the securities covered thereby and that such holding does
not imply that such Holder will assist in meeting any future financial
requirements of SDI Acquisition and, at and after the Effective Time, the
Company, or (ii) in the event that such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force, the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be, that,
upon actual receipt of any notice from SDI Acquisition and, at and after the
Effective Time, the Company, of the happening of any event of the kind described
in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will
forthwith discontinue disposition of such Registrable Notes covered by such
Registration Statement or Prospectus or Exchange Notes to be sold by such Holder
or Participating Broker-Dealer, as the case may be, until such Holder's or
Participating Broker-Dealer's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(k) hereof, or until it is advised
in writing (the "Advice") by SDI Acquisition and, at and after the Effective
Time, the Company, that the use of the applicable Prospectus may be resumed, and
has received copies of any amendments or supplements thereto. In the event that
SDI Acquisition and, at and after the Effective Time, the Company, shall give
any such notice, the Applicable Period shall be extended by the number of days
during such periods from and including the date of the giving of such notice to
and including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y)
the Advice.
6. Registration Expenses
All fees and expenses incident to the performance of or compliance
with this Agreement by the Issuers (other than any underwriting discounts or
commissions) shall be borne by SDI Acquisition and, at and after the Effective
Time, the Company, whether or not the Exchange Offer Registration Statement or
any Shelf Registration is filed or becomes effective or the Exchange Offer is
consummated, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the
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NASD in connection with an underwritten offering and (B) reasonable fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel in connection with Blue
Sky qualifications of the Registrable Notes or Exchange Notes and determination
of the eligibility of the Registrable Notes or Exchange Notes for investment
under the laws of such jurisdictions (x) where the holders of Registrable Notes
are located, in the case of the Exchange Notes, or (y) as provided in Section
5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriter or underwriters, if any,
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or in respect of Registrable Notes
or Exchange Notes to be sold by any Participating Broker-Dealer during the
Applicable Period, as the case may be, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for SDI Acquisition and, at and
after the Effective Time, the Company, and in case of a Shelf Registration,
reasonable fees and disbursements of one special counsel for all of the sellers
of Registrable Notes (exclusive of any counsel retained pursuant to Section 7
hereof), (v) fees and disbursements of all independent certified public
accountants referred to in Section 5(m)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) Securities Act liability
insurance, if SDI Acquisition and, at and after the Effective Time, the Company,
desires such insurance, (vii) fees and expenses of all other Persons retained by
the Issuers, (viii) internal expenses of the SDI Acquisition and, at and after
the Effective Time, the Company, (including, without limitation, all salaries
and expenses of officers and employees of SDI Acquisition and, at and after the
Effective Time, the Company, performing legal or accounting duties), (ix) the
expense of any annual audit, (x) any fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
and the obtaining of a rating of the securities, in each case, if applicable,
and (xi) the expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements, indentures and any other
documents necessary in order to comply with this Agreement.
7. Indemnification
(a) Each of the Issuers, jointly and severally, agrees to indemnify
and hold harmless each Holder of Registrable Notes and each Participating
Broker-Dealer selling Exchange Notes during the Applicable Period, the
affiliates, officers, directors, representatives, employees and agents of each
such Person, and each Person, if any, who controls any such Person within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act (each, a "Participant"), from and against any and all losses, claims,
damages, judgments, liabilities and expenses (including, without limitation, the
reasonable legal fees and other expenses actually incurred in connection with
any suit, action or proceeding or any claim asserted) caused by, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or any amendment thereto) or
Prospectus (as amended or supplemented if any of the Issuers shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by, arising out of or based upon any omission or
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<PAGE> 23
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the case of the Prospectus in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information relating to any Participant furnished to
any of the Issuers in writing by such Participant expressly for use therein and
with respect to any preliminary Prospectus, to the extent that any such loss,
claim, damage or liability arises solely from the fact that any Participant sold
Notes to a person to whom there was not sent or given a copy of the Prospectus
(as amended or supplemented) at or prior to the written confirmation of such
sale if SDI Acquisition and, at and after the Effective Time, the Company, shall
have previously furnished copies thereof to the Participant in accordance
herewith and the Prospectus (as so amended or supplemented) would have corrected
any such untrue statement or omission.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Issuers, their respective affiliates, officers, directors,
representatives, employees and agents of each Issuer and each Person who
controls each Issuer within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent (but on a several, and not
joint, basis) as the foregoing indemnity from the Issuers to each Participant,
but only with reference to information relating to such Participant furnished to
the Issuers in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus. The liability of any Participant under this paragraph shall in no
event exceed the proceeds received by such Participant from sales of Registrable
Notes or Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Persons against whom such indemnity may be sought (the "Indemnifying
Persons") in writing, and the Indemnifying Persons, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may reasonably designate in such proceeding and shall pay
the fees and expenses actually incurred by such counsel related to such
proceeding; provided, however, that the failure to so notify the Indemnifying
Persons (i) will not relieve it from any liability under paragraph (a) or (b)
above unless and to the extent such failure results in material prejudice to any
Indemnifying Person and (ii) will not, in any event, relieve the Indemnifying
Person from any other obligations to any Indemnified Person. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Persons and the Indemnified
Person shall have mutually agreed to the contrary, (ii) the Indemnifying Persons
shall have failed within a reasonable period of time to retain counsel
reasonably satisfactory to the Indemnified Person, or (iii) the named parties in
any such proceeding (including any impleaded parties) include both any
Indemnifying Person and the Indemnified Person or any affiliate thereof and
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicting interests between them. It is understood that
the Indemnifying Persons shall not, in connection with such proceeding or
separate but substantially similar related proceeding in the same jurisdiction
arising out of the
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same general allegations, be liable for the fees and expenses of more than one
separate firm (in addition to any reasonably necessary local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be reimbursed
promptly as they are incurred, subject to an undertaking by such Indemnified
Persons that all such amounts to which any Indemnified Person is not entitled
pursuant to this Section 7, as determined by a final non-appealable judicial
determination, shall be returned promptly to the relevant Indemnifying Persons.
Any such separate firm for the Participants and such control Persons of
Participants shall be designated in writing by Participants who sold a majority
in interest of Registrable Notes and Exchange Notes sold by all such
Participants and shall be reasonably acceptable to SDI Acquisition and, at and
after the Effective Time, the Company, and any such separate firm for the
Issuers, their affiliates, officers, directors, representatives, employees and
agents and such control Persons of such Issuer shall be designated in writing by
such Issuer and shall be reasonably acceptable to the Holders.
The Indemnifying Persons shall not be liable for any settlement of
any proceeding effected without its prior written consent (which consent shall
not be unreasonably withheld or delayed), but if settled with such consent or if
there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
each of the Indemnifying Persons agrees to indemnify and hold harmless each
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. No Indemnifying Person shall, without the prior written
consent of the Indemnified Persons (which consent shall not be unreasonably
withheld or delayed), effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party, or indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of such
Indemnified Person.
(d) If the indemnification provided for in Section 7(a) or (b) is
for any reason unavailable to, or insufficient to hold harmless, an Indemnified
Person in respect of any losses, claims, damages or liabilities referred to
therein, then each Indemnifying Person under such subsections, in lieu of
indemnifying such Indemnified Person thereunder and in order to provide for just
and equitable contribution, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Person or Persons on the one hand and the Indemnified Person
or Persons on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Issuers on the one hand or
such Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
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<PAGE> 25
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages, judgments, liabilities and expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Persons to the Indemnified Person as
such losses, claims, damages, liabilities or expenses are incurred, subject to
an undertaking by such Indemnified Person that all such amounts to which such
Indemnified Person is not entitled pursuant to this Section 7, as determined by
a final non-appealable judicial determination, shall be returned promptly to the
relevant Indemnifying Persons. The indemnity and contribution agreements
contained in this Section 7 and the representations and warranties of the
Issuers set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any Holder
or any person who controls a Holder, the Issuer, its directors, officers,
employees or agents or any person controlling an Issuer, and (ii) any
termination of this Agreement.
(g) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
Each of the Issuers covenants and agrees that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
in accordance with the requirements of the Securities Act and the Exchange Act
and, if at any time such Issuer is not required to file such reports, such
Issuer will, upon the request of any Holder or beneficial owner of Registrable
Notes, make available such information necessary to permit sales pursuant to
Rule 144A. Each of the Issuers further covenants and agrees, for so long as any
Registrable Notes remain outstanding that it will take such further action as
any Holder of Registrable Notes may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Notes
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144(k) under the Securities Act and Rule 144A.
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9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Issuer.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. The Issuers have not, as of the date
hereof, and the Issuers shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Issuers' other issued and outstanding
securities under any such agreements. The Issuers will not enter into any
agreement with respect to any of their securities which will grant to any Person
piggy-back registration rights with respect to any Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Issuers shall not,
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (I) SDI Acquisition and, at and after the Effective Time, the
Company, and (II)(A) the Holders of not less than a majority in aggregate
principal amount of the then outstanding Registrable Notes and (B) in
circumstances that would adversely affect the Participating Broker-Dealers, the
Participating Broker-Dealers holding not less than a majority in aggregate
principal amount of the Exchange Notes held by all Participating Broker-Dealers;
provided, however, that Section 7 and this Section 10(c) may not be amended,
modified or supplemented without the prior written consent of each Holder and
each Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement) affected by any such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or
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indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Notes may be given by Holders of at least a majority in aggregate
principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(d) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
(i) if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, set forth on the records
of the registrar under the Indenture.
(ii) if to the Issuers, at the address as follows:
c/o SPECIAL DEVICES, INCORPORATED
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: Chief Financial Officer
Telephone No.: (805) 259-0753
Facsimile No.: (805) 254-4721
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Paul D. Ginsberg, Esq.
Telephone No.: (212) 373-3000
Facsimile No.: (212) 757-3990
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed; one Business Day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, the Holders and the Participating Broker-Dealers.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by SDI Acquisition and, at and after the
Effective Time, the Company, or Its Affiliates. Whenever the consent or approval
of Holders of a specified percentage of Registrable Notes is required hereunder,
Registrable Notes held by SDI Acquisition and, at and after the Effective Time,
the Company, or its affiliates (as such term is defined in Rule 405 under the
Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(k) Third-Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third-party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Holders on the one hand
and the Issuers on the other, or between or among any agents, representatives,
parents, subsidiaries, affiliates, predecessors in interest or successors in
interest with respect to the subject matter hereof and thereof are merged herein
and replaced hereby.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
SDI ACQUISITION CORP.
By:/s/ Keith Oster
----------------------------------
Keith Oster, Assistant Secretary
The foregoing Agreement is hereby confirmed and accepted as of the date first
written above.
BT ALEX. BROWN INCORPORATED
By:/s/ Paul Higbee
-------------------------------------
Paul Higbee, Managing Director
PARIBAS CORPORATION
By:/s/ Robert Howard
-------------------------------------
Robert Howard, Authorized Signatory
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<PAGE> 1
EXHIBIT 10.1
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT (this "Agreement"), dated as of December
15, 1998, is by Special Devices, Incorporated, a Delaware corporation (the
"Company"), and Scot, Inc., a Delaware corporation (the "Guarantor").
W I T N E S S E T H
WHEREAS, SDI Acquisition Corp., a Delaware corporation ("SDI
Acquisition"), has heretofore executed and delivered to BT Alex Brown
Incorporated and Paribas Corporation (the "Initial Purchasers") a purchase
agreement (the "Purchase Agreement"), dated as of December 11, 1998, providing
for the terms pursuant to which the Initial Purchasers will purchase
$100,000,000 aggregate principal amount of 11 3/8% Senior Subordinated Notes due
2008 (the "Notes") of SDI Acquisition;
WHEREAS, SDI Acquisition has heretofore executed and delivered
to the Initial Purchasers a registration rights agreement (the "Registration
Rights Agreement"), dated as of December 15, 1998, providing for the
registration of the Notes and the Exchange Notes (as defined in the Registration
Rights Agreement) of SDI Acquisition under the Securities Act of 1933, as
amended;
WHEREAS, SDI Acquisition has been merged with and into the
Company (the "Merger");
WHEREAS, pursuant to the Purchase Agreement and the
Registration Rights Agreement, the Company upon consummation of the Merger is
required to assume all of the obligations of SDI Acquisition under the Purchase
Agreement and the Registration Rights Agreement and to execute and deliver this
Agreement concurrently with the Merger; and
WHEREAS, pursuant to the Purchase Agreement and the
Registration Rights Agreement, immediately subsequent to the Merger, the
Guarantor is required to become a party to the Purchase Agreement and the
Registration Rights Agreement and to guarantee the obligations of the Company
with respect to the Notes thereunder on a senior subordinated basis;
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Company and the Guarantor mutually covenant and agree for the benefit of the
Initial Purchasers as follows:
1. ASSUMPTION. The Company hereby agrees to assume all of the
obligations of SDI Acquisition and all of its own obligations under the Purchase
Agreement and the Registration Rights Agreement.
2. GUARANTOR. The Guarantor hereby agrees to be deemed the "Guarantor"
for all purposes under the Purchase Agreement and a "Guarantor" and an "Issuer"
for all purposes under the Registration Rights Agreement and to perform all
obligations and duties of the Guarantor and the Issuer, as the case may be,
under each of the agreements.
<PAGE> 2
3. NEW YORK LAW TO GOVERN. The internal law of the State of New York,
without regard to the choice of law principles thereof, shall govern and be used
to construe this Agreement.
4. COUNTERPARTS. The parties may sign any number of copies of this
Agreement. Each signed copy shall be an original, but all of them together
represent the same agreement.
5. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered, all as of the date first above
written, which is the date of the Merger.
SPECIAL DEVICES, INCORPORATED
By: /s/ Keith Oster
--------------------------------
Name: Keith Oster
Title: Assistant Secretary
SCOT, INC.
By: /s/ John T. Vinke
--------------------------------
Name: John T. Vinke
Title: Vice President
2
<PAGE> 1
EXHIBIT 10.2
CREDIT AGREEMENT
among
SPECIAL DEVICES, INCORPORATED,
VARIOUS BANKS
and
BANKERS TRUST COMPANY,
as Lead Arranger and Administrative Agent
-----------------------
Dated as of December 15, 1998
-----------------------
<PAGE> 2
CREDIT AGREEMENT, dated as of December 15, 1998, among SPECIAL DEVICES,
INCORPORATED, a Delaware corporation (the "Borrower"), the Banks party hereto
from time to time and BANKERS TRUST COMPANY, as Lead Arranger and Administrative
Agent (all capitalized terms used herein and defined in Section 11 are used
herein as therein defined).
WITNESSETH:
WHEREAS, subject to and upon the terms and conditions set forth herein,
the Banks are willing to make available to the Borrower the respective credit
facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 The Commitments. (a) Subject to and upon the terms and conditions
set forth herein, each Bank with a Term Loan Commitment severally agrees to make
a term loan (each a "Term Loan" and, collectively, the "Term Loans") to the
Borrower, which Term Loans (i) shall be incurred by the Borrower on the Initial
Borrowing Date, (ii) shall, at the option of the Borrower, be incurred and
maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans,
provided that, except as otherwise specifically provided in Section 1.10(b), all
Term Loans comprising the same Borrowing shall at all times be of the same Type,
and (iii) shall be made by each such Bank in that aggregate principal amount
which does not exceed the Term Loan Commitment of such Bank on the Initial
Borrowing Date (before giving effect to the termination thereof on such date
pursuant to Section 3.03(b)). Once repaid, Term Loans incurred hereunder may not
be reborrowed.
(b) Subject to and upon the terms and conditions set forth herein, each
Bank with a Revolving Loan Commitment severally agrees to make, at any time and
from time to time on and after the Initial Borrowing Date and prior to the
Revolving Loan Maturity Date, a revolving loan or revolving loans (each a
"Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower,
which Revolving Loans (i) shall, at the option of the Borrower, be incurred and
maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans,
provided that, except as otherwise specifically provided in Section 1.10(b), all
Revolving Loans comprising the same Borrowing shall at all times be of the same
Type, (ii) may be repaid and reborrowed in accordance with the provisions
hereof, (iii) shall not exceed for any such Bank at any time outstanding that
aggregate principal amount which, when added to the product of (x) such Bank's
RL Percentage and (y) the sum of (I) the aggregate amount of all Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (II) the aggregate principal
amount of all Swingline Loans (exclusive of Swingline Loans which are repaid
with the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) then outstanding, equals the Revolving Loan
Commitment of such Bank at such time and (iv) shall not exceed for all such
Banks at any time outstanding that aggregate principal amount which, when added
to the sum of (I) the aggregate amount of all Letter of Credit Outstandings
(exclusive of Unpaid Drawings which are repaid with
<PAGE> 3
the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (II) the aggregate principal
amount of all Swingline Loans (exclusive of Swingline Loans which are repaid
with the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) then outstanding, equals the Total Revolving Loan
Commitment at such time.
(c) Subject to and upon the terms and conditions set forth herein, the
Swingline Bank agrees to make, at any time and from time to time on and after
the Initial Borrowing Date and prior to the Swingline Expiry Date, a revolving
loan or revolving loans (each a "Swingline Loan" and, collectively, the
"Swingline Loans") to the Borrower, which Swingline Loans (i) shall be made and
maintained as Base Rate Loans, (ii) may be repaid and reborrowed in accordance
with the provisions hereof, (iii) shall not exceed in aggregate principal amount
at any time outstanding, when combined with the aggregate principal amount of
all Revolving Loans then outstanding and the aggregate amount of all Letter of
Credit Outstandings at such time, an amount equal to the Total Revolving Loan
Commitment at such time and (iv) shall not exceed in aggregate principal amount
at any time outstanding the Maximum Swingline Amount. Notwithstanding anything
to the contrary contained in this Section 1.01(c), (x) the Swingline Bank shall
not be obligated to make any Swingline Loans at a time when a Bank Default
exists unless the Swingline Bank has entered into arrangements satisfactory to
it and the Borrower to eliminate the Swingline Bank's risk with respect to the
Defaulting Bank's or Banks' participation in such Swingline Loans, including by
cash collateralizing such Defaulting Bank's or Banks' RL Percentage of the
outstanding Swingline Loans and (y) the Swingline Bank shall not make any
Swingline Loan after it has received written notice from the Borrower, any other
Credit Party or the Required Banks stating that a Default or an Event of Default
exists and is continuing until such time as the Swingline Bank shall have
received written notice (I) of rescission of all such notices from the party or
parties originally delivering such notice or (II) of the waiver of such Default
or Event of Default by the Required Banks.
(d) On any Business Day, the Swingline Bank may, in its sole
discretion, give notice to the RL Banks that the Swingline Bank's outstanding
Swingline Loans shall be funded with one or more Borrowings of Revolving Loans
(provided that such notice shall be deemed to have been automatically given upon
the occurrence of a Default or an Event of Default under Section 10.05 or upon
the exercise of any of the remedies provided in the last paragraph of Section
10), in which case one or more Borrowings of Revolving Loans constituting Base
Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the
immediately succeeding Business Day by all RL Banks pro rata based on each RL
Bank's RL Percentage (determined before giving effect to any termination of the
Revolving Loan Commitments pursuant to the last paragraph of Section 10) and the
proceeds thereof shall be applied directly by the Swingline Bank to repay the
Swingline Bank for such outstanding Swingline Loans. Each RL Bank hereby
irrevocably agrees to make Revolving Loans upon one Business Day's notice
pursuant to each Mandatory Borrowing in the amount and in the manner specified
in the preceding sentence and on the date specified in writing by the Swingline
Bank notwithstanding (i) the amount of the Mandatory Borrowing may not comply
with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any
conditions specified in Section 6 are then satisfied, (iii) whether a Default or
an Event of Default then exists, (iv) the date of such Mandatory Borrowing and
(v) the amount of the Total Revolving Loan Commitment at such time. In the event
that any Mandatory Borrowing cannot for any reason be made on the date
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<PAGE> 4
otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with respect to the
Borrower), then each RL Bank hereby agrees that it shall forthwith purchase (as
of the date the Mandatory Borrowing would otherwise have occurred, but adjusted
for any payments received from the Borrower on or after such date and prior to
such purchase) from the Swingline Bank such participations in the outstanding
Swingline Loans as shall be necessary to cause the RL Banks to share in such
Swingline Loans ratably based upon their respective RL Percentages (determined
before giving effect to any termination of the Revolving Loan Commitments
pursuant to the last paragraph of Section 10), provided that (x) all interest
payable on the Swingline Loans shall be for the account of the Swingline Bank
until the date as of which the respective participation is required to be
purchased and, to the extent attributable to the purchased participation, shall
be payable to the participant from and after such date and (y) at the time any
purchase of participations pursuant to this sentence is actually made, the
purchasing RL Bank shall be required to pay the Swingline Bank interest on the
principal amount of participation purchased for each day from and including the
day upon which the Mandatory Borrowing would otherwise have occurred to but
excluding the date of payment for such participation, at the overnight Federal
Funds Rate for the first three days and at the rate otherwise applicable to Base
Rate Loans hereunder for each day thereafter.
1.02 Minimum Amount of Each Borrowing. The aggregate principal amount
of each Borrowing of Loans under a respective Tranche shall not be less than the
Minimum Borrowing Amount applicable thereto. More than one Borrowing may occur
on the same date, but at no time shall there be outstanding more than ten
Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to incur
(x) Eurodollar Loans hereunder, the Borrower shall give the Administrative Agent
at the Notice Office at least three Business Days' prior notice of each
Eurodollar Loan to be incurred hereunder and (y) Base Rate Loans hereunder
(excluding Swingline Loans and Revolving Loans made pursuant to a Mandatory
Borrowing), the Borrower shall give the Administrative Agent at the Notice
Office at least one Business Day's prior notice of each Base Rate Loan to be
incurred hereunder, provided that (in each case) any such notice shall be deemed
to have been given on a certain day only if given before 1:00 P.M. (New York
time) on such day. Each such notice (each a "Notice of Borrowing"), except as
otherwise expressly provided in Section 1.10, shall be irrevocable and shall be
given by the Borrower in writing, or by telephone promptly confirmed in writing,
in the form of Exhibit A, appropriately completed to specify the aggregate
principal amount of the Loans to be incurred pursuant to such Borrowing, the
date of such Borrowing (which shall be a Business Day), whether the Loans being
incurred pursuant to such Borrowing shall constitute Term Loans or Revolving
Loans, whether the Loans being incurred pursuant to such Borrowing are to be
initially maintained as Base Rate Loans or, to the extent permitted hereunder,
Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be
applicable thereto. The Administrative Agent shall promptly give each Bank which
is required to make Loans of the Tranche specified in the respective Notice of
Borrowing notice of such proposed Borrowing, of such Bank's proportionate share
thereof and of the other matters required by the immediately preceding sentence
to be specified in the Notice of Borrowing.
(b) (i) Whenever the Borrower desires to incur Swingline Loans
hereunder, the Borrower shall give the Swingline Bank no later than 1:00 P.M.
(New York time) on the date that a Swingline Loan is to be incurred, written
notice or telephonic notice promptly confirmed
-3-
<PAGE> 5
in writing of each Swingline Loan to be incurred hereunder. Each such notice
shall be irrevocable and specify in each case (A) the date of Borrowing (which
shall be a Business Day) and (B) the aggregate principal amount of the Swingline
Loans to be incurred pursuant to such Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(d), with the Borrower irrevocably agreeing, by its incurrence of
any Swingline Loan, to the making of the Mandatory Borrowings as set forth in
Section 1.01(d).
(c) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice of any Borrowing or prepayment of
Loans, the Administrative Agent or the Swingline Bank, as the case may be, may
act without liability upon the basis of telephonic notice of such Borrowing or
prepayment, as the case may be, believed by the Administrative Agent or the
Swingline Bank, as the case may be, in good faith to be from the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Financial Officer,
the Treasurer or any Assistant Treasurer of the Borrower, or from any other
authorized officer of the Borrower designated in writing by the Borrower to the
Administrative Agent as being authorized to give such notices, prior to receipt
of written confirmation. In each such case, the Borrower hereby waives the right
to dispute the Administrative Agent's or Swingline Bank's record of the terms of
such telephonic notice of such Borrowing or prepayment of Loans, as the case may
be, absent manifest error.
1.04 Disbursement of Funds. No later than 1:00 P.M. (New York time) on
the date specified in each Notice of Borrowing (or (x) in the case of Swingline
Loans, no later than 3:00 P.M. (New York time) on the date specified pursuant to
Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, no later than
1:00 P.M. (New York time) on the date specified in Section 1.01(d)), each Bank
with a Commitment of the respective Tranche will make available its pro rata
portion (determined in accordance with Section 1.07) of each such Borrowing
requested to be made on such date (or in the case of Swingline Loans, the
Swingline Bank will make available the full amount thereof). All such amounts
will be made available in Dollars and in immediately available funds at the
Payment Office, and, except for Revolving Loans made pursuant to a Mandatory
Borrowing, the Administrative Agent will make available to the Borrower at the
Payment Office the aggregate of the amounts so made available by the Banks.
Unless the Administrative Agent shall have been notified by any Bank prior to
the date of Borrowing that such Bank does not intend to make available to the
Administrative Agent such Bank's portion of any Borrowing to be made on such
date, the Administrative Agent may assume that such Bank has made such amount
available to the Administrative Agent on such date of Borrowing and the
Administrative Agent may (but shall not be obligated to), in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Agent
by such Bank, the Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the Borrower and the Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The
Administrative Agent also shall be entitled to recover on demand from such Bank
or the Borrower, as the case may be, interest on such corresponding amount in
respect of each day from the date such corresponding amount was made available
by the
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<PAGE> 6
Administrative Agent to the Borrower until the date such corresponding amount is
recovered by the Administrative Agent, at a rate per annum equal to (i) if
recovered from such Bank, at the overnight Federal Funds Rate and (ii) if
recovered from the Borrower, the rate of interest applicable to the respective
Borrowing, as determined pursuant to Section 1.08. Nothing in this Section 1.04
shall be deemed to relieve any Bank from its obligation to make Loans hereunder
or to prejudice any rights which the Borrower may have against any Bank as a
result of any failure by such Bank to make Loans hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal of, and
interest on, the Loans made by each Bank shall be evidenced in the Register
maintained by the Administrative Agent pursuant to Section 13.15 and shall, if
requested by such Bank, also be evidenced (i) if Term Loans, by a promissory
note duly executed and delivered by the Borrower substantially in the form of
Exhibit B-1, with blanks appropriately completed in conformity herewith (each a
"Term Note" and, collectively, the "Term Notes"), (ii) if Revolving Loans, by a
promissory note duly executed and delivered by the Borrower substantially in the
form of Exhibit B-2, with blanks appropriately completed in conformity herewith
(each a "Revolving Note" and, collectively, the "Revolving Notes") and (iii) if
Swingline Loans, by a promissory note duly executed and delivered by the
Borrower substantially in the form Exhibit B-3, with blanks appropriately
completed in conformity herewith (the "Swingline Note").
(b) The Term Note issued to each Bank that has a Term Loan Commitment
or outstanding Term Loans shall (i) be executed by the Borrower, (ii) be payable
to such Bank or its registered assigns and be dated the Initial Borrowing Date
(or, if issued after the Initial Borrowing Date, be dated the date of the
issuance thereof), (iii) be in a stated principal amount equal to the Term Loans
made by such Bank on the Initial Borrowing Date (or, if issued after the Initial
Borrowing Date, be in a stated principal amount equal to the outstanding
principal amount of Term Loans of such Bank at such time) and be payable in the
outstanding principal amount of Term Loans evidenced thereby, (iv) mature on the
Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause
of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the
case may be, evidenced thereby, (vi) be subject to voluntary prepayment as
provided in Section 4.01, and mandatory repayment as provided in Section 4.02
and (vii) be entitled to the benefits of this Agreement and the other Credit
Documents.
(c) The Revolving Note issued to each Bank with a Revolving Loan
Commitment or with outstanding Revolving Loans shall (i) be executed by the
Borrower, (ii) be payable to such Bank or its registered assigns and be dated
the Initial Borrowing Date (or, if issued after the Initial Borrowing Date, be
dated the date of the issuance thereof), (iii) be in a stated principal amount
equal to the Revolving Loan Commitment of such Bank (or, if issued after the
termination thereof, be in a stated principal amount equal to the outstanding
Revolving Loans of such Bank at such time) and be payable in the outstanding
principal amount of the Revolving Loans evidenced thereby, (iv) mature on the
Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans,
as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment
as provided in Section 4.01, and mandatory repayment as provided in Section 4.02
and (vii) be entitled to the benefits of this Agreement and the other Credit
Documents.
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<PAGE> 7
(d) The Swingline Note issued to the Swingline Bank shall (i) be
executed by the Borrower, (ii) be payable to the Swingline Bank or its
registered assigns and be dated the Initial Borrowing Date, (iii) be in a stated
principal amount equal to the Maximum Swingline Amount and be payable in the
outstanding principal amount of the Swingline Loans evidenced thereby from time
to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided
in the appropriate clause of Section 1.08 in respect of the Base Rate Loans
evidenced thereby, (vi) be subject to voluntary prepayment as provided in
Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(e) Each Bank will note on its internal records the amount of each Loan
made by it and each payment in respect thereof and will prior to any transfer of
any of its Notes endorse on the reverse side thereof the outstanding principal
amount of Loans evidenced thereby. Failure to make any such notation or any
error in such notation shall not affect the Borrower's obligations in respect of
such Loans.
1.06 Conversions. The Borrower shall have the option to convert, on any
Business Day, all or a portion equal to at least the Minimum Borrowing Amount of
the outstanding principal amount of Loans (other than Swingline Loans which may
not be converted pursuant to this Section 1.06) made pursuant to one or more
Borrowings (so long as of the same Tranche) of one or more Types of Loans into a
Borrowing (of the same Tranche) of another Type of Loan, provided that, (i)
except as otherwise provided in Section 1.10(b), Eurodollar Loans may be
converted into Base Rate Loans only on the last day of an Interest Period
applicable to the Loans being converted and no such partial conversion of
Eurodollar Loans shall reduce the outstanding principal amount of such
Eurodollar Loans made pursuant to a single Borrowing to less than the Minimum
Borrowing Amount applicable thereto, (ii) Base Rate Loans may not be converted
into Eurodollar Loans if a Default or an Event of Default is in existence on the
date of the conversion and the Required Banks have by notice to the Borrower
determined in their sole discretion that conversion is not appropriate, provided
that no such notice shall be required if a Default or an Event of Default under
Section 10.05 exists and is continuing, in which case Base Rate Loans may not be
converted into Eurodollar Loans, and (iii) no conversion pursuant to this
Section 1.06 shall result in a greater number of Borrowings of Eurodollar Loans
than is permitted under Section 1.02. Each such conversion shall be effected by
the Borrower by giving the Administrative Agent at the Notice Office prior to
1:00 P.M. (New York time) at least three Business Days' prior notice (each a
"Notice of Conversion") specifying the Loans to be so converted, the Borrowing
or Borrowings pursuant to which such Loans were made and, if to be converted
into Eurodollar Loans, the Interest Period to be initially applicable thereto.
The Administrative Agent shall give each Bank prompt notice of any such proposed
conversion affecting any of its Loans. Swingline Loans may not be converted
pursuant to this Section 1.06.
1.07 Pro Rata Borrowings. All Borrowings of Term Loans and Revolving
Loans under this Agreement shall be incurred from the Banks pro rata on the
basis of their Term Loan Commitments and Revolving Loan Commitments. It is
understood that no Bank shall be responsible for any default by any other Bank
of its obligation to make Loans hereunder and that each Bank shall be obligated
to make the Loans provided to be made by it hereunder, regardless of the failure
of any other Bank to make its Loans hereunder.
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<PAGE> 8
1.08 Interest. (a) The Borrower agrees to pay interest in respect of
the unpaid principal amount of each Base Rate Loan from the date of Borrowing
thereof until the earlier of (i) the maturity thereof (whether by acceleration
or otherwise) and (ii) the conversion of such Base Rate Loan to a Eurodollar
Loan pursuant to Section 1.06, at a rate per annum which shall be equal to the
sum of the Applicable Base Rate Margin plus the Base Rate each as in effect from
time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan from the date of Borrowing thereof
until the earlier of (i) the maturity thereof (whether by acceleration or
otherwise) and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan
pursuant to Section 1.06, 1.09 or 1.10, as applicable, at a rate per annum which
shall, during each Interest Period applicable thereto, be equal to the sum of
the Applicable Eurodollar Rate Margin plus the Eurodollar Rate for such Interest
Period.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable hereunder
shall, in each case, bear interest at a rate per annum equal to the greater of
(x) the rate which is 2% in excess of the rate then borne by such Loans and (y)
the rate which is 2% in excess of the rate otherwise applicable to Base Rate
Loans of the respective Tranche from time to time. Interest which accrues under
this Section 1.08(c) shall be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment
Date, (ii) in respect of each Eurodollar Loan, on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three month intervals after the first
day of such Interest Period and (iii) in respect of each Loan, on any repayment
or prepayment (on the amount repaid or prepaid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand, provided, that
in the case of Base Rate Loans, interest shall not be payable pursuant to
preceding clause (iii) at the time of any repayment or prepayment thereof unless
the respective repayment or prepayment is made in conjunction with a permanent
reduction of the Total Revolving Loan Commitment.
(e) Upon each Interest Determination Date, the Administrative Agent
shall determine the Eurodollar Rate for each Interest Period applicable to
Eurodollar Loans and shall promptly notify the Borrower and the Banks thereof.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties hereto.
1.09 Interest Periods. At the time the Borrower gives any Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, any Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day prior to the expiration of an Interest
Period applicable to such Eurodollar Loan (in the case of any subsequent
Interest Period), the Borrower shall have the right to elect, by giving the
Administrative Agent notice thereof, the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, be a one, two, three or six-month period, provided that:
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<PAGE> 9
(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including the
date of any conversion thereto from a Base Rate Loan) and each Interest
Period occurring thereafter in respect of such Eurodollar Loan shall
commence on the day on which the next preceding Interest Period applicable
thereto expires;
(iii) if any Interest Period for a Eurodollar Loan begins on a day for
which there is no numerically corresponding day in the calendar month at the
end of such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iv) if any Interest Period for a Eurodollar Loan would otherwise
expire on a day which is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day, provided, however, that if any
Interest Period for a Eurodollar Loan would otherwise expire on a day which
is not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on the
next preceding Business Day;
(v) no Interest Period may be selected at any time when a Default or
an Event of Default is then in existence if the Required Banks have by
notice to the Borrower determined in their sole discretion that selection of
an Interest Period is not appropriate, provided that no such notice shall be
required if a Default or an Event of Default under Section 10.05 exists and
is continuing, in which case no Interest Period may be selected;
(vi) no Interest Period in respect of any Borrowing of Term Loans
shall be selected which extends beyond any date upon which a mandatory
repayment of Term Loans will be required to be made under Section 4.02(b),
if the aggregate principal amount of Term Loans which have Interest Periods
which will expire after such date will be in excess of the aggregate
principal amount of Term Loans then outstanding less the aggregate amount of
such required repayment; and
(vii) no Interest Period in respect of any Borrowing of Term Loans or
Revolving Loans that are maintained as Eurodollar Loans shall be selected
which extends beyond the respective Maturity Date for such Tranche of Loans.
If upon the expiration of any Interest Period applicable to a Borrowing
of Eurodollar Loans, the Borrower has failed to elect, or is not permitted to
elect, a new Interest Period to be applicable to such Eurodollar Loans as
provided above, the Borrower shall be deemed to have elected to convert such
Eurodollar Loans into Base Rate Loans effective as of the expiration date of
such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that any Bank
shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto but, with respect to
clause (i) below, may be made only by the Administrative Agent):
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(i) on any Interest Determination Date that, by reason of any changes
arising after the date of this Agreement affecting the interbank Eurodollar
market, adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of Eurodollar
Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation, order,
guideline or request (whether or not having the force of law) or in the
interpretation or administration thereof and including the introduction of
any new law or governmental rule, regulation, order, guideline or request,
such as, for example, but not limited to: (A) a change in the basis of
taxation of payment to any Bank of the principal of or interest on the Loans
or Notes or any other amounts payable hereunder (except for changes in the
rate of tax on, or determined by reference to, the net income or profits of
such Bank pursuant to the laws of the jurisdiction in which such Bank is
organized or in which such Bank's principal office or applicable lending
office is located or any subdivision thereof or therein), but, in any event,
without duplication of any amounts payable to such Bank under Section 4.04
(although no such Bank shall be entitled to any amounts under this Section
1.10(a)(ii) in respect of any Taxes to the extent that such Bank fails to
provide the forms or certification required to be provided by it under
Section 4.04(b)) or (B) a change in official reserve requirements, but, in
all events, excluding reserves required under Regulation D to the extent
included in the computation of the Eurodollar Rate and/or (y) other
circumstances occurring since the date of this Agreement affecting such
Bank, the interbank Eurodollar market or the position of such Bank in such
market; or
(iii) at any time, that the making or continuance of any Eurodollar
Loan has been made (x) unlawful by any law or governmental rule, regulation
or order, (y) impossible by compliance by any Bank in good faith with any
governmental request (whether or not having force of law) or (z)
impracticable as a result of a contingency occurring after the date of this
Agreement which materially and adversely affects the interbank Eurodollar
market;
then, and in any such event, such Bank (or the Administrative Agent, in the case
of clause (i) above) shall promptly give notice (by telephone promptly confirmed
in writing) to the Borrower and, except in the case of clause (i) above, to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the
case of clause (i) above, Eurodollar Loans shall no longer be available until
such time as the Administrative Agent notifies the Borrower and the Banks that
the circumstances giving rise to such notice by the Administrative Agent no
longer exist, and any Notice of Borrowing or Notice of Conversion given by the
Borrower with respect to Eurodollar Loans which have not yet been incurred
(including by way of conversion) shall be deemed rescinded by the Borrower,
provided that the Borrower may request that the Administrative Agent convert any
such Notice of Borrowing of Revolving Loans into a Notice of Borrowing of
Revolving Loans to be maintained as Base Rate Loans, (y) in the case of clause
(ii) above, the Borrower shall pay to such Bank, within 30 days after such
Bank's written request therefor, such additional amounts (in the form of an
increased rate of, or a different method of calculating,
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<PAGE> 11
interest or otherwise as such Bank in its reasonable discretion shall determine)
as shall be required to compensate such Bank for such increased costs or
reductions in amounts received or receivable hereunder (a written notice as to
the additional amounts owed to such Bank, showing in reasonable detail the basis
for the calculation thereof, submitted to the Borrower by such Bank shall,
absent manifest error, be final and conclusive and binding on all the parties
hereto) and (z) in the case of clause (iii) above, the Borrower shall take one
of the actions specified in Section 1.10(b) as promptly as possible and, in any
event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, cancel such Borrowing by
giving the Administrative Agent telephonic notice (confirmed in writing) on the
same date that the Borrower was notified by the affected Bank or the
Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the
affected Eurodollar Loan is then outstanding, upon at least three Business Days'
written notice to the Administrative Agent, require the affected Bank to convert
such Eurodollar Loan into a Base Rate Loan, provided that, if more than one Bank
is affected at any time, then all affected Banks must be treated the same
pursuant to this Section 1.10(b).
(c) If any Bank determines that after the date of this Agreement the
introduction of or any change in any applicable law or governmental rule,
regulation, order, guideline, directive or request (whether or not having the
force of law) concerning capital adequacy, or any change in interpretation or
administration thereof by any governmental authority, central bank or comparable
agency, will have the effect of increasing the amount of capital required or
expected to be maintained by such Bank or any corporation controlling such Bank
based on the existence of such Bank's Commitments hereunder or its obligations
hereunder, then the Borrower shall pay to such Bank, within 30 days after its
written demand therefor, such additional amounts as shall be required to
compensate such Bank or such other corporation for the increased cost to such
Bank or such other corporation or the reduction in the rate of return to such
Bank or such other corporation as a result of such increase of capital. In
determining such additional amounts, each Bank will act reasonably and in good
faith and will use averaging and attribution methods which are reasonable,
provided that such Bank's determination of compensation owing under this Section
1.10(c) shall, absent manifest error, be final and conclusive and binding on all
the parties hereto. Each Bank, upon determining that any additional amounts will
be payable pursuant to this Section 1.10(c), will give prompt written notice
thereof to the Borrower, which notice shall show in reasonable detail the basis
for calculation of such additional amounts.
(d) Notwithstanding anything to the contrary contained in this Section
1.10, unless a Bank gives notice to the Borrower that the Borrower is obligated
to pay any amount under this Section 1.10 within 180 days after the later of (x)
the date such Bank incurs the respective increased costs or reduction in return
the rate of return or (y) the date such Bank has actual knowledge of its
incurrence of the respective increased costs or reduction in the rate of return,
then such Bank shall only be entitled to be compensated for such amount by the
Borrower pursuant to this Section 1.10 to the extent the respective increased
costs or reduction in the rate of return are incurred or suffered on or after
the date which occurs 180 days prior to such Bank
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giving notice to the Borrower that the Borrower is obligated to pay the
respective amounts pursuant to this Section 1.10.
1.11 Compensation. The Borrower shall compensate each Bank, upon its
written request (which request shall set forth in reasonable detail the basis
for requesting such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Bank to fund its Eurodollar Loans but excluding loss of
anticipated profits) which such Bank may sustain: (i) if for any reason (other
than a default by such Bank or the Administrative Agent) a Borrowing of, or
conversion from or into, Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion (whether or not
withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii)
if any repayment (including any repayment made pursuant to Section 4.01, Section
4.02 or as a result of an acceleration of the Loans pursuant to Section 10) or
conversion of any of its Eurodollar Loans occurs on a date which is not the last
day of an Interest Period with respect thereto; (iii) if any prepayment of any
of its Eurodollar Loans is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
default by the Borrower to repay its Loans when required by the terms of this
Agreement or any Note held by such Bank or (y) any election made pursuant to
Section 1.10(b).
1.12 Change of Lending Office. Each Bank agrees that on the occurrence
of any event giving rise to the operation of Section 1.10(a)(ii) or (iii),
Section 1.10(c), Section 2.06 or Section 4.04 with respect to such Bank, it
will, if requested by the Borrower, use reasonable efforts (subject to overall
policy considerations of such Bank) to designate another lending office for any
Loans or Letters of Credit affected by such event, provided that such
designation is made on such terms that such Bank and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such Section. Nothing
in this Section 1.12 shall affect or postpone any of the obligations of the
Borrower or the right of any Bank provided in Sections 1.10, 2.06 and 4.04.
1.13 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank or
otherwise defaults in its obligations to make Loans, (y) upon the occurrence of
an event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section
1.10(c), Section 2.06 or Section 4.04 with respect to any Bank which results in
such Bank charging to the Borrower increased costs or (z) in the case of a
refusal by a Bank to consent to certain proposed changes, waivers, discharges or
terminations with respect to this Agreement which have been approved by the
Required Banks as (and to the extent) provided in Section 13.12(b), the Borrower
shall have the right, if no Default or Event of Default then exists (or, in the
case of preceding clause (z), no Default or Event of Default will exist
immediately after giving effect to such replacement), to replace such Bank (the
"Replaced Bank") with one or more other Eligible Transferees, none of whom shall
constitute a Defaulting Bank at the time of such replacement (collectively, the
"Replacement Bank") and each of whom shall be required to be reasonably
acceptable to the Administrative Agent, provided that (i) at the time of any
replacement pursuant to this Section 1.13, the Replacement Bank shall enter into
one or more Assignment and Assumption Agreements pursuant to Section 13.04(b)
(and with all fees payable pursuant to said Section 13.04(b) to be paid by the
Replacement Bank) pursuant to which the Replacement Bank shall acquire all of
the Commitments and outstanding Loans of, and in each case participations in
Letters of Credit by,
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the Replaced Bank and, in connection therewith, shall pay to (x) the Replaced
Bank in respect thereof an amount equal to the sum of (I) an amount equal to the
principal of, and all accrued interest on, all outstanding Loans of the Replaced
Bank, (II) an amount equal to all Unpaid Drawings that have been funded by (and
not reimbursed to) such Replaced Bank, together with all then unpaid interest
with respect thereto at such time and (III) an amount equal to all accrued, but
theretofore unpaid, Fees owing to the Replaced Bank pursuant to Section 3.01,
(y) the Issuing Bank an amount equal to such Replaced Bank's RL Percentage of
any Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent
such amount was not theretofore funded by such Replaced Bank to such Issuing
Bank and (z) the Swingline Bank an amount equal to such Replaced Bank's RL
Percentage of any Mandatory Borrowing to the extent such amount was not
theretofore funded by such Replaced Bank to the Swingline Bank and (ii) all
obligations of the Borrower due and owing to the Replaced Bank at such time
(other than those specifically described in clause (i) above in respect of which
the assignment purchase price has been, or is concurrently being, paid) shall be
paid in full to such Replaced Bank concurrently with such replacement. Upon the
execution of the respective Assignment and Assumption Agreement, the payment of
amounts referred to in clauses (i) and (ii) above and, if so requested by the
Replacement Bank, delivery to the Replacement Bank of the appropriate Note or
Notes executed by the Borrower, the Replacement Bank shall become a Bank
hereunder and the Replaced Bank shall cease to constitute a Bank hereunder,
except with respect to indemnification provisions under this Agreement
(including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 12.06 and
13.01), which shall survive as to such Replaced Bank.
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and
conditions set forth herein, the Borrower may request that the Issuing Bank
issue, at any time and from time to time on and after the Initial Borrowing Date
and prior to the 30th day prior to the Revolving Loan Maturity Date, (x) for the
account of the Borrower and for the benefit of any holder (or any trustee, agent
or other similar representative for any such holders) of L/C Supportable
Obligations of the Borrower or any of its Subsidiaries, an irrevocable standby
letter of credit, in a form customarily used by the Issuing Bank or in such
other form as has been approved by the Issuing Bank (each such standby letter of
credit, a "Standby Letter of Credit"), in support of such L/C Supportable
Obligations and (y) for the account of the Borrower, an irrevocable sight
commercial letter of credit in a form customarily used by the Issuing Bank or in
such other form as has been approved by the Issuing Bank (each such commercial
letter of credit, a "Trade Letter of Credit", and each such Trade Letter of
Credit and each Standby Letter of Credit, a "Letter of Credit"), in support of
customary commercial transactions of the Borrower and its Subsidiaries. All
Letters of Credit shall be denominated in Dollars and shall be issued on a sight
basis only.
(b) Subject to and upon the terms and conditions set forth herein, the
Issuing Bank agrees that it will, at any time and from time to time on and after
the Initial Borrowing Date and prior to the 30th day prior to the Revolving Loan
Maturity Date, following its receipt of the respective Letter of Credit Request,
issue for the account of the Borrower, one or more Letters of Credit (x) in the
case of Standby Letters of Credit, in support of such L/C Supportable
Obligations of the Borrower or any of its Subsidiaries as are permitted to
remain outstanding without giving rise to a Default or an Event of Default,
hereunder and (y) in the case of Trade Letters of Credit, in support of
customary commercial transactions of the Borrower or any of its
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<PAGE> 14
Subsidiaries, provided that the Issuing Bank shall be under no obligation to
issue any Letter of Credit of the types described above if at the time of such
issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain the Issuing Bank
from issuing such Letter of Credit or any requirement of law applicable to
the Issuing Bank or any request or directive (whether or not having the
force of law) from any governmental authority with jurisdiction over the
Issuing Bank shall prohibit, or request that the Issuing Bank refrain from,
the issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Bank with respect to such Letter
of Credit any restriction or reserve or capital requirement (for which the
Issuing Bank is not otherwise compensated under Section 2.06 or otherwise)
not in effect on the date hereof, or any unreimbursed loss, cost or expense
which was not applicable or in effect with respect to the Issuing Bank as of
the date hereof and which the Issuing Bank reasonably and in good faith
deems material to it; or
(ii) the Issuing Bank shall have received notice from the Borrower, any
other Credit Party or the Required Banks prior to the issuance of such
Letter of Credit of the type described in the second sentence of Section
2.03(b).
2.02 Maximum Letter of Credit Outstandings; Final Maturities.
Notwithstanding anything to the contrary contained in this Agreement, (i) no
Letter of Credit shall be issued the Stated Amount of which, when added to the
Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on
the date of, and prior to the issuance of, the respective Letter of Credit) at
such time would exceed either (x) $5,000,000 or (y) when added to the aggregate
principal amount of all Revolving Loans then outstanding and the aggregate
principal amount of all Swingline Loans then outstanding, an amount equal to the
Total Revolving Loan Commitment at such time and (ii) each Letter of Credit
shall by its terms terminate on or before the earlier of (x) (A) in the case of
Standby Letters of Credit, the date which occurs 12 months (or, in the case of
certain Standby Letters of Credit issued on the Initial Borrowing Date, 14
months) after the date of the issuance thereof (although any such Standby Letter
of Credit may be extendable for successive periods of up to 12 months, but not
beyond the third Business Day prior to the Revolving Loan Maturity Date, on
terms acceptable to the Issuing Bank) and (B) in the case of Trade Letters of
Credit, the date which occurs 180 days after the date of issuance thereof and
(y) thirty Business Days prior to the Revolving Loan Maturity Date.
2.03 Letter of Credit Requests; Minimum Stated Amount. (a) Whenever the
Borrower desires that a Letter of Credit be issued for its account, the Borrower
shall give the Administrative Agent and the Issuing Bank at least five Business
Days' (or such shorter period as is acceptable to the Issuing Bank) written
notice thereof. Each notice shall be in the form of Exhibit C appropriately
completed (each a "Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be deemed to be a
representation and warranty by the Borrower that such Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
2.02. Unless the Issuing Bank has received notice from the Borrower, any other
Credit Party or the Required Banks before it issues a Letter of Credit that one
or more of the conditions specified in Section 5 or 6 are not then
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satisfied, or that the issuance of such Letter of Credit would violate Section
2.02, then the Issuing Bank shall, subject to the terms and conditions of this
Agreement, issue the requested Letter of Credit for the account of the Borrower
in accordance with the Issuing Bank's usual and customary practices. Upon its
issuance of or amendment or modification to any Standby Letter of Credit, the
Issuing Bank shall promptly notify the Borrower and the Administrative Agent of
such issuance, amendment or modification and such notification shall be
accompanied by a copy of the issued Letter of Credit or amendment or
modification. Upon receipt of such notification (accompanied by a copy of the
issued Letter of Credit or amendment or modification, as the case may be), the
Administrative Agent shall notify each RL Bank of such issuance, amendment or
modification, as the case may be, and, upon request by any RL Bank, shall
furnish such RL Bank with a copy of the issued Letter of Credit or amendment or
modification, as the case may be. Notwithstanding anything to the contrary
contained in this Agreement, in the event that a Bank Default exists, the
Issuing Bank shall not be required to issue any Letter of Credit unless the
Issuing Bank has entered into an arrangement satisfactory to it and the Borrower
to eliminate the Issuing Bank's risk with respect to the participation in
Letters of Credit by the Defaulting Bank or Banks, including by cash
collateralizing such Defaulting Bank's or Banks' RL Percentage of the Letter of
Credit Outstandings.
(c) The initial Stated Amount of each Letter of Credit shall not be
less than $10,000 or such lesser amount as is reasonably acceptable to the
Issuing Bank.
2.04 Letter of Credit Participations. (a) Immediately upon the issuance
by the Issuing Bank of any Letter of Credit, the Issuing Bank shall be deemed to
have sold and transferred to each RL Bank, other than the Issuing Bank (each
such RL Bank, in its capacity under this Section 2.04, a "Participant"), and
each such Participant shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuing Bank, without recourse or warranty, an
undivided interest and participation, to the extent of such Participant's RL
Percentage, in such Letter of Credit, each drawing or payment made thereunder
and the obligations of the Borrower under this Agreement with respect thereto,
and any security therefor or guaranty pertaining thereto. Upon any change in the
Revolving Loan Commitments or RL Percentages of the RL Banks pursuant to Section
1.13 or 13.04, it is hereby agreed that, with respect to all outstanding Letters
of Credit and Unpaid Drawings, there shall be an automatic adjustment to the
participations pursuant to this Section 2.04 to reflect the new RL Percentages
of the assignor and assignee RL Bank, as the case may be.
(b) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall not have an obligation relative to the other Banks other than
to confirm that any documents required to be delivered under such Letter of
Credit appear to have been delivered and that they appear to substantially
comply on their face with the requirements of such Letter of Credit. Any action
taken or omitted to be taken by the Issuing Bank under or in connection with any
Letter of Credit if taken or omitted in the absence of gross negligence or
willful misconduct (as finally determined by a court of competent jurisdiction),
shall not create for the Issuing Bank any resulting liability to the Borrower,
any other Credit Party, any Bank or any other Person.
(c) In the event that the Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to the Issuing Bank pursuant to Section 2.05(a), the Issuing Bank shall promptly
notify the Administrative Agent,
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which shall promptly notify each Participant of such failure, and each
Participant shall promptly and unconditionally pay to the Issuing Bank the
amount of such Participant's RL Percentage of such unreimbursed payment in
Dollars and in same day funds. If the Administrative Agent so notifies, prior to
11:00 A.M. (New York time) on any Business Day, any Participant required to fund
a payment under a Letter of Credit, such Participant shall make available to the
Issuing Bank in Dollars such Participant's RL Percentage of the amount of such
payment on such Business Day in same day funds. If and to the extent such
Participant shall not have so made its RL Percentage of the amount of such
payment available to the Issuing Bank, such Participant agrees to pay to the
Issuing Bank, forthwith on demand such amount, together with interest thereon,
for each day from such date until the date such amount is paid to the Issuing
Bank at the overnight Federal Funds Rate for the first three days and at the
interest rate applicable to Revolving Loans maintained as Base Rate Loans for
each day thereafter. The failure of any Participant to make available to the
Issuing Bank its RL Percentage of any payment under any Letter of Credit shall
not relieve any other Participant of its obligation hereunder to make available
to the Issuing Bank its RL Percentage of any Letter of Credit on the date
required, as specified above, but no Participant shall be responsible for the
failure of any other Participant to make available to the Issuing Bank such
other Participant's RL Percentage of any such payment.
(d) Whenever the Issuing Bank receives a payment of a reimbursement
obligation as to which it has received any payments from the Participants
pursuant to clause (c) above, the Issuing Bank shall pay to each Participant
which has paid its RL Percentage thereof, in Dollars and in same day funds, an
amount equal to such Participant's share (based upon the proportionate aggregate
amount originally funded by such Participant to the aggregate amount funded by
all Participants) of the principal amount of such reimbursement obligation and
interest thereon accruing after the purchase of the respective participations.
(e) Upon the request of any Participant, the Issuing Bank shall furnish
to such Participant copies of any Letter of Credit issued by it and such other
documentation as may reasonably be requested by such Participant.
(f) The obligations of the Participants to make payments to the Issuing
Bank with respect to Letters of Credit issued by it shall be irrevocable and not
subject to any qualification or exception whatsoever and shall be made in
accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower or any of its Subsidiaries may have at any time against a
beneficiary named in a Letter of Credit, any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting), the
Administrative Agent, any Participant, or any other Person, whether in
connection with this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any underlying
transaction between the Borrower or any Subsidiary of the Borrower and the
beneficiary named in any such Letter of Credit);
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<PAGE> 17
(iii) any draft, certificate or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default.
2.05 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
agrees to reimburse the Issuing Bank, by making payment to the Administrative
Agent in immediately available funds at the Payment Office, for any payment or
disbursement made by the Issuing Bank under any Letter of Credit (each such
amount, so paid until reimbursed, an "Unpaid Drawing"), not later than one
Business Day following receipt by the Borrower of notice of such payment or
disbursement (provided that no such notice shall be required to be given if a
Default or an Event of Default under Section 10.05 shall have occurred and be
continuing, in which case the Unpaid Drawing shall be due and payable
immediately without presentment, demand, protest or notice of any kind (all of
which are hereby waived by the Borrower)), with interest on the amount so paid
or disbursed by the Issuing Bank, to the extent not reimbursed prior to 1:00
P.M. (New York time) on the date of such payment or disbursement, from and
including the date paid or disbursed to but excluding the date the Issuing Bank
was reimbursed by the Borrower therefor at a rate per annum which shall be the
Base Rate in effect from time to time plus the Applicable Base Rate Margin for
Revolving Loans; provided, however, to the extent such amounts are not
reimbursed prior to 1:00 P.M. (New York time) on the third Business Day
following the receipt by the Borrower of notice of such payment or disbursement
or following the occurrence of a Default or an Event of Default under Section
10.05, interest shall thereafter accrue on the amounts so paid or disbursed by
the Issuing Bank (and until reimbursed by the Borrower) at a rate per annum
which shall be the Base Rate in effect from time to time plus the Applicable
Base Rate Margin for Revolving Loans plus 2%, in each such case, with interest
to be payable on demand. The Issuing Bank shall give the Borrower prompt written
notice of each Drawing under any Letter of Credit, provided that the failure to
give any such notice shall in no way affect, impair or diminish the Borrower's
obligations hereunder.
(b) The obligations of the Borrower under this Section 2.05 to
reimburse the Issuing Bank with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrower may have or have had against any Bank (including in its
capacity as issuer of the Letter of Credit or as Participant), including,
without limitation, any defense based upon the failure of any drawing under a
Letter of Credit (each a "Drawing") to conform to the terms of the Letter of
Credit or any nonapplication or misapplication by the beneficiary of the
proceeds of such Drawing; provided, however, that the Borrower shall not be
obligated to reimburse the Issuing Bank for any wrongful payment made by the
Issuing Bank under a Letter of Credit as a result of acts or omissions
constituting willful misconduct or gross negligence on the part of the Issuing
Bank (as finally determined by a court of competent jurisdiction).
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2.06 Increased Costs. (a) If at any time after the date of this
Agreement, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Issuing Bank or
any Participant with any request or directive by any such authority (whether or
not having the force of law), shall either (i) impose, modify or make applicable
any reserve, deposit, capital adequacy or similar requirement against letters of
credit issued by the Issuing Bank or participated in by any Participant or (ii)
impose on the Issuing Bank or any Participant any other conditions relating,
directly or indirectly, to this Agreement; and the result of any of the
foregoing is to increase the cost to the Issuing Bank or any Participant of
issuing, maintaining or participating in any Letter of Credit, or reduce the
amount of any sum received or receivable by the Issuing Bank or any Participant
hereunder or reduce the rate of return on its capital with respect to Letters of
Credit (except for changes in the rate of tax on, or determined by reference to,
the net income or profits of the Issuing Bank or such Participant pursuant to
the laws of the jurisdiction in which it is organized or in which its principal
office or applicable lending office is located or any subdivision thereof or
therein), then, within 30 days after the delivery of the certificate referred to
below to the Borrower by the Issuing Bank or any Participant (a copy of which
certificate shall be sent by the Issuing Bank or such Participant to the
Administrative Agent), the Borrower shall pay to the Issuing Bank or such
Participant such additional amount or amounts as will compensate such Bank for
such increased cost or reduction in the amount receivable or reduction on the
rate of return on its capital. The Issuing Bank or any Participant, upon
determining that any additional amounts will be payable pursuant to this Section
2.06, will give prompt written notice thereof to the Borrower, which notice
shall include a certificate submitted to the Borrower by the Issuing Bank or
such Participant (a copy of which certificate shall be sent by the Issuing Bank
or such Participant to the Administrative Agent), setting forth in reasonable
detail the basis for the calculation of such additional amount or amounts
necessary to compensate the Issuing Bank or such Participant. The certificate
required to be delivered pursuant to this Section 2.06 shall, absent manifest
error, be final and conclusive and binding on the Borrower.
(b) Notwithstanding anything to the contrary contained in this Section
2.06, unless the Issuing Bank or a Participant gives notice to the Borrower that
the Borrower is obligated to pay any amount under this Section 2.06 within 180
days after the later of (x) the date the Issuing Bank or such Participant incurs
the respective increased costs or reduction in return the rate of return or (y)
the date the Issuing Bank or such Participant has actual knowledge of its
incurrence of the respective increased costs or reduction in the rate of return,
then the Issuing Bank or such Participant shall only be entitled to be
compensated for such amount by the Borrower pursuant to this Section 2.06 to the
extent the respective increased costs or reduction in the rate of return are
incurred or suffered on or after the date which occurs 180 days prior to the
Issuing Bank or such Participant giving notice to the Borrower that the Borrower
is obligated to pay the respective amounts pursuant to this Section 2.06.
SECTION 3. Commitment Commission; Fees; Reductions of Commitment.
3.01 Fees. (a) The Borrower agrees to pay to the Administrative Agent
for distribution to each Non-Defaulting Bank with a Revolving Loan Commitment, a
commitment commission (the "Commitment Commission") for the period from and
including the Effective Date to but excluding the Revolving Loan Maturity Date
(or such earlier date on which the Total
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<PAGE> 19
Revolving Loan Commitment shall have been terminated), computed at a rate per
annum equal to the Applicable Commitment Commission Percentage on the daily
average Unutilized Revolving Loan Commitment of such Non-Defaulting Bank.
Accrued Commitment Commission shall be due and payable quarterly in arrears on
each Quarterly Payment Date and on the Revolving Loan Maturity Date (or such
earlier date on which the Total Revolving Loan Commitment shall have been
terminated).
(b) The Borrower agrees to pay to the Administrative Agent for
distribution to each RL Bank (based on each such RL Bank's respective RL
Percentage) a fee in respect of each Letter of Credit issued hereunder (the
"Letter of Credit Fee") for the period from and including the date of issuance
of such Letter of Credit to and including the date of termination or expiration
of such Letter of Credit, computed at a rate per annum equal to the Applicable
Eurodollar Rate Margin then in effect for Revolving Loans on the daily Stated
Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due and
payable quarterly in arrears on each Quarterly Payment Date and on the first day
on or after the termination of the Total Revolving Loan Commitment upon which no
Letters of Credit remain outstanding.
(c) The Borrower agrees to pay to the Issuing Bank, for its own
account, a facing fee in respect of each Letter of Credit issued hereunder (the
"Facing Fee") for the period from and including the date of issuance of such
Letter of Credit to and including the date of the termination of such Letter of
Credit, computed at a rate per annum equal to -1/4 of 1% on the daily Stated
Amount of such Letter of Credit, provided that in any event the minimum amount
of the Facing Fee payable in any 12 month period for each Letter of Credit shall
be $500; it being agreed that, on the date of issuance of any Letter of Credit
and on each anniversary thereof prior to the termination of such Letter of
Credit, if $500 will exceed the amount of Facing Fees that will accrue with
respect to such Letter of Credit for the immediately succeeding 12 month period,
the full $500 shall be payable on the date of issuance of such Letter of Credit
and on each such anniversary thereof. Except as otherwise provided in the
proviso to the immediately preceding sentence, accrued Facing Fees shall be due
and payable quarterly in arrears on each Quarterly Payment Date and upon the
first day on or after the termination of the Total Revolving Loan Commitment
upon which no Letters of Credit remain outstanding.
(d) The Borrower agrees to pay to the Issuing Bank, for its own
account, upon each payment under, issuance of, or amendment to, any Letter of
Credit, such amount as shall at the time of such event be the administrative
charge and the reasonable expenses which the Issuing Bank is generally imposing
in connection with such occurrence with respect to letters of credit.
(e) The Borrower agrees to pay to the Administrative Agent, for its own
account, such other fees as have been agreed to in writing by the Borrower and
the Administrative Agent.
3.02 Voluntary Termination of Unutilized Commitments. (a) Upon at least
one Business Day's prior written notice to the Administrative Agent at the
Notice Office (which notice the Administrative Agent shall promptly transmit to
each of the Banks), the Borrower shall have the right, at any time or from time
to time, without premium or penalty, to terminate the Total Unutilized Revolving
Loan Commitment, in whole or in part, pursuant to this Section 3.02(a), in an
integral multiple of $100,000, in the case of partial reductions to the Total
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<PAGE> 20
Unutilized Revolving Loan Commitment, provided that each such reduction shall
apply proportionately to permanently reduce the Revolving Loan Commitment of
each Bank.
(b) In the event of a refusal by a Bank to consent to certain proposed
changes, waivers, discharges or terminations with respect to this Agreement
which have been approved by the Required Banks as (and to the extent) provided
in Section 13.12(b), the Borrower may, subject to its compliance with the
requirements of Section 13.12(b), upon five Business Days' prior written notice
to the Administrative Agent at the Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks) terminate all
of the Commitments of such Bank, so long as all Loans, together with accrued and
unpaid interest, Fees and all other amounts, owing to such Bank are repaid
concurrently with the effectiveness of such termination pursuant to Section
4.01(b) (at which time Schedule I shall be deemed modified to reflect such
changed amounts), and at such time, such Bank shall no longer constitute a
"Bank" for purposes of this Agreement, except with respect to indemnifications
under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06,
4.04, 12.06 and 13.01), which shall survive as provided therein as to such
repaid Bank.
3.03 Mandatory Reduction of Commitments. (a) The Total Commitment (and
each of the Commitments of each Bank) shall terminate in its entirety at 6:00
P.M. (New York time) on December 15, 1998 unless the Initial Borrowing Date has
occurred on or before such date.
(b) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Term Loan Commitment (and the Term Loan
Commitment of each Bank) shall terminate in its entirety on the Initial
Borrowing Date (after giving effect to the incurrence of the Term Loans on such
date).
(c) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank) shall terminate in its entirety on the earlier of
(i) the date on which a Change of Control occurs and (ii) the Revolving Loan
Maturity Date.
(d) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, on each date after the Initial Borrowing Date upon which a
mandatory repayment of Term Loans pursuant to any of Sections 4.02(c), 4.02(d),
4.02(e), 4.02(f) and/or 4.02(g) is required (and exceeds in amount the aggregate
principal amount of Term Loans then outstanding) or would be required if Term
Loans were then outstanding, the Total Revolving Loan Commitment shall be
permanently reduced by the amount, if any, by which the amount required to be
applied pursuant to said Sections (determined as if an unlimited amount of Term
Loans were actually outstanding) exceeds the aggregate principal amount of Term
Loans then outstanding. Each reduction to the Total Revolving Loan Commitment
pursuant to this Section 3.03 shall be applied proportionately to permanently
reduce the Revolving Loan Commitment of each Bank.
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<PAGE> 21
SECTION 4. Prepayments; Payments; Taxes.
4.01 Voluntary Prepayments. (a) The Borrower shall have the right to
prepay the Loans, without premium or penalty, in whole or in part at any time
and from time to time on the following terms and conditions: (i) the Borrower
shall give the Administrative Agent prior to 1:00 P.M. (New York time) at the
Notice Office (x) at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of its intent to prepay Base
Rate Loans (or same day notice in the case of a prepayment of Swingline Loans)
and (y) at least three Business Days' prior written notice (or telephonic notice
promptly confirmed in writing) of its intent to prepay Eurodollar Loans, whether
Term Loans, Revolving Loans or Swingline Loans shall be prepaid, the amount of
such prepayment and the Types of Loans to be prepaid and, in the case of
Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which made,
which notice the Administrative Agent shall, except in the case of Swingline
Loans, promptly transmit to each of the Banks; (ii) (x) each partial prepayment
of Term Loans pursuant to this Section 4.01(a) shall be in an aggregate
principal amount of at least $1,000,000, (y) each partial prepayment of
Revolving Loans pursuant to this Section 4.01(a) shall be in an aggregate
principal amount of at least $250,000 and (z) each partial prepayment of
Swingline Loans pursuant to this Section 4.01(a) shall be in an aggregate
principal amount of at least $50,000, provided that if any partial prepayment of
Eurodollar Loans made pursuant to any Borrowing shall reduce the outstanding
principal amount of Eurodollar Loans made pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount applicable thereto, then such
Borrowing may not be continued as a Borrowing of Eurodollar Loans and any
election of an Interest Period with respect thereto given by the Borrower shall
have no force or effect; (iii) each prepayment pursuant to this Section 4.01(a)
in respect of any Revolving Loans made pursuant to a Borrowing shall be applied
pro rata among such Revolving Loans, provided that at the Borrower's election in
connection with any prepayment of Revolving Loans pursuant to this Section
4.01(a), such prepayment shall not, so long no Default or Event of Default then
exists, be applied to any Revolving Loan of a Defaulting Bank; and (iv) each
voluntary prepayment of Term Loans pursuant to this Section 4.01(a) shall be
applied, at the election of the Borrower and as specifically designated by the
Borrower in the respective notice of prepayment, to reduce the then remaining
Scheduled Repayments of Term Loans in direct order of maturity, in inverse order
of maturity or on a pro rata basis (based upon the then remaining unpaid
principal amounts of such Scheduled Repayments after giving effect to all prior
reductions thereto), provided that if the Borrower fails to so designate the
application of any such voluntary prepayment of Term Loans, such voluntary
prepayment of Term Loans shall be applied to reduce the then remaining Scheduled
Repayments of Term Loans on a pro rata basis (based upon the then remaining
unpaid principal amounts of such Scheduled Repayments after giving effect to all
prior reductions thereto).
(b) In the event of a refusal by a Bank to consent to certain proposed
changes, waivers, discharges or terminations with respect to this Agreement
which have been approved by the Required Banks as (and to the extent) provided
in Section 13.12(b), the Borrower may, upon five Business Days' prior written
notice to the Administrative Agent at the Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks) repay all
Loans of, together with accrued and unpaid interest, Fees and other amounts
owing to, such Bank in accordance with, and subject to the requirements of, said
Section 13.12(b) so long as (A) all of the Commitments of such Bank are
terminated concurrently with such repayment pursuant to
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<PAGE> 22
Section 3.02(b) (at which time Schedule I shall be deemed modified to reflect
the changed Commitments) and (B) the consents, if any, required under Section
13.12(b) in connection with the repayment pursuant to this clause (b) have been
obtained.
4.02 Mandatory Repayments. (a) On any day on which the sum of the
aggregate outstanding principal amount of the Revolving Loans, Swingline Loans
and the Letter of Credit Outstandings exceeds the Total Revolving Loan
Commitment as then in effect, the Borrower shall prepay on such day the
principal of Swingline Loans and, after all Swingline Loans have been repaid in
full (or if no Swingline Loans are outstanding), Revolving Loans in an amount
equal to such excess. If, after giving effect to the prepayment of all
outstanding Swingline Loans and Revolving Loans, the aggregate amount of the
Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment as
then in effect, the Borrower shall pay to the Administrative Agent at the
Payment Office on such day an amount of cash and/or Cash Equivalents equal to
the amount of such excess (up to a maximum amount equal to the Letter of Credit
Outstandings at such time), such cash and/or Cash Equivalents to be held as
security for all obligations of the Borrower to the Issuing Bank and the Banks
hereunder in a cash collateral account to be established by the Administrative
Agent.
(b) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date set forth below, the Borrower shall be required to
repay that principal amount of Term Loans, to the extent then outstanding, as is
set forth opposite such date below (each such repayment, as the same may be
reduced as provided in Sections 4.01(a) and 4.02(h), a "Scheduled Repayment"):
<TABLE>
<CAPTION>
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
April 30, 1999 $233,333
July 31, 1999 $233,333
October 31, 1999 $233,334
January 31, 2000 $175,000
April 30, 2000 $175,000
July 31, 2000 $175,000
October 31, 2000 $175,000
January 31, 2001 $175,000
April 30, 2001 $175,000
July 31, 2001 $175,000
October 31, 2001 $175,000
January 31, 2002 $2,500,000
April 30, 2002 $2,500,000
July 31, 2002 $2,500,000
October 31, 2002 $2,500,000
January 31, 2003 $4,175,000
</TABLE>
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<PAGE> 23
<TABLE>
<S> <C>
April 30, 2003 $4,175,000
July 31, 2003 $4,175,000
October 31, 2003 $4,175,000
January 31, 2004 $4,500,000
April 30, 2004 $4,500,000
July 31, 2004 $4,500,000
October 31, 2004 $4,500,000
January 31, 2005 $5,800,000
April 30, 2005 $5,800,000
July 31, 2005 $5,800,000
Term Loan Maturity Date $5,800,000
</TABLE>
(c) In addition to any other mandatory repayments pursuant to this
Section 4.02, (x) on each date on or after the Initial Borrowing Date upon which
the Borrower or any of its Subsidiaries receives any cash proceeds from any
incurrence by the Borrower or any of its Subsidiaries of Indebtedness for
borrowed money (other than Indebtedness for borrowed money permitted to be
incurred pursuant to Section 9.04 as such Section is in effect on the Effective
Date), an amount equal to 100% of the Net Debt Proceeds of the respective
incurrence of Indebtedness shall be applied on such date as a mandatory
repayment of principal of outstanding Term Loans in accordance with the
requirements of Sections 4.02(h) and (i) and (y) on each date on or after the
Initial Borrowing Date upon which the Borrower or any of its Subsidiaries
receives any cash proceeds from any incurrence by the Borrower or any of its
Subsidiaries of Indebtedness pursuant to Section 9.04(xii) or (xiii), an amount
equal to 100% of the Net Debt Proceeds of the respective incurrence of
Indebtedness shall be applied on such date as a mandatory repayment of principal
of outstanding Term Loans in accordance with the requirements of Sections
4.02(h) and (i).
(d) In addition to any other mandatory repayments pursuant to this
Section 4.02, within five Business Days after each date on or after the Initial
Borrowing Date upon which the Borrower or any of its Subsidiaries receives any
cash proceeds from any Asset Sale, an amount equal to 100% of the Net Sale
Proceeds from such Asset Sale shall be applied on such date as a mandatory
repayment of principal of outstanding Term Loans in accordance with the
requirements of Sections 4.02(h) and (i); provided that with respect to (x) no
more than $1,000,000 in the aggregate of cash proceeds from Asset Sales in any
fiscal year of the Borrower (other than cash proceeds received from any Asset
Sale pursuant to Sections 9.02(xvii) and (xxi) or from any Permitted
Sale-Leaseback Transaction (it being understood and agreed that the Net Sale
Proceeds from each Permitted Sale-Leaseback Transaction shall be applied as
provided in Sections 4.02(h) and (i))) and (y) the cash proceeds from any Asset
Sale pursuant to Sections 9.02(xvii) and (xxi), such Net Sale Proceeds therefrom
(in the case of preceding clause (x) or (y)) shall not be required to be so
applied pursuant to this Section 4.02(d) on such date to the extent that no
Default or Event of Default then exists and the Borrower has delivered a
certificate to the Administrative Agent on or prior to such date stating that
such Net Sale Proceeds shall be used to purchase assets that replace the assets
that were the subject of such Asset Sale or assets that will be used in the
business of the Borrower or its Subsidiaries (collectively, "Replacement
Assets") within 350 days following the date of such Asset Sale (which
certificate shall set forth the
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<PAGE> 24
estimates of the proceeds to be so expended), and provided further, that if all
or any portion of such Net Sale Proceeds are not so reinvested in Replacement
Assets within such 350 day period, such remaining portion shall be applied on
the last day of such period (or such earlier date, if any, as the Borrower
determines not to reinvest the Net Sale Proceeds from such Asset Sale as set
forth above) as a mandatory repayment of principal of outstanding Term Loans as
provided above in this Section 4.02(d) without regard to the immediately
preceding proviso.
(e) In addition to any other mandatory repayments pursuant to this
Section 4.02, within 10 days following each date on or after the Initial
Borrowing Date on which the Borrower or any of its Subsidiaries receives any
cash proceeds from any Recovery Event, an amount equal to 100% of the Net
Insurance Proceeds from such Recovery Event shall be applied as a mandatory
repayment of outstanding Term Loans in accordance with the requirements of
Sections 4.02(h) and (i), provided that (x) so long as no Default or Event of
Default then exists and such Net Insurance Proceeds do not exceed $5,000,000,
such Net Insurance Proceeds shall not be required to be so applied pursuant to
this Section 4.02(e) on such date to the extent that the Borrower has delivered
a certificate to the Administrative Agent on or prior to such date stating that
such Net Insurance Proceeds shall be used or shall be committed to be used to
replace or restore any properties or assets in respect of which such Net
Insurance Proceeds were paid within one year following the date of such Recovery
Event (which certificate shall set forth the estimates of the proceeds to be so
expended) and (y) so long as no Default or Event of Default then exists and if
(i) the amount of such proceeds exceeds $5,000,000, (ii) the amount of such
proceeds, together with other cash available to the Borrower and its
Subsidiaries and permitted to be spent by them on Capital Expenditures during
the relevant period pursuant to Section 9.07, equals at least 100% of the cost
of replacement or restoration of the properties or assets in respect of which
such proceeds were paid as determined by the Borrower and as supported by such
estimates or bids from contractors or subcontractors or such other supporting
information as the Administrative Agent may reasonably request, (iii) the
Borrower has delivered to the Administrative Agent a certificate on or prior to
the date the application would otherwise be required pursuant to this Section
4.02(e) in the form described in clause (x) above and also certifying its
determination as required by preceding clause (ii) and certifying the
sufficiency of business interruption insurance and other funds from operations
as required by succeeding clause (iv), and (iv) the Borrower has delivered to
the Administrative Agent such evidence as the Administrative Agent may
reasonably request in form and substance reasonably satisfactory to the
Administrative Agent establishing that the Borrower has sufficient business
interruption insurance and that the Borrower will receive payment thereunder, as
well as will have sufficient cash flow from operations, in such amounts and at
such times as are necessary to satisfy all obligations and expenses of the
Borrower (including, without limitation, all debt service requirements,
including pursuant to this Agreement), without any delay or extension thereof,
for the period from the date of the respective casualty, condemnation or other
event giving rise to the Recovery Event and continuing through the completion of
the replacement or restoration of respective properties or assets, then the
entire amount of the proceeds of such Recovery Event and not just the portion in
excess of $5,000,000 shall be deposited with the Administrative Agent pursuant
to a cash collateral arrangement reasonably satisfactory to the Administrative
Agent whereby such proceeds shall be disbursed to the Borrower from time to time
as needed to pay actual costs incurred by it or its applicable Subsidiary in
connection with the replacement or restoration of the respective properties or
assets (pursuant to such certification requirements as may be established by the
Administrative Agent), provided further that at any time while an
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<PAGE> 25
Event of Default has occurred and is continuing, the Required Banks may direct
the Administrative Agent (in which case the Administrative Agent shall, and is
hereby authorized by the Borrower to, follow said directions) to apply any or
all proceeds then on deposit in such collateral account to the repayment of
Obligations hereunder, and provided further, that if all or any portion of such
proceeds not required to be applied as a mandatory repayment pursuant to the
second preceding proviso (whether pursuant to clause (x) or (y) thereof) are
either (A) not so used or committed to be so used within one year after the date
of the respective Recovery Event or (B) if committed to be used within one year
after the date of receipt of such Net Insurance Proceeds and not so used within
24 months after the date of respective Recovery Event then, in either such case,
such remaining portion not used or committed to be used in the case of preceding
clause (A) and not used in the case of preceding clause (B) shall be applied on
the date which is the first anniversary of the date of the respective Recovery
Event in the case of clause (A) above or the date occurring 24 months after the
date of the respective Recovery Event in the case of clause (B) above (or, in
either case, such earlier date, if any, as the Borrower determines not to
reinvest the Net Insurance Proceeds relating to such Recovery Event as set forth
above) as a mandatory repayment of principal of outstanding Terms Loans in
accordance with the requirements of Sections 4.02(h) and (i).
(f) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date on or after the Initial Borrowing Date upon which the
Borrower or any of its Subsidiaries receives any cash proceeds from any capital
contribution or any sale or issuance of its equity (other than cash proceeds
received (i) as part of the Equity Financing, (ii) from the issuance by the
Borrower of (x) shares of its common stock (including as a result of the
exercise of any options with regard thereto) or (y) options to purchase shares
of its common stock, in each case, to officers, directors and employees of the
Borrower or any of its Subsidiaries, (iii) from equity contributions made to the
Borrower in an aggregate amount not to exceed $10,000,000 to the extent made by
any Person that is a shareholder of the Borrower or a partner of JFL Equity or
JFL Co-Invest in either case on the Initial Borrowing Date or (iv) from equity
contributions to any Subsidiary of the Borrower to the extent made by the
Borrower or another Subsidiary of the Borrower), an amount equal to 100% of the
Net Equity Proceeds of such capital contribution or sale or issuance of equity
shall be applied as a mandatory repayment of principal of outstanding Term Loans
in accordance with the requirements of Sections 4.02(h) and (i).
(g) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each Excess Cash Payment Date, an amount equal to the
Applicable Excess Cash Flow Percentage of the Excess Cash Flow for the relevant
Excess Cash Payment Period shall be applied as a mandatory repayment of
principal of outstanding Term Loans in accordance with the requirements of
Sections 4.02(h) and (i), provided, however, that no such repayment shall be
required pursuant to this Section 4.02(g) on any Excess Cash Payment Date if the
Leverage Ratio as of the last day of such Excess Cash Payment Period is
2.00:1.00 or less and no Default or Event of Default exists at the time that
such payment is otherwise required to be made.
(h) Each amount required to be applied to repay outstanding Term Loans
pursuant to Sections 4.02(c) through (g), inclusive, shall be applied to reduce
the then remaining Scheduled Repayments on a pro rata basis (based upon the then
remaining unpaid principal amounts of such Scheduled Repayments after giving
effect to all prior reductions thereto).
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<PAGE> 26
(i) With respect to each repayment of Loans required by this Section
4.02 (including repayments resulting from the reduction of the Total Revolving
Loan Commitment pursuant to Section 3.03(d)), the Borrower may designate the
Types of Loans of the respective Tranche which are to be repaid and, in the case
of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which
made, provided that: (i) repayments of Eurodollar Loans pursuant to this Section
4.02 may only be made on the last day of an Interest Period applicable thereto
unless all Eurodollar Loans of the respective Tranche with Interest Periods
ending on such date of required repayment and all Base Rate Loans of the
respective Tranche have been paid in full; (ii) if any repayment of Eurodollar
Loans made pursuant to a single Borrowing shall reduce the outstanding
Eurodollar Loans made pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount applicable thereto, such Borrowing shall be converted
at the end of the then current Interest Period into a Borrowing of Base Rate
Loans; and (iii) each repayment of any Revolving Loans made pursuant to a
Borrowing shall be applied pro rata among such Revolving Loans. In the absence
of a designation by the Borrower as described in the preceding sentence, the
Administrative Agent shall, subject to the above, make such designation in its
sole discretion.
(j) Notwithstanding anything to the contrary contained in this
Agreement or in any other Credit Document, (i) all then outstanding Loans of a
respective Tranche shall be repaid in full on the respective Maturity Date for
such Tranche and (ii) all then outstanding Loans shall be repaid in full on the
date on which a Change of Control occurs.
4.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or under any Note shall be
made to the Administrative Agent for the account of the Bank or Banks entitled
thereto not later than 1:00 P.M. (New York time) on the date when due and shall
be made in Dollars in immediately available funds at the Payment Office.
Whenever any payment to be made hereunder or under any Note shall be stated to
be due on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest shall be payable at the applicable rate during such
extension.
4.04 Net Payments. (a) All payments made by the Borrower hereunder or
under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 4.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding, except as provided in the second succeeding sentence, any tax imposed
on or measured by the net income or profits of a Bank pursuant to the laws of
the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Bank is located or, in
each case, any subdivision thereof or therein) and all interest, penalties or
similar liabilities with respect to such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement or
under any Note, after withholding or deduction for or on account of any Taxes,
will not be less than the amount
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<PAGE> 27
provided for herein or in such Note. If any amounts are payable in respect of
Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each
Bank, upon the written request of such Bank, for taxes imposed on or measured by
the net income or profits of such Bank pursuant to the laws of the jurisdiction
in which such Bank is organized or in which the principal office or applicable
lending office of such Bank is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which such Bank is
organized or in which the principal office or applicable lending office of such
Bank is located and for any withholding of taxes as such Bank shall determine
are payable by, or withheld from, such Bank, in respect of such amounts so paid
to or on behalf of such Bank pursuant to the preceding sentence and in respect
of any amounts paid to or on behalf of such Bank pursuant to this sentence. The
Borrower will furnish to the Administrative Agent within 45 days after the date
the payment of any Taxes is due pursuant to applicable law certified copies of
tax receipts evidencing such payment by the Borrower. The Borrower agrees to
indemnify and hold harmless each Bank, and reimburse such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes
agrees to deliver to the Borrower and the Administrative Agent on or prior to
the Effective Date, or in the case of a Bank that is an assignee or transferee
of an interest under this Agreement pursuant to Section 1.13 or 13.04 (unless
the respective Bank was already a Bank hereunder immediately prior to such
assignment or transfer), on the date of such assignment or transfer to such
Bank, (i) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms) certifying to such Bank's
entitlement as of such date to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note or (ii) if the Bank is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form
1001 or 4224 (or successor forms) pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit D (any such certificate, a
"Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Bank's entitlement as of such date to a complete exemption
from United States withholding tax with respect to payments of interest to be
made under this Agreement and under any Note. In addition, each Bank agrees that
from time to time after the Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, such Bank will deliver to the Borrower and the Administrative
Agent two new accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms), or Form W-8 (or successor form)
and a Section 4.04(b)(ii) Certificate, as the case may be, and such other forms
as may be required in order to confirm or establish the entitlement of such Bank
to a continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement and any Note, or such Bank shall
immediately notify the Borrower and the Administrative Agent of its inability to
deliver any such Form or Section 4.04(b)(ii) Certificate, in which case such
Bank shall not be required to deliver any such Form or Section 4.04(b)(ii)
Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the
contrary contained in Section 4.04(a), but subject to the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, Fees or other amounts
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payable hereunder for the account of any Bank which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) for U.S.
Federal income tax purposes to the extent that such Bank has not provided to the
Borrower U.S. Internal Revenue Service Forms that establish a complete exemption
from such deduction or withholding and (y) the Borrower shall not be obligated
pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Bank in
respect of income or similar taxes imposed by the United States if (I) such Bank
has not provided to the Borrower the Internal Revenue Service Forms or the
Section 4.04(b)(ii) Certificate required to be provided to the Borrower pursuant
to this Section 4.04(b) or (II) in the case of a payment, other than interest,
to a Bank described in clause (ii) above, to the extent that such Forms do not
establish a complete exemption from withholding of such taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 4.04, the Borrower agrees to pay any additional amounts and to
indemnify each Bank in the manner set forth in Section 4.04(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any Taxes deducted or withheld by it as described in the immediately
preceding sentence solely as a result of any changes which are effective after
the Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of such Taxes.
(c) If the Borrower pays any additional amounts under this Section 4.04
to a Bank and such Bank determines in its sole discretion that it has actually
received or realized in connection therewith any refund or any reduction of, or
credit against, its Tax liabilities in or with respect to the taxable year in
which the additional amount is paid (a "Tax Benefit"), such Bank shall pay to
the Borrower an amount that such Bank shall, in its sole discretion, determine
is equal to the net benefit, after tax, which was obtained by such Bank in such
year as a consequence of such Tax Benefit; provided, however, that (i) any Bank
may determine, in its sole discretion, whether to seek a Tax Benefit, (ii) any
Taxes that are imposed on a Bank as a result of a disallowance or reduction
(including through the expiration of any tax credit carryover or carryback of
such Bank that otherwise would not have expired) of any Tax Benefit with respect
to which such Bank has made a payment to the Borrower pursuant to this Section
4.04(c) shall be treated as a Tax for which the Borrower is obligated to
indemnify such Bank pursuant to this Section 4.04 without any exclusions or
defenses and (iii) nothing in this Section 4.04(c) shall require any Bank to
disclose any confidential information to the Borrower (including, without
limitation, its tax returns).
SECTION 5. Conditions Precedent to Credit Events on the Initial
Borrowing Date. The obligation of each Bank to make Loans, and the obligation of
the Issuing Bank to issue Letters of Credit, in each case on the Initial
Borrowing Date, is subject to the satisfaction of the following conditions:
5.01 Execution of Agreement; Notes. On or prior to the Initial
Borrowing Date, (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Administrative Agent for the account of each of the
Banks that has requested the same the appropriate Note or Notes executed by the
Borrower and to the Swingline Bank to the extent requested by it, the Swingline
Note executed by the Borrower, in each case, in the amount, maturity and as
otherwise provided herein.
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5.02 Officer's Certificate. On the Initial Borrowing Date, the
Administrative Agent shall have received a certificate from the Borrower, dated
the Initial Borrowing Date and signed on its behalf by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Financial Officer,
any Executive Vice President or any Vice President of the Borrower, stating on
its behalf that all of the conditions in Sections 5.06, 5.07, 5.08, 5.09, 5.10
and 6.01 have been satisfied on such date.
5.03 Opinions of Counsel. On the Initial Borrowing Date, the
Administrative Agent shall have received from (i) Paul, Weiss, Rifkind, Wharton
& Garrison, special counsel to the Credit Parties, an opinion addressed to the
Administrative Agent, the Collateral Agent and each of the Banks and dated the
Initial Borrowing Date covering the matters set forth in Exhibit E, (ii) Morris,
Nichols, Arset & Tunnell, a reliance letter addressed to the Administrative
Agent, the Collateral Agent and each of the Banks and dated the Initial
Borrowing Date with respect to its opinion delivered in connection with the
Recapitalization, which reliance letter and opinion shall be in form and
substance reasonably satisfactory to the Administrative Agent and the Required
Banks and (iii) local counsel satisfactory to the Administrative Agent which are
located in States where one or more Mortgaged Properties are located (including,
with respect to any Mortgaged Property located in the State of California, from
White & Case LLP), opinions addressed to the Administrative Agent, the
Collateral Agent and each of the Banks and dated the Initial Borrowing Date,
each of which opinions shall be in form and substance reasonably satisfactory to
the Administrative Agent and shall cover the perfection of the security
interests granted in respect of the Security Agreement Collateral located in
such respective jurisdiction pursuant to the Security Agreement and the
Mortgages and such other matters incidental to the transactions contemplated
herein as the Administrative Agent may reasonably request.
5.04 Corporate Documents; Proceedings; etc. (a) On the Initial
Borrowing Date, the Administrative Agent shall have received a certificate from
each Credit Party, dated the Initial Borrowing Date, signed by the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Financial
Officer, any Executive Vice President or any Vice President of such Credit
Party, and attested to by the Secretary or any Assistant Secretary of such
Credit Party, in the form of Exhibit F with appropriate insertions, together
with copies of the certificate of incorporation (or equivalent organizational
document) and by-laws of such Credit Party and the resolutions of such Credit
Party referred to in such certificate, and the foregoing shall be in form and
substance reasonably acceptable to the Administrative Agent.
(b) All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this Agreement
and the other Documents shall be reasonably satisfactory in form and substance
to the Administrative Agent and the Required Banks, and the Administrative Agent
shall have received all information and copies of all documents and papers,
including records of corporate proceedings, governmental approvals, good
standing certificates and bring-down telegrams or facsimiles, if any, which the
Administrative Agent reasonably may have requested in connection therewith, such
documents and papers where appropriate to be certified by proper corporate or
governmental authorities.
(c) On the Initial Borrowing Date, the corporate, ownership and capital
structure (including, without limitation, the terms of any capital stock,
options, warrants or other securities issued by the Borrower or any of its
Subsidiaries) of the Borrower and its Subsidiaries shall be in
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substantial conformity with the description thereof contained in the Senior
Subordinated Note Offering Memorandum and as to matters or specific terms not so
described shall be in form and substance reasonably satisfactory to the
Administrative Agent and the Required Banks.
5.05 Plans; Shareholders' Agreements; Management Agreements; Employment
Agreements; Non-Compete Agreements; Collective Bargaining Agreements; Tax
Sharing Agreements; Existing Indebtedness Agreements. On or prior to the Initial
Borrowing Date, there shall have been delivered or made available to the
Administrative Agent true and correct copies of the following documents:
(i) all Plans (and for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report (including, to the extent required, the related financial
and actuarial statements and opinions and other supporting statements,
certifications, schedules and information), and for each Plan that is a
"single-employer plan," as defined in Section 4001(a)(15) of ERISA, the most
recently prepared actuarial valuation therefor) and any other "employee
benefit plans," as defined in Section 3(3) of ERISA, and any other material
agreements, plans or arrangements, with or for the benefit of current or
former employees of the Borrower or any of its Subsidiaries or any ERISA
Affiliate (provided that the foregoing shall apply in the case of any
multiemployer plan, as defined in 4001(a)(3) of ERISA, only to the extent
that any document described therein is in the possession of the Borrower or
any Subsidiary of the Borrower or any ERISA Affiliate or reasonably
available thereto from the sponsor or trustee of any such plan);
(ii) all collective bargaining agreements applying or relating to any
employee of the Borrower or any of its Subsidiaries (collectively, the
"Collective Bargaining Agreements");
(iii) all agreements entered into by the Borrower or any of its
Subsidiaries governing the terms and relative rights of its capital stock
and any agreements entered into by shareholders relating to any such entity
with respect to its capital stock in each case that will survive the
consummation of the Transaction (collectively, the "Shareholders'
Agreements");
(iv) all material agreements with members of, or with respect to, the
management of the Borrower or any of its Subsidiaries (collectively, the
"Management Agreements");
(v) all material employment agreements entered into by the Borrower
or any of its Subsidiaries (collectively, the "Employment Agreements");
(vi) any non-compete agreement entered into by the Borrower or any of
its Subsidiaries (collectively, the "Non-Compete Agreements");
(vii) all tax sharing, tax allocation and other similar agreements
entered into by the Borrower or any of its Subsidiaries that will survive
the consummation of the Transaction (collectively, the "Tax Sharing
Agreements"); and
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(viii) all agreements evidencing or relating to Indebtedness of the
Borrower or any of its Subsidiaries which is to remain outstanding after
giving effect to the Effective Date (collectively, the "Existing
Indebtedness Agreements");
all of which Plans, Collective Bargaining Agreements, Shareholders' Agreements,
Management Agreements, Employment Agreements, Non-Compete Agreements, Tax
Sharing Agreement and Existing Indebtedness Agreements shall be in form and
substance reasonably satisfactory to the Administrative Agent and the Required
Banks and shall be in full force and effect on the Effective Date.
5.06 Financings. (a) On or prior to the Initial Borrowing Date, the
Borrower shall have received gross proceeds of at least $127,800,000 from the
Equity Financing (of which (x) at least $74,000,000 will be received from new
cash common equity contributions by Lehman and its Affiliates and (y) no more
than $53,800,000 may be in the form of rollover equity by certain of the
existing shareholders of the Borrower).
(b) On or prior to the Initial Borrowing Date, the Borrower shall have
received gross cash proceeds of $100,000,000 from the issuance by it of a like
principal amount of the Senior Subordinated Notes.
(c) On or prior to the Initial Borrowing Date, there shall have been
delivered to the Administrative Agent true and correct copies of the Equity
Financing Documents and the Senior Subordinated Note Documents, and all of the
terms and conditions of the Equity Financing Documents and the Senior
Subordinated Note Documents shall be in substantial conformity with the
description thereof contained in the Senior Subordinated Note Offering
Memorandum and as to matters or specific terms not so described shall be
reasonably satisfactory in form and substance to the Administrative Agent and
the Required Banks. All conditions precedent to the consummation of the Equity
Financing and the issuance of the Senior Subordinated Notes as set forth in the
Equity Financing Documents and in the Senior Subordinated Note Documents,
respectively, shall have been satisfied, and not waived unless consented to by
the Administrative Agent and the Required Banks (which consent shall not be
unreasonably withheld or delayed), to the reasonable satisfaction of the
Administrative Agent and the Required Banks. The Equity Financing and the
issuance of the Senior Subordinated Notes shall have been consummated, in each
case in all material respects in accordance with the terms and conditions of the
applicable Documents therefor and all applicable laws.
5.07 Consummation of Recapitalization. On or prior to the Initial
Borrowing Date, there shall have been delivered to the Administrative Agent true
and correct copies of the Recapitalization Documents, with those
Recapitalization Documents which were executed on June 19, 1998 to be in the
form so executed with such changes thereto or waivers therefrom to be reasonably
satisfactory to the Administrative Agent and the Required Banks, and with all
other Recapitalization Documents to be in form and substance reasonably
satisfactory to the Administrative Agent and the Required Banks. All conditions
precedent to the consummation of the Recapitalization as set forth in the
Recapitalization Documents shall have been satisfied, and not waived unless
consented to by the Administrative Agent and the Required Banks (which consent
shall not be unreasonably withheld or delayed), to the reasonable satisfaction
of the Administrative Agent and the Required Banks. The Recapitalization shall
have been
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consummated in all material respects in accordance with the terms and conditions
of the Recapitalization Documents and all applicable laws.
5.08 Refinancing. (a) On or prior to the Initial Borrowing Date, the
total commitments in respect of the Indebtedness to be Refinanced shall have
been terminated, and all loans and notes with respect thereto shall have been
repaid in full, together with interest thereon, all letters of credit issued
thereunder shall have been terminated and all other amounts (including premiums)
owing pursuant to the Indebtedness to be Refinanced shall have been repaid in
full and all documents in respect of the Indebtedness to be Refinanced and all
guarantees with respect thereto shall have been terminated (except as to
indemnification provisions which may survive to the extent provided therein) and
be of no further force and effect.
(b) On or prior to the Initial Borrowing Date, the creditors in respect
of the Indebtedness to be Refinanced shall have terminated and released any and
all security interests and Liens on the assets owned by the Borrower and its
Subsidiaries. The Administrative Agent shall have received such releases of
security interests in and Liens on the assets owned by the Borrower and its
Subsidiaries as may have been reasonably requested by the Administrative Agent,
which releases shall be in form and substance reasonably satisfactory to the
Administrative Agent. Without limiting the foregoing, there shall have been
delivered (i) proper termination statements (Form UCC-3 or the appropriate
equivalent) for filing under the UCC of each jurisdiction where a financing
statement (Form UCC-1 or the appropriate equivalent) was filed with respect to
the Borrower or any of its Subsidiaries in connection with the security
interests created with respect to the Indebtedness to be Refinanced and the
documentation related thereto, (ii) termination or reassignment of any security
interest in, or Lien on, any patents, trademarks, copyrights, or similar
interests of the Borrower or any of its Subsidiaries on which filings have been
made, (iii) terminations of all mortgages, leasehold mortgages, deeds of trust
and leasehold deeds of trust created with respect to property of the Borrower or
any of its Subsidiaries, in each case, to secure the obligations in respect of
the Indebtedness to be Refinanced, all of which shall be in form and substance
reasonably satisfactory to the Administrative Agent and (iv) all collateral
owned by the Borrower and its Subsidiaries in the possession of any of the
creditors in respect of the Indebtedness to be Refinanced or any collateral
agent or trustee under any related security document shall have been returned to
the Borrower or its respective Subsidiary, as the case may be.
(c) The Administrative Agent shall have received evidence, in form and
substance reasonably satisfactory to it, that the matters set forth in this
Section 5.08 have been satisfied as of the Effective Date.
5.09 Adverse Change, etc. (a) Since October 31, 1998, nothing shall
have occurred (and neither the Administrative Agent nor the Banks shall have
become aware of any facts or conditions not previously known) which the
Administrative Agent or the Required Banks shall reasonably determine (a) has
had, or could reasonably be expected to have, a material adverse effect on the
rights or remedies of the Banks or the Administrative Agent, or on the ability
of any Credit Party to perform its obligations to them hereunder or under any
other Credit Document or (b) has had, or could reasonably be expected to have, a
material adverse effect on the Transaction or on the business, operations,
property, assets, liabilities or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole.
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(b) On or prior to the Initial Borrowing Date, all necessary
governmental (domestic and foreign) and third party approvals and/or consents in
connection with the Transaction and the other transactions contemplated by the
Documents and otherwise referred to herein or therein shall have been obtained
and remain in effect (other than any novations or consents that may be required
as a result of the Recapitalization in connection with any of the Borrower's
government contracts or subcontracts thereunder), and all applicable waiting
periods with respect thereto shall have expired without any action being taken
by any competent authority which restrains, prevents or imposes materially
adverse conditions upon, the consummation of the Transaction or the other
transactions contemplated by the Documents or otherwise referred to herein or
therein. Additionally, there shall not exist any judgment, order, injunction or
other restraint issued or filed or a hearing seeking injunctive relief or other
restraint pending or notified prohibiting or imposing materially adverse
conditions upon, or materially delaying, or making economically unfeasible, the
consummation of the Transaction or the other transactions contemplated by the
Documents or otherwise required to herein or therein.
5.10 Litigation. On the Initial Borrowing Date, there shall be no
actions, suits or proceedings pending or threatened (i) with respect to the
Transaction, this Agreement or any other Document or (ii) which the
Administrative Agent or the Required Banks shall reasonably determine could
reasonably be expected to have a material adverse effect on (a) the Transaction
or on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of the Borrower and its Subsidiaries taken as a whole,
(b) the rights or remedies of the Banks or the Administrative Agent hereunder or
under any other Credit Document or (c) the ability of any Credit Party to
perform its respective obligations to the Banks or the Administrative Agent
hereunder or under any other Credit Document.
5.11 Pledge Agreement. On the Initial Borrowing Date, each Credit Party
shall have duly authorized, executed and delivered the Pledge Agreement in the
form of Exhibit G (as amended, modified or supplemented from time to time, the
"Pledge Agreement") and shall have delivered to the Collateral Agent, as pledgee
thereunder, all of the Pledged Securities, if any, referred to therein and owned
by such Credit Party, (x) endorsed in blank in the case of promissory notes
constituting Pledged Securities and (y) together with executed and undated stock
powers in the case of capital stock constituting Pledged Securities.
5.12 Security Agreement. On the Initial Borrowing Date, each Credit
Party shall have duly authorized, executed and delivered the Security Agreement
in the form of Exhibit H (as modified, supplemented or amended from time to
time, the "Security Agreement") covering all of such Credit Party's present and
future Security Agreement Collateral, together with:
(i) proper Financing Statements (Form UCC-1 or the equivalent) fully
executed for filing under the UCC or other appropriate filing offices of
each jurisdiction as may be necessary or, in the reasonable opinion of the
Collateral Agent, desirable to perfect the security interests purported to
be created by the Security Agreement;
(ii) certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, listing all effective financing statements
that name any Credit Party or any of its Subsidiaries as debtor and that are
filed in the jurisdictions referred to in clause (i) above, together with
copies of such other financing statements that name any Credit
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Party or any of its Subsidiaries as debtor (none of which shall cover the
Collateral except to the extent evidencing Permitted Liens or in respect of
which the Collateral Agent shall have received termination statements (Form
UCC-3 or the equivalent) as shall be required by local law fully executed
for filing);
(iii) evidence of the completion of all other recordings and filings
of, or with respect to, the Security Agreement as may be necessary to
perfect the security interests intended to be created by the Security
Agreement; and
(iv) evidence that all other actions necessary to perfect and protect
the security interests purported to be created by the Security Agreement
have been taken.
5.13 Subsidiaries Guaranty. On the Initial Borrowing Date, each
Subsidiary Guarantor shall have duly authorized, executed and delivered the
Subsidiaries Guaranty in the form of Exhibit I (as amended, modified or
supplemented from time to time, the "Subsidiaries Guaranty").
5.14 Mortgages; Title Insurance; Landlord Waivers; etc. On the Initial
Borrowing Date, the Collateral Agent shall have received:
(i) fully executed counterparts of mortgages, deeds to secure debt or
similar documents in each case in form and substance reasonably satisfactory
to the Administrative Agent (as may be amended, modified or supplemented
from time to time in accordance with the terms hereof and thereof, each, a
"Mortgage" and collectively, "Mortgages"), which Mortgages shall cover such
of the Real Property owned by the Borrower or any of its Subsidiaries as
designated on Schedule III (each, a "Mortgaged Property" and collectively,
the "Mortgaged Properties"), together with evidence that counterparts of the
Mortgages have been delivered to the title insurance company insuring the
Lien of the Mortgages for recording in all places to the extent necessary
or, in the reasonable opinion of the Collateral Agent, desirable to
effectively create a valid and enforceable first priority mortgage lien,
subject only to Permitted Encumbrances, on each Mortgaged Property in favor
of the Collateral Agent (or such other trustee as may be required or desired
under local law) for the benefit of the Secured Creditors;
(ii) mortgagee title insurance policies on each Mortgaged Property
issued by title insurers reasonably satisfactory to the Collateral Agent
(the "Mortgage Policies") in amounts reasonably satisfactory to the
Collateral Agent assuring the Collateral Agent that the Mortgages on such
Mortgaged Properties are valid and enforceable first priority mortgage liens
on the respective Mortgaged Properties, free and clear of all defects and
encumbrances except Permitted Encumbrances and such Mortgage Policies shall
otherwise be in form and substance reasonably satisfactory to the Collateral
Agent and shall include, as appropriate, an endorsement for future advances
under this Agreement, the Notes and the Mortgages and for any other matter
that the Collateral Agent in its reasonable discretion may reasonably
request, shall not include an exception for mechanics' liens, and shall
provide for affirmative insurance and such reinsurance (including direct
access agreements) as the Collateral Agent in its reasonable discretion may
reasonably request; and
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(iii) landlord waivers with respect to the Leaseholds of the Borrower
as designated on Schedule III, which landlord waivers shall be in form and
substance reasonably satisfactory to the Administrative Agent.
5.15 Financial Statements; Pro Forma Financial Statements, Projections.
On or prior to the Initial Borrowing Date, the Administrative Agent shall have
received true and correct copies of the historical financial statements, the pro
forma financial statements and the Projections referred to in Sections 7.05(a)
and (d).
5.16 Solvency Opinion; Insurance Certificates. On or prior to the
Initial Borrowing Date, the Administrative Agent shall have received:
(i) a solvency opinion from Houlihan, Lokey, Howard & Zukin Financial
Advisors, Inc., which solvency opinion shall be in form and substance reasonably
satisfactory to the Administrative Agent and shall set forth the conclusions
that, after giving effect to the Transaction and the incurrence of all the
financings contemplated herein, the Borrower is not insolvent, will not be
rendered insolvent by the indebtedness incurred in connection therewith, will
not be left with unreasonably small capital with which to engage in their
business and will not have incurred debts beyond their ability to pay debts as
they mature; and
(ii) certificates of insurance complying with the requirements of
Section 8.03 for the business and properties of the Borrower and its
Subsidiaries, in form and substance reasonably satisfactory to the
Administrative Agent and naming the Collateral Agent as an additional insured
and as loss payee, and stating that such insurance shall not be cancelled
without at least 30 days prior written notice by the insurer to the Collateral
Agent (or such shorter period of time as a particular insurance company
generally provides).
5.17 Fees, etc. On the Initial Borrowing Date, the Borrower shall have
paid to the Administrative Agent and each Bank all costs, fees and expenses
(including, without limitation, legal fees and expenses) payable to the
Administrative Agent and each Bank to the extent then due.
SECTION 6. Conditions Precedent to All Credit Events. The obligation of
each Bank to make Loans (including any Loans made on the Initial Borrowing
Date), and the obligation of the Issuing Bank to issue Letters of Credit
(including any Letters of Credit issued on the Initial Borrowing Date), is
subject, at the time of each such Credit Event (except as hereinafter
indicated), to the satisfaction of the following conditions:
6.01 No Default; Representations and Warranties. At the time of each
such Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of such Credit Event (it being understood
and agreed that any representation or warranty which by its terms is made as of
a specified date shall be required to be true and correct in all material
respects only as of such specified date).
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6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the
making of each Loan (other than a Swingline Loan or a Revolving Loan made
pursuant to a Mandatory Borrowing), the Administrative Agent shall have received
a Notice of Borrowing meeting the requirements of Section 1.03(a). Prior to the
making of each Swingline Loan, the Swingline Bank shall have received the notice
referred to in Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the Administrative
Agent and the Issuing Bank shall have received a Letter of Credit Request
meeting the requirements of Section 2.03.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Borrower to the Administrative Agent and each
of the Banks that all the conditions specified in Section 5 (with respect to
Credit Events on the Initial Borrowing Date) and in this Section 6 (with respect
to Credit Events on or after the Initial Borrowing Date) and applicable to such
Credit Event exist as of that time. All of the Notes, certificates, legal
opinions and other documents and papers referred to in Section 5 and in this
Section 6, unless otherwise specified, shall be delivered to the Administrative
Agent at the Notice Office for the account of each of the Banks and, except for
the Notes, in sufficient counterparts or copies for each of the Banks and shall
be in form and substance reasonably satisfactory to the Administrative Agent and
the Required Banks.
SECTION 7. Representations, Warranties and Agreements. In order to
induce the Banks to enter into this Agreement and to make the Loans, and issue
(or participate in) the Letters of Credit as provided herein, the Borrower makes
the following representations, warranties and agreements, in each case after
giving effect to the Transaction, all of which shall survive the execution and
delivery of this Agreement and the Notes and the making of the Loans and
issuance of the Letters of Credit, and with the occurrence of each other Credit
Event on or after the Initial Borrowing Date being deemed to constitute a
representation and warranty that the matters specified in this Section 7 are
true and correct in all material respects on and as of the Initial Borrowing
Date and on the date of each such Credit Event (it being understood and agreed
that any representation or warranty which by its terms is made as of a specified
date shall be required to be true and correct in all material respects only as
of such specified date).
7.01 Corporate Status. Each Credit Party and each of its Subsidiaries
(i) is a duly organized and validly existing corporation, partnership or limited
liability company, as the case may be, in good standing under the laws of the
jurisdiction of its organization, (ii) has the requisite corporate, partnership
or limited liability company power and authority, as the case may be, to own its
property and assets and to transact the business in which it is engaged and
presently proposes to engage and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where the ownership,
leasing or operation of its property or the conduct of its business requires
such qualifications except for failures to be so qualified which, individually
or in the aggregate, could not reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of the Borrower and its Subsidiaries taken as a whole.
7.02 Corporate and Other Power and Authority. Each Credit Party has the
requisite corporate, partnership or limited liability company power and
authority, as the case may
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be, to execute, deliver and perform the terms and provisions of each of the
Documents to which it is party and has taken all necessary corporate,
partnership or limited liability company action, as the case may be, to
authorize the execution, delivery and performance by it of each of such
Documents. Each Credit Party has duly executed and delivered each of the
Documents to which it is party, and each of such Documents constitutes its
legal, valid and binding obligation enforceable in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
7.03 No Violation. Neither the execution, delivery or performance by
any Credit Party of the Documents to which it is a party, nor compliance by it
with the terms and provisions thereof, (i) will contravene any provision of any
law, statute, rule or regulation or any order, writ, injunction or decree of any
court or governmental instrumentality, (ii) will conflict with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien (except pursuant to the Security
Documents) upon any of the property or assets of the Borrower or any of its
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
credit agreement or loan agreement, or any other material agreement, contract or
instrument, to which the Borrower or any of its Subsidiaries is a party or by
which it or any of its property or assets is bound or to which it may be subject
or (iii) will violate any provision of the certificate of incorporation or
by-laws (or equivalent organizational documents) of the Borrower or any of its
Subsidiaries.
7.04 Approvals. No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except for (a) those
that have otherwise been obtained or made on or prior to the Initial Borrowing
Date and which remain in full force and effect on the Initial Borrowing Date,
(b) those with respect to the Recapitalization the failure to obtain or make
could not, either individually or in the aggregate, reasonably be expected to
have a material adverse effect on the Transaction or on the business,
operations, property, assets, liabilities or condition (financial or otherwise)
of the Borrower and its Subsidiaries taken as a whole and (c) any novations or
consents that may be required as a result of the Recapitalization in connection
with any of the Borrower's government contracts or subcontracts thereunder), or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with, (i) the
execution, delivery and performance of any Document or (ii) the legality,
validity, binding effect or enforceability of any such Document.
7.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc. (a) The consolidated balance sheets of the
Borrower and its Subsidiaries for the fiscal years ended October 31, 1997 and
October 31, 1998, respectively, and the related consolidated statements of
income, cash flows and shareholders' equity of the Borrower and its Subsidiaries
for the respective fiscal year ended on such dates, copies of which have been
furnished to the Banks prior to the Effective Date, present fairly in all
material respects the consolidated financial position of the Borrower and its
Subsidiaries at the date of such balance sheets and the consolidated results of
the operations of the Borrower and its Subsidiaries for the periods covered
thereby. All of the foregoing historical financial statements have been prepared
in accordance with generally accepted accounting principles consistently applied
except as
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disclosed in the notes thereto. The pro forma consolidated financial statements
of the Borrower and its Subsidiaries as of October 31, 1998 after giving effect
to the Transaction and the financing therefor, copies of which have been
furnished to the Banks prior to the Initial Borrowing Date, present fairly in
all material respects the pro forma consolidated financial position of the
Borrower and its Subsidiaries as of October 31, 1998 and the pro forma
consolidated results of operations of the Borrower and its Subsidiaries for the
twelve month period ended October 31, 1998. After giving effect to the
Transaction (but for this purpose assuming that the Transaction and the related
financing had occurred prior to October 31, 1998), since October 31, 1998,
nothing shall have occurred that has had, or could reasonably be expected to
have, a material adverse effect on the business, operations, property, assets,
liabilities or condition (financial or otherwise) of the Borrower and its
Subsidiaries taken as a whole.
(b) On and as of the Initial Borrowing Date and after giving effect to
the Transaction and to all Indebtedness (including any Loans) being incurred or
assumed and Liens created by the Credit Parties in connection therewith (a) the
sum of the assets, at a fair valuation, of each of the Borrower on a stand-alone
basis and of the Borrower and its Subsidiaries taken as a whole will exceed its
debts; (b) each of the Borrower on a stand-alone basis and the Borrower and its
Subsidiaries taken as a whole has not incurred and does not intend to incur, and
does not believe that it will incur, debts beyond its ability to pay such debts
as such debts mature; and (c) each of the Borrower on a stand alone basis and
the Borrower and its Subsidiaries taken as a whole will have sufficient capital
with which to conduct its business. For purposes of this Section 7.05(b), "debt"
means any liability on a claim, and "claim" means (i) right to payment, whether
or not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured. The amount of contingent liabilities at any
time shall be computed as the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
(c) Except as disclosed in the financial statements delivered pursuant
to Section 7.05(a), there were as of the Initial Borrowing Date no liabilities
or obligations with respect to the Borrower or any of its Subsidiaries of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in aggregate, could reasonably
be expected to be material to the Borrower and its Subsidiaries taken as a
whole. As of the Initial Borrowing Date, the Borrower knows of no basis for the
assertion against it or any of its Subsidiaries of any liability or obligation
of any nature whatsoever that is not disclosed in the financial statements
delivered pursuant to Section 7.05(a) which, either individually or in the
aggregate, could reasonably be expected to be material to the Borrower and its
Subsidiaries taken as a whole.
(d) On and as of the Initial Borrowing Date, the Projections delivered
to the Administrative Agent and the Banks prior to the Initial Borrowing Date
have been prepared in good faith and are based on reasonable assumptions, and
there are no statements or conclusions in the Projections which are based upon
or include information known to the Borrower as of the Initial Borrowing Date to
be misleading in any material respect or which fail to take into account
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material information known to the Borrower regarding the matters reported
therein. On the Initial Borrowing Date, the Borrower believes that the
Projections are reasonable, it being recognized by the Banks, however, that
projections as to future events are not to be viewed as facts and that the
actual results during the period or periods covered by the Projections may
differ from the projected results and that the differences may be material.
7.06 Litigation. There are no actions, suits or proceedings pending or,
to the best knowledge of the Borrower, threatened (i) with respect to the
Transaction or any Document, (ii) with respect to any material Indebtedness of
the Borrower or any of its Subsidiaries or (iii) that are reasonably likely to
materially and adversely affect the business, operations, property, assets,
liabilities or condition (financial or otherwise) of the Borrower and its
Subsidiaries taken as a whole.
7.07 True and Complete Disclosure. All factual information (taken as a
whole) (excluding the Projections) furnished by or on behalf of any Credit Party
in writing to the Administrative Agent or any Bank (including, without
limitation, all information contained in the Documents) for purposes of or in
connection with this Agreement, the other Credit Documents or any transaction
contemplated herein or therein is, and all other such factual information (taken
as a whole) (excluding the Projections) hereafter furnished by or on behalf of
any Credit Party in writing to the Administrative Agent or any Bank will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided.
7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of Term
Loans shall be utilized solely to finance the Transaction and to pay fees and
expenses relating thereto.
(b) All proceeds of the Revolving Loans and Swingline Loans shall be
used for the working capital and general corporate purposes of the Borrower and
its Subsidiaries and not to finance the Transaction (it being understood,
however, that proceeds of Revolving Loans and Swingline Loans may be incurred
after the Initial Borrowing Date to pay certain fees and expenses incurred after
the consummation of the Transaction and in connection therewith).
(c) No part of any Credit Event (or the proceeds thereof) will be used
to purchase or carry any Margin Stock or to extend credit for the purpose of
purchasing or carrying any Margin Stock except to finance the Recapitalization.
Neither the making of any Loan nor the use of the proceeds thereof nor the
occurrence of any other Credit Event will violate or be inconsistent with the
provisions of Regulation T, U or X of the Board of Governors of the Federal
Reserve System.
7.09 Tax Returns and Payments. Each of the Borrower and each of its
Subsidiaries has filed all federal and state income tax returns and all other
material tax returns, domestic and foreign, required to be filed by it and has
paid all federal and state income taxes and all other material taxes and
assessments payable by it which have become due, except for those contested in
good faith and fully provided for on the financial statements of the Borrower
and its Subsidiaries in accordance with generally accepted accounting
principles. The Borrower
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and each of its Subsidiaries have at all times paid, or have provided adequate
reserves (in the good faith judgment of the management of the Borrower) for the
payment of, all federal, state and material local and foreign income taxes
applicable for all prior fiscal years and for the current fiscal year to date.
There is no material action, suit, proceeding, investigation, audit or claim now
pending or, to the best knowledge of the Borrower threatened, by any authority
regarding any taxes relating to the Borrower or any of its Subsidiaries. As of
the Initial Borrowing Date, neither the Borrower nor any of its Subsidiaries has
entered into an agreement or waiver or been requested to enter into an agreement
or waiver extending any statute of limitations relating to the payment or
collection of taxes of the Borrower or any of its Subsidiaries, or is aware of
any circumstances that would cause the taxable years or other taxable periods of
the Borrower or any of its Subsidiaries not to be subject to the normally
applicable statute of limitations.
7.10 Compliance with ERISA. Schedule IV sets forth, as of the Initial
Borrowing Date, each Plan. Each Plan (and each related trust, insurance contract
or fund) is in substantial compliance with its terms and with all applicable
laws, including, without limitation, ERISA and the Code; each Plan (and each
related trust, if any) which is intended to be qualified under Section 401(a) of
the Code has received a determination letter from the Internal Revenue Service
to the effect that it meets the requirements of Sections 401(a) and 501(a) of
the Code or application for such determination has been made; no Reportable
Event has occurred; no Plan which is a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded
Current Liability; no Plan which is subject to Section 412 of the Code or
Section 302 of ERISA has an accumulated funding deficiency, within the meaning
of such sections of the Code or ERISA, or has applied for or received a waiver
of an accumulated funding deficiency or an extension of any amortization period,
within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA;
all contributions required to be made with respect to a Plan have been timely
made except as would not result in any material liability; neither the Borrower
nor any Subsidiary of the Borrower nor any ERISA Affiliate has incurred any
material liability (including any indirect, contingent or secondary liability)
to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or
4975 of the Code or expects to incur any such material liability under any of
the foregoing sections with respect to any Plan; no condition exists which
presents a material risk to the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliate of incurring a material liability to or on account of a Plan
pursuant to the foregoing provisions of ERISA and the Code; no proceedings have
been instituted to terminate or appoint a trustee to administer any Plan which
is subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or
investigation with respect to the administration, operation or the investment of
assets of any Plan (other than routine claims for benefits) is pending, or to
the knowledge of the Borrower and its Subsidiaries, expected or threatened;
using actuarial assumptions and computation methods consistent with Part 1 of
subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and
its Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer
plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete
withdrawal therefrom, as of the close of the most recent fiscal year of each
such Plan ended prior to the date of the most recent Credit Event, would not
exceed $50,000; each group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) which covers or has covered employees or former
employees of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate
has at all times been operated in material compliance with the
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provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the
Code; no lien imposed under the Code or ERISA on the assets of the Borrower or
any Subsidiary of the Borrower or any ERISA Affiliate exists or is likely to
arise on account of any Plan; and the Borrower and its Subsidiaries may cease
contributions to or terminate any employee benefit plan maintained by any of
them without incurring any material liability.
7.11 The Security Documents. (a) The provisions of the Security
Agreement are effective to create in favor of the Collateral Agent for the
benefit of the Secured Creditors a legal, valid and enforceable security
interest in all right, title and interest of the Credit Parties in the Security
Agreement Collateral described therein to the extent that a security interest
can be created therein under the UCC, and the Collateral Agent, for the benefit
of the Secured Creditors, has a fully perfected first lien on, and security
interest in, all right, title and interest of the Credit Parties in all of the
Security Agreement Collateral described therein (to the extent such security
interest can be perfected by filing a UCC-1 financing statement or, to the
extent required by the Security Agreement, by taking possession of the
respective Security Agreement Collateral), subject to no other Liens other than
Permitted Liens. In addition, the recordation of the Grant of Security Interest
in U.S. Patents and Trademarks in the form attached to the Security Agreement in
the United States Patent and Trademark Office, together with filings on Form
UCC-1 made pursuant to the Security Agreement, will create, as may be perfected
by such filing and recordation, a perfected security interest in the United
States trademarks and patents covered by the Security Agreement and specifically
identified in such Grant and the recordation of the Grant of Security Interest
in U.S. Copyrights in the form attached to the Security Agreement with the
United States Copyright Office, together with filings on Form UCC-1 made
pursuant to the Security Agreement, will create, as may be perfected by such
filing and recordation, a perfected security interest in the United States
copyrights covered by the Security Agreement and specifically identified in such
Grant.
(b) The security interests created in favor of the Collateral Agent, as
pledgee, for the benefit of the Secured Creditors, under the Pledge Agreement
constitute first priority perfected security interests in the Pledge Agreement
Collateral described therein (other than with respect to certain Pledged
Securities constituting promissory notes to the extent not required to be
delivered pursuant to the Pledge Agreement), subject to no security interests of
any other Person. No filings or recordings are required to perfect (or maintain
the perfection or priority of) the security interests created in the Pledge
Agreement Collateral.
(c) The Mortgages create, as security for the obligations purported to
be secured thereby, a valid and enforceable perfected security interest in and
mortgage lien on all of the Mortgaged Properties in favor of the Collateral
Agent (or such other trustee as may be required or desired under local law) for
the benefit of the Secured Creditors, superior to and prior to the rights of all
third persons (except that the security interest and mortgage lien created in
the Mortgaged Properties may be subject to the Permitted Encumbrances related
thereto) and subject to no other Liens (other than Permitted Liens). Schedule
III contains a true and complete list of each parcel of Real Property owned or
leased by the Borrower and its Subsidiaries on the Initial Borrowing Date, and
the type of interest therein held by the Borrower or such Subsidiary. The
Borrower and each of its Subsidiaries have good and marketable title to all
fee-owned Real Property and valid leasehold title to all Leaseholds, in each
case free and clear of all Liens except those described in the first sentence of
this subsection (c).
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7.12 Representations and Warranties in the Documents. Except to the
extent waived by the Required Banks in accordance with Section 5.06(c) or 5.07,
or for such representations and warranties, if any, made by any of the initial
purchasers (in their capacity as such) party to the purchase agreement for the
Senior Subordinated Notes, all representations and warranties set forth in the
other Documents were true and correct in all material respects at the time as of
which such representations and warranties were made (or deemed made) and shall
be true and correct in all material respects as of the Initial Borrowing Date as
if such representations and warranties were made on and as of such date, unless
stated to relate to a specific earlier date, in which case such representations
and warranties shall be true and correct in all material respects as of such
earlier date.
7.13 Properties. The Borrower and each of its Subsidiaries have good
and marketable title to all material properties owned by them, including all
property reflected in the balance sheets referred to in Section 7.05(a) (except
as sold or otherwise disposed of since the date of such balance sheet in the
ordinary course of business or as permitted by the terms of this Agreement),
free and clear of all Liens, other than Permitted Liens.
7.14 Capitalization. On the Initial Borrowing Date and after giving
effect to the Transaction and the other transactions contemplated hereby, the
authorized capital stock of the Borrower shall consist of (i) 20,000,000 shares
of common stock, $0.01 par value per share, of which approximately 3,800,000
shares shall be issued and outstanding and (ii) 2,000,000 shares of preferred
stock, $0.01 par value per share, none of which shall be issued and outstanding.
All outstanding shares of capital stock of the Borrower have been duly and
validly issued and are fully paid and non-assessable. The Borrower does not have
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreement providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock other than (i) options, rights or warrants that may be issued
from time to time for purchase shares of common stock of the Borrower and (ii)
options, rights or warrants as set forth in the Shareholders' Agreements
delivered pursuant to Section 5.05.
7.15 Subsidiaries. As of the Initial Borrowing Date, the Borrower has
no Subsidiaries other than those Subsidiaries listed on Schedule V. Schedule V
correctly sets forth, as of the Initial Borrowing Date, the percentage ownership
(direct or indirect) of the Borrower in each class of capital stock or other
equity of each of its Subsidiaries and also identifies the direct owner thereof.
7.16 Compliance with Statutes, etc. Each of the Borrower and each of
its Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except such
noncompliances as could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole.
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7.17 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
7.18 Public Utility Holding Company Act. Neither the Borrower nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
7.19 Environmental Matters. (a) The Borrower and each of its
Subsidiaries have complied with, and on the date of each Credit Event are in
compliance with, all applicable Environmental Laws and the requirements of any
permits issued under such Environmental Laws. There are no pending or, to the
knowledge of the Borrower, threatened Environmental Claims against the Borrower
or any of its Subsidiaries (including any such claim arising out of the
ownership, lease or operation by the Borrower or any of its Subsidiaries of any
Real Property no longer owned, leased or operated by the Borrower or any of its
Subsidiaries) or any Real Property owned, leased or operated by the Borrower or
any of its Subsidiaries. There are no facts, circumstances, conditions or
occurrences with respect to the business or operations of the Borrower or any of
its Subsidiaries, or any Real Property owned, leased or operated by the Borrower
or any of its Subsidiaries (including any Real Property formerly owned, leased
or operated by the Borrower or any of its Subsidiaries but no longer owned,
leased or operated by the Borrower or any of its Subsidiaries) or, to the
knowledge of the Borrower, any property adjoining or adjacent to any such Real
Property, that could reasonably be expected (i) to form the basis of an
Environmental Claim against the Borrower or any of its Subsidiaries or any Real
Property owned, leased or operated by the Borrower or any of its Subsidiaries or
(ii) to cause any Real Property owned, leased or operated by the Borrower or any
of its Subsidiaries to be subject to any restrictions on the ownership,
occupancy or transferability of such Real Property by the Borrower or any of its
Subsidiaries under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated, used,
treated or stored on, or transported to or from, any Real Property owned, leased
or operated by the Borrower or any of its Subsidiaries where such generation,
use, treatment or storage has violated or has given rise to an Environmental
Claim under, or could reasonably be expected to violate or give rise to an
Environmental Claim under, any Environmental Law. Hazardous Materials have not
at any time been Released or disposed of on or from any Real Property owned,
leased or operated by the Borrower or any of its Subsidiaries where such Release
or disposal has violated or given rise to an Environmental Claim under, or could
reasonably be expected to violate or give rise to an Environmental Claim under,
any applicable Environmental Law.
(c) Notwithstanding anything to the contrary in this Section 7.19, the
representations and warranties made in this Section 7.19 shall not be untrue
unless the effect of any or all violations, claims, restrictions, failures and
noncompliances of the types described above in this Section 7.19 could
reasonably be expected to, either individually or in the aggregate, have a
material adverse effect on the business, operations, property, assets,
liabilities or condition (financial or otherwise) of the Borrower and its
Subsidiaries taken as a whole.
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7.20 Labor Relations. Neither the Borrower nor any of its Subsidiaries
is engaged in any unfair labor practice that could reasonably be expected to
have a material adverse effect on the Borrower and its Subsidiaries taken as a
whole. There is (i) no unfair labor practice complaint pending against the
Borrower or any of its Subsidiaries or, to the knowledge of the Borrower,
threatened against any of them, before the National Labor Relations Board, and
no grievance or arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Borrower or any of its
Subsidiaries or, to the knowledge of the Borrower, threatened against any of
them, (ii) no strike, labor dispute, slowdown or stoppage pending against the
Borrower or any of its Subsidiaries or, to the knowledge of the Borrower,
threatened against the Borrower or any of its Subsidiaries and (iii) no union
representation question exists with respect to the employees of the Borrower or
any of its Subsidiaries, except (with respect to any matter specified in clause
(i), (ii) or (iii) above, either individually or in the aggregate) such as could
not reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities or condition (financial or otherwise)
of the Borrower and its Subsidiaries taken as a whole.
7.21 Patents, Licenses, Franchises and Formulas. Each of the Borrower
and each of its Subsidiaries owns or has the right to use all the patents,
trademarks, permits, service marks, trade names, copyrights, licenses,
franchises, proprietary information (including but not limited to rights in
computer programs and databases) and formulas, or rights with respect to the
foregoing, and has obtained assignments of all leases and other rights of
whatever nature, necessary for the present conduct of its business, without any
known conflict with the rights of others which, or the failure to obtain which,
as the case may be, could reasonably be expected to result in a material adverse
effect on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of the Borrower and its Subsidiaries taken as a whole.
7.22 Indebtedness; etc. (a) Schedule VI sets forth a true and complete
list of all Indebtedness (including Contingent Obligations) of the Borrower and
its Subsidiaries as of the Initial Borrowing Date and which is to remain
outstanding after giving effect to the Transaction (excluding the Loans, the
Letters of Credit and the Senior Subordinated Notes, the "Existing
Indebtedness"), in each case showing the aggregate principal amount thereof and
the name of the respective borrower and any Credit Party or any of its
Subsidiaries which directly or indirectly guarantees such debt.
(b) The subordination provisions contained in the Senior Subordinated
Notes and in the other Senior Subordinated Note Documents are enforceable
against the respective Credit Parties party thereto and the holders of the
Senior Subordinated Notes, and all Obligations and Guaranteed Obligations (as
defined in the Subsidiaries Guaranty) are within the definition of "Senior
Indebtedness" or "Guarantor Senior Indebtedness", as the case may be, included
in such subordination provisions.
7.23 Transaction. At the time of consummation thereof, the Transaction
shall have been consummated in all material respects in accordance with the
terms of the applicable Documents and all applicable laws. At the time of
consummation of the Transaction, all third party approvals and all consents and
approvals of, and filings and registrations with, and all other actions in
respect of, all governmental agencies, authorities or instrumentalities required
in order to make or consummate the Transaction will have been obtained, given,
filed or taken and are or
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will be in full force and effect (or effective judicial relief with respect
thereto has been obtained), except for any novations or consents that may be
required as a result of the Recapitalization in connection with any of the
Borrower's government contracts or subcontracts thereunder. All applicable
waiting periods with respect thereto have or, prior to the time when required,
will have, expired without, in all such cases, any action being taken by any
competent authority which restrains, prevents, or imposes material adverse
conditions upon the Transaction. Additionally, there does not exist any
judgment, order or injunction prohibiting the Transaction or the performance by
the Borrower or any of its Subsidiaries of their respective obligations under
the Documents. All actions taken by the Borrower or any of its Subsidiaries
pursuant to or in furtherance of the Transaction have been taken in all material
respects in compliance with the Documents and all applicable laws.
7.24 Insurance. Schedule VII sets forth a true and complete listing of
all insurance maintained by the Borrower and its Subsidiaries as of the Initial
Borrowing Date, and with the amounts insured (and any deductibles) set forth
therein.
7.25 Year 2000. All Information Systems and Equipment are either Year
2000 Compliant, or any reprogramming, remediation, or any other corrective
action, including the internal testing of all such Information Systems and
Equipment, will be completed by June 30, 1999. Further, to the extent that such
reprogramming/remediation and testing action is required, the cost thereof, as
well as the cost of the reasonably foreseeable consequences of failure to become
Year 2000 Compliant, to the Borrower and its Subsidiaries (including, without
limitation, reprogramming errors and the failure of other systems or equipment)
will not result in a Default, an Event of Default or a material adverse effect
on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of the Borrower and its Subsidiaries taken as a whole.
SECTION 8. Affirmative Covenants. The Borrower hereby covenants and
agrees that on and after the Effective Date and until the Total Commitment and
all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings,
together with interest, Fees and all other Obligations (other than indemnities
described in Section 13.13 which are not then due and payable) incurred
hereunder and thereunder, are paid in full:
8.01 Information Covenants. The Borrower will furnish to each Bank:
(a) Monthly Reports. Within 30 days after the end of each fiscal month
of the Borrower, the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such fiscal month and the related consolidated
statements of income, shareholders' equity and statement of cash flows for such
fiscal month and for the elapsed portion of the fiscal year ended with the last
day of such fiscal month, in each case setting forth comparative figures for the
corresponding fiscal month in the prior fiscal year and comparable budgeted
figures for such fiscal month, all of which shall be certified by the Chief
Financial Officer of the Borrower, subject to normal year-end audit adjustments
and the absence of footnotes.
(b) Quarterly Financial Statements. Within 45 days after the close of
the first three quarterly accounting periods in each fiscal year of the
Borrower, (i) the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarterly accounting
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period and the related consolidated statements of income, shareholders' equity
and statement of cash flows for such quarterly accounting period and for the
elapsed portion of the fiscal year ended with the last day of such quarterly
accounting period, in each case setting forth comparative figures for the
related periods in the prior fiscal year, all of which shall be certified by the
Chief Financial Officer of the Borrower, subject to normal year-end audit
adjustments and the absence of footnotes, and (ii) management's discussion and
analysis of the material operational and financial developments during such
quarterly accounting period (it being understood that, to the extent such
management's discussion analysis is included in any report on Form 10-Q that is
filed with the SEC in respect of such quarterly accounting period and such
report is delivered to the Banks pursuant to this Agreement, no separate
management discussion analysis shall be required to be delivered in respect of
such quarterly accounting period).
(c) Annual Financial Statements. Within 90 days after the close of each
fiscal year of the Borrower, (i) the consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income, shareholders' equity and statement of cash
flows for such fiscal year setting forth comparative figures for the preceding
fiscal year and certified by KPMG Peat Marwick LLP or such other independent
certified public accountants of recognized national standing reasonably
acceptable to the Administrative Agent, together with a report of such
accounting firm stating that in the course of its audit of the financial
statements of the Borrower and its Subsidiaries, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm
obtained no knowledge of any Default or an Event of Default relating to
accounting matters which has occurred and is continuing or, if in the opinion of
such accounting firm such a Default or an Event of Default has occurred and is
continuing, a statement as to the nature thereof and (ii) management's
discussion and analysis of the material operational and financial developments
during such fiscal year (it being understood that, to the extent such
management's discussion and analysis is included in any report on Form 10-K that
is filed with the SEC in respect of such fiscal year and such report is
delivered to the Banks pursuant to this Agreement, no separate management
discussion and analysis shall be required to be delivered in respect of such
fiscal year).
(d) Management Letters. Promptly after the Borrower's or any of its
Subsidiaries' receipt thereof, a copy of any "management letter" received from
its certified public accountants and management's response thereto.
(e) Budgets. No later than 45 days following the first day of each
fiscal year of the Borrower, a budget in form reasonably satisfactory to the
Administrative Agent (including budgeted statements of income and sources and
uses of cash and balance sheets) prepared by the Borrower (i) for each of the
twelve months of such fiscal year prepared in substantially the same detail as
the Projections and (ii) for each of the immediately three succeeding fiscal
years prepared in summary form, in each case setting forth, with appropriate
discussion, the principal assumptions upon which such budgets are based.
(f) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 8.01(b) and (c), a certificate of
the Chief Financial Officer of the Borrower to the effect that, to the best of
such officer's knowledge, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
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continuing, specifying the nature and extent thereof, which certificate shall
(x) set forth in reasonable detail the calculations required to establish
whether the Borrower and its Subsidiaries were in compliance with the provisions
of Sections 4.02(d), 4.02(e), 4.02(g) (to the extent delivered with the
financial statements required by Section 8.01(c)), 9.04 and 9.07 through 9.10,
inclusive, at the end of such fiscal quarter or year, as the case may be and (y)
if delivered with the financial statements required by Section 8.01(c), set
forth in reasonable detail the amount of (and the calculations required to
establish the amount of) Excess Cash Flow for the respective Excess Cash Payment
Period.
(g) Notice of Default or Litigation. Promptly upon, and in any event
within five Business Days after, any senior or executive officer of any Credit
Party obtains knowledge thereof, notice of (i) the occurrence of any event which
constitutes a Default or an Event of Default, (ii) any litigation or
governmental investigation or proceeding pending (x) against the Borrower or any
of its Subsidiaries which could reasonably be expected to materially and
adversely affect the business, operations, property, assets, liabilities or
condition (financial or otherwise) of the Borrower and its Subsidiaries taken as
a whole, (y) with respect to any material Indebtedness of the Borrower or any of
its Subsidiaries or (z) with respect to the Transaction or any Document or (iii)
any other event (other than with respect to general economic conditions) which
has had, or could reasonably be expected to have, a material adverse effect on
the business, operations, property, assets, liabilities or condition (financial
or otherwise) of the Borrower and its Subsidiaries taken as a whole.
(h) Other Reports and Filings. Promptly after the filing or delivery
thereof, copies of all financial information, proxy materials and reports, if
any, which the Borrower or any of its Subsidiaries shall publicly file with the
Securities and Exchange Commission or any successor thereto (the "SEC") or
deliver to holders of its material Indebtedness pursuant to the terms of the
documentation governing such Indebtedness (or any trustee, agent or other
representative therefor).
(i) Environmental Matters. Promptly after any senior or executive
officer of any Credit Party obtains knowledge thereof, notice of one or more of
the following environmental matters, unless such environmental matters could
not, individually or when aggregated with all other such environmental matters,
be reasonably expected to materially and adversely affect the business,
operations, property, assets, liabilities or condition (financial or otherwise)
of the Borrower and its Subsidiaries taken as a whole:
(i) any pending or threatened Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Property owned, leased or
operated by the Borrower or any of its Subsidiaries;
(ii) any condition or occurrence on or arising from any Real Property
owned, leased or operated by the Borrower or any of its Subsidiaries that
(a) results in noncompliance by the Borrower or any of its Subsidiaries with
any applicable Environmental Law or (b) could reasonably be expected to form
the basis of an Environmental Claim against the Borrower or any of its
Subsidiaries or any such Real Property;
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(iii) any condition or occurrence on any Real Property owned, leased or
operated by the Borrower or any of its Subsidiaries that could reasonably be
expected to cause such Real Property to be subject to any restrictions on
the ownership, occupancy, use or transferability by the Borrower or any of
its Subsidiaries of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real Property
owned, leased or operated by the Borrower or any of its Subsidiaries as
required by any Environmental Law or any governmental or other
administrative agency; provided that in any event the Borrower shall deliver
to each Bank all notices received by the Borrower or any of its Subsidiaries
from any government or governmental agency under, or pursuant to, CERCLA
which identify the Borrower or any of its Subsidiaries as potentially
responsible parties for remediation costs or which otherwise notify the
Borrower or any of its Subsidiaries of potential liability under CERCLA.
All such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and the
Borrower's or such Subsidiary's response thereto.
(j) Other Information. From time to time, such other information or
documents (financial or otherwise) with respect to the Borrower or any of its
Subsidiaries as the Administrative Agent or any Bank may reasonably request.
8.02 Books, Records, Inspections and Annual Meetings. (a) The Borrower
will, and will cause each of its Subsidiaries to, keep proper books of record
and accounts in which full, true and correct entries in conformity with
generally accepted accounting principles and all requirements of law shall be
made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of its Subsidiaries to,
permit officers and designated representatives of the Administrative Agent or
any Bank to visit and inspect, under guidance of officers of the Borrower or
such Subsidiary, any of the properties of the Borrower or such Subsidiary, and
to examine the books of account of the Borrower or such Subsidiary and discuss
the affairs, finances and accounts of the Borrower or such Subsidiary with, and
be advised as to the same by, its and their officers and independent
accountants, all upon reasonable prior notice and at such reasonable times and
intervals and to such reasonable extent as the Administrative Agent or such Bank
may reasonably request.
(b) At a date to be mutually agreed upon between the Administrative
Agent and the Borrower occurring on or prior to the 120th day after the close of
each fiscal year of the Borrower, the Borrower will, at the request of the
Administrative Agent, hold a meeting with all of the Banks at which meeting
shall be reviewed the financial results of the Borrower and its Subsidiaries for
the previous fiscal year and the budgets presented for the current fiscal year
of the Borrower.
8.03 Maintenance of Property; Insurance. (a) The Borrower will, and
will cause each of its Subsidiaries to, (i) keep all property necessary to the
business of the Borrower and its Subsidiaries in reasonably good working order
and condition, ordinary wear and tear excepted,
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(ii) maintain insurance on all such property with financially sound and
reputable insurers and in at least such amounts and against at least such risks
as is consistent and in accordance with industry practice for companies
similarly situated owning similar properties, provided that the Borrower and its
Subsidiaries may implement programs of self insurance (other than with respect
to casualty insurance) in the ordinary course of business and in accordance with
the industry standards for similarly situated companies so long as reserves are
maintained in accordance with generally accepted accounting principles for the
liabilities associated therewith and (iii) furnish to the Administrative Agent,
upon written request, full information as to the insurance carried.
(b) The Borrower will, and will cause each of its Subsidiaries to, at
all times keep its property insured in favor of the Collateral Agent, and all
policies (including Mortgage Policies) or certificates (or certified copies
thereof) with respect to such insurance (and any other insurance maintained by
the Borrower and/or such Subsidiaries) (i) shall name the Collateral Agent as
loss payee as to casualty insurance and as an additional insured in the case of
casualty and liability insurance, (ii) shall state that such insurance policies
shall not be cancelled without at least 30 days' prior written notice thereof by
the respective insurer to the Collateral Agent (or such shorter period of time
as a particular insurance company policy generally provides), (iii) shall
provide that the respective insurers irrevocably waive any and all rights of
subrogation with respect to the Collateral Agent and the Secured Creditors, (iv)
shall contain the standard non-contributing mortgage clause endorsement in favor
of the Collateral Agent with respect to hazard or liability insurance, (v)
shall, except in the case of public liability insurance, provide that any losses
shall be payable notwithstanding any act of neglect of the Borrower or any of
its Subsidiaries and (vi) shall be deposited with the Collateral Agent.
(c) If the Borrower or any of its Subsidiaries shall fail to insure its
property in accordance with this Section 8.03, or if the Borrower or any of its
Subsidiaries shall fail to so name and deposit all policies or certificates with
respect thereto, the Collateral Agent shall have the right (but shall be under
no obligation), upon 10 days prior notice to the Borrower (although no such
notice shall be required to the extent same is not permitted to be given under
applicable law), to procure such insurance and the Borrower agrees to reimburse
the Collateral Agent for all reasonable costs and expenses of procuring such
insurance.
8.04 Corporate Franchises. The Borrower will, and will cause each of
its Subsidiaries to, do or cause to be done, all things necessary to preserve
and keep in full force and effect its existence and its material rights,
franchises, licenses and patents; provided, however, that nothing in this
Section 8.04 shall prevent (i) sales of assets and other transactions by the
Borrower or any of its Subsidiaries in accordance with Section 9.02, (ii) the
withdrawal by the Borrower or any of its Subsidiaries of its qualification as a
foreign corporation in any jurisdiction where such withdrawal could not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, operations, property, assets, liabilities or
condition (financial or otherwise) of the Borrower and its Subsidiaries taken as
a whole or (iii) any termination of any such rights, franchises, licenses or
patents that is determined by any senior officer or the Board of Directors of
the Borrower to be in the best interest of the Credit Parties and not otherwise
disadvantageous in any material respect to either the business of the Credit
Parties or the interests of the Banks.
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8.05 Compliance with Statutes, etc. The Borrower will, and will cause
each of its Subsidiaries to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statutes, regulations, orders
and restrictions relating to environmental standards and controls), except such
noncompliances as could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole.
8.06 Compliance with Environmental Laws. (a) The Borrower will comply,
and will cause each of its Subsidiaries to comply, with all Environmental Laws
applicable to the ownership or use of its Real Property now or hereafter owned,
leased or operated by the Borrower or any of its Subsidiaries, except such
noncompliances as could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole, and will promptly pay or cause
to be paid all costs and expenses incurred in connection with such compliance,
and will keep or cause to be kept all such Real Property free and clear of any
Liens imposed pursuant to such Environmental Laws. Neither the Borrower nor any
of its Subsidiaries will generate, use, treat, store, Release or dispose of, or
permit the generation, use, treatment, storage, Release or disposal of Hazardous
Materials on any Real Property now or hereafter owned, leased or operated by the
Borrower or any of its Subsidiaries, or transport or permit the transportation
of Hazardous Materials to or from any such Real Property, except for Hazardous
Materials generated, used, treated, stored, Released or disposed of at any such
Real Properties in compliance in all material respects with all applicable
Environmental Laws and reasonably required in connection with the operation, use
and maintenance of the business or operations of the Borrower or any of its
Subsidiaries.
(b) At any time that any Credit Party gives notice to the Banks
pursuant to Section 8.01(i) or upon the exercise of any of the remedies pursuant
to the last paragraph of Section 10, then at the reasonable written request of
the Administrative Agent or the Required Banks, the Borrower will provide, at
the sole expense of the Borrower, an environmental site assessment report
concerning any Real Property owned, leased or operated by the Borrower or any of
its Subsidiaries, prepared by an environmental consulting firm reasonably
approved by the Administrative Agent, indicating the presence or absence of
Hazardous Materials and the potential cost of any removal or remedial action in
connection with such Hazardous Materials on such Real Property. If the Borrower
fails to provide the same within 90 days after such request was made, the
Administrative Agent may order the same, the cost of which shall be borne by the
Borrower, and the Borrower shall grant and hereby grant to the Administrative
Agent and the Banks and their agents access to such Real Property and
specifically grants the Administrative Agent and the Banks an irrevocable
non-exclusive license, subject to the rights of tenants, to undertake such an
assessment at any reasonable time upon reasonable notice to the Borrower, all at
the sole and reasonable expense of the Borrower.
8.07 ERISA. As soon as possible and, in any event, within ten (10) days
after the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate knows
or has reason to know of the occurrence of any of the following, the Borrower
will deliver to each of the Banks a certificate of the Chief Financial Officer
of the Borrower setting forth the full details as to such
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occurrence and the action, if any, that the Borrower, such Subsidiary or such
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower, any
Subsidiary, any ERISA Affiliate, the PBGC or any other government agency, or a
Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred (except to the extent that the Borrower has
previously delivered to the Banks a certificate and notices (if any) concerning
such event pursuant to the next clause hereof); that a contributing sponsor (as
defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA
is subject to the advance reporting requirement of PBGC Regulation Section
4043.61 (without regard to subparagraph (b)(1) thereof), and an event described
in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section
4043 is reasonably expected to occur with respect to such Plan within the
following 30 days; that an accumulated funding deficiency, within the meaning of
Section 412 of the Code or Section 302 of ERISA, has been incurred or an
application may be or has been made for a waiver or modification of the minimum
funding standard (including any required installment payments) or an extension
of any amortization period under Section 412 of the Code or Section 303 or 304
of ERISA with respect to a Plan; that any contribution required to be made with
respect to a Plan has not been timely made; that a Plan has been or may be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability; that proceedings may be or
have been instituted to terminate or appoint a trustee to administer a Plan
which is subject to Title IV of ERISA; that a proceeding has been instituted
pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan;
that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate will or
may incur any liability (including any indirect, contingent, or secondary
liability) to or on account of the termination of or withdrawal from a Plan
under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with
respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or
Section 409, 502(i) or 502(l) of ERISA or with respect to a group health plan
(as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 4980B of the Code; or that the Borrower or any Subsidiary of the
Borrower may incur any material liability pursuant to any employee welfare
benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to
retired employees or other former employees (other than as required by Section
601 of ERISA) or any Plan. The Borrower will deliver or make available to each
of the Banks (i) a complete copy of the annual report (on Internal Revenue
Service Form 5500-series) of each Plan (including, to the extent required, the
related financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information) required to be filed with
the Internal Revenue Service and (ii) copies of any records, documents or other
information that must be furnished to the PBGC with respect to any Plan pursuant
to Section 4010 of ERISA. In addition to any certificates or notices delivered
to the Banks pursuant to the first sentence hereof, copies of annual reports and
any records, documents or other information required to be furnished to the PBGC
or any other government agency, and any material notices received by the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate with respect to
any Plan shall be delivered or made available to the Banks no later than ten
(10) days after the date such annual report has been filed with the Internal
Revenue Service or such records, documents and/or information has been furnished
to the PBGC or any other government agency or such notice has been received by
the Borrower, any Subsidiary or any ERISA Affiliate, as applicable.
8.08 End of Fiscal Years; Fiscal Quarters. The Borrower will cause (i)
each of its, and each of its Subsidiaries', fiscal years to end on October 31 of
each year and (ii) each of
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its, and each of its Subsidiaries', fiscal quarters to end in a manner
consistent therewith and with current practice, provided, however, that the
Borrower and its Subsidiaries may adopt a fiscal year that ends on December 31
(or such other date as may be approved by the Administrative Agent) of each year
with the prior approval of the Administrative Agent, which approval shall not be
unreasonably withheld, provided further, any Foreign Subsidiary may have (or
from time to time adopt) a fiscal year that ends on any other date without the
prior approval of the Administrative Agent to the extent required to do so by
applicable law or local practice in the jurisdiction in which such Foreign
Subsidiary is organized.
8.09 Performance of Obligations. The Borrower will, and will cause each
of its Subsidiaries to, perform all of its obligations under the terms of each
mortgage, indenture, security agreement, loan agreement or credit agreement and
each other material agreement, contract or instrument by which it is bound,
except such non-performances as could not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, property, assets, liabilities or condition (financial or otherwise)
of the Borrower and its Subsidiaries taken as a whole.
8.10 Payment of Taxes. The Borrower will pay and discharge, and will
cause each of its Subsidiaries to pay and discharge, all federal, state and
other material taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any properties belonging to it,
prior to the date on which penalties attach thereto, and all lawful claims for
sums that have become due and payable which, if unpaid, might become a Lien not
otherwise permitted under Section 9.01(i); provided, that neither the Borrower
nor any of its Subsidiaries shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by proper
proceedings if it has maintained adequate reserves with respect thereto in
accordance with generally accepted accounting principles.
8.11 Additional Security; Further Assurances. (a) The Borrower will,
and will cause each of its Domestic Subsidiaries (and to the extent Section 8.14
is operative, each of its Foreign Subsidiaries) to, within five days after the
acquisition by the Borrower or any such Subsidiary of any Real Property with a
fair market value (net of the principal amount of any Indebtedness secured by
such Real Property and which is to remain outstanding after the acquisition
thereof) of $2,000,000 or more (each an "Additional Mortgaged Property"), give
notice thereof to the Administrative Agent and thereafter deliver to the
Collateral Agent a mortgage or deed of trust (each, an "Additional Mortgage")
securing the Obligations of the Borrower or such Subsidiary, as the case may be,
in form and substance reasonably satisfactory to the Administrative Agent, each
of which Additional Mortgages shall constitute valid and enforceable mortgages
on the respective Additional Mortgaged Properties subject to no other Liens
except for Permitted Liens. Each Additional Mortgage or instruments related
thereto shall have been duly recorded or filed in such manner and in such places
as are required by law to establish, perfect, preserve and protect the Liens in
favor of the Collateral Agent pursuant to such Additional Mortgage and all
taxes, fees and other charges payable in connection therewith shall have been
paid in full.
(b) The Borrower will, and will cause each of its Subsidiaries to, at
the expense of the Borrower, make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such confirmatory or
additional conveyances, financing statements, real
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property surveys and environmental reports on Additional Mortgaged Properties as
the Collateral Agent may reasonably require. Furthermore, the Borrower will
cause to be delivered to the Collateral Agent such opinions of counsel, title
insurance and other related documents as may be reasonably requested by the
Administrative Agent to assure itself that this Section 8.11 has been complied
with.
(c) If the Administrative Agent or the Required Banks reasonably
determine that they are required by law or regulation to have appraisals
prepared in respect of any Mortgaged Properties, the Borrower will provide, at
its own expense, to the Administrative Agent appraisals which satisfy the
applicable requirements of the Real Estate Appraisal Reform Amendments of the
Financial Institution Reform, Recovery and Enforcement Act of 1989, as amended,
and which otherwise shall be in form and substance reasonably satisfactory to
the Administrative Agent.
(d) The Borrower agrees that each action required above by this Section
8.11 (other than the giving of the notice referred to in clause (a) above) shall
be completed no later than 90 days after such action is either requested to be
taken by the Administrative Agent or required to be taken by the Borrower and/or
its Subsidiaries pursuant to the terms of this Section 8.11; provided that, in
no event will the Borrower or any of its Subsidiaries be required to take any
action, other than using commercially reasonable efforts, to obtain consents
from third parties with respect to its compliance with this Section 8.11.
8.12 Year 2000. The Borrower will ensure that its Information Systems
and Equipment are at all times after June 30, 1999 Year 2000 Compliant, except
insofar as the failure to do so will not result in a material adverse effect on
the business, operations, property, assets, liabilities or condition (financial
or otherwise) of the Borrower and its Subsidiaries taken as a whole, and shall
notify the Administrative Agent and each Bank promptly upon detecting any
failure of the Information Systems and Equipment to be Year 2000 Compliant. In
addition, the Borrower shall provide the Administrative Agent and any Bank with
such information about its year 2000 computer readiness (including, without
limitation, information as to contingency plans, budgets and testing results) as
the Administrative Agent or such Bank shall reasonably request.
8.13 Interest Rate Protection. No later than 90 days following the
Initial Borrowing Date, the Borrower will enter into Interest Rate Protection
Agreements mutually agreeable to the Borrower and the Administrative Agent, with
a term of at least two years, establishing a fixed or maximum interest rate
acceptable to the Administrative Agent for an aggregate amount equal to at least
50% of the aggregate principal amount of all Term Loans then outstanding.
8.14 Foreign Subsidiaries Security. If following a change in the
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder, counsel for the
Borrower reasonably acceptable to the Administrative Agent does not within 30
days after a request from the Administrative Agent or the Required Banks deliver
evidence, in form and substance mutually satisfactory to the Administrative
Agent and the Borrower, with respect to any Foreign Subsidiary all of the
capital stock of which has not already been pledged pursuant to the Pledge
Agreement that (i) a pledge of 66-2/3% or more of
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the total combined voting power of all classes of capital stock of such Foreign
Subsidiary entitled to vote, (ii) the entering into by such Foreign Subsidiary
of a security agreement in substantially the form of the Security Agreement and
(iii) the entering into by such Foreign Subsidiary of a guaranty in
substantially the form of the Subsidiaries Guaranty, in any such case, could
reasonably be expected to cause (I) any undistributed earnings of such Foreign
Subsidiary as determined for Federal income tax purposes to be treated as a
deemed dividend to such Foreign Subsidiary's United States parent for Federal
income tax purposes or (II) other Federal income tax consequences to the Credit
Parties having an adverse effect in any material respect on the business,
operations, property, assets, liabilities or condition (financial or otherwise)
of the Borrower or any of its Subsidiaries, then in the case of a failure to
deliver the evidence described in clause (i) above, that portion of such Foreign
Subsidiary's outstanding capital stock owned by a Credit Party and not
theretofore pledged pursuant to the Pledge Agreement shall be pledged to the
Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge
Agreement (or another pledge agreement in substantially similar form, if
needed), and in the case of a failure to deliver the evidence described in
clause (ii) above, such Foreign Subsidiary (if same constitutes a Wholly-Owned
Subsidiary) shall execute and deliver the Security Agreement and Pledge
Agreement (or another security agreement or pledge agreement in substantially
similar form, if needed), granting the Secured Creditors a security interest in
all of such Foreign Subsidiary's assets and securing the Obligations of the
Borrower under the Credit Documents and under any Interest Rate Protection
Agreement or Other Hedging Agreement and, in the event the Subsidiaries Guaranty
shall have been executed by such Foreign Subsidiary, the obligations of such
Foreign Subsidiary thereunder, and in the case of a failure to deliver the
evidence described in clause (iii) above, such Foreign Subsidiary (if same
constitutes a Wholly-Owned Subsidiary) shall execute and deliver the
Subsidiaries Guaranty (or another guaranty in substantially similar form, if
needed), guaranteeing the Obligations of the Borrower under the Credit Documents
and under any Interest Rate Protection Agreement or Other Hedging Agreement, in
each case, to the extent that the entering into of the Security Agreement, the
Pledge Agreement or the Subsidiaries Guaranty is permitted by the laws of the
respective foreign jurisdiction and with all documents delivered pursuant to
this Section 8.14 to be in form and substance reasonably satisfactory to the
Administrative Agent.
8.15 Moorpark Survey. On or prior to the 90th day after the Initial
Borrowing Date, the Borrower will cause to be delivered to the Collateral Agent
a survey, in form and substance reasonably satisfactory to the Collateral Agent,
of the Moorpark Facility dated a recent date reasonably acceptable to the
Collateral Agent, certified in a manner reasonably satisfactory to the
Collateral Agent by a licensed professional surveyor reasonably satisfactory to
the Collateral Agent.
SECTION 9. Negative Covenants. The Borrower hereby covenants and agrees
that on and after the Effective Date and until the Total Commitment and all
Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings,
together with interest, Fees and all other Obligations (other than any
indemnities described in Section 13.13 which are not then due and payable)
incurred hereunder and thereunder, are paid in full:
9.01 Liens. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Borrower or any of its Subsidiaries, whether now
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owned or hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable with recourse to the Borrower
or any of its Subsidiaries), or assign any right to receive income or permit the
filing of any financing statement under the UCC or any other similar notice of
Lien under any similar recording or notice statute; provided that the provisions
of this Section 9.01 shall not prevent the creation, incurrence, assumption or
existence of the following (Liens described below are herein referred to as
"Permitted Liens"):
(i) Liens for taxes, assessments or governmental charges or levies
not yet due or Liens for taxes, assessments or governmental charges or
levies being contested in good faith and by appropriate proceedings for
which adequate reserves have been established in accordance with generally
accepted accounting principles;
(ii) Liens in respect of property or assets of the Borrower or any
of its Subsidiaries imposed by law, which were incurred in the ordinary
course of business and do not secure Indebtedness for borrowed money, such
as carriers', warehousemen's, materialmen's and mechanics' liens and other
similar Liens arising in the ordinary course of business and (x) which do
not in the aggregate materially detract from the value of the Borrower's or
such Subsidiary's property or assets or materially impair the use thereof in
the operation of the business of the Borrower or such Subsidiary or (y)
which are not yet due or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject to any such Lien;
(iii) Liens in existence on the Initial Borrowing Date which are
listed, and the property subject thereto described, in Schedule VIII, but
only to the respective date, if any, set forth in such Schedule VIII for the
removal, replacement and termination of any such Liens, plus renewals,
replacements, refinancings and extensions of such Liens to the extent set
forth on Schedule VIII, provided that (x) the aggregate principal amount of
the Indebtedness, if any, secured by such Liens does not increase from that
amount outstanding at the time of any such renewal, replacement, refinancing
or extension and (y) any such renewal, replacement, refinancing or extension
does not encumber any additional assets or properties of the Borrower or any
of its Subsidiaries;
(iv) Permitted Encumbrances;
(v) Liens created pursuant to the Security Documents;
(vi) leases or subleases granted to other Persons not materially
interfering with the conduct of the business of the Borrower or any of its
Subsidiaries;
(vii) Liens upon assets of the Borrower or any of its Subsidiaries
subject to Capitalized Lease Obligations to the extent such Capitalized
Lease Obligations are permitted by Section 9.04(iv), provided that (x) such
Liens only serve to secure the payment of Indebtedness arising under such
Capitalized Lease Obligation or any extension, renewal, refinancing or
replacement thereof for the same or a lesser amount to the extent then
permitted by Section 9.04(iv) and (y) the Lien encumbering the asset
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giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Borrower or any Subsidiary of the Borrower;
(viii) Liens placed upon equipment, machinery and/or Real Property
(including any improvements, accessions, proceeds, products and ancillary
property relating to any of the foregoing property) acquired after the
Initial Borrowing Date and used in the ordinary course of business of the
Borrower or any of its Subsidiaries at the time of the acquisition thereof
by the Borrower or any such Subsidiary or within 90 days thereafter to
secure Indebtedness incurred to pay all or a portion of the purchase price,
construction costs or improvements costs thereof or to secure Indebtedness
incurred solely for the purpose of financing (or, to the extent permitted
above, refinancing) the acquisition, construction or improvement of any such
equipment, machinery and/or Real Property or extensions, renewals,
refinancings or replacements of any of the foregoing for the same or a
lesser amount, provided that (x) the aggregate outstanding principal amount
of all Indebtedness secured by Liens permitted by this clause (viii) shall
not at any time exceed that amount permitted by Section 9.04(iv) and (y) in
all events, the Lien encumbering the equipment, machinery and/or Real
Property so acquired, constructed or improved (and any such related property
(including any such ancillary property)) does not encumber any other asset
of the Borrower or such Subsidiary;
(ix) easements, rights-of-way, restrictions (including building,
zoning and similar restrictions), utility agreements, covenants,
reservations, encroachments and other similar charges or encumbrances, and
minor title deficiencies, in each case not securing Indebtedness and not
materially interfering with the conduct of the business of the Borrower or
any of its Subsidiaries;
(x) Liens arising from precautionary UCC financing statement
filings regarding operating leases or with respect to any inventory held on
consignment in the ordinary course of business;
(xi) Liens arising out of the existence of judgments or awards not
giving rise to an Event of Default under Section 10.09;
(xii) statutory and common law landlords' liens under leases to which
the Borrower or any of its Subsidiaries is a party;
(xiii) Liens (other than Liens imposed under ERISA) incurred in the
ordinary course of business in connection with workers compensation claims,
unemployment insurance and social security benefits and Liens securing the
performance of bids, tenders, leases and contracts in the ordinary course of
business, statutory obligations, surety bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed money);
(xiv) Liens on property or assets acquired pursuant to a Permitted
Acquisition, or on property or assets of a Subsidiary of the Borrower in
existence at the time such Subsidiary is acquired pursuant to a Permitted
Acquisition, provided that (x) any
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Indebtedness that is secured by such Liens is permitted to exist under
Section 9.04(vii) and (y) such Liens are not incurred in connection with, or
in contemplation or anticipation of, such Permitted Acquisition and do not
attach to any other asset of the Borrower or any of its Subsidiaries;
(xv) Liens on the assets of one or more Foreign Subsidiaries which
are granted to secure Indebtedness incurred by such Foreign Subsidiaries
pursuant to, and as permitted by, Section 9.04(xiv);
(xvi) Liens which may be deemed to exist as a result of the
consummation of one or more sale-leaseback transactions effected in
accordance with the requirements of Section 9.02(xviii), (xix) or (xx),
which Liens shall relate only to the assets subject to the respective
sale-leaseback transactions;
(xvii) (A) Liens solely on the real estate portion of the Mesa
Facility securing the Mesa Mortgage Financing incurred pursuant to, and as
permitted by, Section 9.04(xii) and (B) Liens solely on the real estate
portion of the Moorpark Facility securing the Moorpark Mortgage Financing
incurred pursuant to, and as permitted by, Section 9.04(xiii); and
(xviii) other Liens incidental to the conduct of the business or the
ownership of the assets of the Borrower or any Subsidiary that (a) were not
incurred in connection with borrowed money, (b) do not encumber any
Collateral and do not in the aggregate materially detract from the value of
the assets subject thereto or materially impair the use thereof in the
operation of such business and (c) do not secure obligations in excess of
$100,000 in the aggregate for all such Liens.
In connection with the granting of Liens of the type described in clauses (vii),
(viii) and (xvii) of this Section 9.01 by the Borrower or any of its
Subsidiaries, the Administrative Agent and the Collateral Agent shall be
authorized to take any actions deemed appropriate by it in connection therewith
(including, without limitation, by executing appropriate lien releases or lien
subordination agreements in favor of the holder or holders of such Liens, in
either case solely with respect to the item or items of equipment or other
assets subject to such Liens).
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. The
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of all or any part of
its property or assets, or enter into any sale-leaseback transactions, or
purchase or otherwise acquire (in one or a series of related transactions) all
or any part of the property or assets (other than purchases or other
acquisitions of inventory, materials, supplies and equipment in the ordinary
course of business) of any Person (or agree to do any of the foregoing at any
future time), except that the following transactions (and agreements related
thereto) shall be permitted:
(i) Capital Expenditures by the Borrower and its Subsidiaries shall
be permitted in accordance with Section 9.07;
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(ii) each of the Borrower and its Subsidiaries may make sales of
inventory in the ordinary course of business;
(iii) each of the Borrower and its Subsidiaries may sell uneconomic,
obsolete or worn-out equipment, materials or other assets in the ordinary
course of business, provided that the aggregate amount of the proceeds
received from all assets sold pursuant to this clause (iii) shall not exceed
$350,000 in any fiscal year of the Borrower;
(iv) each of the Borrower and its Subsidiaries may sell assets
(other than the capital stock of any Subsidiary Guarantor unless all of the
capital stock of such Subsidiary Guarantor is sold), so long as (v) no
Default or Event of Default then exists or would result therefrom, (w) each
such sale is in an arm's-length transaction and the Borrower or the
respective Subsidiary receives at least fair market value (as determined in
good faith by the Borrower or such Subsidiary, as the case may be), (x) the
total consideration received by the Borrower or such Subsidiary is at least
80% cash, which cash is paid at the time of the closing of such sale,
provided that the amount of any liabilities (as shown on the Borrower's or
such Subsidiary's most recent balance sheet) of the Borrower or any
Subsidiary (other than liabilities that are by their terms subordinated to
the Obligations) that are assumed by the transferee of any such assets shall
be deemed to be cash for purposes of this clause (x), (y) the Net Sale
Proceeds therefrom are applied and/or reinvested as (and to the extent)
required by Section 4.02(d) and (z) the aggregate amount of the proceeds
received from all assets sold pursuant to this clause (iv) (including, for
this purpose, the amount of any assumed liabilities referred to in clause
(x) above) shall not exceed $1,000,000 in any fiscal year of the Borrower;
(v) Investments may be made to the extent permitted by Section
9.05;
(vi) each of the Borrower and its Subsidiaries may lease (as lessee)
real or personal property (so long as any such lease does not create a
Capitalized Lease Obligation except to the extent permitted by Section
9.04(iv));
(vii) each of the Borrower and its Subsidiaries may sell or discount,
in each case without recourse and in the ordinary course of business,
accounts receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof and not as part of a
financing transaction;
(viii) the Recapitalization and all payments required to be made by
the Recapitalization Documents (as in effect on the Initial Borrowing Date)
shall be permitted in accordance with the terms of the Recapitalization
Documents;
(ix) each of the Borrower and its Subsidiaries may grant leases or
subleases to other Persons not materially interfering with the conduct of
the business of the Borrower or any of its Subsidiaries;
(x) any Subsidiary of the Borrower (x) may be merged, consolidated
or liquidated with or into the Borrower so long as the Borrower is the
surviving corporation of such merger, consolidation or liquidation and (y)
may transfer all or any portion of its assets to the Borrower;
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(xi) (A) any Subsidiary of the Borrower (x) may be merged,
consolidated or liquidated with or into any other Subsidiary of the Borrower
so long as (i) in the case of any such merger, consolidation or liquidation
involving a Subsidiary Guarantor, the Subsidiary Guarantor is the surviving
corporation of such merger, consolidation or liquidation and (ii) in
addition to the requirements or preceding clause (i), in the case of any
such merger, consolidation or liquidation involving a Wholly-Owned
Subsidiary of the Borrower, the Wholly-Owned Subsidiary is the surviving
corporation of such merger, consolidation or liquidation and (y) may
transfer all or any portion of its assets to any Subsidiary Guarantor and
(B) any Foreign Subsidiary of the Borrower (x) may be merged, consolidated
or liquidated with or into any Wholly-Owned Foreign Subsidiary of the
Borrower so long as the Wholly-Owned Foreign Subsidiary of the Borrower is
the surviving corporation of such merger, consolidation or liquidation and
(y) may transfer all or any portion of its assets to any Wholly-Owned
Foreign Subsidiary of the Borrower;
(xii) each of the Borrower and the Subsidiary Guarantors may acquire
all or substantially all of the assets of any Person (or all or
substantially all of the assets of a product line or division of any Person)
or 100% of the capital stock of any Person, which Person shall, as a result
of such stock acquisition, become a Wholly-Owned Domestic Subsidiary of the
Borrower (any such acquisition permitted by this clause (xii), a "Permitted
Acquisition"), so long as (i) no Default or Event of Default then exists or
would result therefrom, (ii) each of the representations and warranties
contained in Section 7 shall be true and correct in all material respects
both before and after giving effect to such Permitted Acquisition, (iii) any
Liens or Indebtedness assumed or issued in connection with such acquisition
are otherwise permitted under Section 9.01 or 9.04, as the case may be, (iv)
the only consideration paid by the Borrower or any Subsidiary Guarantor in
connection with any Permitted Acquisition consists solely of cash,
Indebtedness incurred, assumed or issued in accordance with Section 9.04,
common stock of the Borrower and/or Qualified Preferred Stock of the
Borrower, (v) at least 10 Business Days prior to the consummation of any
Permitted Acquisition, the Borrower shall have delivered to the
Administrative Agent and each of the Banks a certificate of the Borrower's
Chief Financial Officer certifying (and showing the calculations therefor in
reasonable detail) that the Borrower and its Subsidiaries would have been in
compliance with the financial covenants set forth in Sections 9.08 through
9.10, inclusive, for the Test Period then most recently ended prior to the
date of the consummation of such Permitted Acquisition, in each case with
such financial covenants to be determined on a pro forma basis as if such
Permitted Acquisition had been consummated on the first day of such Test
Period (and assuming that any Indebtedness incurred, issued or assumed in
connection therewith had been incurred, issued or assumed on the first day
of, and had remained outstanding throughout, such Test Period), (vi) the sum
of the aggregate consideration paid in connection with all Permitted
Acquisitions effected after the Initial Borrowing Date (including, without
limitation, any earn-out, non-compete or deferred compensation arrangements
(in each case as determined in good faith by the Board of Directors of the
Borrower), the aggregate principal amount of any Indebtedness assumed or
issued in connection therewith and the fair market value of any capital
stock of the Borrower issued in connection therewith (as determined in good
faith by the Board of Directors of the Borrower)) does not exceed
$30,000,000, provided that no more than $10,000,000 of Permitted
Acquisitions may be consummated in any fiscal year of the
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Borrower, and (vii) the Total Unutilized Revolving Loan Commitment after
giving effect to any Permitted Acquisition is at least $6,000,000;
(xiii) each of the Borrower and its Subsidiaries may, in the ordinary
course of business, license, as licensor or licensee, patents, trademarks,
copyrights and know-how to third Persons and to one another, so long as any
such license by the Borrower or its Subsidiaries in its capacity as licensor
does not prohibit the granting of a Lien by the Borrower or any of its
Subsidiaries pursuant to the Security Agreement in such license or in the
intellectual property covered thereby;
(xiv) each of the Borrower and its Subsidiaries may sell Cash
Equivalents permitted to be held by them pursuant to Section 9.05(ii) so
long as each such sale is for cash and at fair market value (as determined
in good faith by the Borrower or such Subsidiary, as the case may be);
(xv) each of the Borrower and its Subsidiaries may pay Dividends to
the extent permitted by Section 9.03;
(xvi) Recovery Events shall be permitted;
(xvii) the Borrower may sell the assets used for its glass header
operations located at a leased site in Moorpark, California, so long as (w)
no Default or Event of Default then exists or would result therefrom, (x)
such sale is in an arm's-length transaction and the Borrower receives at
least fair market value (as determined in good faith by the Borrower), (y)
the total consideration received by the Borrower is at least 80% cash, which
cash is paid at the time of the closing of such sale and (z) the Net Sale
Proceeds therefrom are applied and/or reinvested as (and to the extent)
required by Section 4.02(d);
(xviii) the Mesa Sale-Leaseback Transaction shall be permitted, so long
as (u) at the time of the consummation thereof, (A) no Default or Event of
Default then exists or would result therefrom and (B) the Mesa Mortgage
Financing shall not have been theretofore consummated, (v) the Mesa
Sale-Leaseback Transaction is in an arm's-length transaction and the
Borrower receives at least fair market value (as determined in good faith by
the Board of Directors of the Borrower), (w) the total consideration
received by the Borrower is cash and is paid at the time of the closing of
such sale, (x) the aggregate cash proceeds received by the Borrower from
such sale is equal to the greater of (A) $5,000,000 and (B) 75% of the
appraised value of the real estate portion of the Mesa Facility (based on an
appraisal prepared by an independent appraiser reasonably satisfactory to
the Administrative Agent), (y) the Net Sale Proceeds therefrom are applied
as required by Section 4.02(d) and (z) to the extent that such Mesa
Sale-Leaseback Transaction results in a Capitalized Lease Obligation, such
Capitalized Lease Obligations are permitted under Section 9.04(iv);
(xix) the Moorpark Sale-Leaseback Transaction shall be permitted, so
long as (u) at the time of the consummation thereof, (A) no Default or Event
of Default then exists or would result therefrom and (B) the Moorpark
Mortgage Financing shall not have
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been consummated, (v) the Moorpark Sale-Leaseback Transaction is in an
arm's-length transaction and the Borrower receives at least fair market
value (as determined in good faith by the Board of Directors of the
Borrower), (w) the total consideration received by the Borrower is cash and
is paid at the time of the closing of such sale, (x) the aggregate cash
proceeds received by the Borrower from such sale is equal to the greater of
(A) $15,000,000 and (B) 75% of the appraised value of the real estate
portion of the Moorpark Facility (based on an appraisal prepared by an
independent appraiser reasonably satisfactory to the Administrative Agent),
(y) the Net Sale Proceeds therefrom are applied as required by Section
4.02(d) and (z) to the extent that such Moorpark Sale-Leaseback Transaction
results in a Capitalized Lease Obligation, such Capitalized Lease
Obligations are permitted under Section 9.04(iv);
(xx) each of the Borrower and its Subsidiaries may enter into
sale-leaseback transactions with respect to their equipment and Real
Property acquired after the Initial Borrowing Date, so long as (u) no
Default or Event of Default then exists or would result therefrom, (v) each
such sale-leaseback transaction is in an arm's-length transaction and the
Borrower or the respective Subsidiary receives at least fair market value
(as determined in good faith by the Borrower or such Subsidiary, as the case
may be), (w) the total consideration received by the Borrower or such
Subsidiary is cash and is paid at the time of the closing of such sale, (x)
the Net Sale Proceeds therefrom are applied and/or reinvested as (and to the
extent) required by Section 4.02(d), (y) the aggregate amount of proceeds
received from all sale-leaseback transactions pursuant to this clause (xx)
shall not exceed $500,000 in any fiscal year of the Borrower and (z) to the
extent that any such sale-leaseback transaction results in a Capitalized
Lease Obligation, such Capitalized Lease Obligation is permitted under
Section 9.04(iv); and
(xxi) the Borrower may sell approximately 30 acres of excess land
located at the Moorpark Facility so long as (w) no Default or Event of
Default then exists or would result therefrom, (x) such sale is in an
arm's-length transaction and the Borrower receives at least fair market
value (as determined in good faith by the Borrower), (y) the total
consideration received by the Borrower is cash and is paid at the time of
the closing of such sale and (z) the Net Sale Proceeds therefrom are applied
and/or reinvested as (and to the extent) required by Section 4.02(d).
To the extent the Required Banks waive the provisions of this Section 9.02 with
respect to the sale of any Collateral, or any Collateral is sold as permitted by
this Section 9.02 (other than to the Borrower or a Subsidiary thereof), such
Collateral shall be sold free and clear of the Liens created by the Security
Documents, and the Administrative Agent and the Collateral Agent shall be
authorized to take any actions deemed appropriate in order to effect the release
of such Collateral from the Liens created by the Security Documents.
9.03 Dividends. The Borrower will not, and will not permit any of its
Subsidiaries to, authorize, declare or pay any Dividends with respect to the
Borrower or any of its Subsidiaries, except that:
(i) (x) any Subsidiary of the Borrower may pay cash Dividends to
the Borrower or to any Wholly-Owned Subsidiary of the Borrower and (y) any
non-Wholly-
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Owned Subsidiary of the Borrower may pay cash Dividends to its shareholders
or other equity holders generally so long as the Borrower or its respective
Subsidiary which owns the equity interest in the Subsidiary paying such
Dividends receives at least its proportionate share thereof (based upon its
relative holding of the equity interest in the Subsidiary paying such
Dividends and taking into account the relative preferences, if any, of the
various classes of equity interests of such Subsidiary);
(ii) so long as no Default or Event of Default then exists or would
result therefrom, the Borrower may repurchase outstanding shares of its
common stock (or options to purchase such common stock) following the death,
disability or termination of employment of directors, officers or employees
of the Borrower or any of its Subsidiaries, provided that the aggregate
amount of Dividends paid by the Borrower pursuant to this clause (ii) in any
fiscal year of the Borrower shall not exceed the sum of (1) $500,000, (2)
the cash proceeds received by the Borrower after the Initial Borrowing Date
from the sale of its common stock or options to purchase such common stock
in each case to directors, officers or employees of the Borrower and its
Subsidiaries that occurs in such fiscal year and (3) amounts referred to in
preceding clauses (1) and (2) that remain unused from the immediately
preceding fiscal year;
(iii) the Borrower may pay dividends on Qualified Preferred Stock of
the Borrower solely through the issuance of additional shares of such
Qualified Preferred Stock of the Borrower in accordance with the terms of
the respective certificate of designation therefor as in effect on the date
of issuance of such Qualified Preferred Stock (it being understood that
nothing in this Section 9.03(iii) shall prevent the Borrower from accruing
(as opposed to declaring and paying) dividends on any Qualified Preferred
Stock in accordance with the terms of the respective certificate of
designation therefor as in effect on the date of issuance of such Qualified
Preferred Stock);
(iv) any Subsidiary of the Borrower may make distributions to the
Borrower or to any Wholly-Owned Subsidiary of the Borrower in connection
with the liquidation of such Subsidiary pursuant to Section 9.02(x) or (xi)
to the extent that such distribution constitutes a Dividend; and
(v) the Recapitalization shall be permitted pursuant to the
Recapitalization Documents (as in effect on the Initial Borrowing Date).
9.04 Indebtedness. The Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(ii) Existing Indebtedness outstanding on the Initial Borrowing Date
and listed on Schedule VI, without giving effect to any subsequent
extension, renewal or refinancing thereof except to the extent set forth on
Schedule VI, provided that the aggregate principal amount of the
Indebtedness to be extended, renewed or refinanced
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does not increase from that amount outstanding at the time of any such
extension, renewal or refinancing;
(iii) Indebtedness under Interest Rate Protection Agreements entered
into with respect to other Indebtedness permitted under this Section 9.04;
(iv) Indebtedness of the Borrower and its Subsidiaries subject to
Liens permitted under Section 9.01(viii) or evidenced by Capitalized Lease
Obligations or any extension, renewal, refinancing or replacement thereof
for the same or a lesser amount, provided that in no event shall the sum of
the aggregate principal amount of all Capitalized Lease Obligations plus the
aggregate principal amount of all Indebtedness secured by Liens permitted by
Section 9.01(viii) (including any such extensions, renewals, refinancings or
replacements of the foregoing) exceed at any time outstanding the sum of (I)
$3,000,000 plus (II) an amount, not to exceed $1,500,000, to the extent that
such amount has been incurred under clause (xiv) of this Section 9.04 plus
(III) an amount, if any, equal to the aggregate principal amount of all
Capitalized Lease Obligations incurred in connection with the Permitted
Sale-Leaseback Transactions under clauses (xviii) and (xix) of Section 9.02;
(v) intercompany Indebtedness among the Borrower and its Subsidiaries
to the extent permitted by Section 9.05(ix);
(vi) Indebtedness of the Borrower and the Subsidiary Guarantors under
the Senior Subordinated Notes and the other Senior Subordinated Note
Documents in an aggregate principal amount not to exceed $100,000,000 (as
reduced by any repayments of principal thereof);
(vii) Indebtedness of a Subsidiary of the Borrower acquired pursuant to
a Permitted Acquisition (or Indebtedness assumed at the time of a Permitted
Acquisition of an asset securing such Indebtedness) or any extension,
renewal, refinancing or replacement thereof for the same or lesser amount,
provided that (x) such Indebtedness was not incurred in connection with, or
in anticipation or contemplation of, such Permitted Acquisition, (y) such
Indebtedness does not constitute debt for borrowed money (other than debt
for borrowed money incurred in connection with industrial revenue or
industrial development or similar bond financings), it being understood and
agreed that Capitalized Lease Obligations and purchase money Indebtedness
shall not constitute debt for borrowed money for purposes of this clause (y)
and (z) at the time of such Permitted Acquisition, such Indebtedness does
not exceed 10% of the total value of the assets of the Subsidiary so
acquired, or of the asset so acquired, as the case may be;
(viii) (A) guaranties by the Borrower and the Subsidiary Guarantors of
each other's Indebtedness and other obligations (in either case, other than
in respect of the Mesa Mortgage Financing or the Moorpark Mortgage
Financing) to the extent that such Indebtedness and other obligations are
otherwise permitted under this Section 9.04 and (B) guaranties by the
Borrower of Indebtedness of Foreign Subsidiaries incurred pursuant to
Section 9.04(xiv);
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(ix) Indebtedness of the Borrower and its Subsidiaries consisting of
any guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets;
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business so long as such
Indebtedness is extinguished within two Business Days of the incurrence
thereof;
(xi) Indebtedness in respect of Other Hedging Agreements to the
extent permitted by Section 9.05(xii);
(xii) Indebtedness of the Borrower in respect of the Mesa Mortgage
Financing so long as (i) at the time of the incurrence thereof, (x) no
Default or Event of Default then exists or would result therefrom and (y)
the Mesa Sale-Leaseback Transaction shall not have been theretofore
consummated, (ii) the aggregate principal amount of such Indebtedness is
equal to the greater of (x) $5,000,000 and (y) 75% of the appraised value
of the real estate portion of the Mesa Facility (based on an appraisal
prepared by an independent appraiser reasonably satisfactory to the
Administrative Agent), (iii) the Net Debt Proceeds therefrom are applied
as required by Section 4.02(c), (iv) the only Liens securing such
Indebtedness are Liens permitted pursuant to Section 9.01(xvii)(A) and (v)
at least 10 Business Days prior to the incurrence of the Mesa Mortgage
Financing, the Borrower shall have delivered to the Administrative Agent
and each of the Banks a certificate of the Borrower's Chief Financial
Officer certifying (and showing the calculations therefor in reasonable
detail) that the Borrower and its Subsidiaries would have been in
compliance with the financial covenants set forth in Sections 9.08 through
9.10, inclusive, for the Test Period then most recently ended prior to the
date of the incurrence of the Mesa Mortgage Financing, in each case with
such financial covenants to be determined on a pro forma basis as if such
Indebtedness had been incurred on the first day of, and had remained
outstanding throughout, such Test Period;
(xiii) Indebtedness of the Borrower in respect of the Moorpark
Mortgage Financing so long as (i) at the time of the incurrence thereof,
(x) no Default or Event of Default then exists or would result therefrom
and (y) the Moorpark Sale-Leaseback Transaction shall not have been
theretofore consummated, (ii) the aggregate principal amount of such
Indebtedness is equal to the greater of (x) $15,000,000 and (y) 75% of the
appraised value of the real estate portion of the Moorpark Facility (based
on an appraisal prepared by an independent appraiser reasonably
satisfactory to the Administrative Agent), (iii) the Net Debt Proceeds
therefrom are applied as required by Section 4.02(c), (iv) the only Liens
securing such Indebtedness are Liens permitted pursuant to Section
9.01(xvii)(B) and (v) at least 10 Business Days prior to the incurrence of
the Moorpark Mortgage Financing, the Borrower shall have delivered to the
Administrative Agent and each of the Banks a certificate of the Borrower's
Chief Financial Officer certifying (and showing the calculations therefor
in reasonable detail) that the Borrower and its Subsidiaries would have
been in compliance with the financial covenants set forth in Sections 9.08
through 9.10, inclusive, for the Test Period then most recently ended
prior
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to the date of the incurrence of the Moorpark Mortgage Financing, in each
case with such financial covenants to be determined on a pro forma basis
as if such Indebtedness had been incurred on the first day of, and had
remained outstanding throughout, such Test Period; and
(xiv) additional Indebtedness incurred by the Borrower and its
Subsidiaries in an aggregate principal amount not to exceed $5,000,000 at
any one time outstanding, of which no more than $1,500,000 may be
outstanding at any time as additional secured Indebtedness under clause
(iv) of this Section 9.04 and with all other Indebtedness incurred under
this clause (xiv) to be unsecured except to the extent permitted under
Section 9.01(xv).
9.05 Advances, Investments and Loans. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, lend money
or credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents (each of the foregoing an "Investment" and,
collectively, "Investments"), except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may acquire and hold accounts
receivables owing to any of them, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with
customary trade terms of the Borrower or such Subsidiary;
(ii) the Borrower and its Subsidiaries may acquire and hold cash and
Cash Equivalents;
(iii) the Borrower and its Subsidiaries may hold the Investments
held by them on the Initial Borrowing Date and described on Schedule IX,
provided that any additional Investments made with respect thereto shall
be permitted only if independently justified under the other provisions of
this Section 9.05;
(iv) the Borrower and its Subsidiaries may acquire and own
Investments (including, without limitation, debt obligations) received in
connection with the bankruptcy or reorganization of suppliers and
customers and in good faith settlement of delinquent obligations of, and
other disputes with, customers and suppliers arising in the ordinary
course of business;
(v) the Borrower and its Subsidiaries may (A) make loans and
advances in the ordinary course of business to their respective officers
and employees so long as the aggregate principal amount thereof at any
time outstanding (determined without regard to any write-downs or
write-offs of such loans and advances) shall not exceed $500,000 and (B)
make advances to their employees for moving, relocation and travel
expenses, drawing accounts and similar expenditures in the ordinary course
of business so long as any such advances made pursuant to this clause (B)
are ultimately expected to be treated
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as an expense which reduces Consolidated Net Income in accordance with
generally accepted accounting principles;
(vi) the Borrower may acquire and hold obligations of one or more
officers or other employees of the Borrower or any of its Subsidiaries in
connection with such officers' or employees' acquisition of shares of
common stock of the Borrower so long as no cash is paid by the Borrower or
any of its Subsidiaries to such officers or employees in connection with
the acquisition of any such obligations;
(vii) the Borrower may enter into Interest Protection Agreements to
the extent permitted by Section 9.04(iii);
(viii) the Borrower and the Subsidiary Guarantors may make cash
common equity contributions to the capital of their respective
Subsidiaries which are Subsidiary Guarantors;
(ix) (A) the Borrower and the Subsidiary Guarantors may make
intercompany loans and advances between or among one another
(collectively, "Intercompany Loans"), so long as no such Intercompany Loan
shall be evidenced by a promissory note or other instrument except an
Intercompany Note that is pledged to the Collateral Agent pursuant to the
Pledge Agreement and (B) Wholly-Owned Foreign Subsidiaries of the Borrower
may make intercompany loans and advances between or among one another;
(x) the Borrower and its Subsidiaries may acquire and hold non-cash
consideration issued by the purchaser of assets in connection with a sale
of such assets to the extent permitted by Sections 9.02(iv) and (xvii);
(xi) Permitted Acquisitions shall be permitted in accordance with
Section 9.02(xii);
(xii) the Borrower and its Subsidiaries may enter into Other Hedging
Agreements in the ordinary course of business providing protection against
fluctuations in currency values in connection with the Borrower's or any
of its Subsidiaries' operations so long as management of the Borrower or
such Subsidiary, as the case may be, has determined in good faith that the
entering into of such Other Hedging Agreements are bona fide hedging
activities and are not for speculative purposes; and
(xiii) the Borrower and its Subsidiaries may make Investments not
otherwise permitted by clauses (i) through (xii) of this Section 9.05 in
an aggregate amount not to exceed $6,000,000.
9.06 Transactions with Affiliates. The Borrower will not, and will
not permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Borrower or any of its Subsidiaries, other than on terms
and conditions substantially as favorable to the Borrower or such Subsidiary as
would reasonably be obtained by the Borrower or such Subsidiary at that time in
a comparable arm's-length transaction with a Person other than an Affiliate,
except that the following in any event shall be permitted:
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(i) Dividends may be paid to the extent provided in Section
9.03;
(ii) loans may be made and other transactions may be entered into by
the Borrower and its Subsidiaries to the extent permitted by Sections
9.02, 9.04 and 9.05;
(iii) customary fees may be paid to directors of the Borrower and
its Subsidiaries;
(iv) so long as no Default or Event of Default then exists or would
result therefrom, the Borrower may pay regular quarterly management fees
to Lehman and its Affiliates quarterly in advance pursuant to, and in
accordance with, the terms of the Lehman Management Services Agreement (as
in effect on the Initial Borrowing Date);
(v) the Borrower may reimburse Lehman and its Affiliates for their
reasonable out-of-pocket expenses incurred in connection with their
performing management services to the Borrower and its Subsidiaries
pursuant to, and in accordance with, the terms of the Lehman Management
Services Agreement (as in effect on the Initial Borrowing Date);
(vi) the Borrower may pay a transaction fee to Lehman and its
Affiliates on the Initial Borrowing Date in the amount provided for in the
Lehman Management Agreement (as in effect on the Initial Borrowing Date)
plus their reasonable out-of-pocket expenses incurred in connection with
the Transaction;
(vii) the Borrower and its Subsidiaries may enter into, and may make
payments under, employment agreements, employee benefit plans,
indemnification provisions and other similar compensatory arrangements
with officers and directors of the Borrower and its Subsidiaries in the
ordinary course of business;
(viii) the Borrower and the Subsidiary Guarantors may engage in any
transaction among themselves to the extent otherwise expressly permitted
under this Agreement;
(ix) the Borrower and its Subsidiaries may enter into the
Recapitalization Documents and those other agreements listed on Schedule X
(and any amendment or modification thereof otherwise permitted by Section
9.11) and perform their obligations thereunder to the extent such
performance is otherwise permitted under this Agreement; and
(x) the Borrower and its Subsidiaries may purchase parts and
components from Ordnance Products, Inc. and Multi-Screw, Inc. in the
ordinary course of business and consistent with past practice.
9.07 Capital Expenditures. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, make any Capital Expenditures, except that
(i) during the period from the Initial Borrowing Date through and including the
last day of the Borrower's fiscal year ending October 31, 1999, the Borrower
and its Subsidiaries may make Capital Expenditures in an aggregate amount not
to exceed $6,500,000 and (ii) during any fiscal year of the Borrower set
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forth below (taken as one accounting period), the Borrower and its Subsidiaries
may make Capital Expenditures so long as the aggregate amount of all Capital
Expenditures does not exceed in any fiscal year of the Borrower set forth below
the respective amount set forth opposite such fiscal year below:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
October 31, 2000 $12,000,000
October 31, 2001 $14,000,000
October 31, 2002 $12,000,000
October 31, 2003 $10,000,000
October 31, 2004 $10,000,000
October 31, 2005 $10,000,000
October 31, 2006 $ 2,000,000
</TABLE>
(b) In addition to the foregoing, in the event that the amount of
Capital Expenditures permitted to be made by the Borrower and its Subsidiaries
pursuant to clause (a) above in any fiscal year of the Borrower (before giving
effect to any increase in the permitted Capital Expenditure amount pursuant to
this clause (b)) is greater than the amount of such Capital Expenditures
actually made by the Borrower and its Subsidiaries during such fiscal year, the
lesser of (x) such excess and (y) 50% of the applicable scheduled Capital
Expenditure amount as set forth in such clause (a) above may be carried forward
and utilized to make additional Capital Expenditures in the immediately
succeeding fiscal year, provided that no amounts once carried forward pursuant
to this Section 9.07(b) may be carried forward to any fiscal year thereafter and
such amounts may only be utilized after the Borrower and its Subsidiaries have
utilized in full the permitted Capital Expenditure amount for such fiscal year
as set forth in the table in clause (a) above (without giving effect to any
increase in such amount by operation of this clause (b)).
(c) In addition to the foregoing, the Borrower and its Subsidiaries
may make Capital Expenditures with the amount of Net Sale Proceeds received by
the Borrower or any of its Subsidiaries from any Asset Sale so long as such Net
Sale Proceeds are reinvested in replacement assets within 350 days following the
date of such Asset Sale to the extent such Net Sale Proceeds are not otherwise
required to be applied to repay outstanding Term Loans pursuant to Section
4.02(d) or reduce the Total Revolving Loan Commitment pursuant to Section
3.03(d).
(d) In addition to the foregoing, the Borrower and its Subsidiaries
may make Capital Expenditures with the amount of Net Insurance Proceeds received
by the Borrower or any of its Subsidiaries from any Recovery Event so long as
such Net Insurance Proceeds are used or committed to be used to replace or
restore any properties or assets in respect of which such Net Insurance Proceeds
were paid within one year following the date of receipt of such Net Insurance
Proceeds from such Recovery Event to the extent such Net Insurance Proceeds are
not
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otherwise required to be applied to repay outstanding Term Loans pursuant to
Section 4.02(e) or reduce the Total Revolving Loan Commitment pursuant to
Section 3.03(d).
(e) In addition to the foregoing, the Borrower and the Subsidiary
Guarantors may consummate Permitted Acquisitions to the extent permitted by
Section 9.02(xii).
(f) In addition to the foregoing, the Borrower may make additional
Capital Expenditures to complete the construction of its new facility to be
located in Moorpark, California so long as (i) the aggregate amount of all such
Capital Expenditures made pursuant to this Section 9.07(f) does not exceed
$7,000,000 and (ii) all such Capital Expenditures are made on or before October
31, 1999.
9.08 Consolidated Interest Coverage Ratio. The Borrower will not
permit the Consolidated Interest Coverage Ratio for any Test Period ending on
the last day of a fiscal quarter of the Borrower set forth below to be less than
the ratio set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending Closest To Ratio
----------------- -----
<S> <C>
April 30, 1999 1.50:1.00
July 31, 1999 1.75:1.00
October 31, 1999 2.00:1.00
January 31, 2000 2.00:1.00
April 30, 2000 2.00:1.00
July 31, 2000 2.25:1.00
October 31, 2000 2.25:1.00
January 31, 2001 2.25:1.00
April 30, 2001 2.40:1.00
July 31, 2001 2.40:1.00
October 31, 2001
and the last day of each
fiscal quarter thereafter 3.00:1.00
</TABLE>
9.09 Maximum Leverage Ratio. The Borrower will not permit the
Leverage Ratio at any time during a period set forth below to be greater than
the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Initial Borrowing Date through
and including the day immediately
preceding the last day of the
Borrower's fiscal quarter ending
closest to July 31, 1999 5.65:1.00
</TABLE>
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<TABLE>
<S> <C>
The last day of the Borrower's
fiscal quarter ending closest to
July 31, 1999 through and including
the date immediately preceding the
last day of the Borrower's fiscal
quarter ending closest to October
31, 1999 5.50:1.00
The last day of the Borrower's
fiscal quarter ending closest to
October 31, 1999 through and
including the date immediately
preceding the last day of the
Borrower's fiscal quarter ending
closest to January 31, 2000 5.25:1.00
The last day of the Borrower's
fiscal quarter ending closest to
January 31, 2000 through and
including the date immediately
preceding the last day of the
Borrower's fiscal quarter ending
closest to April 30, 2000 4.75:1.00
The last day of the Borrower's
fiscal quarter ending closest to
April 30, 2000 through and
including the date immediately
preceding the last day of the
Borrower's fiscal quarter ending
closest to July 31, 2000 4.50:1.00
The last day of the Borrower's
fiscal quarter ending closest to
July 31, 2000 through and
including the date immediately
preceding the last day of the
Borrower's fiscal quarter
ending closest to October 31, 2000 4.25:1.00
The last day of the Borrower's
fiscal quarter ending closest to
October 31, 2000 through and
including the date immediately
preceding the last day of the
Borrower's fiscal quarter ending
closest to April 30, 2001 4.00:1.00
</TABLE>
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<PAGE> 71
<TABLE>
<S> <C>
The last day of the Borrower's
fiscal quarter ending closest to
April 30, 2001 through and
including the date immediately
preceding the last day of the
Borrower's fiscal quarter ending
closest to October 31, 2001 3.50:1.00
Thereafter 3.00:1.00
</TABLE>
9.10 Minimum Consolidated EBITDA. The Borrower will not permit
Consolidated EBITDA for any Test Period ending on the last day of a fiscal
quarter of the Borrower set forth below to be less than the amount set forth
opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending Closest To Amount
----------------- ------
<S> <C>
January 31, 1999 $ 6,100,000
April 30, 1999 $13,300,000
July 31, 1999 $24,100,000
October 31, 1999 $36,500,000
January 31, 2000 $36,500,000
April 30, 2000 $38,000,000
July 31, 2000 $40,000,000
October 31, 2000 $42,000,000
January 31, 2001 $42,000,000
April 30, 2001 $44,000,000
July 31, 2001 $46,000,000
October 31, 2001 $48,000,000
January 31, 2002 $48,000,000
April 30, 2002 $49,000,000
July 31, 2002 $51,000,000
October 31, 2002
and the last day of each
fiscal quarter thereafter $53,000,000
</TABLE>
9.11 Limitation on Payments of Certain Indebtedness; Modifications
of Certain Indebtedness; Modifications of Certificate of Incorporation, By-Laws
and Certain Other Agreements; etc. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, (i) make (or give any notice in respect of)
any voluntary or optional payment or prepayment on or redemption or acquisition
for value of, or any prepayment or redemption as a result of any asset sale,
change of control or similar event of (including in each case, without
limitation, by way of depositing with the trustee with respect thereto or any
other Person money or securities before due for the purpose of paying when due)
any Senior Subordinated Notes, (ii) amend or modify,
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or permit the amendment or modification of, any provision of the Senior
Subordinated Note Documents, (iii) amend, modify or change its certificate of
incorporation (including, without limitation, by the filing or modification of
any certificate of designation) or by-laws (or the equivalent organizational
documents) or any agreement entered into by it with respect to its capital stock
(including any Shareholders' Agreement), or enter into any new agreement with
respect to its capital stock, unless such amendment, modification, change or
other action contemplated by this clause (iii) would not violate the terms of
this Agreement and could not reasonably be expected to be adverse to the
interests of the Banks in any material respect (it being understood that, in any
event, the Borrower may issue Qualified Preferred Stock in accordance with the
terms and subject to the conditions set forth in this Agreement) or (iv) amend,
modify or change any provision of (x) the Lehman Management Agreement or the
Lehman Management Services Agreement, in each case other than any amendments,
modifications or changes thereof or terms which could not reasonably be expected
to be adverse to the interests of the Banks in any material respect (it being
understood and agreed, however, that no amendments, modifications or changes may
be made to the monetary terms of the Lehman Management Agreement or the Lehman
Management Services Agreement) or (y) any Tax Sharing Agreement or enter into
any new Tax Sharing Agreement without the prior written consent of the
Administrative Agent in the case of this clause (y).
(b) Neither the Borrower nor any of its Subsidiaries shall designate
any Indebtedness, other than the Obligations, as "Designated Senior
Indebtedness" for purposes of the Senior Subordinated Notes and the other Senior
Subordinated Note Documents.
9.12 Limitation on Certain Restrictions on Subsidiaries. The
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by the Borrower or any Subsidiary
of the Borrower, or pay any Indebtedness owed to the Borrower or any Subsidiary
of the Borrower, (b) make loans or advances to the Borrower or any Subsidiary of
the Borrower or (c) transfer any of its properties or assets to the Borrower or
any Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) applicable law, (ii) this Agreement and the
other Credit Documents, (iii) the Senior Subordinated Note Documents, (iv)
customary provisions restricting subletting or assignment of any lease or
sublease governing a leasehold interest of the Borrower or any Subsidiary of the
Borrower, (v) customary provisions restricting assignment of any licensing
agreement or other contract entered into by the Borrower or any Subsidiary of
the Borrower in the ordinary course of business, (vi) restrictions on the
transfer of any asset subject to a Lien permitted by Sections 9.01(iii), (iv),
(vi), (vii), (viii), (x), (xiii), (xiv), (xv), (xvi) and (xvii) and (vii)
restrictions under any contracts for the sale of (or the granting of an option
to buy) assets, including, without limitation, any restriction with respect to a
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the capital stock or assets of such
Subsidiary, pending the closing of such sale or disposition, provided that any
such restriction relates solely to the assets that are the subject of such
contract (or such option) and such sale (or the granting of such option assuming
same is exercised) is otherwise permitted under Section 9.02. Notwithstanding
the foregoing, Indebtedness incurred by Foreign Subsidiaries of the Borrower
pursuant to, and as permitted by, Section 9.04(xiv) and owing to Persons other
than the Borrower and its Subsidiaries may contain
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restrictions of the type otherwise prohibited in the immediately preceding
sentence, in each case so long as such restrictions are applicable only to the
Foreign Subsidiary or Foreign Subsidiaries incurring such Indebtedness and the
Borrower in good faith determines that said restrictions are not likely to give
rise to a violation of the financial covenants contained in this Agreement and
notifies the Administrative Agent in writing of said restrictions not later than
the last day of the fiscal quarter of the Borrower in which the respective
Indebtedness is incurred or restriction became effective.
9.13 Limitation on Issuance of Capital Stock. (a) The Borrower will
not, and will not permit any of its Subsidiaries to, issue (i) any preferred
stock other than Qualified Preferred Stock of the Borrower or (ii) any
redeemable common stock (other than common stock that is redeemable at the sole
option of the Borrower or such Subsidiary).
(b) The Borrower will not permit any of its Subsidiaries to issue
any capital stock (including by way of sales of treasury stock) or any options
or warrants to purchase, or securities convertible into, capital stock, except
(i) for transfers and replacements of then outstanding shares of capital stock,
(ii) for stock splits, stock dividends and issuances which do not decrease the
percentage ownership of the Borrower or any of its Subsidiaries in any class of
the capital stock of such Subsidiary, (iii) to qualify directors to the extent
required by applicable law or (iv) for issuances by newly created or acquired
Subsidiaries in accordance with the terms of this Agreement.
9.14 Business. The Borrower and its Subsidiaries will not engage in
any business other than the businesses engaged in by the Borrower and its
Subsidiaries as of the Initial Borrowing Date and businesses similar, reasonably
related or complementary thereto.
9.15 Limitation on Creation of Subsidiaries. Notwithstanding
anything to the contrary contained in this Agreement, the Borrower will not, and
will not permit any of its Subsidiaries to, establish, create or acquire after
the Initial Borrowing Date any Subsidiary, provided that (A) the Borrower and
its Wholly-Owned Subsidiaries shall be permitted to establish, create or, to the
extent permitted by this Agreement, acquire Wholly-Owned Subsidiaries so long as
(i) the capital stock or other equity interests of each such new Wholly-Owned
Subsidiary is pledged pursuant to, and to the extent required by, the Pledge
Agreement and the certificates representing such stock or other equity
interests, together with stock or other powers duly executed in blank, are
delivered to the Collateral Agent for the benefit of the Secured Creditors, (ii)
each such new Wholly-Owned Subsidiary (other than a Foreign Subsidiary except to
the extent otherwise required pursuant to Section 8.14) executes and delivers to
the Administrative Agent a counterpart of the Subsidiaries Guaranty, the Pledge
Agreement and the Security Agreement and (iii) each such new Wholly-Owned
Subsidiary (other than a Foreign Subsidiary except to the extent otherwise
required pursuant to Section 8.14) takes all actions required pursuant to
Section 8.11 and (B) the Borrower and its Wholly-Owned Subsidiaries shall be
permitted to establish, create or acquire non-Wholly-Owned Subsidiaries to the
extent permitted by Section 9.05(xiii) so long as the capital stock or other
equity interests of each such new non-Wholly-Owned Subsidiary is pledged
pursuant to, and to the extent required by, the Pledge Agreement and the
certificates representing such stock or other equity interests, together with
stock or other powers duly executed in blank, are delivered to the Collateral
Agent for the benefit of the Secured Creditors. In addition, each new
Wholly-Owned Subsidiary which
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is required to become a Credit Party shall execute and deliver, or cause to be
executed and delivered, to the Administrative Agent all other relevant
documentation of the type described in Sections 5.03, 5.04, 5.05, 5.11, 5.12 and
5.13 as such new Wholly-Owned Subsidiary would have had to deliver if such new
Wholly-Owned Subsidiary were a Credit Party on the Initial Borrowing Date.
SECTION 10. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
10.01 Payments. The Borrower shall (i) default in the payment when
due of any principal of any Loan or any Note or (ii) default, and such default
shall continue unremedied for three or more Business Days, in the payment when
due of any interest on any Loan or Note, any Unpaid Drawing or any Fees or any
other amounts owing hereunder or thereunder; or
10.02 Representations, etc. Any representation, warranty or
statement made (or deemed made) by any Credit Party herein or in any other
Credit Document or in any certificate delivered to the Administrative Agent or
any Bank pursuant hereto or thereto shall prove to be untrue in any material
respect on the date as of which made or deemed made; or
10.03 Covenants. Any Credit Party shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 8.08 or Section 9 or (ii) default in the due performance or observance
by it of any other term, covenant or agreement contained in this Agreement or
any other Credit Document (other than those set forth in Sections 10.01 and
10.02) and such default shall continue unremedied for a period of 30 days after
written notice thereof to the defaulting party by the Administrative Agent or
the Required Banks; or
10.04 Default Under Other Agreements. (i) The Borrower or any of its
Subsidiaries shall (x) default in any payment of any Indebtedness (other than
the Obligations) beyond the period of grace, if any, provided in the instrument
or agreement under which such Indebtedness was created or (y) default in the
observance or performance of any agreement or condition relating to any
Indebtedness (other than the Obligations) or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause (determined
without regard to whether any notice is required), any such Indebtedness to
become due prior to its stated maturity or (ii) any Indebtedness (other than the
Obligations) of the Borrower or any of its Subsidiaries shall be declared to be
(or shall become) due and payable, or required to be prepaid other than by a
regularly scheduled required prepayment (or as a result of any sale of an asset
securing such Indebtedness in accordance with the terms thereof), prior to the
stated maturity thereof, provided that it shall not be a Default or an Event of
Default under this Section 10.04 unless the aggregate principal amount of all
Indebtedness as described in preceding clauses (i) and (ii) is at least
$2,000,000; or
10.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the
Borrower or any of its Subsidiaries, and the
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petition is not controverted within 10 days, or is not dismissed within 60 days,
after commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of the Borrower or any of its Subsidiaries, or the Borrower or any of
its Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Borrower or any of its Subsidiaries, or there is
commenced against the Borrower or any of its Subsidiaries any such proceeding
which remains undismissed for a period of 60 days, or the Borrower or any of its
Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or the Borrower or
any of its Subsidiaries suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or unstayed
for a period of 60 days; or the Borrower or any of its Subsidiaries makes a
general assignment for the benefit of creditors; or any corporate action is
taken by the Borrower or any of its Subsidiaries for the purpose of effecting
any of the foregoing; or
10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan has not
been timely made, the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate has incurred or is likely to incur any liability to or on account of a
Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204
or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account
of a group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code, or the Borrower or any
Subsidiary of the Borrower has incurred or is likely to incur liabilities
pursuant to one or more employee welfare benefit plans (as defined in Section
3(1) of ERISA) that provide benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or Plans; (b) there
shall result from any such event or events the imposition of a lien, the
granting of a security interest, or a liability or a material risk of incurring
a liability; and (c) such lien, security interest or liability, individually,
and/or in the aggregate, in the reasonable opinion of the Required Banks, has
had, or could reasonably be expected to have, a material adverse effect on the
business, operations, properties, assets, liabilities or condition (financial or
otherwise) of the Borrower and its Subsidiaries taken as a whole; or
10.07 Security Documents. At any time after the execution and
delivery thereof, any of the Security Documents shall cease to be in full force
and effect, or shall cease to give the Collateral Agent for the benefit of the
Secured Creditors the Liens, rights, powers and privileges
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purported to be created thereby (including, without limitation, to the extent
required thereby, a perfected security interest in, and Lien on, all of the
Collateral (other than an immaterial portion of the Security Agreement
Collateral), in favor of the Collateral Agent, superior to and prior to the
rights of all third Persons (except as permitted by Section 9.01), and subject
to no other Liens (except as permitted by Section 9.01); or
10.08 Subsidiaries Guaranty. The Subsidiaries Guaranty or any
provision thereof shall cease to be in full force or effect as to any Subsidiary
Guarantor, or any Subsidiary Guarantor or any Person acting by or on behalf of
such Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's
obligations under the Subsidiaries Guaranty or any Subsidiary Guarantor shall
default in the due performance or observance of any term, covenant or agreement
on its part to be performed or observed pursuant to the Subsidiaries Guaranty,
provided that if the default constitutes a failure to perform or comply with any
provision, covenant or agreement contained in Section 8 of this Agreement (other
than Section 8.08), such default shall continue unremedied for a period of at
least 30 days after notice to the defaulting Subsidiary Guarantor by the
Administrative Agent or the Required Banks; or
10.09 Judgments. One or more judgments or decrees shall be entered
against the Borrower or any Subsidiary of the Borrower involving in the
aggregate for the Borrower and its Subsidiaries a liability (not paid or fully
covered by a reputable and solvent insurance company) and such judgments and
decrees either shall be final and non-appealable or shall not be vacated,
discharged or stayed or bonded pending appeal for any period of 30 consecutive
days, and the aggregate amount of all such judgments equals or exceeds
$2,000,000 or any order or writ of attachment or similar process shall have been
issued with respect to property of the Borrower or any of its Subsidiaries with
a value of a $2,000,000 or more in the aggregate for the Borrower and its
Subsidiaries; or
10.10 Change of Control. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Banks, shall by written notice to the Borrower, take any or all of
the following actions, without prejudice to the rights of the Administrative
Agent, any Bank or the holder of any Note to enforce its claims against any
Credit Party (provided, that, if an Event of Default specified in Section 10.05
shall occur with respect to the Borrower, the result which would occur upon the
giving of written notice by the Administrative Agent as specified in clauses (i)
and (ii) below shall occur automatically without the giving of any such notice):
(i) declare the Total Commitment terminated, whereupon the Commitments of each
Bank shall forthwith terminate immediately and any Commitment Commission shall
forthwith become due and payable without any other notice of any kind; (ii)
declare the principal of and any accrued interest in respect of all Loans and
the Notes and all Obligations owing hereunder and thereunder to be, whereupon
the same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Credit Party; (iii) terminate any Letter of Credit which may be terminated in
accordance with its terms; (iv) direct the Borrower to pay (and the Borrower
agrees that upon receipt of such notice, or upon the occurrence of an Event of
Default specified in Section 10.05 with respect to the Borrower, it will pay) to
the Collateral Agent at the Payment Office such additional amount of cash or
Cash Equivalents, to be held as security by the
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Collateral Agent, as is equal to the aggregate Stated Amount of all Letters of
Credit issued for the account of the Borrower and then outstanding; (v) enforce,
as Collateral Agent, all of the Liens and security interests created pursuant to
the Security Documents; and (vi) apply any cash collateral held by the
Administrative Agent pursuant to Section 4.02 to the repayment of the
Obligations.
SECTION 11. Definitions and Accounting Terms.
11.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Acquired Entity or Business" shall have the meaning provided in the
definition of Consolidated Net Income.
"Additional Mortgage" shall have the meaning provided in Section
8.11.
"Additional Mortgaged Property" shall have the meaning provided
in Section 8.11.
"Adjusted Consolidated Working Capital" shall mean, at any time,
Consolidated Current Assets (but excluding therefrom all cash and Cash
Equivalents) less Consolidated Current Liabilities at such time.
"Administrative Agent" shall mean BTCo, in its capacity as
Administrative Agent for the Banks hereunder, and shall include any successor to
the Administrative Agent appointed pursuant to Section 12.09.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including, but not limited to, all directors
and officers of such Person), controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control another Person if
such Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such other Person, whether through the ownership of voting
securities, by contract or otherwise. Notwithstanding the foregoing, it is
understood and agreed that for purposes of Section 9.06, no Bank (nor any
Affiliate of such Bank) shall be deemed to be an Affiliate of the Borrower.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated (including any amendment and restatement
hereof), extended, renewed, refinanced or replaced from time to time.
"Applicable Base Rate Margin" shall mean, (i) in the case of
Revolving Loans, 1.75% and (ii) in the case of Term Loans, 2.25%.
"Applicable Commitment Commission Percentage" shall mean 0.50%.
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"Applicable Eurodollar Rate Margin" shall mean, (i) in the case of
Revolving Loans, 2.75% and (ii) in the case of Term Loans, 3.25%.
"Applicable Excess Cash Flow Percentage" shall mean 75%, provided
that so long as (i) no Default or Event of Default exists on the respective
Excess Cash Payment Date and (ii) the Leverage Ratio as of the last day of the
respective Excess Cash Payment Period is 3.00:1.00 or less, then the foregoing
percentage instead shall be 50%.
"Asset Sale" shall mean any sale, transfer or other disposition by
the Borrower or any of its Subsidiaries to any Person (including by-way-of
redemption by such Person) other than to the Borrower or a Wholly-Owned
Subsidiary of the Borrower of any asset (including, without limitation, any
capital stock or other securities of, or equity interests in, another Person)
other than sales of assets pursuant to Sections 9.02 (ii), (iii), (vii), (viii),
(ix), (x), (xi), (xiii), (xiv), (xv) and (xvi).
"Assignment and Assumption Agreement" shall mean an Assignment and
Assumption Agreement substantially in the form of Exhibit J (appropriately
completed).
"Bank" shall mean each financial institution listed on Schedule I,
as well as any Person which becomes a "Bank" hereunder pursuant to Section 1.13
or 13.04(b).
"Bank Default" shall mean (i) the refusal (which has not been
retracted) or the failure of a Bank to make available its portion of any
Borrowing (including any Mandatory Borrowing) or to fund its portion of any
unreimbursed payment under Section 2.04(c) or (ii) a Bank having notified in
writing the Borrower and/or the Administrative Agent that such Bank does not
intend to comply with its obligations under Section 1.01(a), 1.01(b), 1.01(d) or
2.
"Bankruptcy Code" shall have the meaning provided in Section
10.05.
"Base Rate" shall mean, at any time, the higher of (i) the Prime
Lending Rate and (ii) -1/2 of 1% in excess of the Federal Funds Rate.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) each
other Loan designated or deemed designated as such by the Borrower at the time
of the incurrence thereof or conversion thereto.
"Borrower" shall have the meaning provided in the first paragraph
of this Agreement.
"Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche from all the Banks having Commitments of the respective Tranche (or from
the Swingline Bank in the case of Swingline Loans) on a given date (or resulting
from a conversion or conversions on such date) having in the case of Eurodollar
Loans the same Interest Period, provided that Base Rate Loans incurred pursuant
to Section 1.10(b) shall be considered part of the related Borrowing of
Eurodollar Loans.
"BTCo" shall mean Bankers Trust Company, in its individual capacity,
and any successor corporation thereto by merger, consolidation or otherwise.
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"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New York City, New York, a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day which
is a Business Day described in clause (i) above and which is also a day for
trading by and between banks in the New York interbank Eurodollar market.
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures by such Person which should be capitalized in accordance with
generally accepted accounting principles and, without duplication, the amount of
Capitalized Lease Obligations incurred by such Person.
"Capitalized Lease Obligations" shall mean, with respect to any
Person, all rental obligations of such Person which, under generally accepted
accounting principles, are or will be required to be capitalized on the books of
such Person, in each case taken at the amount thereof accounted for as
indebtedness in accordance with such principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities
issued or directly and fully guaranteed or insured by the United States or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) marketable direct obligations
issued by any state of the United States or any political subdivision of any
such state or any public instrumentality thereof maturing within one year from
the date of acquisition thereof and, at the time of acquisition, having one of
the two highest ratings obtainable from either Standard & Poor's Ratings
Services ("S&P") or Moody's Investors Service, Inc. ("Moody's"), (iii)
commercial paper maturing no more than one year from the date of creation
thereof and, at the time of acquisition, having a rating of at least A-1 from
S&P or at least P-1 from Moody's, (iv) certificates of deposit, Euro-dollar
deposits or bankers' acceptance maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States or any state thereof or the District of Columbia or any U.S. branch of a
foreign bank or any foreign branch of a U.S. bank, in each case having at the
date of acquisition thereof combined capital and surplus of not less than
$250,000,000, (v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv) above and
(vi) investments in money market funds with assets at least equal to
$500,000,000.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. Section 9601 et seq.
"Change of Control" shall mean (i) Lehman, JFL Equity, JFL
Co-Invest, Paribas and their respective Affiliates shall cease to own,
collectively, on a fully diluted basis in the aggregate at least 51% of the
economic and voting interest in the Borrower's capital stock or (ii) a "change
of control" or similar event shall occur under, and as defined in, the Senior
Subordinated Note Documents or any issue of Qualified Preferred Stock.
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"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purported to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, the Mortgaged
Properties and all cash and Cash Equivalents delivered as collateral pursuant to
Section 4.02 or 10.
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Secured Creditors pursuant to the Security Documents.
"Collective Bargaining Agreements" shall have the meaning
provided in Section 5.05.
"Commitment" shall mean any of the commitments of any Bank, i.e.,
whether the Term Loan Commitment or the Revolving Loan Commitment.
"Commitment Commission" shall have the meaning provided in
Section 3.01(a).
"Consolidated Current Assets" shall mean, at any time, the
consolidated current assets of the Borrower and its Subsidiaries at such time.
"Consolidated Current Liabilities" shall mean, at any time, the
consolidated current liabilities of the Borrower and its Subsidiaries at such
time, but excluding the current portion of any Indebtedness under this Agreement
and the current portion of any other long-term Indebtedness which would
otherwise be included therein.
"Consolidated EBIT" shall mean, for any period, Consolidated Net
Income for such period before consolidated interest expense of the Borrower and
its Subsidiaries and provision for taxes for such period.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT
for such period, adjusted by (x) adding thereto (i) the amount of all
amortization, depreciation and other non-cash expenses or non-cash charges that
were deducted in arriving at Consolidated EBIT for such period (including
amortization of goodwill, the non-cash costs of agreements evidencing Interest
Rate Protection Agreements, Other Hedging Agreements, license agreements and
non-competition agreements, and the non-cash amortization of Capitalized Lease
Obligations, management fees and organization costs), but excluding, however,
any non-cash expenses or non-cash charges associated with any asset write-downs
and (ii) unrealized non-cash gains and losses from hedging, foreign currency or
commodities translations and transactions that were deducted in arriving at
Consolidated EBIT for such period and (y) subtracting therefrom any cash
expenses, cash charges or cash payments arising from any non-cash expenses,
non-cash charges or unrealized non-cash gains or losses that were deducted in
arriving at Consolidated EBIT in a previous period.
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"Consolidated Indebtedness" shall mean, at any time, the principal
amount of all Indebtedness of the Borrower and its Subsidiaries at such time
determined on a consolidated basis to the extent that such Indebtedness would be
accounted for as debt on the liability side of a balance sheet in accordance
with generally accepted accounting principles plus, without duplication, (i) the
maximum amount available to be drawn under all letters of credit (including any
Letters of Credit), bankers acceptances and similar obligations issued for the
account of the Borrower and its Subsidiaries and all unpaid drawings or
reimbursement obligations in respect thereof, (ii) the principal amount of all
bonds issued by the Borrower and its Subsidiaries in connection with workers'
compensation obligations, lease obligations, surety and similar obligations and
(iii) the amount of all Contingent Obligations of the Borrower and its
Subsidiaries determined on a consolidated basis in respect of Indebtedness of
other Persons of the type described above in this definition.
"Consolidated Interest Coverage Ratio" shall mean, for any period,
the ratio of (x) Consolidated EBITDA for such period to (y) Consolidated
Interest Expense for such period.
"Consolidated Interest Expense" shall mean, for any period, the sum
of (i) the total consolidated interest expense of the Borrower and its
Subsidiaries for such period (calculated without regard to any limitations on
the payment thereof) plus, without duplication, that portion of Capitalized
Lease Obligations of the Borrower and its Subsidiaries representing the interest
factor for such period plus (ii) the product of (A) the amount of all cash
dividend payments made on any class of Qualified Preferred Stock during such
period and (B) a fraction, the numerator of which is one and the denominator of
which is one minus the current effective consolidated federal, state and local
income tax rate of the Borrower expressed as a decimal, provided that (x) the
amortization or write-off of debt issuance costs, commissions, fees and expenses
and (y) the amortization of original issue discount shall (in each case) be
excluded from Consolidated Interest Expense to the extent same would otherwise
have been included therein.
"Consolidated Net Income" shall mean, for any period, the net income
(or loss) of the Borrower and its Subsidiaries for such period, determined on a
consolidated basis (after any deduction for minority interests), provided that
in determining Consolidated Net Income, (i) the net income of any other Person
which is not a Subsidiary of the Borrower or is accounted for by the Borrower by
the equity method of accounting shall be included only to the extent of the
payment of cash dividends or distributions by such other Person to the Borrower
or a Subsidiary thereof during such period, (ii) the net income (or loss) of any
other Person acquired by such specified Person or a Subsidiary of such Person in
a pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iii) gains or losses from Asset Sales or other
sales of assets (in each case) outside the ordinary course of business or
abandonment or reserves relating thereto shall be excluded, (iv) items
classified as extraordinary gains or extraordinary losses shall be excluded, (v)
the net income of any Subsidiary of the Borrower shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of its income is not at the time permitted by operation of the terms
of its charter or any agreement, instrument or law applicable to such Subsidiary
and (vi) the fees, expenses and other costs incurred in connection with the
Recapitalization in such period shall be excluded; provided that for purposes of
Section 9.09, there shall be included (to the extent not already included) in
determining Consolidated Net Income for any period the net income (or loss) of
any Person, business, property or asset acquired during such period pursuant
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to a Permitted Acquisition and not subsequently sold or otherwise disposed of by
the Borrower or one of its Subsidiaries during such period (each such Person,
business, property or asset acquired and not subsequently disposed of during
such period, an "Acquired Entity or Business"), in each case based on the actual
net income (or loss) of such Acquired Entity or Business for the entire period
(including the portion thereof occurring prior to such acquisition); provided
further, however, that Consolidated Net Income shall be deemed to include any
increase during such period to consolidated shareholder's equity of the Borrower
attributable to tax benefits from net operating losses and the exercise of stock
options that are not otherwise included in Consolidated Net Income for such
period.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person as a result of such Person being a general partner of the other
Person, unless the underlying obligation is expressly made non-recourse as to
such general partner, and any obligation of such Person guaranteeing or intended
to guarantee any Indebtedness, leases, dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of such
Person, whether or not contingent, (i) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of any such primary
obligation or (y) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (iv) otherwise
to assure or hold harmless the holder of such primary obligation against loss in
respect thereof; provided, however, that the term Contingent Obligation shall
not include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the lesser of (x) stated or determinable amount
of the primary obligation in respect of which such Contingent Obligation is made
or, if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof (assuming such Person is required to perform thereunder) as
determined by such Person in good faith and (y) the stated amount of such
Contingent Obligation.
"Credit Documents" shall mean this Agreement and, after the
execution and delivery thereof pursuant to the terms of this Agreement, each
Note, the Subsidiaries Guaranty and each Security Document.
"Credit Event" shall mean the making of any Loan or the issuance
of any Letter of Credit.
"Credit Party" shall mean the Borrower and each Subsidiary
Guarantor.
"Default" shall mean any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is in effect.
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"Dividend" shall mean, with respect to any Person, that such Person
has declared or paid a dividend or returned any equity capital to its
stockholders or other equity holders or authorized or made any other
distribution, payment or delivery of property (other than common stock or
comparable common equity interest of such Person) or cash to its stockholders or
other equity holders in their capacity as stockholders or as other equity
holders, or redeemed, retired, purchased or otherwise acquired, directly or
indirectly, for a consideration any shares of any class of its capital stock or
any other equity interests outstanding on or after the Initial Borrowing Date
(or any options or warrants issued by such Person with respect to its capital
stock or other equity interests), or set aside any funds for any of the
foregoing purposes, or shall have permitted any of its Subsidiaries to purchase
or otherwise acquire for a consideration any shares of any class of the capital
stock or any other equity interests of such Person outstanding on or after the
Initial Borrowing Date (or any options or warrants issued by such Person with
respect to its capital stock or other equity interests). Without limiting the
foregoing, "Dividends" with respect to any Person shall also include all cash
payments made or required to be made by such Person with respect to any stock
appreciation rights, plans, equity incentive or achievement plans or any similar
plans or setting aside of any funds for the foregoing purposes.
"Documents" shall mean and include (i) the Credit Documents, (ii)
the Recapitalization Documents, (iii) the Equity Financing Documents and (iv)
the Senior Subordinated Note Documents.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Domestic Subsidiary" shall mean each Subsidiary of the Borrower
incorporated or organized in the United States or any State or territory
thereof.
"Drawing" shall have the meaning provided in Section 2.05(b).
"Effective Date" shall have the meaning provided in Section 13.10.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution, any fund that invests in loans or any other entity which
is a "qualified institutional buyer" or an "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act).
"Employment Agreements" shall have the meaning provided in
Section 5.05.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law or any permit issued,
or any approval given, under any such Environmental Law (hereafter, "Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief in connection
with alleged injury or threat of injury to health, safety or the environment due
to the presence of Hazardous Materials.
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"Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, guideline, written policy and
rule of common law now or hereafter in effect and in each case as amended, and
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
employee health and safety or Hazardous Materials, including, without
limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601
et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking
Water Act, 42 U.S.C. Section 3803 et seq.; the Oil Pollution Act of 1990, 33
U.S.C. Section 2701 et seq.; the Emergency Planning and the Community
Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Hazardous
Material Transportation Act, 49 U.S.C. Section 1801 et seq. and the Occupational
Safety and Health Act, 29 U.S.C. Section 651 et seq.; and any state and local or
foreign counterparts or equivalents, in each case as amended from time to time.
"Equity Financing" shall mean the issuance by the Borrower of (i)
shares of its common stock to JFL Equity, JFL Co-Invest and certain other
investors previously identified to the Administrative Agent and (ii) the
rollover by certain shareholders of the Borrower of their common stock of the
Borrower, in each case pursuant to the Equity Financing Documents and as part of
the Transaction.
"Equity Financing Documents" shall mean each of the documents and
agreements entered into in connection with the consummation of the Equity
Financing.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary of the Borrower would
be deemed to be a "single employer" (i) within the meaning of Section 414(b),
(c), (m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary
of the Borrower being or having been a general partner of such person.
"Eurodollar Loan" shall mean each Loan (other than a Swingline Loan)
designated as such by the Borrower at the time of the incurrence thereof or
conversion thereto.
"Eurodollar Rate" shall mean (a) the offered quotation to
first-class banks in the New York interbank Eurodollar market by BTCo for Dollar
deposits of amounts in immediately available funds comparable to the outstanding
principal amount of the Eurodollar Loan of BTCo with maturities comparable to
the Interest Period applicable to such Eurodollar Loan commencing two Business
Days thereafter as of 11:00 A.M. (New York time) on the date which is two
Business Days prior to the commencement of such Interest Period, divided (and
rounded upward to the nearest 1/16 of 1%) by (b) a percentage equal to 100%
minus the then stated maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves required by applicable law) applicable to any
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member bank of the Federal Reserve System in respect of Eurocurrency funding or
liabilities as defined in Regulation D (or any successor category of liabilities
under Regulation D).
"Event of Default" shall have the meaning provided in Section 10.
"Excess Cash Flow" shall mean, for any period, the remainder of (a)
the sum of (i) Consolidated Net Income for such period, (ii) to the extent
deducted in determining Consolidated Net Income for such period, (A)
depreciation and amortization, (B) deferred taxes and (C) other non-cash charges
(exclusive of items reflected in Adjusted Consolidated Working Capital) and
(iii) the decrease, if any, in Adjusted Consolidated Working Capital from the
first day to the last day of such period, minus, without duplication, (b) the
sum of (i) the amount of all Capital Expenditures made by the Borrower and its
Subsidiaries during such period (other than Capital Expenditures to the extent
financed with Asset Sale proceeds, equity proceeds, insurance proceeds or
Indebtedness, (ii) the aggregate amount of permanent principal payments of
Indebtedness for borrowed money of the Borrower and its Subsidiaries during such
period (other than (I) repayments to the extent financed with Asset Sale
proceeds, equity proceeds, insurance proceeds or Indebtedness and (II)
repayments of Loans, provided that repayments of Loans shall be deducted in
determining Excess Cash Flow if such repayments were (x) required as a result of
a Scheduled Repayment under Section 4.02(b) or (y) made as a voluntary
prepayment with internally generated funds (but in the case of a voluntary
prepayment of Revolving Loans or Swingline Loans, only to the extent accompanied
by a voluntary reduction to the Total Revolving Loan Commitment)), (iii) the
increase, if any, in Adjusted Consolidated Working Capital from the first day to
the last day of such period, (iv) to the extent included in determining
Consolidated Net Income for such period, non-cash gains (exclusive of items
reflected in Adjusted Consolidated Working Capital) during such period, (v) the
amount of cash actually paid by the Borrower or its Subsidiaries in connection
with losses or costs referred to in clauses (iii), (iv) and (vi) of the
definition of "Consolidated Net Income" during such period and (vii) the amount
of all cash expenditures paid in connection with Permitted Acquisitions
consummated during such period (other than expenditures to the extent financed
with equity proceeds (including capital contributions), Asset Sale proceeds or
Indebtedness).
"Excess Cash Payment Date" shall mean the date occurring 90 days
after the last day of each fiscal year of the Borrower (beginning with its
fiscal year ending October 31, 1999).
"Excess Cash Payment Period" shall mean, with respect to the
repayment required on each Excess Cash Payment Date, the immediately preceding
fiscal year of the Borrower (or, in the case of the Borrower's fiscal year
ending October 31, 1999, the period from the Initial Borrowing Date through and
including October 31, 1999).
"Existing Indebtedness" shall have the meaning provided in
Section 7.22.
"Existing Indebtedness Agreements" shall have the meaning
provided in Section 5.05.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds
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transactions with members of the Federal Reserve System arranged by Federal
Funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal Funds brokers of recognized standing
selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to
in Section 3.01.
"Foreign Subsidiary" shall mean each Subsidiary of the Borrower
other than a Domestic Subsidiary.
"Hazardous Materials" shall mean (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is friable, urea
formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous waste," "hazardous materials,"
"extremely hazardous substances," "restricted hazardous waste," "toxic
substances," "toxic pollutants," "contaminants," or "pollutants," or words of
similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, the Release of which is prohibited, limited or
regulated by any governmental authority.
"Indebtedness" shall mean, as to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (ii) the maximum amount available to be
drawn under all letters of credit issued for the account of such Person and all
unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of
the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this
definition secured by any Lien on any property owned by such Person, whether or
not such Indebtedness has been assumed by such Person (provided, that, if the
Person has not assumed or otherwise become liable in respect of such
Indebtedness, such Indebtedness shall be deemed to be in an amount equal to the
fair market value of the property to which such Lien relates as determined in
good faith by such Person), (iv) the aggregate amount required to be capitalized
under leases under which such Person is the lessee, (v) all obligations of such
person to pay a specified purchase price for goods or services, whether or not
delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all
Contingent Obligations of such Person and (vii) all obligations under any
Interest Rate Protection Agreement, any Other Hedging Agreement or under any
similar type of agreement. Notwithstanding the foregoing, Indebtedness shall not
include trade payables and accrued expenses incurred by any Person in accordance
with customary practices and in the ordinary course of business of such Person.
"Indebtedness to be Refinanced" shall mean all Indebtedness set
forth on Schedule XI.
"Information Systems and Equipment" shall mean all computer
hardware, firmware and software, as well as other information processing
systems, or any equipment containing embedded microchips, whether directly
owned, licensed, leased, operated or otherwise controlled by the Borrower or any
of its Subsidiaries, including through third-party
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service providers, and which, in whole or in part, are used, operated, relied
upon, or integral to, the Borrower's or any of its Subsidiaries' conduct of
their business.
"Initial Borrowing Date" shall mean that date on or after the
Effective Date on which the Initial Borrowing of Loans occurs hereunder.
"Intercompany Loan" shall have the meaning provided in Section
9.05(ix).
"Intercompany Note" shall mean a promissory note, in the form of
Exhibit K, evidencing Intercompany Loans.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate
swap agreement, interest rate cap agreement, interest collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.
"Investments" shall have the meaning provided in Section 9.05.
"Issuing Bank" shall mean BTCo.
"JFL Co-Invest" shall mean JFL Co-Invest Partners I, L.P., a
Delaware limited partnership and an Affiliate of Lehman.
"JFL Equity" shall mean J.F. Lehman Equity Investors I, L.P., a
Delaware limited partnership and an Affiliate of Lehman.
"L/C Supportable Obligations" shall mean (i) obligations of the
Borrower or any of its Subsidiaries with respect to workers compensation, surety
bonds and other similar statutory obligations, (ii) obligations that may be
classified as "accounts payable" in accordance with generally accepted
accounting principles and (iii) such other obligations of the Borrower or any of
its Subsidiaries as are reasonably acceptable to the Issuing Bank and otherwise
permitted to exist pursuant to the terms of this Agreement.
"Leaseholds" of any Person shall mean all the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Lehman" shall mean J.F. Lehman & Company, Inc., a private
investment firm.
"Lehman Management Agreement" shall mean the Management Agreement,
dated as of December 15, 1998, by and between the Borrower and Lehman.
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"Lehman Management Services Agreement" shall mean the Management
Services Agreement, dated as of December 15, 1998, by and between the Borrower
and Lehman.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Leverage Ratio" shall mean, at any time, the ratio of Consolidated
Indebtedness at such time to Consolidated EBITDA for the Test Period then most
recently ended; it being agreed that Consolidated EBITDA for the Borrower's
fiscal quarters ended February 1, 1998, May 3, 1998, August 2, 1998 and October
31, 1998, was $7,448,000, $8,990,000, $9,438,000 and $8,550,000, respectively.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Term Loan, each Revolving Loan and each
Swingline Loan.
"Management Agreements" shall have the meaning provided in
Section 5.05.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(d).
"Margin Stock" shall have the meaning provided in Regulation U.
"Maturity Date" shall mean, with respect to any Tranche of Loans,
the Term Loan Maturity Date, the Revolving Loan Maturity Date or the
Swingline Expiry Date, as the case may be.
"Maximum Swingline Amount" shall mean $1,000,000.
"Mergeco" shall mean SDI Acquisition Corp., a Delaware
corporation.
"Mesa Facility" shall mean the Borrower's manufacturing facility
currently located in Mesa, Arizona.
"Mesa Mortgage Financing" shall mean the mortgage financing incurred
by the Borrower pursuant to Section 9.04(xii), which mortgage financing may only
be secured as
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provided in Section 9.01(xvii)(A), so long as the structure, terms, conditions
and documentation of such transaction are in form and substance reasonably
satisfactory to the Administrative Agent.
"Mesa Sale-Leaseback Transaction" shall mean the sale and leaseback
by the Borrower of the Real Property located in Mesa, Arizona owned by it on the
Initial Borrowing Date, so long as the structure, terms, conditions and
documentation of such transaction are in form and substance reasonably
satisfactory to the Administrative Agent.
"Minimum Borrowing Amount" shall mean (i) for Term Loans,
$1,000,000, (ii) for Revolving Loans, $500,000 and (iii) for Swingline Loans,
$100,000.
"Moody's" shall have the meaning provided in the definition of
"Cash Equivalents".
"Moorpark Facility" shall mean the Borrower's new manufacturing
facility to be located in Moorpark, California.
"Moorpark Mortgage Financing" shall mean the mortgage financing
incurred by the Borrower pursuant to Section 9.04(xiii), which mortgage
financing may only be secured as provided in Section 9.01(xvii)(B), so long as
the structure, terms, conditions and documentation of such transaction are in
form and substance reasonably satisfactory to the Administrative Agent.
"Moorpark Sale-Leaseback Transaction" shall mean the sale and
leaseback by the Borrower of the Real Property located in Moorpark, California
owned by it on the Initial Borrowing Date, so long as the structure, terms,
conditions and documentation of such transaction are in form and substance
reasonably satisfactory to the Administrative Agent.
"Mortgages" shall have the meaning provided in Section 5.14 and,
after the execution and delivery thereof, shall include each Additional
Mortgage.
"Mortgage Policies" shall have the meaning provided for in
Section 5.14.
"Mortgaged Properties" shall have the meaning provided in Section
5.14 and, after the execution and delivery of any Additional Mortgage, shall
include the respective Additional Mortgaged Property.
"Net Debt Proceeds" shall mean, with respect to any incurrence of
Indebtedness for borrowed money, the cash proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith)
received by the respective Person from the respective incurrence of such
Indebtedness for borrowed money.
"Net Insurance Proceeds" shall mean, with respect to any Recovery
Event, the cash proceeds (net of reasonable costs and taxes incurred in
connection with such Recovery Event) received by the respective Person in
connection with the respective Recovery Event.
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"Net Sale Proceeds" shall mean, for any Asset Sale, the gross cash
proceeds (including any cash received by way of deferred payment pursuant to a
promissory note, receivable or otherwise, but only as and when received)
received from such sale of assets, net of the reasonable costs of such sale
(including fees and commissions, payments of unassumed liabilities relating to
the assets sold and required payments of any Indebtedness (other than
Indebtedness secured pursuant to the Security Documents) which is secured by the
respective assets which were sold), and the incremental taxes paid or payable as
a result of such Asset Sale and any reasonable reserves established in
connection therewith as determined in good faith by the Borrower.
"Non-Compete Agreements" shall have the meaning provided in
Section 5.05.
"Non-Defaulting Bank" shall mean and include each Bank other than a
Defaulting Bank.
"Note" shall mean each Term Note, each Revolving Note and the
Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York
10006, Attention: Ariana Delucia or such other office as the Administrative
Agent may hereafter designate in writing as such to the other parties hereto.
"Obligations" shall mean all amounts owing to the Administrative
Agent, the Collateral Agent, the Issuing Bank or any Bank pursuant to the terms
of this Agreement or any other Credit Document.
"Other Hedging Agreement" shall mean any foreign exchange contracts,
currency swap agreements, commodity agreements or other similar agreements or
arrangements designed to protect against the fluctuations in currency values.
"Participant" shall have the meaning provided in Section 2.04(a).
"Payment Office" shall mean the office of the Administrative Agent
located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York
10006, or such other office as the Administrative Agent may hereafter designate
in writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall have the meaning provided in
Section 9.02(xii).
"Permitted Encumbrance" shall mean, with respect to any Mortgaged
Property, such exceptions to title as are set forth in the mortgage policy
delivered with respect thereto, all
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of which exceptions must be reasonably acceptable to the Administrative Agent in
its reasonable discretion.
"Permitted Liens" shall have the meaning provided in Section 9.01.
"Permitted Sale-Leaseback Transactions" shall mean, collectively,
the Mesa Sale-Leaseback Transaction and the Moorpark Sale-Leaseback
Transaction.
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, limited liability company, trust or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, or a Subsidiary of the Borrower
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section
5.11.
"Pledge Agreement Collateral" shall mean all "Collateral" as
defined in the Pledge Agreement.
"Pledged Securities" shall mean all "Pledged Securities" as
defined in the Pledge Agreement.
"Prime Lending Rate" shall mean the rate which BTCo announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. BTCo may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"Projections" shall mean the projections prepared by (or on behalf
of) the Borrower in connection with the Transaction, dated September, 1998 (as
supplemented on October 9, 1998) and furnished to the Banks prior to the Initial
Borrowing Date.
"Qualified Preferred Stock" shall mean any class of preferred stock
of the Borrower so long as the terms of any such preferred stock (i) do not
contain any mandatory put, redemption, repayment, sinking fund or other similar
provision occurring before December 15, 2006, (ii) do not require the cash
payment of dividends to the extent that same would not otherwise be permitted
under this Agreement, (iii) do not contain any operating or financial
maintenance covenants or any other covenants that could, in the reasonable
opinion of the Administrative Agent, adversely affect the interests of the Banks
or (iv) do not grant the holders thereof any voting rights except for (x) voting
rights required to be granted to such holders under applicable law and (y)
limited customary voting rights on fundamental matters such as mergers,
consolidations, sales of all or substantially all of the assets of the Borrower,
or liquidations
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involving the Borrower and (v) are otherwise reasonably satisfactory to the
Administrative Agent.
"Quarterly Payment Date" shall mean each October 31, January 31,
April 30 and July 31 occurring after the Initial Borrowing Date.
"RCRA" shall mean the Resource Conservation and Recovery Act, as
the same may be amended from time to time, 42 U.S.C. Section 6901 et seq.
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recapitalization" shall mean the merger of Mergeco with and into
the Borrower, with the Borrower as the surviving corporation of such merger,
pursuant to the Recapitalization Documents.
"Recapitalization Documents" shall mean and include (i) the Amended
and Restated Agreement and Plan of Merger, dated as of June 19, 1998, between
Mergeco and the Borrower, as the same as may be amended, modified or
supplemented from time to time pursuant to the terms hereof and thereof and (ii)
all other agreements and documents, governing, or relating to, the
Recapitalization.
"Recovery Event" shall mean the receipt by the Borrower or any of
its Subsidiaries of any cash insurance proceeds or condemnation awards payable
(i) by reason of theft, loss, physical destruction, damage, taking or any other
similar event with respect to any property or assets of the Borrower or any of
its Subsidiaries and (ii) under any policy of insurance required to be
maintained under Section 8.03.
"Register" shall have the meaning provided in Section 13.15.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Release" shall mean the disposing, discharging, injecting,
spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying,
pouring or migrating, into or upon any land or water or air, or otherwise
entering into the environment.
"Replaced Bank" shall have the meaning provided in Section 1.13.
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"Replacement Assets" shall have the meaning provided in Section
4.02(d).
"Replacement Bank" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section 4043(c)
of ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required Banks" shall mean Non-Defaulting Banks the sum of whose
outstanding Term Loans and Revolving Loan Commitments (or after the termination
thereof, outstanding Revolving Loans and RL Percentages of outstanding Swingline
Loans and Letter of Credit Outstandings) represent an amount equal to at least
50.1% of the sum of all outstanding Term Loans of Non-Defaulting Banks and the
Total Revolving Loan Commitment less the Revolving Loan Commitments of all
Defaulting Banks (or after the termination thereof, the sum of the then total
outstanding Revolving Loans of Non-Defaulting Banks and the aggregate RL
Percentages of all Non-Defaulting Banks of the total outstanding Swingline Loans
and Letter of Credit Outstandings Swingline Loans at such time).
"Revolving Loan" shall have the meaning provided in Section
1.01(b).
"Revolving Loan Commitment" shall mean, for each Bank, the amount
set forth opposite such Bank's name in Schedule I directly below the column
entitled "Revolving Loan Commitment," as same may be (x) reduced from time to
time pursuant to Sections 3.02, 3.03 and/or 10 or (y) adjusted from time to time
as a result of assignments to or from such Bank pursuant to Section 1.13 or
13.04(b).
"Revolving Loan Maturity Date" shall mean December 15, 2003.
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"RL Bank" shall mean each Bank with a Revolving Loan Commitment or
with outstanding Revolving Loans.
"RL Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at such time and the denominator of which is the Total
Revolving Loan Commitment at such time, provided that if the RL Percentage of
any Bank is to be determined after the Total Revolving Loan Commitment has been
terminated, then the RL Percentages of the Banks shall be determined immediately
prior (and without giving effect) to such termination.
"S&P" shall have the meaning provided in the definition of "Cash
Equivalents".
"Scheduled Repayment" shall have the meaning provided in Section
4.02(b).
"SEC" shall have the meaning provided in Section 8.01(h).
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"Section 4.04(b)(ii) Certificate" shall have the meaning provided
in Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning assigned that term in the
respective Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Security Agreement" shall have the meaning provided in Section
5.12.
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement.
"Security Document" shall mean and include each of the Security
Agreement, the Pledge Agreement, each Mortgage and, after the execution and
delivery thereof, each Additional Mortgage.
"Senior Subordinated Note Documents" shall mean the Senior
Subordinated Note Indenture, the Senior Subordinated Notes and each other
document or agreement relating to the issuance of the Senior Subordinated Notes.
"Senior Subordinated Note Indenture" shall mean the Indenture, dated
as of December 15, 1998, among the Borrower, the Guarantors named therein and
U.S. Trust Company of New York, as trustee, as in effect on the Initial
Borrowing Date.
"Senior Subordinated Note Offering Memorandum" shall mean the
Offering Memorandum, dated December 11, 1998, prepared in connection with the
issuance of the Senior Subordinated Notes.
"Senior Subordinated Notes" shall mean the Borrower's 11 3/8%
Senior Subordinated Notes due 2008.
"Shareholders' Agreements" shall have the meaning provided in
Section 5.05.
"Standby Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Stated Amount" of each Letter of Credit shall mean, at any time,
the maximum amount available to be drawn thereunder (in each case determined
without regard to whether any conditions to drawing could then be met).
"Subsidiaries Guaranty" shall have the meaning provided in
Section 5.13.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a
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majority of the directors of such corporation (irrespective of whether or not at
the time stock of any class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time
owned by such Person and/or one or more Subsidiaries of such Person and (ii) any
partnership, limited liability company, association, joint venture or other
entity in which such Person and/or one or more Subsidiaries of such Person has
more than a 50% equity interest at the time.
"Subsidiary Guarantor" shall mean each Domestic Subsidiary of the
Borrower and, to the extent provided in Section 8.14, each Foreign Subsidiary of
the Borrower.
"Supermajority Banks" shall mean those Non-Defaulting Banks which
would constitute the Required Banks under, and as defined in, this Agreement, if
(x) all outstanding Obligations in respect of the Revolving Loan Commitments
were repaid in full and the Total Revolving Loan Commitment were terminated and
(y) the percentage "50.1%" contained therein were changed to "66-2/3%".
"Swingline Bank" shall mean BTCo.
"Swingline Expiry Date" shall mean that date which is five Business
Days prior to the Revolving Loan Maturity Date.
"Swingline Loan" shall have the meaning provided in Section
1.01(c).
"Swingline Note" shall have the meaning provided in Section
1.05(a).
"Tax Benefit" shall have the meaning provided in Section 4.04(c).
"Tax Sharing Agreements" shall have the meaning provided in
Section 5.05.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan" shall have the meaning provided in Section 1.01(a).
"Term Loan Commitment" shall mean, for each Bank, the amount set
forth opposite such Bank's name in Schedule I directly below the column entitled
"Term Loan Commitment," as same may be terminated pursuant to Sections 3.03
and/or 10.
"Term Loan Maturity Date" shall mean December 15, 2005.
"Term Note" shall have the meaning provided in Section 1.05(a).
"Test Period" shall mean each period of four consecutive fiscal
quarters of the Borrower then last ended (in each case taken as one accounting
period), provided, however, for purposes of determining compliance with Sections
9.08 and 9.10 for any Test Period ending on or prior to the Borrower's fiscal
year ending October 31, 1999, each such Test Period shall mean the period from
the Initial Borrowing Date to the last day of the fiscal quarter of the Borrower
then last ended (in each case taken as one accounting period).
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"Total Commitment" shall mean, at any time, the sum of the
Commitments of each of the Banks.
"Total Revolving Loan Commitment" shall mean, at any time, the sum
of the Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the sum of the
Term Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at any
time, an amount equal to the remainder of (x) the Total Revolving Loan
Commitment then in effect less (y) the sum of the aggregate principal amount of
all Revolving Loans and Swingline Loans then outstanding plus the then aggregate
amount of all Letter of Credit Outstandings.
"Trade Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Tranche" shall mean the respective facility and commitments
utilized in making Loans hereunder, with there being three separate Tranches,
i.e., Term Loans, Revolving Loans and Swingline Loans.
"Transaction" shall mean, collectively, (i) the consummation of the
Recapitalization and the other transactions contemplated by the Recapitalization
Documents, (ii) the issuance of the Senior Subordinated Notes, (iii) the
consummation of the Equity Financing, (iv) the refinancing of the Indebtedness
to be Refinanced, (v) the entering into of the Credit Documents and (vi) the
payment of fees and expenses in connection with the foregoing.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan, determined on a plan termination basis in accordance with actuarial
assumptions at such time consistent with those prescribed by the PBGC for
purposes of Section 4044 of ERISA, exceeds the market value of the assets
allocable to such liabilities under Title IV of ERISA (excluding any accrued but
unpaid contributions).
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided for in Section
2.05(a).
"Unutilized Revolving Loan Commitment" shall mean, with respect to
any Bank at any time, such Bank's Revolving Loan Commitment at such time less
the sum of (i) the aggregate outstanding principal amount of all Revolving Loans
made by such Bank at such time and (ii) such Bank's RL Percentage of the Letter
of Credit Outstandings at such time.
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"Wholly-Owned Domestic Subsidiary" shall mean, as to any Person, any
Wholly-Owned Subsidiary of such Person which is a Domestic Subsidiary.
"Wholly-Owned Foreign Subsidiary" shall mean, as to any Person, any
Wholly-Owned Subsidiary of such Person which is a Foreign Subsidiary.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, limited liability company,
association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time.
"Year 2000 Compliant" shall mean that all Information Systems and
Equipment accurately process date data (including, but not limited to,
calculating, comparing and sequencing), before, during and after the year 2000,
as well as same and multi-century dates, or between the years 1999 and 2000,
taking into account all leap years, including the fact that the year 2000 is a
leap year, and further, that when used in combination with, or interfacing with,
other Information Systems and Equipment, shall accurately accept, release and
exchange date data, and shall in all material respects continue to function in
the same manner as it performs on the Initial Borrowing Date and shall not
otherwise impair the accuracy or functionality of Information Systems and
Equipment.
SECTION 12. The Administrative Agent.
12.01 Appointment. The Banks hereby irrevocably designate BTCo as
Administrative Agent (for purposes of this Section 12, the term "Administrative
Agent" also shall include BTCo in its capacity as Collateral Agent pursuant to
the Security Documents) to act as specified herein and in the other Credit
Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of such Note shall be deemed irrevocably to authorize, the
Administrative Agent to take such action on their behalf under the provisions of
this Agreement, the other Credit Documents and any other instruments and
agreements referred to herein or therein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of the Administrative Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Administrative Agent may
perform any of its duties hereunder by or through its officers, directors,
agents, employees or affiliates.
12.02 Nature of Duties. The Administrative Agent shall not have any
duties or responsibilities except those expressly set forth in this Agreement
and in the other Credit Documents. Neither the Administrative Agent nor any of
its officers, directors, agents, employees or affiliates shall be liable for any
action taken or omitted by them hereunder or under any other Credit Document or
in connection herewith or therewith, unless caused by its or their gross
negligence or willful misconduct. The duties of the Administrative Agent shall
be mechanical and administrative in nature; the Administrative Agent shall not
have by reason of this Agreement or any other Credit Document a fiduciary
relationship in respect of any Bank or the holder of any Note; and nothing in
this Agreement or any other Credit Document, expressed
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or implied, is intended to or shall be so construed as to impose upon the
Administrative Agent any obligations in respect of this Agreement or any other
Credit Document except as expressly set forth herein or therein.
12.03 Lack of Reliance on the Administrative Agent. Independently
and without reliance upon the Administrative Agent, each Bank and the holder of
each Note, to the extent it deems appropriate, has made and shall continue to
make (i) its own independent investigation of the financial condition and
affairs of the Borrower and its Subsidiaries in connection with the making and
the continuance of the Loans and the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of the
Borrower and its Subsidiaries and, except as expressly provided in this
Agreement, the Administrative Agent shall not have any duty or responsibility,
either initially or on a continuing basis, to provide any Bank or the holder of
any Note with any credit or other information with respect thereto, whether
coming into its possession before the making of the Loans or at any time or
times thereafter. The Administrative Agent shall not be responsible to any Bank
or the holder of any Note for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectability, priority or
sufficiency of this Agreement or any other Credit Document or the financial
condition of the Borrower or any of its Subsidiaries or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or any other Credit Document, or the
financial condition of the Borrower or any of its Subsidiaries or the existence
or possible existence of any Default or Event of Default.
12.04 Certain Rights of the Administrative Agent. If the
Administrative Agent shall request instructions from the Required Banks with
respect to any act or action (including failure to act) in connection with this
Agreement or any other Credit Document, the Administrative Agent shall be
entitled to refrain from such act or taking such action unless and until the
Administrative Agent shall have received instructions from the Required Banks;
and the Administrative Agent shall not incur liability to any Bank by reason of
so refraining. Without limiting the foregoing, no Bank or the holder of any Note
shall have any right of action whatsoever against the Administrative Agent as a
result of the Administrative Agent acting or refraining from acting hereunder or
under any other Credit Document in accordance with the instructions of the
Required Banks.
12.05 Reliance. The Administrative Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, statement, certificate, telex, teletype or telecopier message,
cablegram, radiogram, order or other document or telephone message signed, sent
or made by any Person that the Administrative Agent believed to be the proper
Person, and, with respect to all legal matters pertaining to this Agreement and
any other Credit Document and its duties hereunder and thereunder, upon advice
of counsel selected by the Administrative Agent.
12.06 Indemnification. To the extent the Administrative Agent is not
reimbursed and indemnified by the Credit Parties, the Banks will reimburse and
indemnify the Administrative Agent in proportion to their respective
"percentage" as used in determining the Required Banks (determined as if there
were no Defaulting Banks) for and against any and all
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liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, costs, expenses or disbursements of whatsoever kind or nature which
may be imposed on, asserted against or incurred by the Administrative Agent in
performing its duties hereunder or under any other Credit Document or in any way
relating to or arising out of this Agreement or any other Credit Document;
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent resulting from the Administrative
Agent's gross negligence or willful misconduct (as finally determined by a court
of competent jurisdiction).
12.07 The Administrative Agent in its Individual Capacity. With
respect to its obligation to make Loans, or issue or participate in Letters of
Credit, under this Agreement, the Administrative Agent shall have the rights and
powers specified herein for a "Bank" and may exercise the same rights and powers
as though it were not performing the duties specified herein; and the term
"Banks," "Required Banks," "Supermajority Banks," "holders of Notes" or any
similar terms shall, unless the context clearly otherwise indicates, include the
Administrative Agent in its respective individual capacities. The Administrative
Agent and its affiliates may accept deposits from, lend money to, and generally
engage in any kind of banking, investment banking, trust or other business with,
or provide debt financing, equity capital or other services (including financial
advisory services) to, any Credit Party or any Affiliate of any Credit Party (or
any Person engaged in a similar business with any Credit Party or any Affiliate
thereof) as if they were not performing the duties specified herein, and may
accept fees and other consideration from any Credit Party or any Affiliate of
any Credit Party for services in connection with this Agreement and otherwise
without having to account for the same to the Banks.
12.08 Holders. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or indorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
12.09 Resignation by the Administrative Agent. (a) The
Administrative Agent may resign from the performance of all its respective
functions and duties hereunder and/or under the other Credit Documents at any
time by giving 15 Business Days' prior written notice to the Borrower and the
Banks. Such resignation shall take effect upon the appointment of a successor
Administrative Agent pursuant to clauses (b) and (c) below or as otherwise
provided below.
(b) Upon any such notice of resignation by the Administrative Agent,
the Required Banks shall appoint a successor Administrative Agent hereunder or
thereunder who shall be a commercial bank or trust company reasonably acceptable
to the Borrower.
(c) If a successor Administrative Agent shall not have been so
appointed within such 15 Business Day period, the Administrative Agent with the
consent of the Borrower (which consent shall not be unreasonably withheld or
delayed), shall then appoint a successor
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Administrative Agent who shall serve as Administrative Agent hereunder or
thereunder until such time, if any, as the Required Banks appoint a successor
Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed pursuant
to clause (b) or (c) above by the 20th Business Day after the date such notice
of resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Required Banks shall thereafter
perform all the duties of the Administrative Agent hereunder and/or under any
other Credit Document until such time, if any, as the Required Banks appoint a
successor Administrative Agent as provided above.
SECTION 13. Miscellaneous.
13.01 Payment of Expenses, etc. The Borrower shall: (i) whether or
not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Administrative Agent (including, without
limitation, the reasonable fees and disbursements of White & Case LLP and of the
Administrative Agent's local counsel and consultants) in connection with the
preparation, execution and delivery of this Agreement and the other Credit
Documents and the documents and instruments referred to herein and therein and
any amendment, waiver or consent relating hereto or thereto, of the
Administrative Agent in connection with its syndication efforts with respect to
this Agreement and of the Administrative Agent and, after the occurrence and
during the continuance of an Event of Default, each of the Banks in connection
with the enforcement of this Agreement and the other Credit Documents and the
documents and instruments referred to herein and therein or in connection with
any refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or pursuant to any insolvency or
bankruptcy proceedings (including, without limitation, in each case the
reasonable fees and disbursements of counsel for the Administrative Agent and,
after the occurrence and during the continuance of an Event of Default, for each
of the Banks); (ii) pay and hold each of the Banks harmless from and against any
and all present and future stamp, excise and other similar documentary taxes
with respect to the foregoing matters and save each of the Banks harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission (other than to the extent attributable to such Bank) to pay such
taxes; and (iii) indemnify the Administrative Agent and each Bank, and each of
their respective officers, directors, trustees, employees, representatives and
agents from and hold each of them harmless against any and all liabilities,
obligations (including removal or remedial actions), losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses and disbursements (including
reasonable attorneys' and consultants' fees and disbursements) incurred by,
imposed on or assessed against any of them as a result of, or arising out of, or
in any way related to, or by reason of, (a) any investigation, litigation or
other proceeding (whether or not the Administrative Agent or any Bank is a party
thereto and whether or not such investigation, litigation or other proceeding is
brought by or on behalf of any Credit Party) related to the entering into and/or
performance of this Agreement or any other Credit Document or the use of any
Letter of Credit or the proceeds of any Loans hereunder or the consummation of
the Transaction or any other transactions contemplated herein or in any other
Credit Document or the exercise of any of their rights or remedies provided
herein or in the other Credit Documents or (b) the actual or alleged presence of
Hazardous Materials in the air, surface water or groundwater or on the surface
or subsurface of any Real Property owned, leased or at any time
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operated by the Borrower or any of its Subsidiaries, the generation, storage,
transportation, handling or disposal of Hazardous Materials by the Borrower or
any of its Subsidiaries at any location, whether or not owned, leased or
operated by the Borrower or any of its Subsidiaries, the non-compliance of any
Real Property with any Environmental Law (including applicable permits
thereunder) applicable to any Real Property, or any Environmental Claim asserted
against the Borrower, any of its Subsidiaries or any Real Property owned, leased
or at any time operated by the Borrower or any of its Subsidiaries, including,
in each case, without limitation, the reasonable fees and disbursements of
counsel and other consultants incurred in connection with any such
investigation, litigation or other proceeding (but excluding, in each case, any
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified (as finally determined by a court of competent jurisdiction). To the
extent that the undertaking to indemnify, pay or hold harmless the
Administrative Agent or any Bank set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrower
shall make the maximum contribution to the payment and satisfaction of each of
the indemnified liabilities which is permissible under applicable law.
13.02 Right of Setoff. (a) In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
an Event of Default, the Administrative Agent and each Bank is hereby authorized
at any time or from time to time, without presentment, demand, protest or other
notice of any kind to any Credit Party or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and apply any and
all deposits (general or special) and any other Indebtedness at any time held or
owing by the Administrative Agent or such Bank (including, without limitation,
by branches and agencies of such Bank wherever located) to or for the credit or
the account of any Credit Party against and on account of the Obligations and
liabilities of the Credit Parties to the Administrative Agent or such Bank under
this Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by such Bank pursuant to
Section 13.06(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not the Administrative Agent or such Bank shall have made any
demand hereunder and although said Obligations, liabilities or claims, or any of
them, shall be contingent or unmatured.
(b) NOTWITHSTANDING THE FOREGOING SUBSECTION (a), AT ANY TIME THAT
THE LOANS OR ANY OTHER OBLIGATION SHALL BE SECURED BY REAL PROPERTY LOCATED IN
CALIFORNIA, NO BANK SHALL EXERCISE A RIGHT OF SETOFF, BANKER'S LIEN OR
COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY
PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY NOTE THAT IS NOT
TAKEN BY THE REQUIRED BANKS OR APPROVED IN WRITING BY THE ADMINISTRATIVE AGENT
OR THE REQUIRED BANKS IF SUCH SETOFF OR ACTION OR PROCEEDING WOULD OR MIGHT
(PURSUANT TO SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE OR SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR
OTHERWISE) AFFECT OR IMPAIR THE VALIDITY, PRIORITY OR ENFORCEABILITY OF THE
LIENS GRANTED TO THE COLLATERAL AGENT PURSUANT TO THE SECURITY DOCUMENTS OR THE
ENFORCEABILITY OF THE
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NOTES AND OTHER OBLIGATIONS HEREUNDER, AND ANY ATTEMPTED EXERCISE BY ANY BANK OF
ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF THE REQUIRED BANKS SHALL BE
NULL AND VOID. THIS SUBSECTION (b) SHALL BE SOLELY FOR THE BENEFIT OF EACH OF
THE BANKS HEREUNDER AND MAY BE AMENDED, MODIFIED OR WAIVED IN ANY RESPECT BY THE
REQUIRED BANKS WITHOUT THE REQUIREMENT OF PRIOR NOTICE TO OR CONSENT BY ANY
CREDIT PARTY AND DOES NOT CONSTITUTE A WAIVER OF ANY RIGHTS AGAINST ANY CREDIT
PARTY OR AGAINST ANY COLLATERAL.
13.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to any Credit Party,
at the address specified opposite its signature below or in the other relevant
Credit Documents; if to the Bank, at its address specified on Schedule II; and
if to the Administrative Agent, at the Notice Office; or, as to any Credit Party
or the Administrative Agent, at such other address as shall be designated by
such party in a written notice to the other parties hereto and, as to each Bank,
at such other address as shall be designated by such Bank in a written notice to
the Borrower and the Administrative Agent. All such notices and communications
shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by
overnight courier, be effective when deposited in the mails, delivered to the
telegraph company, cable company or overnight courier, as the case may be, or
sent by telex or telecopier, except that notices and communications to the
Administrative Agent and the Borrower shall not be effective until received by
the Administrative Agent or the Borrower, as the case may be.
13.04 Benefit of Agreement; Assignments; Participations. (a) This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto; provided,
however, the Borrower may not assign or transfer any of its rights, obligations
or interest hereunder without the prior written consent of the Banks and,
provided further, that, although any Bank may transfer, assign or grant
participations in its rights hereunder, such Bank shall remain a "Bank" for all
purposes hereunder (and may not transfer or assign all or any portion of its
Commitments or outstanding Loans hereunder except as provided in Sections 1.13
and 13.04(b)) and the transferee, assignee or participant, as the case may be,
shall not constitute a "Bank" hereunder and, provided further, that no Bank
shall transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Loan, Note or Letter of Credit (unless such
Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in
which such participant is participating, or reduce the rate or extend the time
of payment of interest or Fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the amount of the participant's
participation over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default or of a mandatory reduction in the
Total Commitment, shall not constitute a change in the terms of such
participation, and that an increase in any Commitment shall be permitted without
the consent of any participant if the participant's participation is not
increased as a result thereof), (ii) consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement or (iii)
release all or substantially all of the Collateral under all of the Security
Documents (except as expressly provided in the Credit
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Documents) supporting the Loans hereunder in which such participant is
participating. In the case of any such participation, the participant shall not
have any rights under this Agreement or any of the other Credit Documents (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by the Borrower hereunder
shall be determined as if such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together
with one or more other Banks) may (x) assign all or a portion of its Commitments
and related outstanding Obligations (or, if the Commitments with respect to the
relevant Tranche have terminated, outstanding Obligations) hereunder to (i) its
parent company and/or any affiliate of such Bank which is at least 50% owned by
such Bank or its parent company or to one or more Banks or (ii) in the case of
any Bank that is a fund that invests in loans, any other fund that invests in
loans and is managed or advised by the same investment advisor of such Bank or
by an Affiliate of such investment advisor or (y) assign all, or if less than
all, a portion equal to at least $5,000,000 in the aggregate for the assigning
Bank or assigning Banks, of such Commitments and related outstanding Obligations
(or, if the Commitments with respect to the relevant Tranche have terminated,
outstanding Obligations) hereunder to one or more Eligible Transferees (treating
any fund that invests in loans and any other fund that invests in loans and is
managed or advised by the same investment advisor of such fund or by an
Affiliate of such investment advisor as a single Eligible Transferee), each of
which assignees shall become a party to this Agreement as a Bank by execution
(including by way of telecopier) of an Assignment and Assumption Agreement,
provided that, (i) at such time Schedule I shall be deemed modified to reflect
the Commitments and/or outstanding Loans, as the case may be, of such new Bank
and of the existing Banks, (ii) upon the surrender of the relevant Note or Notes
by the assigning Bank (or, upon such assigning Bank's indemnifying the Borrower
for any lost Note or Notes pursuant to a customary indemnification agreement)
new Notes will be issued, at the Borrower's expense, to such new Bank and to the
assigning Bank upon the request of such new Bank or assigning Bank, such new
Notes to be in conformity with the requirements of Section 1.05 (with
appropriate modifications) to the extent needed to reflect the revised
Commitments and/or outstanding Loans, as the case may be, (iii) in connection
with any assignment to an Eligible Transferee pursuant to clause (y) above, the
consent of the Administrative Agent and, unless an Event of Default is then in
existence and has theretofore been continuing for 30 consecutive days, the
consent of the Borrower, shall be required (each of which consents shall not be
unreasonably withheld or delayed), (iv) the Administrative Agent shall receive
at the time of each such assignment, from the assigning or assignee Bank, the
payment of a non-refundable assignment fee of $3,500 and (v) no such transfer or
assignment will be effective until recorded by the Administrative Agent on the
Register pursuant to Section 13.15. To the extent of any assignment pursuant to
this Section 13.04(b), the assigning Bank shall be relieved of its obligations
hereunder with respect to its assigned Commitments and outstanding Loans.
(c) Nothing in this Agreement shall prevent or prohibit any Bank
from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support
of borrowings made by such Bank from such Federal Reserve Bank and, with the
consent of the Administrative Agent, any Bank which is a fund may pledge all or
any portion of its Loans and Notes to its trustee in support of its obligations
to its trustee. No pledge pursuant to this clause (c) shall release the
transferor Bank from any of its obligations hereunder.
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13.05 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Administrative Agent, the Collateral Agent, the Issuing Bank or any
Bank in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between the Borrower or any other
Credit Party and the Administrative Agent, the Collateral Agent, the Issuing
Bank or any Bank shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or under any other
Credit Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder or thereunder. The rights,
powers and remedies herein or in any other Credit Document expressly provided
are cumulative and not exclusive of any rights, powers or remedies which the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Bank would
otherwise have. No notice to or demand on any Credit Party in any case shall
entitle any Credit Party to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Administrative
Agent, the Collateral Agent, the Issuing Bank or any Bank to any other or
further action in any circumstances without notice or demand.
13.06 Payments Pro Rata. (a) Except as otherwise provided in this
Agreement, the Administrative Agent agrees that promptly after its receipt of
each payment from or on behalf of the Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Banks (other than any Bank
that has consented in writing to waive its pro rata share of any such payment)
pro rata based upon their respective shares, if any, of the Obligations with
respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings, Commitment Commission or Letter of Credit Fees,
of a sum which with respect to the related sum or sums received by other Banks
is in a greater proportion than the total of such Obligation then owed and due
to such Bank bears to the total of such Obligation then owed and due to all of
the Banks immediately prior to such receipt, then such Bank receiving such
excess payment shall purchase for cash without recourse or warranty from the
other Banks an interest in the Obligations of the respective Credit Party to
such Banks in such amount as shall result in a proportional participation by all
the Banks in such amount; provided that if all or any portion of such excess
amount is thereafter recovered from such Bank, such purchase shall be rescinded
and the purchase price restored to the extent of such recovery, but without
interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 13.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Banks as opposed to Defaulting Banks.
13.07 Calculations; Computations; Accounting Terms. (a) The
financial statements to be furnished to the Banks pursuant hereto shall be made
and prepared in accordance with generally accepted accounting principles in the
United States consistently applied throughout the periods involved (except as
set forth in the notes thereto or as otherwise disclosed in writing by the
Borrower to the Banks); provided that, except as otherwise
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<PAGE> 105
specifically provided herein, all computations and all definitions used in
determining compliance with Sections 9.07 through 9.10, inclusive, shall utilize
accounting principles and policies in conformity with those used to prepare the
historical financial statements of the Borrower referred to in Section 7.05(a).
(b) All computations of interest, Commitment Commission and other
Fees hereunder shall be made on the basis of a year of 360 days for the actual
number of days (including the first day but excluding the last day; except that
in the case of Letter of Credit Fees, the last day shall be included) occurring
in the period for which such interest, Commitment Commission or Fees are
payable.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE
PROVIDED IN CERTAIN OF THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT OR ANY
OTHER CREDIT DOCUMENT, THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. THE BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT
ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER THE BORROWER AND AGREES NOT TO
PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENTS BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT
SUCH COURTS LACK PERSONAL JURISDICTION OVER THE BORROWER. THE BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS
SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH
SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT
DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY BANK OR THE
HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION.
(b) THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
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<PAGE> 106
VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE
COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
13.10 Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") on which the Borrower, the Administrative Agent and
each of the Banks shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered the same to the Administrative
Agent at the Notice Office or, in the case of the Banks, shall have given to the
Administrative Agent telephonic (confirmed in writing), written or telex notice
(actually received) at such office that the same has been signed and mailed to
it. The Administrative Agent will give the Borrower and each Bank prompt written
notice of the occurrence of the Effective Date.
13.11 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Banks, provided that no such change, waiver, discharge or termination
shall, without the consent of each Bank (other than a Defaulting Bank) (with
Obligations being directly affected in the case of following clause (i)), (i)
extend the final scheduled maturity of any Loan or Note or extend the stated
expiration date of any Letter of Credit beyond the Revolving Loan Maturity Date,
or reduce the rate or extend the time of payment of interest or Fees thereon, or
reduce the principal amount thereof (except to the extent repaid in cash), (ii)
release all or substantially all of the Collateral (except as expressly provided
in the Credit Documents) under all the Security Documents, (iii) amend, modify
or waive any provision of this Section 13.12 (except for technical amendments
with respect to additional extensions of credit pursuant to this Agreement which
afford the protections to such additional extensions of credit of the type
provided to the Term Loan Commitments and Revolving Loan
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<PAGE> 107
Commitments on the Effective Date), (iv) reduce the percentage specified in the
definition of Required Banks (it being understood that, with the consent of the
Required Banks, additional extensions of credit pursuant to this Agreement may
be included in the determination of the Required Banks on substantially the same
basis as the extensions of Term Loan Commitments and Revolving Loan Commitments
are included on the Effective Date) or (v) consent to the assignment or transfer
by the Borrower of any of its rights and obligations under this Agreement;
provided further, that no such change, waiver, discharge or termination shall
(u) increase any Commitment of any Bank over the amount thereof then in effect
without the consent of such Bank (it being understood that waivers or
modifications of conditions precedent, covenants, Defaults or Events of Default
or of a mandatory reduction in the Total Commitment shall not constitute an
increase of any Commitment of any Bank, and that an increase in the available
portion of any Commitment of any Bank shall not constitute an increase of the
Revolving Loan Commitment of such Bank), (v) without the consent of the Issuing
Bank, amend, modify or waive any provision of Section 2 or alter its rights or
obligations with respect to Letters of Credit, (w) without the consent of the
Swingline Bank, alter the Swingline Bank's rights or obligations with respect to
Swingline Loans, (x) without the consent of the Administrative Agent, amend,
modify or waive any provision of Section 12 or any other provision as same
relates to the rights or obligations of the Administrative Agent, (y) without
the consent of the Collateral Agent, amend, modify or waive any provision
relating to the rights or obligations of the Collateral Agent or (z) without the
consent of the Supermajority Banks, reduce the amount of, or extend the date of,
any Scheduled Repayment, or amend the definition of Supermajority Banks (it
being understood that, with the consent of the Required Banks, additional
extensions of credit pursuant to this Agreement may be included in the
determination of the Supermajority Banks on substantially the same basis as the
extensions of Term Loan Commitments and Revolving Loan Commitments are included
on the Effective Date).
(b) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by
clauses (i) through (v), inclusive, of the first proviso to Section 13.12(a),
the consent of the Required Banks is obtained but the consent of one or more of
such other Banks whose consent is required is not obtained, then the Borrower
shall have the right, so long as all non-consenting Banks whose individual
consent is required are treated as described in either clauses (A) or (B) below,
to either (A) replace each such non-consenting Bank or Banks with one or more
Replacement Banks pursuant to Section 1.13 so long as at the time of such
replacement, each such Replacement Bank consents to the proposed change, waiver,
discharge or termination or (B) terminate such non-consenting Bank's Commitments
and/or repay each Tranche of outstanding Loans of such Bank in accordance with
Sections 3.02(b) and/or 4.01(b), provided that, unless the Commitments that are
terminated, and Loans repaid, pursuant to preceding clause (B) are immediately
replaced in full at such time through the addition of new Banks or the increase
of the Commitments and/or outstanding Loans of existing Banks (who in each case
must specifically consent thereto), then in the case of any action pursuant to
preceding clause (B) the Required Banks (determined before giving effect to the
proposed action) shall specifically consent thereto, provided further, that in
any event the Borrower shall not have the right to replace a Bank, terminate its
Commitments or repay its Loans solely as a result of the exercise of such Bank's
rights (and the withholding of any required consent by such Bank) pursuant to
the second proviso to Section 13.12(a).
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<PAGE> 108
13.13 Survival. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01 shall survive
the execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the Obligations.
13.14 Domicile of Loans. Each Bank may transfer and carry its Loans
at, to or for the account of any office, Subsidiary or Affiliate of such Bank.
Notwithstanding anything to the contrary contained herein, to the extent that a
transfer of Loans pursuant to this Section 13.14 would, at the time of such
transfer, result in increased costs under Section 1.10, 2.06 or 4.04 from those
being charged by the respective Bank prior to such transfer, then the Borrower
shall not be obligated to pay such increased costs (although the Borrower shall
be obligated to pay any other increased costs of the type described above
resulting from changes after the date of the respective transfer).
13.15 Register. The Borrower hereby designates the Administrative
Agent to serve as the Borrower's agent, solely for purposes of this Section
13.15, to maintain a register (the "Register") on which it will record the
Commitments from time to time of each of the Banks, the Loans made by each of
the Banks and each repayment in respect of the principal amount of the Loans of
each Bank. Failure to make any such recordation, or any error in such
recordation, shall not affect the Borrower's obligations in respect of such
Loans. With respect to any Bank, the transfer of the Commitments of such Bank
and the rights to the principal of, and interest on, any Loan made pursuant to
such Commitments shall not be effective until such transfer is recorded on the
Register maintained by the Administrative Agent with respect to ownership of
such Commitments and Loans and prior to such recordation all amounts owing to
the transferor with respect to such Commitments and Loans shall remain owing to
the transferor. The registration of assignment or transfer of all or part of any
Commitment and Loans shall be recorded by the Administrative Agent on the
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
13.04(b). Coincident with the delivery of such an Assignment and Assumption
Agreement to the Administrative Agent for acceptance and registration of
assignment or transfer of all or part of a Commitment or Loan, or as soon
thereafter as practicable, the assigning or transferor Bank shall surrender the
Note or Notes evidencing such Loan, and thereupon one or more new Notes in the
same aggregate principal amount shall be issued to the assigning or transferor
Bank and/or the new Bank to the extent requested by such Banks. Upon receipt by
the Administrative Agent of such an Assignment and Assumption Agreement, the
Administrative Agent shall thereafter promptly distribute (including by way of
telecopier) a copy of such Assignment and Assumption Agreement to each of the
parties thereto, provided that the failure to so distribute the Assignment and
Assumption Agreement shall in no way affect, impair or diminish the transactions
contemplated thereby. The Borrower agrees to indemnify the Administrative Agent
from and against any and all losses, claims, damages and liabilities of
whatsoever nature which may be imposed on, asserted against or incurred by the
Administrative Agent in performing its duties under this Section 13.15.
13.16 Confidentiality. (a) Subject to the provisions of clause (b)
of this Section 13.16, the Administrative Agent, the Collateral Agent and each
Bank agrees that it will use its reasonable efforts not to disclose without the
prior consent of the Borrower (other than to its employees, auditors, advisors
or counsel or to another Bank if the Bank or such Bank's holding or parent
company in its sole discretion determines that any such party should have access
to
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<PAGE> 109
such information, provided such Persons shall be subject to the provisions of
this Section 13.16 to the same extent as such Bank) any information with respect
to the Borrower or any of its Subsidiaries which is now or in the future
furnished pursuant to this Agreement or any other Credit Document and which is
designated by the Borrower to the Administrative Agent, the Collateral Agent and
the Banks in writing as confidential, provided that the Administrative Agent,
the Collateral Agent and any Bank may disclose any such information (i) as has
become generally available to the public other than by virtue of a breach of
this Section 13.16(a) by the Administrative Agent, the Collateral Agent or
respective Bank, (ii) as may be required or appropriate in any report, statement
or testimony submitted to any municipal, state or Federal regulatory body having
or claiming to have jurisdiction over the Administrative Agent, the Collateral
Agent or such Bank or to the Federal Reserve Board or the Federal Deposit
Insurance Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (iii) as may be required or appropriate in
respect to any summons or subpoena or in connection with any litigation, (iv) in
order to comply with any law, order, regulation or ruling applicable to the
Administrative Agent, the Collateral Agent or such Bank, (v) in the case of any
Bank, to the Administrative Agent or the Collateral Agent and (vi) to any
prospective or actual transferee or participant in connection with any
contemplated transfer or participation of any of the Notes, Loans or Commitments
or any interest therein by such Bank, provided that such prospective transferee
agrees to be bound by the confidentiality provisions contained in this Section
13.16.
(b) The Borrower hereby acknowledges and agrees that the
Administrative Agent and each Bank may share with any of its Affiliates any
information related to the Borrower or any of its Subsidiaries (including,
without limitation, any nonpublic customer information regarding the
creditworthiness of the Borrower and its Subsidiaries), provided such Persons
shall be subject to the provisions of this Section 13.16 to the same extent as
such Bank).
* * *
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<PAGE> 110
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address
SPECIAL DEVICES, INCORPORATED
16830 W. Placerita Canyon Road
Newhall, California 91321
Attention: Vice President
Telephone No.: (805) 259-0753 By: /s/ John T. Vinke
-------------------------------
Telecopier No.: (805) 254-4721 Name: John T. Vinke
Title: Chief Financial Officer
and
copy to:
J.F. Lehman & Company, Inc.
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Keith Oster
Telephone No.: (212) 634-0100
Telecopier No.: (212) 634-1155
BANKERS TRUST COMPANY,
Individually and as Lead Arranger
and Administrative Agent
By: /s/ Gregory P. Shefrin
---------------------------
Name: Gregory P. Shefrin
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Richard D. Hill, Jr.
---------------------------
Name: Richard D. Hill, Jr.
Title: Managing Director
<PAGE> 111
THE BANK OF NOVA SCOTIA
By: /s/
------------------------
Name:
Title:
CITY NATIONAL BANK
By: /s/ Scott J. Kelley
------------------------
Name: Scott J. Kelley
Title: Vice President
FIRST UNION NATIONAL BANK
By: /s/ Mark S. Supple
-----------------------
Name: Mark S. Supple
Title: Director
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Nina Johnsrud
-------------------------
Name: Nina Johnsrud
Title: Risk Manager
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST
By: /s/ Peter Gewirtz
---------------------------
Name: Peter Gewirtz
Title: Authorized Signatory
<PAGE> 112
NATIONAL CITY BANK
By: /s/ Joseph D. Robinson
--------------------------
Name: Joseph D. Robinson
Title: Vice President
PARIBAS
By: /s/ Edward T. Irwin
----------------------
Name: Edward T. Irwin
Title: Director
By: /s/ Donald J. Ercole
-------------------------
Name: Donald J. Ercole
Title: Managing Director
KZH STERLING LLC
By: /s/ Virginia Conway
-------------------------
Name: Virginia Conway
Title: Authorized Agent
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Michael A. Ross
--------------------------
Name: Michael A. Ross
Title: Vice President
<PAGE> 113
SCHEDULE I
COMMITMENTS
<TABLE>
<CAPTION>
Bank Term Loan Revolving Loan
- ---- --------- --------------
Commitments Commitments
----------- -----------
<S> <C> <C>
Bankers Trust Company $ 6,000,000 $ 4,000,000
BankBoston, N.A. $ 8,000,000 $ 0
The Bank of Nova Scotia $ 6,000,000 $ 4,000,000
City National Bank $ 3,000,000 $ 0
First Union National Bank $ 6,000,000 $ 4,000,000
General Electric Capital
Corporation $12,000,000 $ 4,000,000
Morgan Stanley Dean Witter Prime
Income Trust $ 6,000,000 $ 0
National City Bank $ 5,000,000 $ 1,000,000
Paribas $ 6,000,000 $ 4,000,000
KZH Sterling LLC $ 6,000,000 $ 0
Union Bank of California, N.A. $ 6,000,000 $ 4,000,000
TOTAL: $70,000,000 $25,000,000
=========== ===========
</TABLE>
<PAGE> 114
SCHEDULE II
BANK ADDRESSES
Bank Address
---- -------
Bankers Trust Company 130 Liberty Street
New York, New York 10006
Attention: Ariana Delucia
Telephone No.: (212) 250-7346
Telecopier No.: (212) 250-7218
BankBoston, N.A. 100 Federal Street
Boston, Massachusetts 02110
Attention: Cheryl Carangelo
Telephone No.: (617) 434-6747
Telecopier No.: (617) 434-4929
The Bank of Nova Scotia 580 California Street - Suite 2100
San Francisco, California 94104
Attention: Brian Bell
Telephone No.: (415) 616 4162
Telecopier No.: (415) 397-0791
City National Bank 400 North Roxbury Drive - 3rd Floor
Beverly Hills, California 90210
Attention: Scott Kelley
Telephone No.: (310) 888-6536
Telecopier No.: (310) 888-6564
First Union National Bank 1345 Chestnut Street
Philadelphia, Pennsylvania 19101
Attention: Robert Brown
Telephone No.: (215) 973-1259
Telecopier No.: (215) 786-2877
<PAGE> 115
General Electric Capital 777 Long Ridge Road
Corporation Building B, 1st Floor
Stamford, Connecticut 06927
Attention: Nina Johnsrud
Telephone No.: (203) 316-7703
Telecopier No.: (203) 316-7989
Morgan Stanley Dean Witter Two World Trade Center - 72nd Floor
Prime Income Trust New York, New York 10048
Attention: Peter Gewirtz
Telephone No.: (212) 392-9034
Telecopier No.: (212) 392-5345
National City Bank 1900 East 9th Street
Cleveland, Ohio 44114
Attention: Joseph Robison
Telephone No.: (216) 575-9254
Telecopier No.: (216) 222-0003
Paribas 787 Seventh Avenue
New York, New York 10019
Attention: Darryl Monasebian
Telephone No.: (212) 841-3015
Telecopier No.: (212) 841-2861
KZH Sterling LLC c/o Sterling Asset Management
40 Fulton Street - 10th Floor
New York, New York 10038
Attention: Rafael Scolari
Telephone No.: (212) 406-3499
Telecopier No.: (212) 406-3710
Union Bank of California, 445 South Figueroa Street - 15th Floor
N.A. Los Angeles, California 90071
Attention: Michael Ross
Telephone No.: (213) 236-6061
Telecopier No.: (213) 236-6089
<PAGE> 1
EXHIBIT 10.3
SECURITY AGREEMENT
among
SPECIAL DEVICES, INCORPORATED,
CERTAIN OF ITS SUBSIDIARIES
and
BANKERS TRUST COMPANY,
as Collateral Agent
Dated as of December 15, 1998
<PAGE> 2
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 15, 1998, made by
each of the undersigned assignors (each an "Assignor" and, together with any
other entity that becomes an assignor hereunder pursuant to Section 10.13
hereof, the "Assignors") in favor of Bankers Trust Company, as Collateral Agent
(the "Collateral Agent"), for the benefit of the Secured Creditors (as defined
below). Except as otherwise defined herein, capitalized terms used herein and
defined in the Credit Agreement (as defined below) shall be used herein as so
defined.
W I T N E S S E T H:
WHEREAS, Special Devices, Incorporated (the "Borrower"), the
lenders from time to time party thereto (the "Banks") and Bankers Trust Company,
as Lead Arranger and Administrative Agent (together with any successor
administrative agent, the "Administrative Agent"), have entered into a Credit
Agreement, dated as of December 15, 1998, providing for the making of Loans to,
and the issuance of Letters of Credit for the account of, the Borrower as
contemplated therein (as amended, modified or supplemented from time to time,
the "Credit Agreement") (the Banks, the Issuing Bank, the Administrative Agent
and the Collateral Agent are herein called the "Bank Creditors");
WHEREAS, the Borrower may at any time and from time to time
enter into one or more Interest Rate Protection Agreements or Other Hedging
Agreements with one or more Banks or any affiliate thereof (each such Bank or
affiliate, even if the respective Bank subsequently ceases to be a Bank under
the Credit Agreement for any reason, together with such Bank's or affiliate's
successors and assigns, if any, collectively, the "Other Creditors," and
together with the Bank Creditors, are herein called the "Secured Creditors");
WHEREAS, pursuant to the Subsidiaries Guaranty, each
Subsidiary Guarantor has jointly and severally guarantied to the Secured
Creditors the payment when due of all Guaranteed Obligations as described
therein;
WHEREAS, it is a condition precedent to the making of Loans
to, and the issuance of Letters of Credit for the account of, the Borrower under
the Credit Agreement that each Assignor shall have executed and delivered to the
Collateral Agent this Agreement; and
WHEREAS, each Assignor will obtain benefits from the
incurrence of Loans to, and the issuance of Letters of Credit for the account
of, the Borrower under the Credit Agreement and the entering into by the
Borrower of Interest Rate Protection Agreements or Other Hedging Agreements and,
accordingly, each Assignor desires to enter into this Agreement in order to
satisfy the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to
each Assignor, the receipt and sufficiency of which are hereby acknowledged,
each Assignor hereby makes the following representations and warranties to the
Collateral Agent for the benefit of the Secured
<PAGE> 3
Creditors and hereby covenants and agrees with the Collateral Agent for the
benefit of the Secured Creditors as follows:
ARTICLE I
SECURITY INTERESTS
1.1. Grant of Security Interests. (a) As security for the
prompt and complete payment and performance when due of all of its Obligations,
each Assignor does hereby assign and transfer unto the Collateral Agent, and
does hereby pledge and grant to the Collateral Agent for the benefit of the
Secured Creditors, a continuing security interest in, all of the right, title
and interest of such Assignor in, to and under all of the following, whether now
existing or hereafter from time to time acquired: (i) each and every Receivable,
(ii) all Contracts, together with all Contract Rights arising thereunder, (iii)
all Inventory, (iv) all Equipment, (v) all Marks, together with the
registrations and right to all renewals thereof, and the goodwill of the
business of such Assignor symbolized by the Marks, (vi) all Patents and
Copyrights, (vii) all computer programs of such Assignor and all intellectual
property rights therein and all other proprietary information of such Assignor,
including, but not limited to, Trade Secrets Rights, (viii) all other Goods,
General Intangibles, Permits, Chattel Paper, Documents, Instruments, Investment
Property (except to the extent pledged under the Pledge Agreement) and other
assets (including cash), (ix) the Cash Collateral Account and all monies,
securities, instruments and other investments deposited or required to be
deposited in such Cash Collateral Account, (x) all other bank, demand, time
savings, passbook, certificates of deposit and similar accounts maintained by
such Assignor and all monies, securities, instruments and other investments
deposited or required to be deposited in any of the foregoing accounts, and (xi)
all Proceeds and products of any and all of the foregoing (all of the above,
collectively, the "Collateral").
Notwithstanding anything to the contrary contained in this
Agreement (including Section 3.6 hereof or certain of the representations and
warranties contained herein), no Assignor shall be required to deliver any
Instrument hereunder with an outstanding principal amount of $50,000 or less,
provided that no more than $100,000 in the aggregate of all such $50,000 or less
Instruments (including, for this purpose, any Pledged Notes (as defined in the
Pledge Agreement) not required to be delivered pursuant to the Pledge Agreement)
shall be excluded from the delivery requirements under this Agreement.
Notwithstanding anything to the contrary contained in this
Agreement, the Collateral shall not include any, and automatically excluded
therefrom shall be any, Equipment or Goods which are the subject of a Lien under
Section 9.01(viii) or (xiv) of the Credit Agreement to the extent that the
holders of any such Lien do not permit the Collateral Agent to retain a
subordinated security interest therein (but only so long as such Lien continues
to exist), provided that the security interest in any such Equipment or Goods
shall be reinstated in favor of the Collateral Agent for the benefit of the
Secured Creditors at such time as the underlying obligations with respect to any
such Lien shall have been satisfied.
(b) The security interest of the Collateral Agent under this
Agreement extends to all Collateral of the kind which is the subject of this
Agreement which any Assignor may acquire at any time during the term of this
Agreement.
-2-
<PAGE> 4
1.2. Power of Attorney. Each Assignor hereby constitutes and
appoints the Collateral Agent its true and lawful attorney, irrevocably, with
full power after the occurrence of and during the continuance of an Event of
Default (in the name of such Assignor or otherwise) to act, require, demand,
receive, compound and give acquittance for any and all moneys and claims for
moneys due or to become due to such Assignor under or arising out of the
Collateral, to endorse any checks or other instruments or orders in connection
therewith and to file any claims or take any action or institute any proceedings
which the Collateral Agent may deem to be necessary or advisable to protect the
interests of the Secured Creditors, which appointment as attorney is coupled
with an interest.
ARTICLE II
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:
2.1. Necessary Filings. All filings, registrations and
recordings necessary or appropriate to create, preserve and perfect the security
interest granted by such Assignor to the Collateral Agent hereby in respect of
the Collateral have been executed by the appropriate Assignors and delivered to
the Collateral Agent for filing in the appropriate filing office or filing
offices in order to create a perfected security interest therein prior to the
rights of all other Persons therein and subject to no other Liens (in each case
other than Permitted Liens) and is entitled to all the rights, priorities and
benefits afforded by the Uniform Commercial Code or other relevant law as
enacted in any relevant jurisdiction to perfected security interests, in each
case, to the extent that the Collateral consists of the type of property in
which a security interest may be perfected by filing a financing statement under
the Uniform Commercial Code as enacted in any relevant jurisdiction or in the
United States Patent and Trademark Office or in the United States Copyright
Office.
2.2. No Liens. Such Assignor is, and as to Collateral acquired
by it from time to time after the date hereof such Assignor will be, the owner
of all Collateral free from any Lien, security interest, encumbrance or other
right, title or interest of any Person (other than Permitted Liens), and such
Assignor shall defend the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest therein adverse to the
Collateral Agent.
2.3. Other Financing Statements. As of the date hereof, there
is no financing statement (or similar statement or instrument of registration
under the law of any jurisdiction) covering or purporting to cover any interest
of any kind in the Collateral (other than financing statements filed in respect
of Permitted Liens), and so long as the Termination Date has not occurred, such
Assignor will not execute or authorize to be filed in any public office any
financing statement (or similar statement or instrument of registration under
the law of any jurisdiction) or statements relating to the Collateral, except
financing statements filed or to be filed in respect of and covering the
security interests granted hereby by such Assignor or in connection with
Permitted Liens.
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2.4. Chief Executive Office; Records. The chief executive
office of such Assignor is located at the address indicated on Annex A hereto
for such Assignor. Such Assignor will not move its chief executive office except
to such new location as such Assignor may establish in accordance with the last
sentence of this Section 2.4. The originals of all documents evidencing all
Receivables and Contract Rights of such Assignor and the only original books of
account and records of such Assignor relating thereto are, and will continue to
be, kept at such chief executive office, at one or more of the other locations
set forth on Annex A hereto or at such new locations as such Assignor may
establish in accordance with the last sentence of this Section 2.4. All
Receivables and Contract Rights of such Assignor are, and will continue to be,
maintained at, and controlled and directed (including, without limitation, for
general accounting purposes) from, the office locations described above or such
new location established in accordance with the last sentence of this Section
2.4. No Assignor shall establish new locations for such offices until (i) it
shall have given to the Collateral Agent not less than 15 days' prior written
notice of its intention to do so (or, in the case of any establishment of
offices in Moorpark, California, written notice of such establishment of offices
within 30 days thereafter), clearly describing such new location and providing
such other information in connection therewith as the Collateral Agent may
reasonably request, and (ii) with respect to such new location, it shall have
taken all action reasonably satisfactory to the Collateral Agent to maintain the
security interest of the Collateral Agent in the Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.
2.5. Location of Inventory and Equipment. All Inventory and
Equipment held on the date hereof by each Assignor is located at one of the
locations shown on Annex B hereto for such Assignor. Each Assignor agrees that
all Inventory and Equipment now held or subsequently acquired by it shall be
kept at (or shall be in transport to) any one of the locations shown on Annex B
hereto, or such new location as such Assignor may establish in accordance with
the last sentence of this Section 2.5. Any Assignor may establish a new location
for Inventory and Equipment only if (i) it shall have given to the Collateral
Agent not less than 15 days' prior written notice of its intention so to do,
clearly describing such new location and providing such other information in
connection therewith as the Collateral Agent may request, and (ii) with respect
to such new location, it shall have taken all action reasonably satisfactory to
the Collateral Agent to maintain the security interest of the Collateral Agent
in the Collateral intended to be granted hereby at all times fully perfected and
in full force and effect.
2.6. Recourse. This Agreement is made with full recourse to
each Assignor (including, without limitation, with full recourse to all assets
of such Assignor) and pursuant to and upon all the warranties, representations,
covenants and agreements on the part of such Assignor contained herein, in the
other Secured Debt Agreements and otherwise in writing in connection herewith or
therewith.
2.7. Trade Names; Change of Name. No Assignor has or operates
in any jurisdiction under, or in the preceding five years has had or has
operated in any jurisdiction under, any trade names, fictitious names or other
names except its legal name and such other trade or fictitious names as are
listed on Annex C hereto for such Assignor. No Assignor shall change its legal
name or assume or operate in any jurisdiction under any trade, fictitious or
other name except those names listed on Annex C hereto for such Assignor and new
names established in accordance with the last sentence of this Section 2.7. No
Assignor shall assume or operate in
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any jurisdiction under any new trade, fictitious or other name until (i) it
shall have given to the Collateral Agent not less than 15 days' prior written
notice of its intention so to do, clearly describing such new name and the
jurisdictions in which such new name shall be used and providing such other
information in connection therewith as the Collateral Agent may reasonably
request, and (ii) with respect to such new name, it shall have taken all action
reasonably requested by the Collateral Agent to maintain the security interest
of the Collateral Agent in the Collateral intended to be granted hereby at all
times fully perfected and in full force and effect.
ARTICLE III
SPECIAL PROVISIONS CONCERNING RECEIVABLES;
CONTRACT RIGHTS; INSTRUMENTS; CHATTEL PAPER
3.1. Additional Representations and Warranties. As of the time
when each of its Receivables arises, each Assignor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto (if any) are what they purport to be, and such
Receivable will evidence true and valid obligations of the account debtor named
therein.
3.2. Maintenance of Records. Each Assignor will keep and
maintain at its own cost and expense accurate records of its Receivables and
Contracts, including, but not limited to, originals of all documentation
(including each Contract) with respect thereto, records of all payments
received, all credits granted thereon, all merchandise returned and all other
dealings therewith, and such Assignor will make the same available on such
Assignor's premises to the Collateral Agent for inspection, at such Assignor's
own cost and expense, at any and all reasonable times upon two days prior notice
to such Assignor. Upon the occurrence and during the continuance of an Event of
Default and at the request of the Collateral Agent, such Assignor shall, at its
own cost and expense, deliver all tangible evidence of its Receivables and
Contract Rights (including, without limitation, all documents evidencing the
Receivables and all Contracts) and such books and records to the Collateral
Agent or to its representatives (copies of which evidence and books and records
may be retained by such Assignor). Upon the occurrence and during the
continuance of an Event of Default and if the Collateral Agent so directs, such
Assignor shall legend, in form and manner reasonably satisfactory to the
Collateral Agent, the Receivables and the Contracts, as well as books, records
and documents (if any) of such Assignor evidencing or pertaining to such
Receivables and Contracts with an appropriate reference to the fact that such
Receivables and Contracts have been assigned to the Collateral Agent and that
the Collateral Agent has a security interest therein.
3.3. Direction to Account Debtors; Contracting Parties; etc.
Upon the occurrence and during the continuance of an Event of Default, and if
the Collateral Agent so directs any Assignor, such Assignor agrees (x) to cause
all payments on account of the Receivables and Contracts to be made directly to
the Cash Collateral Account, (y) that the Collateral Agent may, at its option,
directly notify the obligors with respect to any Receivables and/or under any
Contracts to make payments with respect thereto as provided in the preceding
clause (x), and (z) that the Collateral Agent may enforce collection of any such
Receivables and Contracts and may adjust, settle or compromise the amount of
payment thereof, in the same manner and to the same extent as such Assignor.
Without notice to or assent by any Assignor, the Collateral Agent may
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apply any or all amounts then in, or thereafter deposited in, the Cash
Collateral Account which application shall be effected in the manner provided in
Section 7.4 of this Agreement. The costs and expenses (including reasonable
attorneys' fees) of collection, whether incurred by an Assignor or the
Collateral Agent, shall be borne by the relevant Assignor. The Collateral Agent
shall deliver a copy of each notice referred to in the preceding clause (y) to
the relevant Assignor, provided, that the failure by the Collateral Agent to so
notify such Assignor shall not affect the effectiveness of such notice or the
other rights of the Collateral Agent created by this Section 3.3.
3.4. Modification of Terms; etc. Except in accordance with
such Assignor's ordinary course of business and consistent with reasonable
business judgment, no Assignor shall rescind or cancel any indebtedness
evidenced by any Receivable or under any Contract, or modify any term thereof or
make any adjustment with respect thereto, or extend or renew the same, or
compromise or settle any material dispute, claim, suit or legal proceeding
relating thereto, or sell any Receivable or Contract, or interest therein,
without the prior written consent of the Collateral Agent (which consent shall
not be unreasonably withheld). Each Assignor will do nothing to impair the
rights of the Collateral Agent in the Receivables or Contracts.
3.5. Collection. Each Assignor shall endeavor in accordance
with reasonable business practices to cause to be collected from the account
debtor named in each of its Receivables or obligor under any Contract, as and
when due (including, without limitation, amounts which are delinquent, such
amounts, if desirable in such Assignor's reasonable business judgment, to be
collected in accordance with generally accepted lawful collection procedures)
any and all amounts owing under or on account of such Receivable or Contract,
and apply forthwith upon receipt thereof all such amounts as are so collected to
the outstanding balance of such Receivable or under such Contract, except that,
prior to the occurrence of an Event of Default, any Assignor may allow in the
ordinary course of business as adjustments to amounts owing under its
Receivables and Contracts (i) an extension or renewal of the time or times of
payment, or settlement for less than the total unpaid balance, which such
Assignor finds appropriate in accordance with reasonable business judgment and
(ii) a refund or credit due as a result of returned or damaged merchandise or
improperly performed services or for other reasons which such Assignor finds
appropriate in accordance with reasonable business judgment. The reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees)
of collection, whether incurred by an Assignor or the Collateral Agent, shall be
borne by the relevant Assignor.
3.6. Instruments. Subject to the limitations of Section 1.1(a)
hereof, if any Assignor owns or acquires any Instrument constituting Collateral,
such Assignor will within 10 Business Days notify the Collateral Agent thereof,
and upon request by the Collateral Agent will promptly deliver such Instrument
to the Collateral Agent appropriately endorsed to the order of the Collateral
Agent as further security hereunder.
3.7. Assignors Remain Liable Under Receivables. Anything
herein to the contrary notwithstanding, the Assignors shall remain liable under
each of the Receivables to observe and perform all of the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to such Receivables. Neither the
Collateral Agent nor any other Secured Creditor shall have any obligation or
liability under any Receivable (or any agreement giving rise thereto) by reason
of or arising out of this
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Agreement or the receipt by the Collateral Agent or any other Secured Creditor
of any payment relating to such Receivable pursuant hereto, nor shall the
Collateral Agent or any other Secured Creditor be obligated in any manner to
perform any of the obligations of any Assignor under or pursuant to any
Receivable (or any agreement giving rise thereto), to make any payment, to make
any inquiry as to the nature or the sufficiency of any payment received by them
or as to the sufficiency of any performance by any party under any Receivable
(or any agreement giving rise thereto), to present or file any claim, to take
any action to enforce any performance or to collect the payment of any amounts
which may have been assigned to them or to which they may be entitled at any
time or times.
3.8. Assignors Remain Liable Under Contracts. Anything herein
to the contrary notwithstanding, the Assignors shall remain liable under each of
the Contracts to observe and perform all of the conditions and obligations to be
observed and performed by them thereunder, all in accordance with and pursuant
to the terms and provisions of each Contract. Neither the Collateral Agent nor
any other Secured Creditor shall have any obligation or liability under any
Contract by reason of or arising out of this Agreement or the receipt by the
Collateral Agent or any other Secured Creditor of any payment relating to such
contract pursuant hereto, nor shall the Collateral Agent or any other Secured
Creditor be obligated in any manner to perform any of the obligations of any
Assignor under or pursuant to any Contract, to make any payment, to make any
inquiry as to the nature or the sufficiency of any performance by any party
under any Contract, to present or file any claim, to take any action to enforce
any performance or to collect the payment of any amounts which may have been
assigned to them or to which they may be entitled at any time or times.
3.9. Further Actions. Each Assignor will, at its own expense,
make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent
from time to time such vouchers, invoices, schedules, confirmatory assignments,
conveyances, financing statements, transfer endorsements, certificates, reports
and other assurances or instruments and take such further steps relating to its
Receivables, Contracts, Instruments and other property or rights covered by the
security interest hereby granted, as the Collateral Agent may reasonably
require, provided that, so long as no Event of Default then exists and is
continuing, the foregoing shall be limited to such steps as may be required to
perfect such security interest (i) by the filing of UCC financing statements,
(ii) by the filing of appropriate assignments in the United States Patent and
Trademark Office or in the United States Copyright Office or (iii) by possession
by the Collateral Agent of such Collateral.
ARTICLE IV
SPECIAL PROVISIONS CONCERNING TRADEMARKS
4.1. Additional Representations and Warranties. Each Assignor
represents and warrants that it is the true and lawful owner of or otherwise has
the right to use the registered Marks listed in Annex D hereto for such Assignor
and that said listed Marks include all United States marks and applications for
United States marks registered in the United States Patent and Trademark Office
that such Assignor owns or uses in connection with its business as of the date
hereof. Each Assignor represents and warrants that it owns, is licensed to use
or otherwise has the right to use, all material Marks that it uses. Each
Assignor further warrants that it has no
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knowledge of any third-party claim that any aspect of such Assignor's present or
contemplated business operations infringes or will infringe any trademark,
service mark or trade name except for any such infringements which, individually
or in the aggregate, could not reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities or condition
(financial or otherwise) of the Borrower and its Subsidiaries taken as a whole.
Each Assignor represents and warrants that it is the true and lawful owner of or
otherwise has the right to use all U.S. trademark registrations and applications
listed in Annex D hereto and that said registrations are valid, subsisting, have
not been cancelled and that such Assignor is not aware of any material
third-party claim that any of said registrations is invalid or unenforceable, or
is not aware that there is any reason that any of said registrations is invalid
or unenforceable. Each Assignor hereby grants to the Collateral Agent an
absolute power of attorney to sign, upon the occurrence and during the
continuance of an Event of Default, any document which may be required by the
United States Patent and Trademark Office in order to effect an absolute
assignment of all right, title and interest in each Mark, and record the same.
4.2. Licenses and Assignments. Except as otherwise permitted
by the Secured Debt Agreements, each Assignor hereby agrees not to divest itself
of any right under any Mark absent prior written approval of the Collateral
Agent.
4.3. Infringements. Each Assignor agrees, promptly upon
learning thereof, to notify the Collateral Agent in writing of the name and
address of, and to furnish such pertinent information that may be available with
respect to, any party who such Assignor believes is infringing or diluting or
otherwise violating in any material respect any of such Assignor's rights in and
to any material Mark, or with respect to any party claiming that such Assignor's
use of any material Mark violates in any material respect any property right of
that party. Each Assignor further agrees to diligently prosecute any Person
infringing any material Mark in accordance with reasonable business practices,
unless otherwise agreed by the Collateral Agent or unless such Assignor shall in
the exercise of its reasonable good faith business judgment determine not to do
so.
4.4. Preservation of Marks. Each Assignor agrees to use its
material Marks in interstate commerce during the time in which this Agreement is
in effect and to take all such other actions as are necessary to preserve such
Marks as trademarks or service marks under the laws of the United States.
4.5. Maintenance of Registration. Each Assignor shall, at its
own expense, diligently process all documents required to maintain trademark
registrations, including but not limited to affidavits of use and applications
for renewals of registration in the United States Patent and Trademark Office
for all of its registered material Marks, and shall pay all fees and
disbursements in connection therewith and shall not abandon any such filing of
affidavit of use or any such application of renewal prior to the exhaustion of
all administrative and judicial remedies without prior written consent of the
Collateral Agent.
4.6. Future Registered Marks. If any Mark registration is
issued hereafter to any Assignor as a result of any application now or hereafter
pending before the United States Patent and Trademark Office, within 30 days of
receipt of such certificate, such Assignor shall deliver to the Collateral Agent
a copy of such certificate, and an assignment for security in such Mark, to
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the Collateral Agent and at the expense of such Assignor, confirming the
assignment for security in such Mark to the Collateral Agent hereunder, the form
of such security to be substantially the same as the form hereof or in such
other form as may be reasonably satisfactory to the Collateral Agent and such
assignment shall amend the Annexes hereto accordingly.
4.7. Remedies. If an Event of Default shall occur and be
continuing, the Collateral Agent may, by written notice to the relevant
Assignor, take any or all of the following actions: (i) declare the entire
right, title and interest of such Assignor in and to each of the Marks, together
with all trademark rights and rights of protection to the same, vested in the
Collateral Agent for the benefit of the Secured Creditors, in which event such
rights, title and interest shall immediately vest, in the Collateral Agent for
the benefit of the Secured Creditors, and the Collateral Agent shall be entitled
to exercise the power of attorney referred to in Section 4.1 hereof to execute,
cause to be acknowledged and notarized and record said absolute assignment with
the applicable agency; (ii) take and use or sell the Marks and the goodwill of
such Assignor's business symbolized by the Marks and the right to carry on the
business and use the assets of such Assignor in connection with which the Marks
have been used; and (iii) direct such Assignor to refrain, in which event such
Assignor shall refrain, from using the Marks in any manner whatsoever, directly
or indirectly, and such Assignor shall execute such further documents that the
Collateral Agent may reasonably request to further confirm this and to transfer
ownership of the Marks and registrations and any pending trademark application
in the United States Patent and Trademark Office to the Collateral Agent.
ARTICLE V
SPECIAL PROVISIONS CONCERNING
PATENTS, COPYRIGHTS AND TRADE SECRETS
5.1. Additional Representations and Warranties. Each Assignor
represents and warrants that it is the true and lawful owner of all rights in
(i) all United States trade secrets and proprietary information necessary to
operate the business of the Assignor (the "Trade Secret Rights"), (ii) the
Patents listed in Annex E hereto for such Assignor and that said Patents include
all the United States patents and applications for United States patents that
such Assignor owns as of the date hereof and (iii) the Copyrights listed in
Annex F hereto for such Assignor and that said Copyrights constitute all the
United States copyrights registered with the United States Copyright Office and
applications to United States copyrights that such Assignor owns as of the date
hereof. Each Assignor further warrants that it has no knowledge of any
third-party claim that any aspect of such Assignor's present or contemplated
business operations infringes or will infringe any patent or such Assignor has
misappropriated any trade secret or proprietary information except for any such
infringements which, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole. Each Assignor hereby grants to
the Collateral Agent an absolute power of attorney to sign, upon the occurrence
and during the continuance of any Event of Default, any document which may be
required by the United States Patent and Trademark Office in order to effect an
absolute assignment of all right, title and interest in each Patent, and to
record the same.
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5.2. Licenses and Assignments. Except as otherwise permitted
by the Secured Debt Agreements, each Assignor hereby agrees not to divest itself
of any right under any Patent or Copyright acquired after the date hereof absent
prior written approval of the Collateral Agent.
5.3. Infringements. Each Assignor agrees, promptly upon
learning thereof, to furnish the Collateral Agent in writing with all pertinent
information available to such Assignor with respect to any infringement,
contributing infringement or active inducement to infringe in any material
Patent or material Copyright or to any claim that the practice of any material
Patent or use of any material Copyright violates any property right of a third
party, or with respect to any misappropriation of any material Trade Secret
Right or any claim that practice of any material Trade Secret Right violates any
property right of a third party. Each Assignor further agrees to diligently
prosecute any Person infringing any material Patent or material Copyright or any
Person misappropriating any material Trade Secret Right in accordance with such
Assignor's reasonable business judgment, unless otherwise agreed by the
Collateral Agent or unless such Assignor shall in the exercise of its reasonable
good faith business judgment determine not to do so.
5.4. Maintenance of Patents or Copyright. At its own expense,
each Assignor shall make timely payment of all post-issuance fees required
pursuant to 35 U.S.C. Section 41 to maintain in force its rights under each
material Patent or material Copyright, absent prior written consent of the
Collateral Agent.
5.5. Prosecution of Patent Applications. At its own expense,
each Assignor shall diligently prosecute all applications for (i) material
United States Patents listed in Annex E hereto and (ii) material Copyrights
listed on Annex F hereto, in each case for such Assignor and shall not abandon
any such application prior to exhaustion of all administrative and judicial
remedies, absent written consent of the Collateral Agent.
5.6. Other Patents and Copyrights. Within 30 days of the
acquisition or issuance of a United States Patent, registration of a Copyright,
or acquisition of a registered Copyright, or of filing of an application for a
United States Patent or Copyright, the relevant Assignor shall deliver to the
Collateral Agent a copy of said Copyright or certificate or registration of, or
application therefor, said Patents, as the case may be, with an assignment for
security as to such Patent or Copyright, as the case may be, to the Collateral
Agent and at the expense of such Assignor, confirming the assignment for
security, the form of such assignment for security to be substantially the same
as the form hereof or in such other form as may be reasonably satisfactory to
the Collateral Agent.
5.7. Remedies. If an Event of Default shall occur and be
continuing, the Collateral Agent may by written notice to the relevant Assignor,
take any or all of the following actions: (i) declare the entire right, title,
and interest of such Assignor in each of the Patents and Copyrights vested in
the Collateral Agent for the benefit of the Secured Creditors, in which event
such right, title, and interest shall immediately vest in the Collateral Agent
for the benefit of the Secured Creditors, in which case the Collateral Agent
shall be entitled to exercise the power of attorney referred to in Section 5.1
hereof to execute, cause to be acknowledged and notarized and to record said
absolute assignment with the applicable agency; (ii) take and practice or sell
the Patents and Copyrights; and (iii) direct such Assignor to refrain, in which
event such Assignor
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shall refrain, from practicing the Patents and using the Copyrights directly or
indirectly, and such Assignor shall execute such further documents as the
Collateral Agent may reasonably request further to confirm this and to transfer
ownership of the Patents and Copyrights to the Collateral Agent for the benefit
of the Secured Creditors.
ARTICLE VI
PROVISIONS CONCERNING ALL COLLATERAL
6.1. Protection of Collateral Agent's Security. Each Assignor
will do nothing to impair the rights of the Collateral Agent in the Collateral
except as expressly permitted in the Credit Agreement. Each Assignor will at all
times keep its Inventory and Equipment insured in favor of the Collateral Agent,
at such Assignor's own expense to the extent and in the manner provided in the
Credit Agreement. Except to the extent otherwise permitted to be retained by
such Assignor or applied by such Assignor pursuant to the terms of the Credit
Agreement, the Collateral Agent shall, at the time any proceeds of such
insurance are distributed to the Secured Creditors, apply such proceeds in
accordance with Section 7.4 hereof. Each Assignor assumes all liability and
responsibility in connection with the Collateral acquired by it and the
liability of such Assignor to pay the Obligations shall in no way be affected or
diminished by reason of the fact that such Collateral may be lost, destroyed,
stolen, damaged or for any reason whatsoever unavailable to such Assignor.
6.2. Warehouse Receipts Non-negotiable. Each Assignor agrees
that if any warehouse receipt or receipt in the nature of a warehouse receipt is
issued with respect to any of its Inventory, such Assignor shall request that
such warehouse receipt or receipt in the nature thereof shall not be
"negotiable" (as such term is used in Section 7-104 of the Uniform Commercial
Code as in effect in any relevant jurisdiction or under other relevant law).
6.3. Financing Statements. Each Assignor agrees to execute and
deliver to the Collateral Agent such financing statements, in form reasonably
acceptable to the Collateral Agent, as the Collateral Agent may from time to
time reasonably request or as are necessary or desirable in the opinion of the
Collateral Agent to establish and maintain a valid, enforceable, first-priority
perfected security interest in the Collateral as provided herein (subject to
Permitted Liens) and the other rights and security contemplated hereby all in
accordance with the UCC as enacted in any and all relevant jurisdictions or any
other relevant law. Each Assignor will pay any applicable filing fees,
recordation taxes and related expenses relating to its Collateral. Each Assignor
hereby authorizes the Collateral Agent to file any such financing statements
without the signature of such Assignor where permitted by law.
ARTICLE VII
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
7.1. Remedies; Obtaining the Collateral Upon Default. Each
Assignor agrees that, if any Event of Default shall have occurred and be
continuing, then and in every such case, the Collateral Agent, in addition to
any rights now or hereafter existing under applicable law, shall have all rights
as a secured creditor under any UCC, and such additional rights and
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remedies to which a secured creditor is entitled under the laws in effect, in
all relevant jurisdictions and may:
(i) personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof, from such Assignor or
any other Person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon
such Assignor's premises where any of the Collateral is located and
remove the same and use in connection with such removal any and all
services, supplies, aids and other facilities of such Assignor;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Receivables and the Contracts) constituting the Collateral to make any
payment required by the terms of such agreement, instrument or other
obligation directly to the Collateral Agent and may exercise any and
all remedies of such Assignor in respect of such Collateral;
(iii) withdraw all monies, securities and instruments in the
Cash Collateral Account for application to the Obligations in
accordance with Section 7.4 hereof;
(iv) sell, assign or otherwise liquidate any or all of the
Collateral or any part thereof in accordance with Section 7.2 hereof,
or direct the relevant Assignor to sell, assign or otherwise liquidate
any or all of the Collateral or any part thereof, and, in each case,
take possession of the proceeds of any such sale or liquidation;
(v) take possession of the Collateral or any part thereof, by
directing the relevant Assignor in writing to deliver the same to the
Collateral Agent at any place or places reasonably designated by the
Collateral Agent, in which event such Assignor shall at its own
expense:
(x) forthwith cause the same to be moved to the place
or places so reasonably designated by the Collateral Agent and
there delivered to the Collateral Agent;
(y) store and keep any Collateral so delivered to the
Collateral Agent at such place or places pending further
action by the Collateral Agent as provided in Section 7.2
hereof; and
(z) while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain
them in good condition; and
(vi) license or sublicense, whether on an exclusive or
nonexclusive basis, any Marks, Patents or Copyrights included in the
Collateral for such term and on such conditions and in such manner as
the Collateral Agent shall in its sole judgment determine;
it being understood that each Assignor's obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction,
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the Collateral Agent shall be entitled to a decree requiring specific
performance by such Assignor of said obligation. By accepting the benefits of
this Agreement, the Secured Creditors agree that this Agreement may be enforced
only by the action of the Administrative Agent or the Collateral Agent acting
upon the instructions of the Required Secured Creditors and that no other
Secured Creditor, other than the Administrative Agent or the Collateral Agent,
shall have any right individually to seek to enforce this Agreement or to
realize upon the security to be granted hereby, it being understood and agreed
that such rights and remedies may be exercised by the Administrative Agent or
the Collateral Agent for the benefit of the Secured Creditors upon the terms of
this Agreement and the Credit Agreement.
7.2. Remedies; Disposition of the Collateral. If any Event of
Default shall have occurred and be continuing, then any Collateral repossessed
by the Collateral Agent under or pursuant to Section 7.1 hereof and any other
Collateral whether or not so repossessed by the Collateral Agent, may be sold,
assigned, leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of sale the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as the Collateral Agent may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the
Collateral Agent or after any overhaul or repair at the expense of the relevant
Assignor which the Collateral Agent shall determine to be commercially
reasonable. Any such disposition that shall be a private sale or other private
proceedings permitted by such requirements shall be made upon not less than 10
days' prior written notice to the relevant Assignor specifying the time at which
such disposition is to be made and the intended sale price or other
consideration therefor, and shall be subject, for the 10 days after the giving
of such notice, to the right of the relevant Assignor or any nominee of such
Assignor to acquire the Collateral involved at a price or for such other
consideration at least equal to the intended sale price or other consideration
so specified. Any such disposition which shall be a public sale permitted by
such requirements shall be made upon not less than 10 days' prior written notice
to the relevant Assignor specifying the time and place of such sale and, in the
absence of applicable requirements of law, shall be by public auction (which
may, at the Collateral Agent's option, be subject to reserve), after publication
of notice of such auction (where required by applicable law) not less than 10
days prior thereto. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the sale may be so adjourned. To the
extent permitted by any such requirement of law, the Collateral Agent may bid
for and become the purchaser of the Collateral or any item thereof, offered for
sale in accordance with this Section without accountability to the relevant
Assignor. If, under mandatory requirements of applicable law, the Collateral
Agent shall be required to make disposition of the Collateral within a period of
time which does not permit the giving of notice to the relevant Assignor as
hereinabove specified, the Collateral Agent need give such Assignor only such
notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of applicable law. Each Assignor agrees to do or cause to
be done all such other acts and things as may be reasonably necessary to make
such sale or sales of all or any portion of the Collateral valid and binding and
in compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental
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instrumentalities, domestic or foreign, having jurisdiction over any such sale
or sales, all at such Assignor's expense.
7.3. Waiver of Claims. Except as otherwise provided in this
Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S
TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES, and each Assignor hereby further waives,
to the extent permitted by law:
(i) all damages occasioned by such taking of possession except
any damages which are the direct result of the Collateral Agent's gross
negligence or willful misconduct;
(ii) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the
Collateral Agent's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable
law in order to prevent or delay the enforcement of this Agreement or
the absolute sale of the Collateral or any portion thereof, and each
Assignor, for itself and all who may claim under it, insofar as it or
they now or hereafter lawfully may, hereby waives the benefit of all
such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the relevant Assignor therein and
thereto, and shall be a perpetual bar both at law and in equity against such
Assignor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under such Assignor.
7.4. Application of Proceeds. (a) All moneys collected by the
Collateral Agent (or, to the extent the Pledge Agreement, any Mortgage or any
other Security Document require proceeds of collateral under such Security
Document to be applied in accordance with the provisions of this Agreement, the
Pledgee or Mortgagee under such other Security Document) upon any sale or other
disposition of the Collateral, together with all other moneys received by the
Collateral Agent hereunder, shall be applied as follows.
(i) first, to the payment of all amounts owing the Collateral
Agent of the type described in clauses (iii) and (iv) of the definition
of "Obligations";
(ii) second, to the extent proceeds remain after the
application pursuant to the preceding clause (i), an amount equal to
the outstanding Primary Obligations shall be paid to the Secured
Creditors as provided in Section 7.4(e) hereof, with each Secured
Creditor receiving an amount equal to such outstanding Primary
Obligations or, if the
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proceeds are insufficient to pay in full all such Primary Obligations,
its Pro Rata Share of the amount remaining to be distributed;
(iii) third, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) and (ii), an amount
equal to the outstanding Secondary Obligations shall be paid to the
Secured Creditors as provided in Section 7.4(e) hereof, with each
Secured Creditor receiving an amount equal to its outstanding Secondary
Obligations or, if the proceeds are insufficient to pay in full all
such Secondary Obligations, its Pro Rata Share of the amount remaining
to be distributed; and
(iv) fourth, to the extent proceeds remain after the
application pursuant to the preceding clauses (i) through (iii),
inclusive, and following the termination of this Agreement pursuant to
Section 10.8(a) hereof, to the relevant Assignor or to whomever may be
lawfully entitled to receive such surplus.
(b) For purposes of this Agreement (x) "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Creditor's Primary
Obligations or Secondary Obligations, as the case may be, and the denominator of
which is the then outstanding amount of all Primary Obligations or Secondary
Obligations, as the case may be, (y) "Primary Obligations" shall mean (i) in the
case of the Credit Document Obligations, all principal of, and interest on, all
Loans, all Unpaid Drawings and all Fees and (ii) in the case of the Other
Obligations, all amounts due under such Interest Rate Protection Agreements or
Other Hedging Agreements (other than indemnities, fees (including, without
limitation, attorneys' fees) and similar obligations and liabilities) and (z)
"Secondary Obligations" shall mean all Obligations other than Primary
Obligations.
(c) When payments to Secured Creditors are based upon their
respective Pro Rata Shares, the amounts received by such Secured Creditors
hereunder shall be applied (for purposes of making determinations under this
Section 7.4 only) (i) first, to their Primary Obligations and (ii) second, to
their Secondary Obligations. If any payment to any Secured Creditor of its Pro
Rata Share of any distribution would result in overpayment to such Secured
Creditor, such excess amount shall instead be distributed in respect of the
unpaid Primary Obligations or Secondary Obligations, as the case may be, of the
other Secured Creditors, with each Secured Creditor whose Primary Obligations or
Secondary Obligations, as the case may be, have not been paid in full to receive
an amount equal to such excess amount multiplied by a fraction the numerator of
which is the unpaid Primary Obligations or Secondary Obligations, as the case
may be, of such Secured Creditor and the denominator of which is the unpaid
Primary Obligations or Secondary Obligations, as the case may be, of all Secured
Creditors entitled to such distribution.
(d) Each of the Secured Creditors, by their acceptance of the
benefits hereof, agrees and acknowledges that if the Bank Creditors are to
receive a distribution on account of undrawn amounts with respect to Letters of
Credit issued under the Credit Agreement (which shall only occur after all
outstanding Loans and Unpaid Drawings with respect to such Letters of Credit
have been paid in full), such amounts shall be paid to the Administrative Agent
under the Credit Agreement and held by it, for the equal and ratable benefit of
the Bank Creditors, as cash
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security for the repayment of Obligations owing to the Bank Creditors as such.
If any amounts are held as cash security pursuant to the immediately preceding
sentence, then upon the termination of all outstanding Letters of Credit, and
after the application of all such cash security to the repayment of all
Obligations owing to the Bank Creditors after giving effect to the termination
of all such Letters of Credit, if there remains any excess cash, such excess
cash shall be returned by the Administrative Agent to the Collateral Agent for
distribution in accordance with Section 7.4(a) hereof.
(e) All payments required to be made hereunder shall be made
(x) if to the Bank Creditors, to the Administrative Agent under the Credit
Agreement for the account of the Bank Creditors, and (y) if to the Other
Creditors, to the trustee, paying agent or other similar representative (each a
"Representative") for the Other Creditors or, in the absence of such a
Representative, directly to the Other Creditors.
(f) For purposes of applying payments received in accordance
with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i)
the Administrative Agent under the Credit Agreement and (ii) the Representative
for the Other Creditors or, in the absence of such a Representative, upon the
Other Creditors for a determination (which the Administrative Agent, each
Representative for any Other Creditors and the Secured Creditors agree (or shall
agree) to provide upon request of the Collateral Agent) of the outstanding
Primary Obligations and Secondary Obligations owed to the Bank Creditors or the
Other Creditors, as the case may be. Unless it has actual knowledge (including
by way of written notice from a Bank Creditor or an Other Creditor) to the
contrary, the Administrative Agent and each Representative, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume that no Secondary Obligations are
outstanding. Unless it has actual knowledge (including by way of written notice
from an Other Creditor) to the contrary, the Collateral Agent, in acting
hereunder, shall be entitled to assume that no Interest Rate Protection
Agreements or Other Hedging Agreements are in existence.
(g) It is understood that the Assignors shall remain jointly
and severally liable to the extent of any deficiency between the amount of the
proceeds of the Collateral and the aggregate amount of the Obligations.
7.5. Remedies Cumulative. Each and every right, power and
remedy hereby specifically given to the Collateral Agent shall be in addition to
every other right, power and remedy specifically given under this Agreement,
under the other Secured Debt Agreements or now or hereafter existing at law, in
equity or by statute and each and every right, power and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time or simultaneously and as often and in such order as may be deemed expedient
by the Collateral Agent. All such rights, powers and remedies shall be
cumulative and the exercise or the beginning of the exercise of one shall not be
deemed a waiver of the right to exercise any other or others. No delay or
omission of the Collateral Agent in the exercise of any such right, power or
remedy and no renewal or extension of any of the Obligations shall impair any
such right, power or remedy or shall be construed to be a waiver of any Default
or Event of Default or an acquiescence therein. No notice to or demand on any
Assignor in any case shall entitle it to any other or further notice or demand
in similar or other circumstances or constitute a waiver of any of the rights of
the Collateral Agent to any other or further action in any circumstances
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<PAGE> 18
without notice or demand. In the event that the Collateral Agent shall bring any
suit to enforce any of its rights hereunder and shall be entitled to judgment,
then in such suit the Collateral Agent may recover reasonable expenses,
including reasonable attorneys' fees, and the amounts thereof shall be included
in such judgment.
7.6. Discontinuance of Proceedings. In case the Collateral
Agent shall have instituted any proceeding to enforce any right, power or remedy
under this Agreement by foreclosure, sale, entry or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Collateral Agent, then and in every such
case the relevant Assignor, the Collateral Agent and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Agreement, and all rights, remedies and powers of the Collateral Agent
shall continue as if no such proceeding had been instituted.
ARTICLE VIII
INDEMNITY
8.1. Indemnity. (a) Each Assignor jointly and severally agrees
to indemnify, reimburse and hold the Collateral Agent, each other Secured
Creditor and their respective successors, permitted assigns, employees, agents
and servants (hereinafter in this Section 8.1 referred to individually as
"Indemnitee," and collectively as "Indemnitees") harmless from any and all
liabilities, obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgments and any and all costs, expenses or disbursements
(including reasonable attorneys' fees and expenses) (for the purposes of this
Section 8.1 the foregoing are collectively called "expenses") of whatsoever kind
and nature imposed on, asserted against or incurred by any of the Indemnitees in
any way relating to or arising out of this Agreement, any other Secured Debt
Agreement or any other document executed in connection herewith or therewith or
in any other way connected with the administration of the transactions
contemplated hereby or thereby or the enforcement of any of the terms of, or the
preservation of any rights under any thereof, or in any way relating to or
arising out of the manufacture, ownership, ordering, purchase, delivery,
performance, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim; provided that no Indemnitee shall be indemnified
pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent
caused by the gross negligence or willful misconduct of such Indemnitee (as
finally determined by a court of competent jurisdiction). Each Assignor agrees
that upon written notice by any Indemnitee of the assertion of such a liability,
obligation, damage, injury, penalty, claim, demand, action, suit or judgment,
the relevant Assignor shall assume full responsibility for the defense thereof.
Each Indemnitee agrees to use its best efforts to promptly notify the relevant
Assignor of any such assertion of which such Indemnitee has knowledge.
(b) Without limiting the application of Section 8.1(a) hereof,
each Assignor agrees, jointly and severally, to pay, or reimburse the Collateral
Agent for any and all reasonable
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fees, costs and expenses of whatever kind or nature incurred in connection with
the creation, preservation or protection of the Collateral Agent's Liens on, and
security interest in, the Collateral, including, without limitation, all fees
and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral, premiums for insurance with respect to the
Collateral and all other fees, costs and expenses in connection with protecting,
maintaining or preserving the Collateral and the Collateral Agent's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.
(c) Without limiting the application of Section 8.1(a) or (b)
hereof, each Assignor agrees, jointly and severally, to pay, indemnify and hold
each Indemnitee harmless from and against any loss, costs, damages and expenses
which such Indemnitee may suffer, expend or incur in consequence of or growing
out of any misrepresentation by any Assignor in this Agreement, in any other
Secured Debt Agreement or in any writing contemplated by or made or delivered
pursuant to or in connection with this Agreement or any other Secured Debt
Agreement.
(d) If and to the extent that the obligations of any Assignor
under this Section 8.1 are unenforceable for any reason, such Assignor hereby
agrees to make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law.
8.2. Indemnity Obligations Secured by Collateral; Survival.
Any amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Assignor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment of all of the
other Obligations and notwithstanding the full payment of all the Notes issued
under the Credit Agreement, the termination of all Interest Rate Protection
Agreements or Other Hedging Agreements and all Letters of Credit and the payment
of all other Obligations and notwithstanding the discharge thereof.
ARTICLE IX
DEFINITIONS
The following terms shall have the meanings herein specified.
Such definitions shall be equally applicable to the singular and plural forms of
the terms defined.
"Administrative Agent" shall have the meaning provided in the
recitals of this Agreement.
"Agreement" shall mean this Security Agreement as the same may
be modified, supplemented or amended from time to time in accordance with its
terms.
"Assignor" shall have the meaning provided in the first
paragraph of this Agreement.
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"Bank Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Banks" shall have the meaning provided in the recitals of
this Agreement.
"Borrower" shall have the meaning provided in the recitals of
this Agreement.
"Cash Collateral Account" shall mean a cash collateral account
maintained with, and in the sole dominion and control of, the Collateral Agent
for the benefit of the Secured Creditors.
"Chattel Paper" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Class" shall have the meaning provided in Section 10.2 of
this Agreement.
"Collateral" shall have the meaning provided in Section 1.1(a)
of this Agreement.
"Collateral Agent" shall have the meaning provided in the
first paragraph of this Agreement.
"Contract Rights" shall mean all rights of any Assignor under
each Contract, including, without limitation, (i) any and all rights to receive
and demand payments under any or all Contracts, (ii) any and all rights to
receive and compel performance under any or all Contracts and (iii) any and all
other rights, interests and claims now existing or in the future arising in
connection with any or all Contracts.
"Contracts" shall mean all contracts between any Assignor and
one or more additional parties (including, without limitation, any Interest Rate
Protection Agreements or Other Hedging Agreements, any partnership agreements
and any limited liability company agreements or operating agreements), but
excluding any contract to the extent that the terms thereof prohibit (after
giving effect to any approvals or waivers) the assignment of, or granting a
security interest in, such contract (it being understood and agreed, however,
that notwithstanding the foregoing, all rights to payment for money due or to
become due pursuant to any such excluded contract shall be subject to the
security interests created by this Agreement).
"Copyrights" shall mean any copyright owned by any Assignor,
including any registrations of any copyrights, in the United States Copyright
Office or any foreign equivalent office, as well as any application for a
copyright registration now or hereafter made with the United States Copyright
Office or any foreign equivalent office by any Assignor.
"Credit Agreement" shall have the meaning provided in the
recitals of this Agreement.
"Credit Document Obligations" shall have the meaning provided
in the definition of "Obligations" in this Article IX.
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"Default" shall mean any event which, with notice or lapse of
time, or both, would constitute an Event of Default.
"Documents" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Equipment" shall mean any "equipment," as such term is
defined in the Uniform Commercial Code as in effect on the date hereof in the
State of New York, now or hereafter owned by any Assignor and, in any event,
shall include, but shall not be limited to, all machinery, equipment,
furnishings, fixtures and vehicles now or hereafter owned by any Assignor and
any and all additions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto.
"Event of Default" shall mean any Event of Default under, and
as defined in, the Credit Agreement and shall in any event include, without
limitation, any payment default on any of the Other Obligations after the
expiration of any applicable grace period.
"General Intangibles" shall have the meaning provided in the
Uniform Commercial Code as in effect on the date hereof in the State of New York
(and shall include all partnership interests and limited liability company or
membership interests), provided that, in the case of General Intangibles which
are Permits or Contracts, the assignment thereof shall be limited as specified
in the definition of Permits or Contracts, as the case may be.
"Goods" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Indemnitee" shall have the meaning provided in Section 8.1 of
this Agreement.
"Instrument" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Inventory" shall mean merchandise, inventory and goods, and
all additions, substitutions and replacements thereof, wherever located,
together with all goods, supplies, incidentals, packaging materials, labels,
materials and any other items used or usable in manufacturing, processing,
packaging or shipping same, in all stages of production -- from raw materials
through work-in-process to finished goods -- and all products and proceeds of
whatever sort and wherever located and any portion thereof which may be
returned, rejected, reclaimed or repossessed by the Collateral Agent from any
Assignor's customers, and shall specifically include all "inventory" as such
term is defined in the Uniform Commercial Code as in effect on the date hereof
in the State of New York, now or hereafter owned by any Assignor.
"Investment Property" shall have the meaning provided in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York.
"Liens" shall mean any security interest, mortgage, pledge,
lien, claim, charge, encumbrance, title retention agreement, lessor's interest
in a financing lease or analogous instrument, in, of, or on any Assignor's
property.
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"Marks" shall mean all right, title and interest in and to any
trademarks, service marks and trade names now held or hereafter acquired by any
Assignor, including any registration of any trademarks and service marks in the
United States Patent and Trademark Office or in any equivalent foreign office
and any trade dress including logos and/or designs used by any Assignor.
"Obligations" shall mean (i) the full and prompt payment when
due (whether at the stated maturity, by acceleration or otherwise) of all
obligations and indebtedness (including, without limitation, indemnities, Fees
and interest thereon) of each Assignor to the Bank Creditors, whether now
existing or hereafter incurred under, arising out of, or in connection with the
Credit Agreement and the other Credit Documents to which such Assignor is a
party (including, in the case of each Subsidiary Guarantor, all such obligations
and indebtedness of such Subsidiary Guarantor under the Subsidiaries Guaranty)
and the due performance and compliance by such Assignor with all of the terms,
conditions and agreements contained in the Credit Agreement and such other
Credit Documents (all such obligations and liabilities under this clause (i),
except to the extent consisting of obligations or indebtedness with respect to
Interest Rate Protection Agreements or Other Hedging Agreements, being herein
collectively called the "Credit Document Obligations"); (ii) the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of all obligations and liabilities owing by such Assignor to the Other Creditors
under, or with respect to (including, in the case of each Subsidiary Guarantor,
by reason of the Subsidiaries Guaranty), any Interest Rate Protection Agreement
or Other Hedging Agreement, whether such Interest Rate Protection Agreement or
Other Hedging Agreement is now in existence or hereafter arising, and the due
performance and compliance by such Assignor with all of the terms, conditions
and agreements contained therein (all such obligations and liabilities described
in this clause (ii) being herein collectively called the "Other Obligations");
(iii) any and all sums reasonably advanced by the Assignee in order to preserve
the Collateral or preserve its security interest in the Collateral; (iv) in the
event of any proceeding for the collection or enforcement of any indebtedness,
obligations or liabilities of such Assignor referred to in clauses (i) and (ii)
above, after an Event of Default shall have occurred and be continuing, the
reasonable expenses of retaking, holding, preparing for sale or lease, selling
or otherwise disposing of or realizing on the Collateral, or of any exercise by
the Assignee of its rights hereunder, together with reasonable attorneys' fees
and court costs; and (v) all amounts paid by any Indemnitee as to which such
Indemnitee has the right to reimbursement under Section 8.1 of this Agreement;
it being acknowledged and agreed that the "Obligations" shall include extensions
of credit of the types described above, whether outstanding on the date of this
Agreement or extended from time to time after the date of this Agreement.
"Other Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Other Obligations" shall have the meaning provided in the
definition of "Obligations" in this Article IX.
"Patents" shall mean any patent to which any Assignor now or
hereafter has title and any divisions or continuations thereof, as well as any
application for a patent now or hereafter made by any Assignor.
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"Permits" shall mean, to the extent permitted to be assigned
by the terms thereof or by applicable law, all licenses, permits, rights,
orders, variances, franchises or authorizations of or from any governmental
authority or agency.
"Primary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
"Pro Rata Share" shall have the meaning provided in Section
7.4(b) of this Agreement.
"Proceeds" shall have the meaning provided in the Uniform
Commercial Code as in effect in the State of New York on the date hereof or
under other relevant law and, in any event, shall include, but not be limited
to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to the Collateral Agent or any Assignor from time to time with respect
to any of the Collateral, (ii) any and all payments (in any form whatsoever)
made or due and payable to any Assignor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any person acting under
color of governmental authority) and (iii) any and all other amounts from time
to time paid or payable under or in connection with any of the Collateral.
"Receivables" shall mean any "account" as such term is defined
in the Uniform Commercial Code as in effect on the date hereof in the State of
New York, now or hereafter owned by any Assignor and, in any event, shall
include, but shall not be limited to, all of such Assignor's rights to payment
for goods sold or leased or services performed by such Assignor, whether now in
existence or arising from time to time hereafter, including, without limitation,
rights evidenced by an account, note, contract, security agreement, chattel
paper, or other evidence of indebtedness or security, together with (a) all
security pledged, assigned, hypothecated or granted to or held by such Assignor
to secure the foregoing, (b) all of any Assignor's right, title and interest in
and to any goods, the sale of which gave rise thereto, (c) all guarantees,
endorsements and indemnifications on, or of, any of the foregoing, (d) all
powers of attorney for the execution of any evidence of indebtedness or security
or other writing in connection therewith, (e) all books, records, ledger cards,
and invoices relating thereto, (f) all evidences of the filing of financing
statements and other statements and the registration of other instruments in
connection therewith and amendments thereto, notices to other creditors or
secured parties, and certificates from filing or other registration officers,
(g) all credit information, reports and memoranda relating thereto and (h) all
other writings related in any way to the foregoing.
"Representative" shall have the meaning provided in Section
7.4(e) of this Agreement.
"Required Secured Creditors" shall mean (i) the Required Banks
(or, to the extent required by Section 13.12 of the Credit Agreement, each of
the Banks) under the Credit Agreement so long as any Credit Document Obligations
remain outstanding and (ii) in any situation not covered by the preceding clause
(i), the holders of a majority of the outstanding principal amount of the Other
Obligations.
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<PAGE> 24
"Requisite Creditors" shall have the meaning provided in
Section 10.2 of this Agreement.
"Secondary Obligations" shall have the meaning provided in
Section 7.4(b) of this Agreement.
"Secured Creditors" shall have the meaning provided in the
recitals of this Agreement.
"Secured Debt Agreements" shall mean and include this
Agreement, the other Credit Documents and the Interest Rate Protection
Agreements and Other Hedging Agreements.
"Termination Date" shall have the meaning provided in Section
10.8 of this Agreement.
"Trade Secret Rights" shall have the meaning provided in
Section 5.1 of this Agreement.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the relevant jurisdiction.
ARTICLE X
MISCELLANEOUS
10.1. Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been duly given or made when delivered to
the party to which such notice, request, demand or other communication is
required or permitted to be given or made under this Agreement, addressed as
follows:
(a) if to any Assignor, at the address set forth opposite such
Assignor's signature below;
(b) if to the Collateral Agent, at:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Attention: Ariana Delucia
Tel. No.: (212) 250-7346
Fax. No.: (212) 250-7218;
(c) if to any Bank Creditor, at such address as such Bank
Creditor shall have specified in the Credit Agreement;
-23-
<PAGE> 25
(d) if to any Other Creditor, at such address as such Other
Creditor shall have specified in writing to each Assignor and the
Collateral Agent;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
10.2. Waiver; Amendment. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Assignor directly effected
thereby and the Collateral Agent (with the written consent of the Required
Secured Creditors); provided, however, that any change, waiver, modification or
variance affecting the rights and benefits of a single Class of Secured
Creditors (and not all Secured Creditors in a like or similar manner) shall
require the written consent of the Requisite Creditors of such affected Class.
For the purpose of this Agreement, the term "Class" shall mean each class of
Secured Creditors, i.e., whether (x) the Bank Creditors as holders of the Credit
Document Obligations or (y) the Other Creditors as the holders of the Other
Obligations. For the purpose of this Agreement, the term "Requisite Creditors"
of any Class shall mean each of (x) with respect to the Credit Document
Obligations, the Required Banks and (y) with respect to the Other Obligations,
the holders of at least a majority amount of all obligations outstanding from
time to time under the respective Interest Rate Protection Agreements or Other
Hedging Agreements.
10.3. Obligations Absolute. The obligations of each Assignor
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Assignor; (b) any
exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under or in respect of this Agreement or any other Secured Debt
Agreement; or (c) any amendment to or modification of any Secured Debt Agreement
or any security for any of the Obligations; whether or not such Assignor shall
have notice or knowledge of any of the foregoing.
10.4. Successors and Assigns. This Agreement shall be binding
upon each Assignor and its successors and assigns (although no Assignor may
assign its rights and obligations hereunder except in accordance with the
provisions of the Secured Debt Agreements) and shall inure to the benefit of the
Collateral Agent and the other Secured Creditors and their respective successors
and assigns. All agreements, statements, representations and warranties made by
each Assignor herein or in any certificate or other instrument delivered by such
Assignor or on its behalf under this Agreement shall be considered to have been
relied upon by the Secured Creditors and shall survive the execution and
delivery of this Agreement and the other Secured Debt Agreements regardless of
any investigation made by the Secured Creditors or on their behalf.
10.5. Headings Descriptive. The headings of the several
sections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
-24-
<PAGE> 26
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
10.7. Assignor's Duties. It is expressly agreed, anything
herein contained to the contrary notwithstanding, that each Assignor shall
remain liable to perform all of the obligations, if any, assumed by it with
respect to the Collateral and the Collateral Agent shall not have any
obligations or liabilities with respect to any Collateral by reason of or
arising out of this Agreement, nor shall the Collateral Agent be required or
obligated in any manner to perform or fulfill any of the obligations of any
Assignor under or with respect to any Collateral.
10.8. Termination; Release. (a) After the Termination Date,
this Agreement shall terminate (provided that all indemnities set forth herein
including, without limitation, in Section 8.1 hereof shall survive such
termination) and the Collateral Agent, at the request and expense of the
respective Assignor, will promptly execute and deliver to such Assignor a proper
instrument or instruments (including Uniform Commercial Code termination
statements on form UCC-3) acknowledging the satisfaction and termination of this
Agreement, and will duly assign, transfer and deliver to such Assignor (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Collateral Agent and as has not theretofore been
sold or otherwise applied or released pursuant to this Agreement. As used in
this Agreement, "Termination Date" shall mean the date upon which the Total
Commitment and all Interest Rate Protection Agreements and Other Hedging
Agreements have been terminated, all Loans have been repaid in full, all Letters
of Credit have been terminated and all Obligations then owing have been paid in
full.
(b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 9.02 of the Credit Agreement (other
than a sale to any Assignor or a Subsidiary thereof) or otherwise released at
the direction of the Required Secured Creditors or any Equipment is financed as
permitted by Sections 9.01(vii) and (viii) of the Credit Agreement (to the
extent that the lender thereof does not permit the Collateral Agent to retain a
junior Lien on such Equipment), such Collateral will be sold or financed, as the
case may be, free and clear of the Liens created by this Agreement (and such
Collateral shall automatically be released from the Liens created by this
Agreement) and the Collateral Agent, at the request and expense of the relevant
Assignor, will duly assign, transfer and deliver to such Assignor (without
recourse and without any representation or warranty) such of the Collateral as
is then being (or has been) so sold or released and as may be in the possession
of the Collateral Agent and has not theretofore been released pursuant to this
Agreement.
(c) At any time that an Assignor desires that the Collateral
Agent take any action to acknowledge or give effect to any release of Collateral
pursuant to the foregoing Section 10.8(a) or (b), such Assignor shall deliver to
the Collateral Agent a certificate signed by a principal executive officer of
such Assignor stating that the release of the respective Collateral is permitted
pursuant to Section 10.8(a) or (b).
10.9. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the
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<PAGE> 27
same instrument. A set of counterparts executed by all the parties hereto shall
be lodged with each Assignor and the Collateral Agent.
10.10. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.11. The Collateral Agent. The Collateral Agent will hold in
accordance with this Agreement all items of the Collateral at any time received
under this Agreement. It is expressly understood and agreed that the obligations
of the Collateral Agent as holder of the Collateral and interests therein and
with respect to the disposition thereof, and otherwise under this Agreement, are
only those expressly set forth in this Agreement and in Section 12 of the Credit
Agreement. The Collateral Agent shall act hereunder and thereunder on the terms
and conditions set forth herein and in Section 12 of the Credit Agreement.
10.12. Benefit of Agreement. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of and be enforceable by each of the parties hereto and its
successors and assigns.
10.13. Future Assignors. It is understood and agreed that any
Subsidiary of the Borrower that is required to execute a counterpart of this
Agreement after the date hereof pursuant to the Credit Agreement shall
automatically become an Assignor hereunder by executing a counterpart hereof and
delivering the same to the Collateral Agent, at which time the Annexes to this
Agreement will be appropriately modified to reflect the Collateral then owned by
such additional Assignor.
* * *
-26-
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
Address
SPECIAL DEVICES, INCORPORATED,
as an Assignor
16830 W. Placerita Canyon Road
Newhall, California 91321
Attention: Vice President
Telephone No.: (805) 259-0753 By: /s/ John T. Vinke
Telecopier No.: (805) 254-4721 ---------------------
Name: John T. Vinke
Title: Chief Financial Officer
and
copy to:
J.F. Lehman & Company, Inc.
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Keith Oster
Telephone No.: (212) 634-0100
Telecopier No.: (212) 634-1155
SCOT, INCORPORATED,
as an Assignor
2525 Curtiss Street
Downers Grove, Illinois 60515
Attention: Mary Lou Graham
Telephone No.: (630) 969-0620 By: /s/ John T. Vinke
Telecopier No.: (630) 969-4719 --------------------
Name: John T. Vinke
Title: Vice President
and
copy to:
J.F. Lehman & Company, Inc.
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Keith Oster
Telephone No.: (212) 634-0100
Telecopier No.: (212) 634-1155
-27-
<PAGE> 29
Accepted and Agreed to:
BANKERS TRUST COMPANY,
as Collateral Agent
By: /s/ Gregory P. Shefrin
----------------------
Name: Gregory P. Shefrin
Title: Vice President
-28-
<PAGE> 30
ANNEX A
to
SECURITY AGREEMENT
SCHEDULE OF CHIEF EXECUTIVE OFFICES
AND OTHER RECORD LOCATIONS
I. Chief Executive Offices:
a. Special Devices, Incorporated - 16830 W. Placerita Canyon
Road, Newhall, California 91321
b. Scot, Incorporated - 2525 Curtiss Street, Downers Grove,
Illinois 60515
II. Other Record Locations:
a. 3431 N. Reseda Circle, Mesa, Arizona 85215
b. 9747 West, 900 South, Ogden, Utah 84404
c. 5165 Maureen Avenue, Moorpark, California 93021
<PAGE> 31
ANNEX B
to
SECURITY AGREEMENT
SCHEDULE OF INVENTORY AND EQUIPMENT LOCATIONS
Assignor Location
Special Devices, Incorporated 16830 W. Placerita Canyon Road
Newhall, California 91321
5165 Maureen Avenue
Moorpark, California 93021
14370 White Sage Road
Moorpark, California 93021
3431 N. Reseda Circle
Mesa, Arizona 85215
2525 Curtiss Street
Downers Grove, Illinois 60515
Scot, Incorporated 9747 West, 900 South
Ogden, Utah 84404
2525 Curtiss Street
Downers Grove, Illinois 60515
16830 W. Placerita Canyon Road
Newhall, California 91321
14370 White Sage Road
Moorpark, California 93021
<PAGE> 32
ANNEX C
to
SECURITY AGREEMENT
SCHEDULE OF TRADE AND FICTITIOUS NAMES
None.
<PAGE> 33
ANNEX D
to
SECURITY AGREEMENT
SCHEDULE OF MARKS
None.
<PAGE> 34
ANNEX E
to
SECURITY AGREEMENT
SCHEDULE OF PATENTS
Patent Patent No. Issue Date
Safe-Arm Initiator 5,279,226 01/18/94
Arming & Firing Device 4,592,281 06/03/86
<PAGE> 35
ANNEX F
to
SECURITY AGREEMENT
SCHEDULE OF COPYRIGHTS
None.
<PAGE> 36
ANNEX G
to
SECURITY AGREEMENT
GRANT OF SECURITY INTEREST
IN UNITED STATES TRADEMARKS AND PATENTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency
of which are hereby acknowledged, [Name of Grantor], a __________ corporation
(the "Grantor") with principal offices at ____________________________, hereby
assigns and grants to Bankers Trust Company, as Collateral Agent, with principal
offices at One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006
(the "Grantee"), a security interest in (i) all of the Grantor's right, title
and interest in and to the United States trademarks, trademark registrations and
trademark applications (the "Marks") set forth on Schedule A attached hereto,
(ii) all of the Grantor's rights, title and interest in and to the United States
patents (the "Patents") set forth on Schedule B attached hereto, in each case
together with (iii) all Proceeds (as such term is defined in the Security
Agreement referred to below) and products of the Marks and Patents, (iv) the
goodwill of the businesses with which the Marks are associated and (v) all
causes of action arising prior to or after the date hereof for infringement of
any of the Marks and Patents or unfair competition regarding the same.
THIS GRANT is made to secure the satisfactory performance and
payment of all the Obligations of the Grantor, as such term is defined in the
Security Agreement among the Grantor, the other assignors from time to time
party thereto and the Grantee, dated as of December 15, 1998 (as amended from
time to time, the "Security Agreement"). Upon the occurrence of the Termination
Date (as defined in the Security Agreement), the Grantee shall, upon such
satisfaction, execute, acknowledge, and deliver to the Grantor an instrument in
writing releasing the security interest in the Marks and Patents acquired under
this Grant.
This Grant has been granted in conjunction with the security
interest granted to the Grantee under the Security Agreement. The rights and
remedies of the Grantee with respect
<PAGE> 37
ANNEX G
Page 2
to the security interest granted herein are without prejudice to, and are in
addition to those set forth in the Security Agreement, all terms and provisions
of which are incorporated herein by reference. In the event that any provisions
of this Grant are deemed to conflict with the Security Agreement, the provisions
of the Security Agreement shall govern.
<PAGE> 38
ANNEX G
Page 3
IN WITNESS WHEREOF, the undersigned have executed this Grant
as of the ____ day of _________, ____.
[NAME OF GRANTOR], Grantor
By: _____________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Collateral Agent, Grantee
By: _____________________________
Name:
Title:
<PAGE> 39
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of _________, ____, before me personally came
________ _________________ who, being by me duly sworn, did state as follows:
that [s]he is _______________ of [Name of Grantor], that [s]he is authorized to
execute the foregoing Grant on behalf of said corporation and that [s]he did so
by authority of the Board of Directors of said corporation.
___________________________
Notary Public
<PAGE> 40
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of _________, ____, before me personally came
________ _____________________ who, being by me duly sworn, did state as
follows: that [s]he is __________________ of Bankers Trust Company that [s]he is
authorized to execute the foregoing Grant on behalf of said corporation and that
[s]he did so by authority of the Board of Directors of said corporation.
____________________________
Notary Public
<PAGE> 41
SCHEDULE A
MARK REG. NO. REG. DATE
<PAGE> 42
SCHEDULE B
PATENT PATENT NO. ISSUE DATE
<PAGE> 43
ANNEX H
to
SECURITY AGREEMENT
GRANT OF SECURITY INTEREST
IN UNITED STATES COPYRIGHTS
WHEREAS, [Name of Grantor], a _______________ corporation (the
"Grantor"), having its chief executive office at ______________________
,_______________ , is the owner of all right, title and interest in and to the
United States copyrights and associated United States copyright registrations
and applications for registration set forth in Schedule A attached hereto;
WHEREAS, BANKERS TRUST COMPANY, as Collateral Agent, having
its principal offices at One Bankers Trust Plaza, 130 Liberty Street, New York,
New York 10006 (the "Grantee"), desires to acquire a security interest in said
copyrights and copyright registrations and applications therefor; and
WHEREAS, the Grantor is willing to assign to the Grantee, and
to grant to the Grantee a security interest in and lien upon the copyrights and
copyright registrations and applications therefor described above.
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, and subject to the terms and conditions
of the Security Agreement, dated as of December 15, 1998, made by the Grantor,
the other assignors from time to time party thereto and the Grantee (as amended
from time to time, the "Security Agreement"), the Grantor hereby assigns to the
Grantee, and grants to the Grantee a security interest in the copyrights and
copyright registrations and applications therefor set forth in Schedule A
attached hereto.
This Grant has been granted in conjunction with the security
interest granted to the Grantee under the Security Agreement. The rights and
remedies of the Grantee with respect to the security interest granted herein are
without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Grant are deemed to conflict
with the Security Agreement, the provisions of the Security Agreement shall
govern.
<PAGE> 44
ANNEX H
Page 2
Executed at New York, New York, the __ day of _________, ____.
[NAME OF GRANTOR], as Grantor
By: _______________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Collateral Agent, Grantee
By: _______________________________
Name:
Title:
<PAGE> 45
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __ day of _________, ____, before me personally came
___________ _______________, who being duly sworn, did depose and say that [s]he
is ___________________ of [Name of Grantor], that [s]he is authorized to execute
the foregoing Grant on behalf of said corporation and that [s]he did so by
authority of the Board of Directors of said corporation.
______________________________
Notary Public
<PAGE> 46
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of _________, ____, before me personally came
________ _____________________ who, being by me duly sworn, did state as
follows: that [s]he is __________________ of Bankers Trust Company that [s]he is
authorized to execute the foregoing Grant on behalf of said corporation and that
[s]he did so by authority of the Board of Directors of said corporation.
______________________________
Notary Public
<PAGE> 47
SCHEDULE A
U.S. COPYRIGHTS
REGISTRATION PUBLICATION
NUMBERS DATE COPYRIGHT TITLE
<PAGE> 1
EXHIBIT 10.4
PLEDGE AGREEMENT
PLEDGE AGREEMENT (as amended, modified or supplemented from
time to time, this "Agreement"), dated as of December 15, 1998, made by each of
the undersigned pledgors (each a "Pledgor" and, together with any other entity
that becomes a pledgor hereunder pursuant to Section 24 hereof, the "Pledgors")
to BANKERS TRUST COMPANY, as Collateral Agent (the "Pledgee"), for the benefit
of the Secured Creditors (as defined below). Except as otherwise defined herein,
capitalized terms used herein and defined in the Credit Agreement (as defined
below) shall be used herein as therein defined.
W I T N E S S E T H :
WHEREAS, Special Devices, Incorporated (the "Borrower"), the
lenders from time to time party thereto (the "Banks") and Bankers Trust Company,
as Lead Arranger and Administrative Agent (together with any successor
administrative agent, the "Administrative Agent"), have entered into a Credit
Agreement, dated as of December 15, 1998 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), providing for the making of Loans
to, and the issuance of Letters of Credit for the account of, the Borrower as
contemplated therein (the Banks, the Issuing Bank, the Administrative Agent and
the Pledgee are herein called the "Bank Creditors");
WHEREAS, the Borrower may at any time and from time to time
enter into one or more Interest Rate Protection Agreements or Other Hedging
Agreements with one or more Banks or any affiliate thereof (each such Bank or
affiliate, even if the respective Bank subsequently ceases to be a Bank under
the Credit Agreement for any reason, together with such Bank's or affiliate's
successors and assigns, if any, collectively, the "Other Creditors," and
together with the Bank Creditors, the "Secured Creditors");
WHEREAS, pursuant to the Subsidiaries Guaranty, each
Subsidiary Guarantor has jointly and severally guarantied to the Secured
Creditors the payment when due of all Guaranteed Obligations as described
therein;
WHEREAS, it is a condition to the making of Loans to, and the
issuance of Letters of Credit for the account of, the Borrower under the Credit
Agreement that each Pledgor shall have executed and delivered to the Pledgee
this Agreement; and
WHEREAS, each Pledgor desires to enter into this Agreement in
order to satisfy the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Pledgor, the receipt and sufficiency of which are
hereby acknowledged, each Pledgor hereby makes the following representations and
warranties to the Pledgee for the benefit of the Secured Creditors and hereby
covenants and agrees with the Pledgee for the benefit of the Secured Creditors
as follows:
<PAGE> 2
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each
Pledgor for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations and
indebtedness (including, without limitation, indemnities, Fees and
interest thereon) of such Pledgor to the Bank Creditors, whether now
existing or hereafter incurred under, arising out of, or in connection
with the Credit Agreement and the other Credit Documents to which such
Pledgor is a party (including, in the case of each Subsidiary
Guarantor, all such obligations and indebtedness of such Subsidiary
Guarantor under the Subsidiaries Guaranty) and the due performance and
compliance by such Pledgor with all of the terms, conditions and
agreements contained in the Credit Agreement and such other Credit
Documents (all such obligations and liabilities under this clause (i),
except to the extent consisting of obligations or indebtedness with
respect to Interest Rate Protection Agreements or Other Hedging
Agreements, being herein collectively called the "Credit Document
Obligations");
(ii) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of all obligations and
liabilities owing by such Pledgor to the Other Creditors under, or with
respect to (including, in the case of each Subsidiary Guarantor, by
reason of the Subsidiaries Guaranty), any Interest Rate Protection
Agreement or Other Hedging Agreement, whether such Interest Rate
Protection Agreement or Other Hedging Agreement is now in existence or
hereafter arising, and the due performance and compliance by such
Pledgor with all of the terms, conditions and agreements contained
therein (all such obligations and liabilities described in this clause
(ii) being herein collectively called the "Other Obligations");
(iii) any and all sums advanced by the Pledgee in order to
preserve the Collateral (as hereinafter defined) or preserve its
security interest in the Collateral;
(iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations or liabilities of such
Pledgor referred to in clauses (i), (ii) and (iii) above, after an
Event of Default (which term to mean and include any Event of Default
under, and as defined in, the Credit Agreement or any payment default
by the Borrower under any Interest Rate Protection Agreement or Other
Hedging Agreement and shall, in any event, include, without limitation,
any payment default on any of the Obligations (as hereinafter defined))
shall have occurred and be continuing, the reasonable expenses of
retaking, holding, preparing for sale or lease, selling or otherwise
disposing of or realizing on the Collateral, or of any exercise by the
Pledgee of its rights hereunder, together with reasonable attorneys'
fees and court costs; and
(v) all amounts paid by any Secured Creditor as to which such
Secured Creditor has the right to reimbursement under Section 11 of
this Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations," it being acknowledged and agreed that the "Obligations" shall
include extensions of credit of the types described above, whether
-2-
<PAGE> 3
outstanding on the date of this Agreement or extended from time to time after
the date of this Agreement.
2. DEFINITION OF STOCK, NOTES, SECURITIES, PARTNERSHIP
INTERESTS, ETC. (a) As used herein, (i) the term "Stock" shall mean (x) with
respect to corporations incorporated under the laws of the United States or any
State or territory thereto (each a "Domestic Corporation"), all of the issued
and outstanding shares of capital stock, and all warrants and options to
purchase any such capital stock, of any corporation at any time owned by any
Pledgor, and (y) with respect to corporations that are not Domestic Corporations
(each a "Foreign Corporation"), all of the issued and outstanding shares of
capital stock, and all warrants and options to purchase such capital stock, at
any time owned by any Pledgor of any Foreign Corporation, provided that, (A)
except as provided in the last sentence of this Section 2, no Pledgor shall be
required to pledge hereunder more than 65% of the total combined voting power of
all classes of capital stock entitled to vote for directors of such Foreign
Corporation (herein called "Voting Stock") owned by such Pledgor of any Foreign
Corporation, and (B) each Pledgor shall be required to pledge hereunder 100% of
the issued and outstanding shares of all capital stock which is not Voting Stock
(herein called "Non-Voting Stock") at any time owned by the Pledgor of any
Foreign Corporation, (ii) the term "Notes" shall mean all Intercompany Notes and
all other promissory notes or other evidences of indebtedness from time to time
issued to, or held by, any Pledgor and (iii) the term "Securities" shall mean
all of the Stock and Notes. Each Pledgor represents and warrants, that on the
date hereof, (A) the Stock held by such Pledgor consists of the number and type
of shares of the stock of the corporations as described in Annex A hereto for
such Pledgor, (B) such Stock constitutes that percentage of the issued and
outstanding capital stock of the issuing corporation as is set forth in Annex A
hereto, (C) the Notes held by such Pledgor consist of the promissory notes
described in Annex B hereto for such Pledgor, (D) such Pledgor is the holder of
record and sole beneficial owner of the Stock and the Notes held by such Pledgor
and (E) such Pledgor owns no other Securities. In the circumstances and to the
extent provided in Section 8.14 of the Credit Agreement, the 65% limitation set
forth in clause (i)(y) of this Section 2 and Section 3.2 hereof shall no longer
be applicable and such Pledgor shall duly pledge and deliver to the Pledgee such
of the Securities not theretofore required to be pledged hereunder.
(b) As used herein, the term "Partnership Interest" shall mean
the entire partnership interests (whether general and/or limited partnership
interests) at any time owned by each Pledgor in any Person (each a "Pledged
Partnership") to the extent such Partnership Interest is a security under the
UCC. Each Pledgor represents and warrants that, on the date hereof, (A) the
Partnership Interests held by such Pledgor constitutes that percentage of the
entire partnership interest of the respective Pledged Partnership as is set
forth on Annex C hereto for such Pledgor and (B) such Pledgor owns no other
Partnership Interests. Notwithstanding anything to the contrary contained in
this Agreement, no Pledgor shall be required to pledge any Partnership Interest
owned by such Pledgor in a Person that is not a Subsidiary of such Pledgor to
the extent a pledge of such Partnership Interest would violate any provision of
the partnership agreement pursuant to which such Partnership Interest is
created.
(c) All Stock at any time pledged or required to be pledged
hereunder is hereinafter called the "Pledged Stock;" all Notes at any time
pledged or required to be pledged hereunder are hereinafter called the "Pledged
Notes;" all Pledged Stock and Pledged Notes
-3-
<PAGE> 4
together are called the "Pledged Securities;" all Partnership Interests at any
time pledged or required to be pledged hereunder are hereinafter called the
"Pledged Partnership Interests", and the Pledged Securities and the Pledged
Partnership Interests, together with all proceeds thereof, including any
securities and moneys received and at the time held by the Pledgee hereunder,
are hereinafter called the "Collateral."
(d) Notwithstanding anything to the contrary contained in this
Agreement (including certain of the representations and warranties in Section 16
hereof), no Pledgor shall be required to pledge any Notes (other than
Intercompany Notes) hereunder with an outstanding principal amount of $50,000 or
less, provided that no more than $100,000 in the aggregate of all such $50,000
or less Notes (including, for this purpose, any Instruments (as defined in the
Security Agreement) not required to be delivered pursuant to the Security
Agreement) shall be excluded from the delivery requirements under this
Agreement.
3. PLEDGE OF SECURITIES, ETC.
3.1 Pledge. (a) To secure the Obligations of such Pledgor and
for the purposes set forth in Section 1 hereof, each Pledgor hereby (i) grants
to the Pledgee a security interest in all of the Collateral owned by such
Pledgor, (ii) pledges and deposits as security with the Pledgee, the Securities
owned by such Pledgor on the date hereof, and delivers to the Pledgee
certificates or instruments therefor, duly endorsed in blank by such Pledgor in
the case of Notes and accompanied by undated stock powers duly executed in blank
by such Pledgor (and accompanied by any transfer tax stamps required in
connection with the pledge of such Securities) in the case of Stock, or such
other instruments of transfer as are reasonably acceptable to the Pledgee, and
without limitation of clause (i), grants to Pledgee a security interest in such
Pledgor's Partnership Interests (and delivers any certificates or instruments
evidencing such partnership interests, duly endorsed in blank) and all of such
Pledgor's right, title and interest in each Pledged Partnership including,
without limitation:
(i) all of the capital thereof and its interest in all
profits, losses, Partnership Assets (as defined below) and other
distributions to which such Pledgor shall at any time be entitled in
respect of any such Collateral;
(ii) all other payments due or to become due to such Pledgor
in respect of any such Collateral, whether under any partnership
agreement or otherwise, whether as contractual obligations, damages,
insurance proceeds or otherwise;
(iii) all of its claims, rights, powers, privileges,
authority, options, security interest, liens and remedies, if any,
under any partnership or other agreement or at law or otherwise in
respect of any such Collateral;
(iv) all present and future claims, if any, of such Pledgor
against any Pledged Partnership for moneys loaned or advanced, for
services rendered or otherwise;
(v) all of such Pledgor's rights under any partnership
agreement or at law to exercise and enforce every right, power, remedy,
authority, option and privilege of such Pledgor relating to any
Partnership Interest, including any power, if any, to terminate, cancel
or modify any general or limited partnership agreement, to execute any
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instruments and to take any and all other action on behalf of and in
the name of such Pledgor in respect of such Partnership Interest and
any Pledged Partnership Interest, to make determinations, to exercise
any election (including, but not limited to, election of remedies) or
option or to give or receive any notice, consent, amendment, waiver or
approval, together with full power and authority to demand, receive,
enforce, collect, or receipt for any of the foregoing or for any
Partnership Asset, to enforce or execute any checks, or other
instruments or orders, to file any claims and to take any action in
connection with any of the foregoing;
(vi) all other property hereafter delivered in substitution
for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such other property and all
cash, securities, interest, dividends, distributions, rights and other
property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all
thereof; and
(vii) to the extent not otherwise included, all proceeds of
any or all of the foregoing.
(b) As used herein, the term "Partnership Assets" shall mean
all assets, whether tangible or intangible and whether real, personal or mixed
(including, without limitation, all partnership capital and interests in other
partnerships), at any time owned by any Pledged Partnership or represented by
any Partnership Interest.
3.2 Subsequently Acquired Securities and/or Partnership
Interests. (a) If any Pledgor shall acquire (by purchase, stock dividend or
otherwise) any additional Securities at any time or from time to time after the
date hereof, such Pledgor will promptly thereafter deposit such Securities (or
certificates or instruments representing such Securities) as security with the
Pledgee and deliver to the Pledgee certificates or instruments therefor, duly
endorsed in blank in the case of such Notes, and accompanied by undated stock
powers duly executed in blank by such Pledgor (and accompanied by any transfer
tax stamps required in connection with the pledge of such Securities) in the
case of such Stock, or such other instruments of transfer as are reasonably
acceptable to the Pledgee, and will promptly thereafter deliver to the Pledgee a
certificate executed by a principal executive officer of such Pledgor describing
such Securities and certifying that the same has been duly pledged with the
Pledgee hereunder. Subject to the last sentence of Section 2 hereof, no Pledgor
shall be required at any time to pledge hereunder any Stock which is more than
65% of the total combined Voting Stock of any Foreign Corporation.
(b) If any Pledgor shall acquire (by purchase, distribution or
otherwise) any additional Partnership Interest at any time or from time to time
after the date hereof, and, to the extent such Partnership Interest is
certificated, such Pledgor shall forthwith deliver to the Pledgee certificates
therefor, accompanied by such instruments of transfer as are acceptable to the
Pledgee, and shall promptly thereafter deliver to the Pledgee a certificate
executed by a principal executive officer of such Pledgor describing such
Partnership Interest and certifying that the same has been duly pledged with the
Pledgee hereunder.
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3.3 Uncertificated Securities and Partnership Interests.
Notwithstanding anything to the contrary contained in Sections 3.1 and 3.2
hereof, if any Securities (whether now owned or hereafter acquired) or
Partnership Interests are uncertificated securities, the relevant Pledgor shall
promptly notify the Pledgee thereof, and shall promptly take all actions (to the
extent not already taken) required to perfect the security interest of the
Pledgee under applicable law (including, in any event, under the applicable
provisions of the relevant UCC). Each Pledgor further agrees to take such
actions as the Pledgee deems necessary or reasonably desirable to effect the
foregoing and to permit the Pledgee to exercise any of its rights and remedies
hereunder.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. If and to the
extent necessary to enable the Pledgee to perfect its security interest in any
of the Collateral or to exercise any of its remedies hereunder, the Pledgee
shall have the right to appoint one or more sub-agents for the purpose of
retaining physical possession of the Pledged Securities or Pledged Partnership
Interests, which may be held (in the discretion of the Pledgee) in the name of
the relevant Pledgor, endorsed or assigned in blank or in favor of the Pledgee
or any nominee or nominees of the Pledgee or a sub-agent appointed by the
Pledgee.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until
there shall have occurred and be continuing an Event of Default and the Pledgee
shall have terminated any such entitlement by notice to the Pledgor (provided
that no such notice shall be required if a Default or an Event of Default under
Section 10.05 of the Credit Agreement exists and is continuing, in which case
such entitlement shall automatically terminate), each Pledgor shall be entitled
to exercise any and all (i) voting and other consensual rights pertaining to the
Pledged Securities owned by it, and to give consents, waivers or ratifications
in respect thereof, and (ii) voting, consent, administration, management and
other rights and remedies under any partnership agreement or otherwise with
respect to the Pledged Partnership Interests of such Pledgor; provided, that, in
each case, no vote shall be cast or any consent, waiver or ratification given or
any action taken or omitted to be taken which would violate or be inconsistent
with any of the terms of this Agreement, the Credit Agreement, any other Credit
Document or any Interest Rate Protection Agreement or Other Hedging Agreement
(collectively, the "Secured Debt Agreements"), or which would have the effect of
impairing the security interest of the Pledgee in the Collateral. All such
rights of each Pledgor to vote and to give consents, waivers and ratifications
shall cease in case an Event of Default has occurred and is continuing, and
Section 7 hereof shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless and until there
shall have occurred and be continuing an Event of Default and the Pledgee shall
have terminated any such entitlement by notice to the Pledgor (provided that no
such notice shall be required if a Default or an Event of Default under Section
10.05 of the Credit Agreement exists and is continuing, in which case such
entitlement shall automatically terminate), (i) all cash dividends and
distributions payable in respect of the Pledged Stock and all payments in
respect of the Pledged Notes shall be paid to the respective Pledgor and (ii)
all cash distributions payable in respect of the Pledged Partnership Interests
shall be paid to the respective Pledgor. The Pledgee shall be entitled to
receive directly, and to retain as part of the Collateral:
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(i) all other or additional stock or other securities or
partnership interests (other than cash) paid or distributed by way of
dividend, distribution or otherwise in respect of the Collateral;
(ii) all other or additional stock or other securities or
partnership interests paid or distributed in respect of the Collateral
by way of merger, consolidation, conveyance of assets, liquidation,
exchange of stock, stock-split, spin-off, split-up, reclassification,
combination of shares or similar rearrangement; and
(iii) all other property (other than cash) paid or distributed
by way of dividend or distribution in respect of the Collateral.
Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive proceeds of the Collateral in any form in accordance
with Section 3 of this Agreement. Furthermore, the foregoing provisions of this
Section 6 shall not apply to dividends or distributions made in connection with
the transactions contemplated by Sections 9.02(x) and (xi) of the Credit
Agreement, provided that such transactions are consummated in accordance with
the applicable terms and conditions set forth in the Credit Agreement. All
dividends, distributions or other payments which are received by any Pledgor
contrary to the provisions of this Section 6 and Section 7 hereof shall be
received in trust for the benefit of the Pledgee, shall be segregated from other
property or funds of such Pledgor and shall be forthwith paid over to the
Pledgee as Collateral in the same form as so received (with any necessary
endorsement).
7. REMEDIES IN CASE OF DEFAULT OR EVENT OF DEFAULT. If there
shall have occurred and be continuing an Event of Default, then and in every
such case, the Pledgee shall be entitled to exercise all of the rights, powers
and remedies (whether vested in it by this Agreement, any other Secured Debt
Agreement or by law) for the protection and enforcement of its rights in respect
of the Collateral, and the Pledgee shall be entitled to exercise all the rights
and remedies of a secured party under the Uniform Commercial Code and also shall
be entitled, without limitation, to exercise the following rights, which each
Pledgor hereby agrees to be commercially reasonable:
(a) to receive all amounts payable in respect of the
Collateral otherwise payable under Section 6 hereof to the respective
Pledgor;
(b) to transfer all or any part of the Collateral into the
Pledgee's name or the name of its nominee or nominees;
(c) to accelerate any Pledged Note which may be accelerated in
accordance with its terms, and take any other lawful action to collect
upon any Pledged Note (including, without limitation, to make any
demand for payment thereon);
(d) to vote all or any part of the Pledged Stock or Pledged
Partnership Interests (whether or not transferred into the name of the
Pledgee) and give all consents, waivers and ratifications in respect of
the Collateral and otherwise act with respect thereto as though it were
the outright owner thereof (each Pledgor hereby irrevocably
constituting and appointing the Pledgee the proxy and attorney-in-fact
of such Pledgor, with full power of substitution to do so); and
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(e) at any time and from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to
sell or of the time or place of sale or adjournment thereof or to
redeem or otherwise (all of which are hereby waived by each Pledgor),
for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or
prices and on such terms as the Pledgee in its absolute discretion may
determine, provided that at least 10 days' written notice of the time
and place of any such sale shall be given to the respective Pledgor.
The Pledgee shall not be obligated to make any such sale of Collateral
regardless of whether any such notice of sale has theretofore been
given. Each Pledgor hereby waives and releases to the fullest extent
permitted by law any right or equity of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if
any, of marshalling the Collateral and any other security for the
Obligations or otherwise. At any such sale, unless prohibited by
applicable law, the Pledgee on behalf of the Secured Creditors may bid
for and purchase all or any part of the Collateral so sold free from
any such right or equity of redemption. Neither the Pledgee nor any
other Secured Creditor shall be liable for failure to collect or
realize upon any or all of the Collateral or for any delay in so doing
nor shall any of them be under any obligation to take any action
whatsoever with regard thereto.
8. REMEDIES, ETC., CUMULATIVE. Each and every right, power and
remedy of the Pledgee provided for in this Agreement, or now or hereafter
existing at law or in equity or by statute shall be cumulative and concurrent
and shall be in addition to every other such right, power or remedy. The
exercise or beginning of the exercise by the Pledgee or any other Secured
Creditor of any one or more of the rights, powers or remedies provided for in
this Agreement or in any other Secured Debt Agreement or now or hereafter
existing at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any other Secured Creditor of
all such other rights, powers or remedies, and no failure or delay on the part
of the Pledgee or any other Secured Creditor to exercise any such right, power
or remedy shall operate as a waiver thereof. No notice to or demand on any
Pledgor in any case shall entitle it to any other or further notice or demand in
similar or other circumstances or constitute a waiver of any of the rights of
the Pledgee or any other Secured Creditor to any other or further action in any
circumstances without notice or demand. The Secured Creditors (by their
acceptance of the benefits of this Agreement) agree that this Agreement may be
enforced only by the action of the Administrative Agent or the Pledgee, in each
case acting upon the instructions of the Required Secured Creditors (as defined
in the Security Agreement) and that no Secured Creditor, other than the
Administrative Agent or the Pledgee, shall have any right individually to seek
to enforce or to enforce this Agreement or to realize upon the security to be
granted hereby, it being understood and agreed that such rights and remedies may
be exercised by the Administrative Agent or the Pledgee or the holders of at
least a majority of the outstanding Other Obligations, as the case may be, for
the benefit of the Secured Creditors upon the terms of this Agreement.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied in the manner provided in the Security Agreement.
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(b) It is understood and agreed that the Pledgors shall remain
jointly and severally liable to the extent of any deficiency between the amount
of the proceeds of the Collateral hereunder and the aggregate amount of the
Obligations.
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral
by the Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. INDEMNITY. Each Pledgor jointly and severally agrees (i)
to indemnify and hold harmless the Pledgee in such capacity and each other
Secured Creditor and their respective successors, assigns, employees, agents and
servants (individually an "Indemnitee," and collectively the "Indemnitees") from
and against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever kind or nature, and (ii) to
reimburse each Indemnitee for all costs and expenses, including reasonable
attorneys' fees, in each case growing out of or resulting from this Agreement or
the exercise by any Indemnitee of any right or remedy granted to it hereunder or
under any other Secured Debt Agreement (but excluding any claims, demands,
losses, judgments and liabilities or expenses to the extent incurred by reason
of gross negligence or willful misconduct of such Indemnitee (as finally
determined by a court of competent jurisdiction)). In no event shall the Pledgee
be liable, in the absence of gross negligence or willful misconduct on its part
(as finally determined by a court of competent jurisdiction), for any matter or
thing in connection with this Agreement other than to account for monies
actually received by it in accordance with the terms hereof. If and to the
extent that the obligations of any Pledgor under this Section 11 are
unenforceable for any reason, such Pledgor hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
12. PLEDGEE NOT BOUND. (a) Nothing herein shall be construed
to make the Pledgee or any other Secured Creditor liable as a general partner or
limited partner of any Pledged Partnership and the Pledgee or any other Secured
Creditor by virtue of this Agreement or otherwise (except as referred to in the
following sentence) shall not have any of the duties, obligations or liabilities
of a general partner or limited partner of any Pledged Partnership. The parties
hereto expressly agree that, unless the Pledgee shall become the absolute owner
of a Pledged Partnership Interest pursuant hereto, this Agreement shall not be
construed as creating a partnership or joint venture among the Pledgee, any
other Secured Creditor and/or any Pledgor.
(b) Except as provided in the last sentence of paragraph (a)
of this Section, the Pledgee, by accepting this Agreement, did not intend to
become a general partner or limited partner of any Pledged Partnership or
otherwise be deemed to be a co-venturer with respect to any Pledgor or any
Pledged Partnership either before or after an Event of Default shall have
occurred. The Pledgee shall have only those powers set forth herein and shall
assume none of the duties, obligations or liabilities of a general partner or
limited partner of any Pledged Partnership or of any Pledgor.
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(c) The Pledgee shall not be obligated to perform or discharge
any obligation of any Pledgor as a result of the security interest hereby
effected.
(d) The acceptance by the Pledgee of this Agreement, with all
the rights, powers, privileges and authority so created, shall not at any time
or in any event obligate the Pledgee to appear in or defend any action or
proceeding relating to the Collateral to which it is not a party, or to take any
action hereunder or thereunder, or to expend any money or incur any expenses or
perform or discharge any obligation, duty or liability under the Collateral.
13. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) Each Pledgor
agrees that it will join with the Pledgee in executing and, at such Pledgor's
own expense, file and refile under the Uniform Commercial Code or other
applicable law such financing statements, continuation statements and other
documents in such offices as the Pledgee may reasonably deem necessary and
wherever required by law in order to perfect and preserve the Pledgee's security
interest in the Collateral and hereby authorizes the Pledgee to file financing
statements and amendments thereto relative to all or any part of the Collateral
without the signature of such Pledgor where permitted by law, and agrees to do
such further acts and things and to execute and deliver to the Pledgee such
additional conveyances, assignments, agreements and instruments as the Pledgee
may reasonably require or deem necessary to carry into effect the purposes of
this Agreement or to further assure and confirm unto the Pledgee its rights,
powers and remedies hereunder.
(b) Each Pledgor hereby appoints the Pledgee such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor and
in the name of such Pledgor or otherwise, to act from time to time solely after
the occurrence and during the continuance of an Event of Default in the
Pledgee's reasonable discretion to take any action and to execute any instrument
which the Pledgee may deem necessary or advisable to accomplish the purposes of
this Agreement.
14. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance
with this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by each Secured Creditor that
by accepting the benefits of this Agreement each such Secured Creditor
acknowledges and agrees that the obligations of the Pledgee as holder of the
Collateral and interests therein and with respect to the disposition thereof,
and otherwise under this Agreement, are only those expressly set forth in this
Agreement. The Pledgee shall act hereunder on the terms and conditions set forth
herein and in Section 12 of the Credit Agreement.
15. TRANSFER BY THE PLEDGORS. No Pledgor will sell or
otherwise dispose of, grant any option with respect to, or mortgage, pledge or
otherwise encumber any of the Collateral or any interest therein (except as may
be permitted in accordance with the terms of the Credit Agreement).
16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGORS.
Each Pledgor represents, warrants and covenants that (i) it is the legal, record
and beneficial owner of all Pledged Securities and Pledged Partnership Interests
pledged by it hereunder, subject to no Lien (except the Lien created by this
Agreement and, in the case of
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Pledged Partnership Interests, other Permitted Liens); (ii) it has full power,
authority and legal right to pledge all the Pledged Securities and Pledged
Partnership Interests pledged by it pursuant to this Agreement; (iii) this
Agreement has been duly authorized, executed and delivered by such Pledgor and
constitutes a legal, valid and binding obligation of such Pledgor enforceable in
accordance with its terms except to the extent that the enforceability hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at law);
(iv) except as have been obtained by the Pledgors as of the date hereof, no
consent of any other party (including, without limitation, any stockholder,
partner or creditor of such Pledgor or any of its Subsidiaries or any Pledged
Partnership) and no consent, license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required to be obtained by such Pledgor in
connection with the execution, delivery or performance of this Agreement, the
validity or enforceability of this Agreement, the perfection or enforceability
of the Pledgee's security interest in the Collateral or, except for compliance
with or as may be required by applicable securities, antitrust and security
clearance laws, the exercise by the Pledgee of any of its rights or remedies
provided herein; (v) the execution, delivery and performance of this Agreement
by such Pledgor will not violate any provision of any applicable law or
regulation or of any order, judgment, writ, award or decree of any court,
arbitrator or governmental authority, domestic or foreign, applicable to such
Pledgor, or of the certificate of incorporation or by-laws (or equivalent
organizational documents) of such Pledgor or of any securities issued by such
Pledgor or any of its Subsidiaries, or of any mortgage, indenture, lease, deed
of trust, loan agreement, credit agreement or other material contract, agreement
or instrument or undertaking to which such Pledgor or any of its Subsidiaries is
a party or which purports to be binding upon such Pledgor or any of its
Subsidiaries or upon any of their respective assets and will not result in the
creation or imposition of (or the obligation to create or impose) any lien or
encumbrance on any of the assets of such Pledgor or any of its Subsidiaries
except as contemplated by this Agreement; (vi) all the shares of Stock have been
duly and validly issued, are fully paid and non-assessable and are subject to no
options to purchase or similar rights; (vii) each of the Intercompany Notes
constitutes, or when executed by the obligor thereof will constitute, the legal,
valid and binding obligation of such obligor, enforceable in accordance with its
terms except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law); (viii) the
pledge, assignment and delivery to the Pledgee of the Securities (other than
uncertificated securities) pursuant to this Agreement creates a valid and
perfected first priority Lien in the Securities, and the proceeds thereof,
subject to no other Lien or to any agreement purporting to grant to any third
party a Lien on the property or assets of the Pledgor which would include the
Securities; (ix) each such Pledged Partnership Interest has been validly
acquired and is fully paid for (to the extent applicable) and is duly and
validly pledged hereunder; (x) each general or limited partnership agreement
delivered to the Pledgee is an original signed counterpart (or a copy thereof)
of the complete and entire such partnership agreement in effect on the date
hereof; (xi) each partnership agreement is the legal, valid and binding
obligation of each Pledgor, enforceable in accordance with its terms; (xii) the
pledge and assignment of the Pledged Partnership Interests pursuant to this
Agreement, together with the relevant filings or recordings under the UCC (which
filings and recordings have been or will be made), creates a valid,
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perfected and continuing first priority security interest in such Partnership
Interests and the proceeds thereof, subject to no prior lien or encumbrance or
to any agreement purporting to grant to any third party a lien or encumbrance on
the property or assets of such Pledgor which would include the Collateral;
(xiii) there are no currently effective financing statements under the UCC
covering any property which is now or hereafter may be included in the
Collateral and such Pledgor will not, without the prior written consent of the
Pledgee, execute and, until the Termination Date (as hereinafter defined), there
will not ever be on file in any public office any enforceable financing
statement or statements covering any or all of the Collateral, except financing
statements filed or to be filed in favor of the Pledgee as secured party; (xiv)
each Pledgor shall give the Pledgee prompt notice of any written claim it
receives relating to the Collateral; (xv) each Pledgor shall deliver to the
Pledgee a copy of each other demand, notice or document received by it which may
adversely affect the Pledgee's interest in the Collateral promptly upon, but in
any event within 10 days after, such Pledgor's receipt thereof; (xvi) a notice
in the form set forth in Annex D attached hereto and by this reference made a
part hereof (such notice the "Partnership Notice"), appropriately completed,
notifying each Pledged Partnership of the existence of this Agreement and a
certified copy of this Agreement have been delivered by each Pledgor to the
relevant Pledged Partnership, and to the extent obtainable by commercially
reasonable efforts, each such Pledgor has received and delivered to the
Collateral Agent an acknowledgment in the form set forth in Annex E attached
hereto (such acknowledgment, the "Partnership Acknowledgment"), duly executed by
the relevant Pledged Partnership; and (xvii) the chief executive office of such
Pledgor is set forth on Annex F hereto or such other office as such Pledgor may
establish in accordance with the terms of the Security Agreement. Each Pledgor
covenants and agrees that it will defend the Pledgee's right, title and security
interest in and to the Collateral against the claims and demands of all persons
whomsoever; and such Pledgor covenants and agrees that it will have like title
to and right to pledge any other property at any time hereafter pledged to the
Pledgee as Collateral hereunder and will likewise defend the right thereto and
security interest therein of the Pledgee and the other Secured Creditors.
17. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of
each Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever (other than for the indefeasible payment in full in cash
of all Obligations), including, without limitation: (i) any renewal, extension,
amendment or modification of or addition or supplement to or deletion from any
Secured Debt Agreement or any other instrument or agreement referred to therein,
or any assignment or transfer of any thereof; (ii) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of any
such agreement or instrument including, without limitation, this Agreement;
(iii) any furnishing of any additional security to the Pledgee or its assignee
or any acceptance thereof or any release of any security by the Pledgee or its
assignee; (iv) any limitation on any party's liability or obligations under any
such instrument or agreement or any invalidity or unenforceability, in whole or
in part, of any such instrument or agreement or any term thereof; or (v) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to any Pledgor or any Subsidiary
of any Pledgor, or any action taken with respect to this Agreement by any
trustee or receiver, or by any court, in any such proceeding, whether or not
such Pledgor shall have notice or knowledge of any of the foregoing.
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18. REGISTRATION, ETC. (a) If there shall have occurred and be
continuing an Event of Default then, and in every such case, upon receipt by any
Pledgor from the Pledgee of a written request or requests that such Pledgor
cause any registration, qualification or compliance under any Federal or state
securities law or laws to be effected with respect to all or any part of the
Pledged Stock of the Borrower, such Pledgor as soon as practicable and at its
expense will cause such registration to be effected (and be kept effective) and
will cause such qualification and compliance to be declared effected (and be
kept effective) as may be so requested and as would permit or facilitate the
sale and distribution of such Pledged Stock, including, without limitation,
registration under the Securities Act of 1933, as then in effect (or any similar
statute then in effect), appropriate qualifications under applicable blue sky or
other state securities laws and appropriate compliance with any other government
requirements, provided, that the Pledgee shall furnish to such Pledgor such
information regarding the Pledgee as such Pledgor may reasonably request in
writing and as shall be required in connection with any such registration,
qualification or compliance. Such Pledgor will cause the Pledgee to be kept
advised in writing as to the progress of each such registration, qualification
or compliance and as to the completion thereof, will furnish to the Pledgee such
number of prospectuses, offering circulars or other documents incident thereto
as the Pledgee from time to time may reasonably request, and will indemnify the
Pledgee, each other Secured Creditor and all others participating in the
distribution of such Pledged Stock against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing to such
Pledgor by the Pledgee or such other Secured Creditor expressly for use therein.
(b) If at any time when the Pledgee shall determine to
exercise its right to sell all or any part of the Pledged Securities or Pledged
Partnership Interests pursuant to Section 7 hereof, and such Pledged Securities
or Pledged Partnership Interests or the part thereof to be sold shall not, for
any reason whatsoever, be effectively registered under the Securities Act of
1933, as then in effect, the Pledgee may, in its sole and absolute discretion,
sell such Pledged Securities or Pledged Partnership Interests, as the case may
be, or part thereof by private sale in such manner and under such circumstances
as the Pledgee may deem necessary or advisable in order that such sale may
legally be effected without such registration. Without limiting the generality
of the foregoing, in any such event the Pledgee, in its sole and absolute
discretion (i) may proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Securities or
Pledged Partnership Interests or part thereof shall have been filed under such
Securities Act, (ii) may approach and negotiate with a single possible purchaser
to effect such sale, and (iii) may restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own account, for
investment, and not with a view to the distribution or sale of such Pledged
Securities or Pledged Partnership Interests or part thereof. In the event of any
such sale, the Pledgee shall incur no responsibility or liability for selling
all or any part of the Pledged Securities or Pledged Partnership Interests at a
price which the Pledgee, in its sole and absolute discretion, in good faith
deems reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after registration as aforesaid.
-13-
<PAGE> 14
19. TERMINATION; RELEASE. (a) After the Termination Date (as
defined below), this Agreement and the security interest created hereby shall
terminate (provided that all indemnities set forth herein including, without
limitation, in Section 11 hereof shall survive any such termination), and the
Pledgee, at the request and expense of any Pledgor, will execute and deliver to
such Pledgor a proper instrument or instruments acknowledging the satisfaction
and termination of this Agreement, and will duly assign, transfer and deliver to
such Pledgor (without recourse and without any representation or warranty) such
of the Collateral as has not theretofore been sold or otherwise applied or
released pursuant to this Agreement, together with any moneys at the time held
by the Pledgee or any of its sub-agents hereunder. As used in this Agreement,
"Termination Date" shall mean the date upon which the Total Commitment and all
Interest Rate Protection Agreements and Other Hedging Agreements have been
terminated, all Loans have been repaid in full, all Letters of Credit have been
terminated and all Obligations then owing have been paid in full.
(b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 9.02 of the Credit Agreement (other
than a sale to any Pledgor or any Subsidiary thereof) or is otherwise released
at the direction of the Required Secured Creditors and the proceeds of such sale
or sales or from such release are applied in accordance with the provisions of
the Credit Agreement, to the extent required to be so applied, the Pledgee, at
the request and expense of any Pledgor, will duly assign, transfer and deliver
to such Pledgor (without recourse and without any representation or warranty)
such of the Collateral (and releases therefor) as is then being (or has been) so
sold or released and has not theretofore been released pursuant to this
Agreement.
(c) At any time that a Pledgor desires that the Pledgee
assign, transfer and deliver Collateral (and releases therefor) as provided in
Section 19(a) or (b) hereof, it shall deliver to the Pledgee a certificate
signed by a principal executive officer of such Pledgor stating that the release
of the respective Collateral is permitted pursuant to such Section 19(a) or (b).
(d) The Pledgee shall have no liability whatsoever to any
other Secured Creditor as the result of any release of Collateral by it in
accordance with this Section 19.
20. NOTICES, ETC. All such notices and communications
hereunder shall be sent or delivered by mail, telegraph, telex, telecopy, cable
or overnight courier service and all such notices and communications shall, when
mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight
courier, be effective when delivered, or sent by telex or telecopier and shall
be effective upon receipt. All notices and other communications shall be in
writing and addressed as follows:
(a) if to any Pledgor, at the address set forth opposite such
Pledgor's signature below;
(b) if to the Pledgee, at:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
-14-
<PAGE> 15
New York, New York 10006
Attention: Ariana Delucia
Telephone No.: (212) 250-7346
Telecopier No.: (212) 250-7218;
(c) if to any Bank Creditor, either (x) to the Administrative
Agent, at the address of the Administrative Agent specified in the
Credit Agreement or (y) at such address as such Bank Creditor shall
have specified in the Credit Agreement;
(d) if to any Other Creditor at such address as such Other
Creditor shall have specified in writing to the Pledgors and the
Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
21. WAIVER; AMENDMENT. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Pledgor directly affected
thereby and the Pledgee (with the written consent of the Required Secured
Creditors); provided, that any change, waiver, modification or variance
affecting the rights and benefits of a single Class (as defined below) of
Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall also require the written consent of the Requisite Creditors (as defined
below) of such affected Class. For the purpose of this Agreement, the term
"Class" shall mean each class of Secured Creditors, i.e., whether (i) the Bank
Creditors as holders of the Credit Document Obligations or (ii) the Other
Creditors as the holders of the Other Obligations. For the purpose of this
Agreement, the term "Requisite Creditors" of any Class shall mean each of (i)
with respect to the Credit Document Obligations, the Required Banks and (ii)
with respect to the Other Obligations, the holders of at least a majority amount
of all obligations outstanding from time to time under the Interest Rate
Protection Agreements or Other Hedging Agreements.
22. MISCELLANEOUS. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of and be enforceable by each of the parties hereto and its
successors and assigns, provided that no Pledgor may assign any of its rights or
obligations under this Agreement without the prior consent of the Collateral
Agent. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK. The headings in this
Agreement are for purposes of reference only and shall not limit or define the
meaning hereof. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute one
instrument. In the event that any provision of this Agreement shall prove to be
invalid or unenforceable, such provision shall be deemed to be severable from
the other provisions of this Agreement which shall remain binding on all parties
hereto.
23. RECOURSE. This Agreement is made with full recourse to the
Pledgors and pursuant to and upon all the representations, warranties, covenants
and agreements on the part of the Pledgors contained herein and in the other
Secured Debt Agreements and otherwise in writing in connection herewith or
therewith.
-15-
<PAGE> 16
24. FUTURE PLEDGORS. It is understood and agreed that any
Subsidiary of the Borrower that is required to execute a counterpart of this
Agreement after the date hereof pursuant to the Credit Agreement shall
automatically become a Pledgor hereunder by executing a counterpart hereof and
delivering the same to the Pledgee, at which time the Annexes to this Agreement
shall be appropriately modified to reflect the Collateral then owned by such
additional Pledgor.
25. MISCELLANEOUS. Notwithstanding anything to the contrary
contained herein or in the Credit Agreement, each Pledgor hereby covenants and
agrees that with respect to any Pledged Partnership Interest pledged by it
hereunder, such Pledgor will deliver to the respective Pledged Partnerships
(with copies to the Pledgee) a Partnership Notice (appropriately completed) and
such Pledgor will deliver to the Pledgee a Partnership Acknowledgment signed by
the respective Pledged Partnerships, in each case within 15 days following the
date any such Pledged Partnership Interests are pledged hereunder.
* * * *
-16-
<PAGE> 17
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused
this Agreement to be executed by their duly elected officers duly authorized as
of the date first above written.
Address
SPECIAL DEVICES, INCORPORATED,
as a Pledgor
16830 W. Placerita Canyon Road
Newhall, California 91321
Attention: Vice President
Telephone No.: (805) 259-0753 By: /s/ John T. Vinke
Telecopier No.: (805) 254-4721 ---------------------------
Name: John T. Vinke
Title: Chief Financial Officer
and
copy to:
J.F. Lehman & Company, Inc.
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Keith Oster
Telephone No.: (212) 634-0100
Telecopier No.: (212) 634-1155
SCOT, INCORPORATED,
as a Pledgor
2525 Curtiss Street
Downers Grove, Illinois 60515
Attention: Mary Lou Graham
Telephone No.: (630) 969-0620 By: /s/ John T. Vinke
Telecopier No.: (630) 969-4719 ---------------------
Name: John T. Vinke
Title: Vice President
and
copy to:
J.F. Lehman & Company, Inc.
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Keith Oster
Telephone No.: (212) 634-0100
Telecopier No.: (212) 634-1155
-17-
<PAGE> 18
Accepted and Agreed to:
BANKERS TRUST COMPANY,
as Collateral Agent
By: /s/ Gregory P. Shefrin
------------------------------------
Name: Gregory P. Shefrin
Title: Vice President
-18-
<PAGE> 19
ANNEX A
to
PLEDGE AGREEMENT
LIST OF STOCK
I. Special Devices, Incorporated
<TABLE>
<CAPTION>
Percentage of
Name of Issuing Certificate Type of Number of Outstanding Shares of
Corporation Number Shares Shares Capital Stock
--------------------------- ----------- ------- --------- ----------------------
<S> <C> <C> <C> <C>
Scot, Incorporated 2 Common 1,000 100%
</TABLE>
II. Scot, Incorporated
<TABLE>
<CAPTION>
Percentage of
Name of Issuing Certificate Type of Number of Outstanding Shares of
Corporation Number Shares Shares Capital Stock
--------------------------- ----------- ------- --------- ----------------------
<S> <C> <C> <C> <C>
None.
</TABLE>
<PAGE> 20
ANNEX B
to
PLEDGE AGREEMENT
LIST OF NOTES
I. Special Devices, Incorporated
Principal Amount Maturity Date
Obligor (if any) (if any)
------------------ ---------------- -------------
Scot, Incorporated Intercompany Note Demand
II. Scot, Incorporated
Principal Amount Maturity Date
Obligor (if any) (if any)
----------------------------- -------------
Special Devices, Incorporated Intercompany Note Demand
<PAGE> 21
ANNEX C
to
PLEDGE AGREEMENT
PARTNERSHIP INTERESTS
I. Special Devices, Incorporated
Pledged Partnership Percentage Owned Type of Interest
None.
II. Scot, Incorporated
Pledged Partnership Percentage Owned Type of Interest
None.
<PAGE> 22
ANNEX D
to
PLEDGE AGREEMENT
FORM OF PARTNERSHIP NOTICE
[Letterhead of Pledgor]
-------- --, ----
TO: [Name of Pledged Partnership]
Notice is hereby given that pursuant to a Pledge Agreement (a
true and correct copy of which is attached hereto), dated as of December 15,
1998 (as amended, modified or supplemented from time to time in accordance with
the terms thereof, the "Pledge Agreement"), among [NAME OF PLEDGOR] (the
"Pledgor"), the other pledgors from time to time party thereto and Bankers Trust
Company (the "Pledgee"), as Collateral Agent on behalf of the Secured Creditors
described therein, the Pledgor has pledged and assigned to the Pledgee for the
benefit of the Secured Creditors, and granted to the Pledgee for the benefit of
the Secured Creditors, a continuing security interest in, all right, title and
interest of the Pledgor, whether now existing or hereafter arising or acquired,
as a [limited] [general] partner in [NAME OF PLEDGED PARTNERSHIP] (the
"Partnership"), and in, to and under the [TITLE OF APPLICABLE PARTNERSHIP
AGREEMENT] (the "Partnership Agreement"), including, without limitation:
(i) the Pledgor's interest in all of the capital of the
Partnership and the Pledgor's interest in all profits, losses,
Partnership Assets (as defined in the Pledge Agreement) and other
distributions to which the Pledgor shall at any time be entitled in
respect of such partnership interest;
(ii) all other payments due or to become due to the Pledgor in
respect of such partnership interest, whether under the Partnership
Agreement or otherwise, whether as contractual obligations, damages,
insurance proceeds or otherwise;
(iii) all of the Pledgor's claims, rights, powers, privileges,
authority, options, security interest, liens and remedies, if any,
under the Partnership Agreement or at law or otherwise in respect of
such partnership interest;
(iv) all present and future claims, if any, of the Pledgor
against the Partnership for moneys loaned or advanced, for services
rendered or otherwise;
(v) all of the Pledgor's rights under the Partnership
Agreement or at law to exercise and enforce every right, power, remedy,
authority, option and privilege of the Pledgor relating to the
partnership interest, including any power to terminate, cancel or
modify the Partnership Agreement, to execute any instruments and to
take any and all other action on behalf of and in the name of the
Pledgor in respect of the Partnership Interest and the Partnership, to
make determinations, to exercise any election (including, but not
limited, election of remedies) or option or to give or receive any
notice, consent, amendment, waiver or approval, together with full
power and authority to demand,
<PAGE> 23
Annex D
Page 2
receive, enforce, collect or receipt for any of the foregoing or for
any Partnership Asset, to enforce or execute any checks, or other
instruments or orders, to file any claims and to take any action in
connection with any of the foregoing;
(vi) all other property hereafter delivered to the Pledgor in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such other
property and all cash, securities, interest, dividends, distributions,
rights and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all thereof; and
(vii) to the extent not otherwise included, all proceeds of
any or all of the foregoing.
The Pledgor hereby irrevocably agrees and authorizes and
directs the Partnership that instructions originated by the Pledgee on behalf of
the Secured Creditors with respect to the Pledgor's claims, rights, interests,
powers, remedies, authorities, options and privileges set forth above shall, if
such instructions state that an "Event of Default" has occurred and is
continuing, unless written notice to the contrary is given by the Pledgee to the
Partnership, be complied with by the Partnership, without further consent by the
Pledgor and notwithstanding contrary instructions given by the Pledgor.
The Pledgor hereby requests the Partnership to indicate the
Partnership's acceptance of this Notice and consent to and confirmation of its
terms and provisions by signing a copy hereof where indicated on the attached
page and returning the same to the Pledgee on behalf of the Secured Creditors.
[NAME OF PLEDGOR]
By:_____________________________
Name:
Title:
<PAGE> 24
ANNEX E
to
PLEDGE AGREEMENT
FORM OF ACKNOWLEDGMENT
[NAME OF PLEDGED PARTNERSHIP] (the "Partnership") hereby
acknowledges receipt of a copy of the assignment by [NAME OF PLEDGOR]
("Pledgor") of its interest under the [TITLE OF APPLICABLE PARTNERSHIP
AGREEMENT] (the "Partnership Agreement") pursuant to the terms of the Pledge
Agreement, dated as of December 15, 1998 (as amended, modified or supplemented
from time to time in accordance with the terms thereof, the "Pledge Agreement"),
among the Pledgor, the other pledgors from time to time party thereto and
Bankers Trust Company (the "Pledgee"), as Collateral Agent on behalf of the
Secured Creditors described therein. The undersigned hereby further confirms the
registration of the Pledgor's pledge of its interest to the Pledgee on behalf of
the Secured Creditors on the Partnership's books.
The Partnership hereby irrevocably agrees to comply with the
instructions originated by the Pledgee, on behalf of the Secured Creditors, of
the type and containing the certification referred to in the penultimate
paragraph of the Partnership Notice dated ___________ __, ____ signed by the
Pledgor without further consent by the Pledgor and notwithstanding contrary
instructions given by the Pledgor. The undersigned further hereby irrevocably
agrees, except upon the prior written consent of the Pledgee, not to honor any
such instructions given by any other person or entity.
Dated: ___________ __, ____
[NAME OF PLEDGED PARTNERSHIP]
By:_____________________________
Name:
Title:
<PAGE> 25
ANNEX F
to
PLEDGE AGREEMENT
CHIEF EXECUTIVE OFFICE LOCATIONS
I. Special Devices, Incorporated
Office Locations County
16830 W. Placerita Canyon Road Los Angeles
Newhall, California 91321
Attention: Vice President
Telephone No.: (805) 259-0753
Telecopier No.: (805) 254-4721
II. Scot, Incorporated
Office Locations County
2525 Curtiss Street Du Page
Downers Grove, Illinois 60515
Attention: Mary Lou Graham
Telephone No.: (630) 969-0620
Telecopier No.: (630) 969-4719
<PAGE> 1
EXHIBIT 10.5
SUBSIDIARIES GUARANTY
SUBSIDIARIES GUARANTY, dated as of December 15, 1998 (as
amended, modified or supplemented from time to time, this "Guaranty"), made by
each of the undersigned guarantors (each a "Guarantor," and together with any
other entity that becomes a guarantor hereunder pursuant to Section 26 hereof,
the "Guarantors"). Except as otherwise defined herein, capitalized terms used
herein and defined in the Credit Agreement (as defined below) shall be used
herein as therein defined.
W I T N E S S E T H :
WHEREAS, Special Devices, Incorporated (the "Borrower"), the
lenders from time to time party thereto (the "Banks") and Bankers Trust Company,
as Lead Arranger and Administrative Agent (together with any successor
administrative agent, the "Administrative Agent"), have entered into a Credit
Agreement, dated as of December 15, 1998, providing for the making of Loans to,
and the issuance of Letters of Credit for the account of, the Borrower as
contemplated therein (as amended, modified as supplemented from time to time,
the "Credit Agreement") (the Banks, the Issuing Bank, the Administrative Agent
and the Collateral Agent are herein called the "Bank Creditors");
WHEREAS, the Borrower may at any time and from time to time
enter into one or more Interest Rate Protection Agreements or Other Hedging
Agreements with one or more Banks or any affiliate thereof (each such Bank or
affiliate, even if the respective Bank subsequently ceases to be a Bank under
the Credit Agreement for any reason, together with such Bank's or affiliate's
successors and assigns, if any, collectively, the "Other Creditors," and
together with the Bank Creditors, the "Secured Creditors");
WHEREAS, each Guarantor is a direct or indirect Subsidiary of
the Borrower;
WHEREAS, it is a condition to the making of Loans to, and the
issuance of Letters of Credit for the account of, the Borrower under the Credit
Agreement that each Guarantor shall have executed and delivered this Guaranty;
and
WHEREAS, each Guarantor will obtain benefits from the
incurrence of Loans to, and the issuance of Letters of Credit for the account
of, the Borrower under the Credit Agreement and the entering into by the
Borrower of Interest Rate Protection Agreements or Other Hedging Agreements and,
accordingly, desires to execute this Guaranty in order to satisfy the conditions
described in the preceding paragraph;
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Secured Creditors and hereby covenants and agrees with
each Secured Creditor as follows:
<PAGE> 2
1. Each Guarantor, jointly and severally, irrevocably,
absolutely and unconditionally guarantees: (i) to the Bank Creditors the full
and prompt payment when due (whether at the stated maturity, by acceleration or
otherwise) of (x) the principal of and interest on the Notes issued by, and the
Loans made to, the Borrower under the Credit Agreement, and all reimbursement
obligations and Unpaid Drawings with respect to Letters of Credit issued under
the Credit Agreement and (y) all other obligations (including obligations which,
but for the automatic stay under Section 362(a) of the Bankruptcy Code, would
become due), liabilities and indebtedness owing by the Borrower to the Bank
Creditors under the Credit Agreement or any other Credit Document to which the
Borrower is a party (including, without limitation, indemnities, Fees and
interest thereon), whether now existing or hereafter incurred under, arising out
of or in connection with the Credit Agreement or any such other Credit Document
and the due performance and compliance by the Borrower with all of the terms,
conditions and agreements contained in the Credit Agreement and such other
Credit Documents (all such principal, interest, liabilities, indebtedness and
obligations being herein collectively called the "Credit Document Obligations");
and (ii) to each Other Creditor the full and prompt payment when due (whether at
the stated maturity, by acceleration or otherwise) of all obligations (including
obligations which, but for the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due), liabilities and indebtedness owing by the
Borrower under any Interest Rate Protection Agreement or Other Hedging
Agreement, whether now in existence or hereafter arising, and the due
performance and compliance by the Borrower with all of the terms, conditions and
agreements contained in the Interest Rate Protection Agreements or Other Hedging
Agreements (all such obligations, liabilities and indebtedness being herein
collectively called the "Other Obligations," and together with the Credit
Document Obligations, the "Guaranteed Obligations"). Each Guarantor understands,
agrees and confirms that the Secured Creditors may enforce this Guaranty up to
the full amount of the Guaranteed Obligations against such Guarantor without
proceeding against any other Guarantor, the Borrower, against any security for
the Guaranteed Obligations, or under any other guaranty covering all or a
portion of the Guaranteed Obligations.
2. Additionally, each Guarantor, jointly and severally,
unconditionally, absolutely and irrevocably, guarantees the payment of any and
all Guaranteed Obligations whether or not due or payable by the Borrower upon
the occurrence in respect of the Borrower of any of the events specified in
Section 10.05 of the Credit Agreement, and unconditionally, absolutely and
irrevocably, jointly and severally, promises to pay such Guaranteed Obligations
to the Secured Creditors, or order, on demand, in legal tender of the United
States. This Guaranty shall constitute a guaranty of payment, and not of
collection.
3. The liability of each Guarantor hereunder is primary,
absolute and unconditional and is exclusive and independent of any security for
or other guaranty of the indebtedness of the Borrower whether executed by such
Guarantor, any other Guarantor, any other guarantor or by any other party, and
the liability of each Guarantor hereunder shall not be affected or impaired by
any circumstance or occurrence whatsoever, including, without limitation: (a)
any direction as to application of payment by the Borrower or by any other
party, (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the Guaranteed Obligations,
(c) any payment on or in reduction of any such other guaranty or undertaking
(other than a payment in full in cash of all Guaranteed Obligations), (d) any
dissolution, termination or increase, decrease or change in personnel by the
Borrower, (e) any payment made to any Secured Creditor on the indebtedness which
any Secured
-2-
<PAGE> 3
Creditor repays the Borrower pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
each Guarantor waives any right to the deferral or modification of its
obligations hereunder by reason of any such proceeding, (f) any action or
inaction by the Secured Creditors as contemplated in Section 6 hereof or (g) any
invalidity, irregularity or unenforceability of all or any part of the
Guaranteed Obligations or of any security therefor.
4. The obligations of each Guarantor hereunder are independent
of the obligations of any other Guarantor, any other guarantor or the Borrower,
and a separate action or actions may be brought and prosecuted against each
Guarantor whether or not action is brought against any other Guarantor, any
other guarantor or the Borrower and whether or not any other Guarantor, any
other guarantor or the Borrower be joined in any such action or actions. Each
Guarantor waives, to the fullest extent permitted by law, the benefits of any
statute of limitations affecting its liability hereunder or the enforcement
thereof. Any payment by the Borrower or other circumstance which operates to
toll any statute of limitations as to the Borrower shall operate to toll the
statute of limitations as to each Guarantor.
5. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
promptness, diligence, presentment, demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
by the Administrative Agent or any other Secured Creditor against, and any other
notice to, any party liable thereon (including such Guarantor, any other
Guarantor, any other guarantor, the Borrower).
6. Any Secured Creditor may at any time and from time to time
without the consent of, or notice to, any Guarantor, without incurring
responsibility to such Guarantor, without impairing or releasing the obligations
of such Guarantor hereunder, upon or without any terms or conditions and in
whole or in part:
(a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew, alter or increase, any
of the Guaranteed Obligations (including any increase or decrease in
the rate of interest thereon), any security therefor, or any liability
incurred directly or indirectly in respect thereof, and the guaranty
herein made shall apply to the Guaranteed Obligations as so changed,
extended, renewed or altered;
(b) take and hold security for the payment of the Guaranteed
Obligations and sell, exchange, release, surrender, impair, realize
upon or otherwise deal with in any manner and in any order any property
by whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower, any other Credit Party, any Subsidiary thereof or otherwise
act or refrain from acting;
-3-
<PAGE> 4
(d) release or substitute any one or more endorsers,
Guarantors, other guarantors, the Borrower or other obligors;
(e) settle or compromise any of the Guaranteed Obligations,
any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to
the payment of any liability (whether due or not) of the Borrower to
creditors of the Borrower other than the Secured Creditors;
(f) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of the Borrower to the Secured Creditors
regardless of what liabilities of the Borrower remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, any of the Interest Rate Protection Agreements or Other
Hedging Agreements, the Credit Documents or any of the instruments or
agreements referred to therein, or otherwise amend, modify or
supplement any of the Interest Rate Protection Agreements or Other
Hedging Agreements, the Credit Documents or any of such other
instruments or agreements;
(h) act or fail to act in any manner referred to in this
Guaranty which may deprive such Guarantor of its right to subrogation
against the Borrower to recover full indemnity for any payments made
pursuant to this Guaranty; and/or
(i) take any other action which would, under otherwise
applicable principles of common law, give rise to a legal or equitable
discharge of such Guarantor from its liabilities under this Guaranty.
7. This Guaranty is a continuing one and all liabilities to
which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. No failure or delay on the
part of any Secured Creditor in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein expressly specified are cumulative and not
exclusive of any rights or remedies which any Secured Creditor would otherwise
have. No notice to or demand on any Guarantor in any case shall entitle such
Guarantor to any other further notice or demand in similar or other
circumstances or constitute a waiver of the rights of any Secured Creditor to
any other or further action in any circumstances without notice or demand. It is
not necessary for any Secured Creditor to inquire into the capacity or powers of
the Borrower or the officers, directors, partners or agents acting or purporting
to act on its behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
8. Any indebtedness of the Borrower now or hereafter held by
any Guarantor is hereby subordinated to the indebtedness of the Borrower or to
the Secured Creditors, and if the Administrative Agent or the Collateral Agent
so requests, after the occurrence and during the continuance of an Event of
Default, such indebtedness of the Borrower to any Guarantor shall be
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<PAGE> 5
collected, enforced and received by such Guarantor as trustee for the Secured
Creditors and be paid over to the Secured Creditors on account of the
indebtedness of the Borrower to the Secured Creditors, but without affecting or
impairing in any manner the liability of such Guarantor under the other
provisions of this Guaranty. Without limiting the generality of the foregoing,
each Guarantor hereby agrees with the Secured Creditors that it will not
exercise any right of subrogation which it may at any time otherwise have as a
result of this Guaranty (whether contractual, under Section 509 of the
Bankruptcy Code or otherwise) until all Guaranteed Obligations (excluding normal
continuing indemnity obligations which survive in accordance with their terms,
so long as no amounts are then due and payable in respect thereof) have been
irrevocably paid in full in cash.
9. (a) Each Guarantor waives any right (except as shall be
required by applicable law and cannot be waived) to require the Secured
Creditors to: (i) proceed against the Borrower, any other Guarantor, any other
guarantor of the Guaranteed Obligations or any other party; (ii) proceed against
or exhaust any security held from the Borrower, any other Guarantor, any other
guarantor of the Guaranteed Obligations or any other party; or (iii) pursue any
other remedy in the Secured Creditors' power whatsoever. Each Guarantor waives
any defense based on or arising out of any defense of the Borrower, any other
Guarantor, any other guarantor of the Guaranteed Obligations or any other party
other than payment of the Guaranteed Obligations (but only to the extent of such
payment), including, without limitation, any defense based on or arising out of
the disability of the Borrower, any other Guarantor, any other guarantor of the
Guaranteed Obligations or any other party, or the unenforceability of the
Guaranteed Obligations or any part thereof from any cause, or the cessation from
any cause of the liability of the Borrower other than payment of the Guaranteed
Obligations. The Secured Creditors may, at their election, foreclose on any
security held by the Administrative Agent, the Collateral Agent or the other
Secured Creditors by one or more judicial or nonjudicial sales, whether or not
every aspect of any such sale is commercially reasonable, or exercise any other
right or remedy the Secured Creditors may have against the Borrower or any other
party, or any security, without affecting or impairing in any way the liability
of any Guarantor hereunder except to the extent the Guaranteed Obligations have
been paid in full in cash. Each Guarantor waives any defense arising out of any
such election by the Secured Creditors, even though such election operates to
impair or extinguish any right of reimbursement or subrogation or other right or
remedy of such Guarantor against the Borrower or any other party or any
security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of the Borrower's financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs hereunder, and agrees that the Secured Creditors shall have
no duty to advise any Guarantor of information known to them regarding such
circumstances or risks.
(c) Each Guarantor hereby acknowledges and affirms that it
understands that to the extent the Guaranteed Obligations are secured by Real
Property located in the State of California, such Guarantor shall be liable for
the full amount of its liability hereunder notwith-
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<PAGE> 6
standing foreclosure on such Real Property by trustee sale or any other reason
impairing such Guarantor's or any Secured Creditors' right to proceed against
the Borrower or any other guarantor of the Guaranteed Obligations. In accordance
with Section 2856 of the California Civil Code, each Guarantor hereby waives:
(i) all rights of subrogation, reimbursement,
indemnification, and contribution and any other rights and
defenses that are or may become available to such Guarantor by
reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of
the California Civil Code;
(ii) all rights and defenses that such Guarantor may
have because the Guaranteed Obligations are secured by Real
Property located in the State of California. This means, among
other things: (A) the Secured Creditors may collect from such
Guarantors without first foreclosing on any real or personal
property collateral pledged by the Borrower or any other
Credit Party; and (B) if the Secured Creditors foreclose on
any Real Property collateral pledged by the Borrower or any
other Credit Party, (1) the amount of the Guaranteed
Obligations may be reduced only by the price for which that
collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price, and (2) the
Secured Creditors may collect from such Guarantor even if the
Secured Creditors, by foreclosing on the Real Property
collateral, have destroyed any right such Guarantor may have
to collect from the Borrower. This is an unconditional and
irrevocable waiver of any rights and defenses such Guarantor
may have because the Guaranteed Obligations are secured by
Real Property. These rights and defenses include, but are not
limited to, any rights or defenses based upon Section 580a,
580b, 580d or 726 of the California Code of Civil Procedure;
and
(iii) all rights and defenses arising out of an
election of remedies by the Secured Creditors, even though
that election of remedies, such as a nonjudicial foreclosure
with respect to security for the Guaranteed Obligations, has
destroyed such Guarantor's rights of subrogation and
reimbursement against the Borrower by the operation of Section
580d of California the Code of Civil Procedure or otherwise.
Each Guarantor warrants and agrees that each of the waivers
set forth above is made with full knowledge of its significance and consequences
and that if any of such waivers are determined to be contrary to any applicable
law or public policy, such waivers shall be effective only to the maximum extent
permitted by law.
10. The Secured Creditors agree that this Guaranty may be
enforced only by the action of the Administrative Agent or the Collateral Agent
and that no other Secured Creditors shall have any right individually to seek to
enforce or to enforce this Guaranty or to realize upon the security to be
granted by the Security Documents, it being understood and agreed that such
rights and remedies may be exercised by the Administrative Agent or the
Collateral Agent or, after all the Credit Document Obligations have been paid in
full, by the holders of at least a majority of the outstanding Other
Obligations, as the case may be, for the benefit of the Secured Creditors upon
the terms of this Guaranty and the Security Documents.
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<PAGE> 7
The Secured Creditors further agree that this Guaranty may not be enforced
against any director, officer, employee, partner or stockholder of any Guarantor
(except to the extent such partner or stockholder is also a Guarantor
hereunder).
11. In order to induce the Banks to make Loans to, and issue
Letters of Credit for the account of, the Borrower pursuant to the Credit
Agreement, and in order to induce the Other Creditors to execute, deliver and
perform the Interest Rate Protection Agreements or Other Hedging Agreements,
each Guarantor represents, warrants and covenants that:
(a) Such Guarantor (i) is a duly organized and validly
existing corporation in good standing under the laws of the
jurisdiction of its organization, (ii) has the corporate power and
authority to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage and (iii) is
duly qualified and is authorized to do business and is in good standing
in each jurisdiction where the conduct of its business requires such
qualification except for failures to be so qualified which,
individually or in the aggregate, could not reasonably be expected to
have a material adverse effect on the business, operations, property,
assets, liabilities or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole.
(b) Such Guarantor has the corporate power and authority to
execute, deliver and perform the terms and provisions of this Guaranty
and each other Document to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and
performance by it of this Guaranty and each such other Document. Such
Guarantor has duly executed and delivered this Guaranty and each other
Document to which it is a party, and this Guaranty and each such other
Document constitutes the legal, valid and binding obligation of such
Guarantor enforceable in accordance with its terms, except to the
extent that the enforceability hereof or thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at
law).
(c) Neither the execution, delivery or performance by such
Guarantor of this Guaranty or any other Document to which it is a
party, nor compliance by it with the terms and provisions hereof and
thereof, will (i) contravene any provision of any applicable law,
statute, rule or regulation or any applicable order, writ, injunction
or decree of any court or governmental instrumentality, (ii) conflict
with or result in any breach of any of the terms, covenants, conditions
or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any
Lien (except pursuant to the Security Documents) upon any of the
property or assets of such Guarantor or any of its Subsidiaries
pursuant to the terms of any indenture, mortgage, deed of trust, loan
agreement, credit agreement, or any other material agreement, contract
or instrument to which such Guarantor or any of its Subsidiaries is a
party or by which it or any of its property or assets is bound or to
which it may be subject or (iii) violate any provision of the
certificate of incorporation or by-laws (or equivalent organizational
documents) of such Guarantor or any of its Subsidiaries.
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<PAGE> 8
(d) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as
have been obtained or made), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to
authorize, or is required for, (i) the execution, delivery and
performance of this Guaranty by such Guarantor or any other Document to
which such Guarantor is a party or (ii) the legality, validity, binding
effect or enforceability of this Guaranty or any other Document to
which such Guarantor is a party.
(e) There are no actions, suits or proceedings pending or
threatened (i) with respect to this Guaranty or any other Document to
which such Guarantor is a party or (ii) with respect to such Guarantor
that could reasonably be expected to materially and adversely affect
(a) the business, operations, property, assets, liabilities or
condition (financial or otherwise) of the Borrower and its Subsidiaries
taken as a whole or (b) the rights or remedies of the Secured Creditors
hereunder or under the other Credit Documents to which such Guarantor
is a party or the ability of such Guarantor to perform its respective
obligations to the Secured Creditors hereunder and under the other
Credit Documents to which it is a party.
12. Each Guarantor covenants and agrees that on and after the
Effective Date and until the termination of the Total Commitment and all
Interest Rate Protection Agreements and Other Hedging Agreements and when no
Note or Letter of Credit remains outstanding and all Guaranteed Obligations have
been paid in full, such Guarantor will comply, and will cause each of its
Subsidiaries to comply, with all of the applicable provisions, covenants and
agreements contained in Sections 8 and 9 of the Credit Agreement, and will take,
or will refrain from taking, as the case may be, all actions that are necessary
to be taken or not taken so that it is not in violation of any provision,
covenant or agreement contained in Section 8 or 9 of the Credit Agreement, and
so that no Default or Event of Default, is caused by the actions of such
Guarantor or any of its Subsidiaries.
13. The Guarantors hereby jointly and severally agree to pay
all reasonable out-of-pocket costs and expenses of each Secured Creditor in
connection with the enforcement of this Guaranty and of the Administrative Agent
in connection with any amendment, waiver or consent relating hereto (including
in each case, without limitation, the reasonable fees and disbursements of
counsel employed by each Secured Creditor).
14. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Secured Creditors
and their successors and assigns.
15. Neither this Guaranty nor any provision hereof may be
changed, waived, discharged or terminated except with the written consent of
each Guarantor directly affected thereby and with the written consent of the
Required Secured Creditors (as defined in the Security Agreement); provided,
that any change, waiver, modification or variance affecting the rights and
benefits of a single Class (as defined below) of Secured Creditors (and not all
Secured Creditors in a like or similar manner) shall also require the written
consent of the Requisite Creditors (as defined below) of such Class of Secured
Creditors (it being understood that the addition or release of any Guarantor
hereunder shall not constitute a change, waiver, discharge or
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<PAGE> 9
termination affecting any Guarantor other than the Guarantor so added or
released). For the purpose of this Guaranty, the term "Class" shall mean each
class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders of
the Credit Document Obligations or (y) the Other Creditors as the holders of the
Other Obligations. For the purpose of this Guaranty, the term "Requisite
Creditors" of any Class shall mean (x) with respect to the Credit Document
Obligations, the Required Banks and (y) with respect to the Other Obligations,
the holders of at least a majority amount of all obligations outstanding from
time to time under the Interest Rate Protection or Other Hedging Agreements.
16. Each Guarantor acknowledges that an executed (or
conformed) copy of each of the Credit Documents and Interest Rate Protection
Agreements or Other Hedging Agreements has been made available to its principal
executive officers and such officers are familiar with the contents thereof.
17. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Secured Creditor Law) and not by way of limitation of any such
rights, upon the occurrence and during the continuance of an Event of Default
(such term to mean and include any "Event of Default" as defined in the Credit
Agreement or any payment default under any Interest Rate Protection Agreement or
Other Hedging Agreement continuing after any applicable grace period), each
Secured Creditor is hereby authorized, at any time or from time to time, without
notice to any Guarantor or to any other Person, any such notice being expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by such Secured
Creditor to or for the credit or the account of such Guarantor, against and on
account of the obligations and liabilities of such Guarantor to such Secured
Creditor under this Guaranty, irrespective of whether or not such Secured
Creditor shall have made any demand hereunder and although said obligations,
liabilities, deposits or claims, or any of them, shall be contingent or
unmatured. Notwithstanding anything to the contrary contained in this Section
17, no Secured Creditor shall exercise any such right of set-off without the
prior consent of the Administrative Agent or the Required Secured Creditors so
long as the Guaranteed Obligations shall be secured by any Real Property located
in the State of California, it being understood and agreed, however, that this
sentence is for the sole benefit of the Secured Creditors and may be amended,
modified or waived in any respect by the Required Secured Creditors without the
requirements of prior notice to or consent by any Credit Party and does not
constitute a waiver of any rights against any Credit party or against any
Collateral.
18. All notices, requests, demands or other communications
pursuant hereto shall be deemed to have been duly given or made when delivered
to the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guaranty, addressed to such
party at (i) in the case of any Bank Creditor, as provided in the Credit
Agreement, (ii) in the case of any Guarantor, at the address set forth opposite
such Guarantor's signature below and (iii) in the case of any Other Creditor, at
such address as such Other Creditor shall have specified in writing to the
Guarantors; or in any case at such other address as any of the Persons listed
above may hereafter notify the others in writing.
19. If claim is ever made upon any Secured Creditor for
repayment or recovery of any amount or amounts received in payment or on account
of any of the Guaranteed
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<PAGE> 10
Obligations and any of the aforesaid payees repays all or part of said amount by
reason of (i) any judgment, decree or order of any court or administrative body
having jurisdiction over such payee or any of its property or (ii) any
settlement or compromise of any such claim effected by such payee with any such
claimant (including the Borrower) then and in such event each Guarantor agrees
that any such judgment, decree, order, settlement or compromise shall be binding
upon such Guarantor, notwithstanding any revocation hereof or other instrument
evidencing any liability of the Borrower, and such Guarantor shall be and remain
liable to the aforesaid payees hereunder for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by any
such payee.
20. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
SECURED CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action
or proceeding with respect to this Guaranty or any other Credit Document to
which any Guarantor is a party may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Guaranty, each Guarantor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Guarantor hereby
further irrevocably waives any claim that any such court lacks personal
jurisdiction over such Guarantor, and agrees not to plead or claim in any legal
action or proceeding with respect to this Guaranty or any other Credit Document
to which such Guarantor is a party brought in any of the aforesaid courts that
any such court lacks personal jurisdiction over such Guarantor. Each Guarantor
further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to such Guarantor at
its address set forth opposite its signature below, such service to become
effective 30 days after such mailing. Each Guarantor hereby irrevocably waives
any objection to such service of process and further irrevocably waives and
agrees not to plead or claim in any action or proceeding commenced hereunder or
under any other Credit Document to which such Guarantor is a party that such
service of process was in any way invalid or ineffective. Nothing herein shall
affect the right of any of the Secured Creditors to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against each Guarantor in any other jurisdiction.
(b) Each Guarantor hereby irrevocably waives (to the fullest
extent permitted by applicable law) any objection which it may now or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Guaranty or any other Credit Document
to which such Guarantor is a party brought in the courts referred to in clause
(a) above and hereby further irrevocably waives and agrees not to plead or claim
in any such court that such action or proceeding brought in any such court has
been brought in an inconvenient forum.
(c) EACH GUARANTOR AND EACH SECURED CREDITOR (BY ITS
ACCEPTANCE OF THE BENEFITS OF THIS GUARANTY) HEREBY IRREVOCABLY WAIVES ALL
RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS
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<PAGE> 11
GUARANTY, THE OTHER CREDIT DOCUMENTS TO WHICH SUCH GUARANTOR IS A PARTY OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
21. In the event that all of the capital stock of one or more
Guarantors is sold or otherwise disposed of or liquidated in compliance with the
requirements of Section 9.02 of the Credit Agreement (or such sale or other
disposition has been approved in writing by the Required Secured Creditors) and
the proceeds of such sale, disposition or liquidation are applied in accordance
with the provisions of the Credit Agreement, to the extent applicable, such
Guarantor shall upon consummation of such sale or other disposition (except to
the extent that such sale or disposition is to the Borrower or another
Subsidiary thereof) be released from this Guaranty automatically and without
further action and this Guaranty shall, as to each such Guarantor or Guarantors,
terminate, and have no further force or effect (it being understood and agreed
that the sale of one or more Persons that own, directly or indirectly, all of
the capital stock of any Guarantor shall be deemed to be a sale of such
Guarantor for the purposes of this Section 21).
22. At any time a payment in respect of the Guaranteed
Obligations is made under this Guaranty, the right of contribution of each
Guarantor against each other Guarantor shall be determined as provided in the
immediately following sentence, with the right of contribution of each Guarantor
to be revised and restated as of each date on which a payment (a "Relevant
Payment") is made on the Guaranteed Obligations under this Guaranty. At any time
that a Relevant Payment is made by a Guarantor that results in the aggregate
payments made by such Guarantor in respect of the Guaranteed Obligations to and
including the date of the Relevant Payment exceeding such Guarantor's
Contribution Percentage (as defined below) of the aggregate payments made by all
Guarantors in respect of the Guaranteed Obligations to and including the date of
the Relevant Payment (such excess, the "Aggregate Excess Amount"), each such
Guarantor shall have a right of contribution against each other Guarantor who
has made payments, in respect of the Guaranteed Obligations to and including the
date of the Relevant Payment, in an aggregate amount less than such other
Guarantor's Contribution Percentage of the aggregate payments made to and
including the date of the Relevant Payment by all Guarantors in respect of the
Guaranteed Obligations (the aggregate amount of such deficit, the "Aggregate
Deficit Amount") in an amount equal to (x) a fraction the numerator of which is
the Aggregate Excess Amount of such Guarantor and the denominator of which is
the Aggregate Excess Amount of all Guarantors multiplied by (y) the Aggregate
Deficit Amount of such other Guarantor. A Guarantor's right of contribution
pursuant to the preceding sentences shall arise at the time of each computation,
subject to adjustment to the time of any subsequent computation; provided, that
no Guarantor may take any action to enforce such right until the Guaranteed
Obligations have been irrevocably paid in full in cash, it being expressly
recognized and agreed by all parties hereto that any Guarantor's right of
contribution arising pursuant to this Section 22 against any other Guarantor
shall be expressly junior and subordinate to such other Guarantor's obligations
and liabilities in respect of the Guaranteed Obligations and any other
obligations owing under this Guaranty. As used in this Section 22: (i) each
Guarantor's "Contribution Percentage" shall mean the percentage obtained by
dividing (x) the Adjusted Net Worth (as defined below) of such Guarantor by (y)
the aggregate Adjusted Net Worth of all Guarantors; (ii) the "Adjusted Net
Worth" of each Guarantor shall mean the greater of (x) the Net Worth (as defined
below) of such Guarantor and (y) zero; and (iii) the "Net Worth" of each
Guarantor shall mean the amount by which the fair salable value of such
Guarantor's assets on the date of any Relevant Payment exceeds its existing
debts and other liabilities (including contingent liabilities,
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<PAGE> 12
but without giving effect to any Guaranteed Obligations arising under this
Guaranty or under the Senior Subordinated Notes) on such date. All parties
hereto recognize and agree that, except for any right of contribution arising
pursuant to this Section 22, each Guarantor who makes any payment in respect of
the Guaranteed Obligations shall have no right of contribution or subrogation
against any other Guarantor in respect of such payment until all of the
Guaranteed Obligations have been irrevocably paid in full in cash. Each of the
Guarantors recognizes and acknowledges that the rights to contribution arising
hereunder shall constitute an asset in favor of the party entitled to such
contribution. In this connection, each Guarantor has the right to waive its
contribution right against any Guarantor to the extent that after giving effect
to such waiver such Guarantor would remain solvent, in the determination of the
Required Banks.
23. Each Guarantor and each Secured Creditor (by its
acceptance of the benefits of this Guaranty) hereby confirms that it is its
intention that this Guaranty not constitute fraudulent transfer or conveyance
for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act of
any similar Federal or state law. To effectuate the foregoing intention, each
Guarantor and each Secured Creditor (by its acceptance of the benefits of this
Guaranty) hereby irrevocably agrees that the Guaranteed Obligations guaranteed
by such Guarantor shall be limited to such amount as will, after giving effect
to such maximum amount and all other (contingent or otherwise) liabilities of
such Guarantor that are relevant under such laws, and after giving effect to any
rights to contribution pursuant to any agreement providing for an equitable
contribution among such Guarantor and the other Guarantors, result in the
Guaranteed Obligations of such Guarantor in respect of such maximum amount not
constituting a fraudulent transfer or conveyance.
24. This Guaranty may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Guarantors and the
Administrative Agent.
25. All payments made by any Guarantor hereunder will be made
without setoff, counterclaim or other defense and on the same basis as payments
are made by the Borrower under Sections 4.03 and 4.04 of the Credit Agreement.
26. It is understood and agreed that any Subsidiary of the
Borrower that is required to execute a counterpart of this Guaranty after the
date hereof pursuant to the Credit Agreement shall automatically become a
Guarantor hereunder by executing a counterpart hereof and delivering the same to
the Administrative Agent.
* * *
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<PAGE> 13
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be executed and delivered as of the date first above written.
Address
SCOT, INCORPORATED,
as a Guarantor
2525 Curtiss Street
Downers Grove, Illinois 60515
Attention: Mary Lou Graham
Telephone No.: (630) 969-0620 By: /s/ John T. Vinke
------------------------------
Telecopier No.: (630) 969-4719 Name: John T. Vinke
Title: Vice President
and
copy to:
J.F. Lehman & Company, Inc.
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Keith Oster
Telephone No.: (212) 634-0100
Telecopier No.: (212) 634-1155
Accepted and Agreed to:
BANKERS TRUST COMPANY,
as Administrative Agent
By: /s/ Gregory P. Shefrin
-------------------------
Name: Gregory P. Shefrin
Title: Vice President
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<PAGE> 1
EXHIBIT 10.6
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement"), dated as of
December 15, 1998, by and between Special Devices, Incorporated, a Delaware
corporation (the "Company"), and J.F. Lehman & Company, a Delaware
corporation (the "Advisor").
WHEREAS, SDI Acquisition Corp. ("Acquisition") merged with and
into the Company pursuant to which, among other things, (i) J.F. Lehman Equity
Investors I, L.P. and JFL Co-Invest Partners I, L.P. made a capital contribution
in the amount of $63,000,000 to Acquisition, (ii) Acquisition merged with and
into the Company (the "Merger"), with the Company surviving such merger, (iii)
each share of the Company's common stock, par value $.01 per share, issued and
outstanding immediately prior to the Merger, other than certain shares held by
certain shareholders and members of Management, were converted into the right to
receive cash, (iv) immediately after the Merger, Paribas Principal Inc.
subscribed for 323,529 shares of the common stock of the Company for an
aggregate purchase price of approximately $11,000,000, (v) the Company obtained
debt financing in the amount of approximately $195,000,000 through a combination
of the sale of debt securities in a private placement and borrowings under a
senior credit facility and (vi) certain stockholders of the Company rolled over
1,530,419 shares of the Common Stock of the Company (all such transactions shall
be collectively referred to herein as the "Recapitalization").
WHEREAS, the Company desires to retain Advisor to provide
certain services rendered in transactions such as mergers, consolidations, sales
or purchases of a significant amount of assets or capital stock, and financings
involving public or private offering of debt or equity securities of the Company
or the incurrence of other financing by the Company; and
WHEREAS, the Advisor wishes to provide such services to the
Company, and the Company wishes to compensate the Advisor for such services.
NOW, THEREFORE, in consideration of the premises and the
covenants and conditions contained herein, the parties hereto agree as follows:
1. Compensation; Expenses.
(a) Recapitalization Fee. The Company shall pay to the Advisor a
one-time advisory fee (the "Recapitalization Fee") in the amount of $3,000,000
in consideration for the services rendered by the Advisor to the Company in
connection with the Recapitalization. The Recapitalization Fee shall be paid on
or as soon as reasonably practicable after the date hereof in immediately
available funds by wire transfer to such account as the Advisor shall specify.
(b) Future Transaction Fees. In addition to the Recapitalization Fee
provided for above, the Advisor shall be entitled to receive additional
compensation for services rendered in transactions such as mergers,
consolidations, sales or purchases of a
<PAGE> 2
2
significant amount of assets or capital stock, and financings involving public
or private offering of debt or equity securities of the Company or the
incurrence of other financing by the Company. The compensation to be payable to
the Advisor for services rendered in connection with any such transaction shall
be such compensation as is customary for the type of services rendered in
similar transactions and as may be agreed upon by the Company and the Advisor at
such time.
(c) Expenses. The Company shall reimburse the Advisor promptly upon
request for travel and other out-of-pocket expenses incurred by the Advisor in
connection with the performance of services pursuant to this Agreement. Salaries
of employees of the Advisor and the ordinary expenses of maintaining the
Advisor's offices are not reimbursable expenses pursuant to this Agreement.
2. Interest. In the event that the Company shall fail to pay all or any part of
the fees or out-of-pocket expenses referred to in Article 1 hereof within 10
days after the date when due, then the Advisor shall be entitled to interest on
the unpaid amount thereof at a rate equal to 10% per annum until paid.
3. Indemnification. The Company will indemnify and hold harmless the Advisor,
its affiliates and their respective partners (both general and limited),
officers, directors, employees, agents and representatives (each such person
being an "Indemnified Party") from and against any and all losses, claims,
damages and liabilities, whether joint or several (the "Liabilities"), related
to, arising out of or in connection with the services contemplated by this
Agreement or the engagement of the Advisor pursuant to, and the performance by
the Advisor of the services contemplated by, this Agreement. The Company will
reimburse any Indemnified Party for all reasonable costs and expenses (including
reasonable attorneys' fees and expenses) as are incurred in connection with
investigating, preparing, pursuing, defending or assisting in the defense of any
action, claim, suit, investigation or proceeding for which the Indemnified Party
would be entitled to indemnification under the terms of the previous sentence,
or any action or proceeding arising therefrom, whether or not such Indemnified
Party is a party hereto. The Company will not be liable under the foregoing
indemnification provision with respect to any Indemnified Party, to the extent
that any loss, claim, damage, liability, cost or expense is determined by a
court, in a final judgment from which no further appeal may be taken, to have
resulted primarily from the gross negligence or willful misconduct of the
Advisor.
4. Term and Termination. This Agreement shall be effective as the date
hereof and shall continue in effect until the earliest to occur of (i) December
31, 2008 and (ii) the closing of a sale to an entity which is not an "Affiliate"
(as defined in Section 12b-2 of the Securities Exchange Act of 1934) of the
Company or to any person that, on the date hereof, is a shareholder of the
Company, of all or substantially all of the capital stock or assets of the
Company. The provisions of Section 1(c) and Articles 2 and 3 shall survive the
termination of this Agreement.
<PAGE> 3
3
5. Permissible Activities. Subject to applicable law, nothing herein shall in
any way preclude the Advisor, its affiliates or their respective partners (both
general and limited), officers, directors, employees, agents or representatives
from engaging in any business activities or from performing services for its or
their own account or for the account of others, including for companies that may
be in competition with the business conducted by the Company.
6. Consulting Relationship. It is understood and agreed that this Advisor shall
for all purposes hereof be deemed to be an independent contractor and shall not,
unless otherwise expressly authorized by the Company, have any authority to act
for or represent the Company in any way, execute any transaction on behalf of
the Company or otherwise be deemed an agent of the Company. No federal, state or
local withholding deductions shall be withheld from the fees and other amounts
payable to the Advisor pursuant to this Agreement unless otherwise required by
law.
7. Representations and Warranties of the Advisor. The Advisor represents and
warrants that it is not a party to or bound by any agreement or contract or
subject to any restrictions, particularly, but without limitation, in connection
with any previous or other consulting relationship, which prevents the Advisor
from entering into and performing its obligations under this Agreement.
8. Miscellaneous.
(a) No amendment or waiver of any provision of this Agreement,
or consent to any departure by either party hereto from any such provision,
shall be effective unless the same shall be in writing and signed by each of the
parties hereto. Any amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) Any and all notices hereunder shall, in the absence of
receipted hand delivery, be deemed duly given when mailed, if the same shall be
sent by registered or certified mail, return receipt requested, and the mailing
date shall be deemed the date from which all time periods pertaining to a date
of notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to the Advisor: J.F. Lehman & Company
450 Park Avenue
New York, New York 10022
Attention: Mr. Donald Glickman
Fax: (212) 634-1155
If to the Company: Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: The President
<PAGE> 4
4
Fax: (805) 254-4721
(c) This Agreement shall constitute the entire agreement
between the parties with respect to the subject matter hereof, and shall
supersede all previous oral and written (and all contemporaneous oral)
negotiations, commitments, agreements and understandings relating hereto.
(d) THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED IN THAT STATE. This Agreement shall inure to the benefit of,
and be binding upon, the Advisor and the Company and their respective successors
and permitted assigns. None of the rights or obligations of the parties
hereunder may be assigned by either party without the prior written consent of
the other party hereto, provided that the Advisor may assign its rights and
obligations hereunder to any corporation or other entity controlled by or under
common control with the Advisor.
(e) This Agreement may be executed by one or more parties to
this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(f) The waiver by any party of any breach of this Agreement
shall not operate as or be construed to be a waiver by such party of any
subsequent breach.
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(h) Notwithstanding anything set forth herein, payment of any
and all amounts pursuant hereto (including, without limitation, the
Recapitalization Fee) shall be expressly subject to the restrictions, if any,
set forth in (x) Section 9.06 of the Credit Agreement, dated as of December 15,
1998, among the Company, the Banks from time to time party thereto and Bankers
Trust Company, as Lead Arranger and Administrative Agent for such Banks and (y)
Section 4.03 of the Indenture, dated as of December 15, 1998, among the Company,
the Guarantors named therein and United States Trust Company of New York, as
trustee, (in each case as the same may be amended, modified or supplemented from
time to time).
<PAGE> 5
5
IN WITNESS WHEREOF, this Agreement has been executed all as of
the date first above written.
SPECIAL DEVICES, INCORPORATED
By: /s/ John T. Vinke
--------------------------
Name: John T. Vinke
Title: Chief Financial Officer
J.F. LEHMAN & COMPANY, INC.
By: /s/ Donald Glickman
--------------------------
Name: Donald Glickman
Title: Partner
<PAGE> 1
EXHIBIT 10.7
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "Agreement"), dated
as of December 15, 1998, by and between Special Devices, Incorporated, a
Delaware corporation (the "Company"), and J.F. Lehman & Company, a
Delaware corporation (the "Advisor").
WHEREAS, the Company is engaged in the business of designing
and manufacturing precision engineered pyrotechnic devices used in vehicle
airbag and other automotive safety systems as well as in various aerospace
applications.
WHEREAS, key personnel of the Advisor have substantial
expertise that is useful to the Company.
WHEREAS, the Company desires to retain Advisor to provide
management, consulting and financial services to the Company; and
WHEREAS, the Advisor wishes to provide such services to the
Company, and the Company wishes to compensate the Advisor for such services.
NOW, THEREFORE, in consideration of the premises and the
covenants and conditions contained herein, the parties hereto agree as follows:
1. Agreement to Provide Management Services. The Advisor hereby agrees to
provide to the Company at the Company's request the management services
("Services") listed on Schedule "A" hereto. The Advisor's key personnel will
devote as much of their business time and effort to the provision of Services
hereunder as is reasonably required for the prompt and efficient accomplishment
of the Services to be provided.
2. Compensation; Expenses.
(a) Management Fees. In consideration for the advisory and consulting
services to be rendered by the Advisor to the Company hereunder, including
services in connection with strategic financial planning, investment management,
management and administration and other matters relating to the business and
operations of the Company, the Company shall pay to the Advisor a fee (the
"Annual Fee") in the amount of $900,000 per annum for each year during the
period commencing on the effective date of the Merger (the "Effective Date") and
ending on the date of the termination of this Agreement. The Annual Fee shall be
payable quarterly in advance (i) for the period from the Effective Date through
January 31, 1999, as soon as practicable after the Effective Date, (ii) for
every three month period thereafter until the date of the termination of this
Agreement, on the first day of such three month period.
(b) Expenses. The Company shall reimburse the Advisor promptly upon
request for travel and other out-of-pocket expenses incurred by the Advisor in
connection with the performance of services pursuant to this Agreement. Salaries
of employees of
<PAGE> 2
2
the Advisor and the ordinary expenses of maintaining the Advisor's offices are
not reimbursable expenses pursuant to this Agreement.
3. Interest. In the event that the Company shall fail to pay all or any part of
the fees or out-of-pocket expenses referred to in Article 2 hereof within 10
days after the date when due, then the Advisor shall be entitled to interest on
the unpaid amount thereof at a rate equal to 10% per annum until paid.
4. Indemnification. The Company will indemnify and hold harmless the Advisor,
its affiliates and their respective partners (both general and limited),
officers, directors, employees, agents and representatives (each such person
being an "Indemnified Party") from and against any and all losses, claims,
damages and liabilities, whether joint or several (the "Liabilities"), related
to, arising out of or in connection with the services contemplated by this
Agreement or the engagement of the Advisor pursuant to, and the performance by
the Advisor of the services contemplated by, this Agreement. The Company will
reimburse any Indemnified Party for all reasonable costs and expenses (including
reasonable attorneys' fees and expenses) as are incurred in connection with
investigating, preparing, pursuing, defending or assisting in the defense of any
action, claim, suit, investigation or proceeding for which the Indemnified Party
would be entitled to indemnification under the terms of the previous sentence,
or any action or proceeding arising therefrom, whether or not such Indemnified
Party is a party hereto. The Company will not be liable under the foregoing
indemnification provision with respect to any Indemnified Party, to the extent
that any loss, claim, damage, liability, cost or expense is determined by a
court, in a final judgment from which no further appeal may be taken, to have
resulted primarily from the gross negligence or willful misconduct of the
Advisor.
5. Term and Termination. This Agreement shall be effective as the date hereof
and shall continue in effect until the earliest to occur of (i) December 31,
2008 and (ii) the closing of a sale to an entity which is not an "Affiliate" (as
defined in Section 12b-2 of the Securities Exchange Act of 1934) of the Company
or to any person that is, on the date hereof, a shareholder of the Company, all
or substantially all of the capital stock or assets of the Company. The
provisions of Section 2(b) and Articles 3 and 4 shall survive the termination of
this Agreement.
6. Permissible Activities. Subject to applicable law, nothing herein shall in
any way preclude the Advisor, its affiliates or their respective partners (both
general and limited), officers, directors, employees, agents or representatives
from engaging in any business activities or from performing services for its or
their own account or for the account of others, including for companies that may
be in competition with the business conducted by the Company.
7. Consulting Relationship. It is understood and agreed that this Advisor shall
for all purposes hereof be deemed to be an independent contractor and shall not,
unless otherwise expressly authorized by the Company, have any authority to act
for or represent
<PAGE> 3
3
the Company in any way, execute any transaction on behalf of the Company or
otherwise be deemed an agent of the Company. No federal, state or local
withholding deductions shall be withheld from the fees and other amounts payable
to the Advisor pursuant to this Agreement unless otherwise required by law.
8. Representations and Warranties of the Advisor. The Advisor represents and
warrants that it is not a party to or bound by any agreement or contract or
subject to any restrictions, particularly, but without limitation, in connection
with any previous or other consulting relationship, which prevents the Advisor
from entering into and performing its obligations under this Agreement.
9. Miscellaneous.
(a) No amendment or waiver of any provision of this Agreement,
or consent to any departure by either party hereto from any such provision,
shall be effective unless the same shall be in writing and signed by each of the
parties hereto. Any amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) Any and all notices hereunder shall, in the absence of
receipted hand delivery, be deemed duly given when mailed, if the same shall be
sent by registered or certified mail, return receipt requested, and the mailing
date shall be deemed the date from which all time periods pertaining to a date
of notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to the Advisor: J.F. Lehman & Company, Inc.
450 Park Avenue
New York, New York 10022
Attention: Mr. Donald Glickman
Fax: (212) 634-1155
If to the Company: Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: The President
Fax: (805) 254-4721
(c) This Agreement shall constitute the entire agreement
between the parties with respect to the subject matter hereof, and shall
supersede all previous oral and written (and all contemporaneous oral)
negotiations, commitments, agreements and understandings relating hereto.
(d) THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE
<PAGE> 4
4
PERFORMED IN THAT STATE. This Agreement shall inure to the benefit of, and be
binding upon, the Advisor and the Company and their respective successors and
permitted assigns. None of the rights or obligations of the parties hereunder
may be assigned by either party without the prior written consent of the other
party hereto, provided that the Advisor may assign its rights and obligations
hereunder to any corporation or other entity controlled by or under common
control with the Advisor.
(e) This Agreement may be executed by one or more parties to
this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(f) The waiver by any party of any breach of this Agreement
shall not operate as or be construed to be a waiver by such party of any
subsequent breach.
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(h) Notwithstanding anything set forth herein, payment of any
and all amounts pursuant hereto (including, without limitation, the Annual Fee)
shall be expressly subject to the restrictions, if any, set forth in (x) Section
9.06 of the Credit Agreement, dated as of December 15, 1998, among the Company,
the Banks from time to time party thereto and Bankers Trust Company, as Lead
Arranger and Administrative Agent for such Banks and (y) Section 4.03 of the
Indenture, dated as of December 15, 1998, among the Company, the Guarantors
named therein and United States Trust Company of New York, as trustee, (in each
case as the same may be amended, modified or supplemented from time to time).
<PAGE> 5
5
IN WITNESS WHEREOF, this Agreement has been executed all as of
the date first above written.
SPECIAL DEVICES, INCORPORATED
By: /s/ John T. Vinke
---------------------------
Name: John T. Vinke
Title: Chief Financial Officer
J.F. LEHMAN & COMPANY, INC.
By: /s/ Donald Glickman
---------------------------
Name: Donald Glickman
Title: Partner
<PAGE> 6
6
Schedule A
MANAGEMENT SERVICES
Strategic planning; development of new products for the U.S. Military
Strategic planning; development of new commercial products
Strategic planning -- marketing
Strategic planning -- other opportunities
Oversight and supervision; contracting and contract compliance
Supervise investor relations
Security compliance
Advice on engineering issues
Application of existing commercial products to military operations
Arrangement/management of domestic bank facilities
Assistance in identifying/retaining key personnel and other service providers
Advice on cash flow management
Advice on potential acquisitions
<PAGE> 1
EXHIBIT 10.8
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of September 7, 1998 among
Special Devices, Incorporated, a Delaware corporation (the "Company"), Paribas
Principal Inc., a New York corporation (the "Purchaser"), J.F. Lehman Equity
Investors I, L.P. (the "Fund") and JFL Co-Invest Partners I, L.P. ("Co-
Invest").
WHEREAS, the Purchaser wishes to subscribe for and purchase,
and the Company desires to issue and sell to the Purchaser, certain shares of
common stock, par value $.01, of the Company (the "Common Stock") on the terms
and subject to the conditions set forth herein;
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as
of June 19, 1998 and amended and restated as of August 18, 1998, between SDI
Acquisition Corp. ("Acquisition") and the Company (the "Merger Agreement") (a
copy of which is attached hereto as Exhibit A), Acquisition shall be merged with
and into the Company, and the Company shall continue as the surviving
corporation of the Merger (as such term is defined in the Merger Agreement);
WHEREAS, pursuant to an Agreement of Limited Partnership,
dated September 4, 1998, among JFL Investors, L.L.C., and those persons listed
therein (the "Partnership Agreement") (a copy of which is attached hereto as
Exhibit B) , the parties thereto have formed Co-Invest for the purpose of
acquiring securities of the Company;
<PAGE> 2
2
WHEREAS, the Company, the Purchaser, the Fund and Co-Invest
wish to provide for certain arrangements with respect to the Purchaser's right
to hold and dispose of the shares of Common Stock acquired by the Purchaser
hereunder.
Accordingly, the Purchaser and the Company hereby agree as
follows:
1. Purchase and Sale of Shares. Subject to the terms set forth
in this Agreement, and in reliance upon the representations, warranties and
agreements of the Purchaser and the Company, contained herein, the Company
hereby issues and sells to the Purchaser, and the Purchaser hereby subscribes
for, 297,297 shares of Common Stock of the Company (the "Shares"). Payment will
be made (upon the issuance of an appropriate certificate or certificates
representing the Shares to and in the name of the Purchaser) in cash or by wire
transfer of immediately available funds, at the price of $37.00 per share, for
the aggregate purchase price of $10,999,989 (the "Purchase Price").
2. Closing of the Purchase and Sale; Payment for Shares. The
closing of the transactions contemplated hereby shall take place at the offices
of Paul, Weiss, Rifkind, Wharton & Garrison immediately after the Effective Time
(as such term is defined in the Merger Agreement) (the "Closing"). At the
Closing, the Company shall deliver to the Purchaser a duly executed certificate
or certificates representing the Shares to and in the name of the Purchaser, and
the Purchaser shall pay the Purchase Price to the Company in cash or by wire
transfer of immediately available funds.
3. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the
<PAGE> 3
3
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder.
(b) The execution, delivery and performance of this Agreement,
and the execution, issuance, sale and delivery of the Shares have been duly
authorized by all necessary corporate action on the part of the Company. The
Shares, when issued, shall be validly issued, and, upon payment to the Company
by the Purchaser of the full Purchase Price, shall be fully paid and
nonassessable and the Purchaser shall have record and beneficial ownership of
the Shares, free and clear of any liens.
(c) As of the Closing, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, par value $.01 per
share, and 2,000,000 shares of preferred stock, of which 2,930,260 shares of
Common Stock are issued and outstanding (excluding 101,575 unexercised options),
and no shares of preferred stock are outstanding . All such shares of Common
Stock will be validly issued and duly authorized. As of the Closing, there will
not be any other equity securities of the Company issued and outstanding. Except
for this Agreement, the Partnership Agreement and the Merger Agreement, the
Company has no obligations to issue any of its Shares.
(d) The execution, delivery and performance by the Company of
this Agreement and the transactions contemplated hereby, including, without
limitation, the sale, issuance and delivery of the Shares (i) do not violate or
contravene the terms of the Company's certificate of incorporation, by-laws, or
any amendment of either thereof, or any organizational or governing documents of
the Company; (ii) assuming the accuracy of the Purchaser's representations and
warranties set forth in
<PAGE> 4
4
Article 4 hereto, do not require the approval or consent of, or filing or
registration with, any federal, state or local government authority or any other
person; (iii) do not violate, conflict with or result in any breach or
contravention of, or the creation of any Lien under any material agreement of
the Company; and (iv) do not violate or conflict with any statute, rule
regulation, licensing requirement, judgment, order, writ, decree or injunction
applicable to the Company.
(e) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability.
(f) This Agreement does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made herein, in light of the circumstances in which they were made, not
misleading.
(g) All information set forth in the SBA Forms (as defined in
Section 5(b)) regarding the Company and its affiliates is accurate and complete.
Copies of such forms have been, on or prior to the date hereof, completed and
executed by the Company and delivered to the Purchaser.
(h) The Company and its subsidiaries do not engage in any
activity which would render the Company ineligible to receive financing
assistance from a Small Business Investment Company as provided in 13 CFR
107.720.
<PAGE> 5
5
(i) The Company is aware that the Purchaser is a
Federal licensee under the Small Business Investment Act ("SBIA").
4. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Company that:
(a) it is acquiring the Shares for its own sole benefit and
account for investment and not with a view to distributing or reselling the
Shares in any transaction that would be in violation of any federal or state
securities laws;
(b) it (i) is familiar with the terms of the Merger
Agreement and the business of the Company, (ii) has had an opportunity to
discuss with representatives of the Company the condition of and prospects for
the continued operation of the Company and such other matters as it deemed
appropriate in considering whether to invest in the Shares and (iii) has been
provided access to all available information about the Company and the
transactions contemplated by the Merger Agreement requested by it;
(c) it understands that the Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or
registered or qualified under the securities laws of any state, and that it may
not sell or otherwise transfer the Shares unless the Shares are subsequently
registered under the Securities Act and registered or qualified under applicable
state securities laws, or unless an exemption is available that permits the sale
or transfer without such registration or qualification;
(d) it has made its own investigation whether or not to
invest in the Shares and that it has sufficient business and financial
experience so as to enable it to evaluate the merits and risks associated with
the purchase of the Shares;
<PAGE> 6
6
(e) it is able to bear the economic risk of a total loss of
its investment in the Company and it has adequate means of providing for its
current needs and foreseeable contingencies and has no need for its investment
in the Shares to be liquid; and
(f) it understands that the purchase of the Shares involves
various risks, including, among others, that it is unlikely that any market will
exist for any resale of the Shares and that the Shares will be subject to the
terms and conditions of loan or credit agreements and related security documents
entered into by the Company (as such term in defined in the Merger Agreement).
5. Conditions to the Closing.
(a) The obligations of the Company to issue the Shares on
the Closing and the Purchaser to pay the amounts under Section 1 shall be
conditioned upon the consummation of the Merger upon the terms and conditions
set forth in the Merger Agreement, as the same may be amended or waived by the
parties thereto. Neither the Company nor Acquisition shall waive any material
condition set forth in Article 5 of the Merger Agreement without the written
consent of the Purchaser.
(b) At the Closing, the Purchaser shall have received from
the Company fully executed Small Business Administration Forms 480 and 652 and
Small Business Administration Form 1031 with Parts A and B thereof fully
executed (the "SBA Forms").
6. Affiliate Transactions. The Purchaser shall have the right to
enforce all of the affiliate transaction restrictions set forth in Section
2.2(b) of the Partnership Agreement.
<PAGE> 7
7
7. Limitations on Transfer.
(a) General Restrictions on Transfer. The Purchaser agrees
that it shall not, either directly or indirectly, offer, sell, transfer, assign,
mortgage, hypothecate, pledge, create a security interest in or Lien upon,
encumber, donate, contribute, place in trust, or otherwise voluntarily or
involuntarily dispose of (any of the foregoing actions, to "Transfer" and, any
offer, sale, transfer, assignment, mortgage, hypothecation, pledge, security
interest or Lien, encumbrance, donation, contribution, placing in trust or other
disposition, a "Transfer") any Shares, or any interest therein, except in a
transaction that is specifically permitted by this Agreement.
(b) Void Transfers. Any attempt to Transfer any Shares, or
any interest therein, which is not in compliance with this Agreement shall be
null and void ab initio, and the Company shall not give any effect in the
Company's stock records to such attempted Transfer.
(c) Permitted Transfers. Notwithstanding Sections 7(a) and
7(b), Transfers (including, without limitation, pledges of Shares as collateral
for loans) may be made pursuant to this Agreement if:
(i) such Transfer complies in all respects with Section
7(c) of this Agreement and any shareholders' agreement executed by the
parties hereto and applicable federal and state securities laws;
(ii) the transferee agrees in writing with the Company
to be bound by the terms and conditions of this Agreement and any
shareholder's agreement executed by the parties hereto with respect to
the Shares transferred to such transferee to the same extent as the
Purchaser; and
<PAGE> 8
8
(iii) if requested by the Company, in its sole
discretion, an opinion of counsel to the Purchaser shall be supplied to
the Company, at the Purchaser's expense, to the effect that such
Transfer complies with applicable United States federal and state
securities laws.
8. Tag-Along Rights.
(a) In the event that the Fund and/or Co-Invest (each a
"Selling Stockholder") shall desire to sell shares of Common Stock (the "Offered
Shares") to any person other than the Fund or Co-Invest or any wholly-owned
subsidiary of the Fund or Co-Invest (a "Third Party Purchaser"), such Selling
Stockholder shall send a written offer (a "Tag-Along Offer") (which shall state
(i) the number of Offered Shares, (ii) the proposed purchase price per share
(the "Offer Price") and all other material conditions of such sale and (iii) if
applicable, be accompanied by any written offer from the Third Party Purchaser)
to the Purchaser to enable the Purchaser to participate on a pro rata basis in
such sale by including a portion of the Purchaser's shares of Common Stock (the
exact number of which shall be determined based on multiplying the number of
Offered Shares by a fraction, (i) the numerator of which is the total number of
shares of Common Stock then owned directly by the Purchaser and (ii) the
denominator of which is the sum of the total number of shares of Common Stock
then owned by the Fund, Co-Invest and directly by the Purchaser), at the Offer
Price and otherwise upon the same terms and conditions of such sale. Upon
delivery of the Tag-Along Offer pursuant to this Section 8, the offer made
therein to the Purchaser shall be irrevocable unless the Third Party Purchaser
withdraws its offer, or unless and until the rights provided for therein shall
have been waived or shall have expired in accordance with this Agreement. The
failure of the
<PAGE> 9
9
Purchaser to respond within 15 days after receiving the Tag-Along Offer shall be
regarded as a rejection of the offer to participate in such sale as contemplated
by the Tag-Along Offer and shall be deemed to be a waiver of its rights under
this Section 8. To the extent that the Purchaser exercises its right to sell
shares of Common Stock pursuant to this Section 8, the number of shares of
Common Stock proposed to be sold to the Third Party Purchaser by the Fund and/or
Co-Invest shall be reduced proportionately.
(b) Upon acceptance of a Tag-Along, the Purchaser shall be
obligated:
(i) to sell the pro rata portion of its shares of
Common Stock in the transaction contemplated by the Tag-Along Offer on the same
terms and conditions as the Selling Stockholders;
(ii) to provide for the payment by the Purchaser of
its pro rata portion of all costs associated with such transaction, in the
proportion that the number of shares of Common Stock owned directly by the
Purchaser bears to the number of outstanding shares of Common Stock; and
(iii) to agree to participate on a pro rata basis in
any indemnification provided to the Third Party Purchaser on the same terms and
conditions as the Selling Stockholders up to the Purchaser's cash proceeds from
such sale; provided that the Purchaser shall only provide representations and
warranties to the Third Party Purchaser relating to the Purchaser's ownership of
the Shares to be sold in such transaction.
<PAGE> 10
10
(c) None of the parties to this Agreement nor any of the
affiliates hereto shall receive any benefit or remuneration from any Third Party
Purchaser beyond customary investment banking fees.
9. Bring-Along Rights.
(a) In the event that one or more Selling Stockholders
holding at least 50% of the outstanding shares of Common Stock receives a bona
fide offer from a Third Party Purchaser (excluding offers from affiliates of any
of the holders of Common Stock (each a "Stockholder") to purchase (including a
purchase by merger) at least a majority of the outstanding shares of Common
Stock, the Selling Stockholders may send written notice (a "Buyout Notice") to
the Purchaser notifying the Purchaser that it will be required to sell the same
percentage of its shares of Common Stock in such sale as the Selling
Stockholders propose to sell (which percentage shall be specified in such Buyout
Notice) (the "Designated Percentage").
(b) Upon receipt of a Buyout Notice, the Purchaser shall
be obligated:
(i) to sell the Designated Percentage of its
shares of Common Stock in the transaction (including a sale or merger)
contemplated by the Buyout Notice on the same terms and conditions as
the Selling Stockholders;
(ii) to provide for the payment by the
Purchaser of its pro rata portion of all costs associated with such
transaction, in the proportion that the number of shares of Common
Stock owned by the Purchaser bears to the number of outstanding shares
of Common Stock;
<PAGE> 11
11
(iii) to agree to participate on a pro rata
basis in any indemnification provided to the Third Party Purchaser on
the same terms and conditions as the Selling Stockholders up to the
Purchaser's cash proceeds from such sale; provided that the Purchaser
shall only provide representations and warranties to the Third Party
Purchaser relating to the Purchaser's ownership of the Shares to be
sold in such transaction; and
(iv) otherwise to take all necessary action
to cause the consummation of such transaction, including voting its
shares of Common Stock in favor of such transaction and not exercising
any appraisal rights in connection therewith.
(c) The Purchaser further agrees to take all actions
(including executing documents) in connection with the consummation of the
proposed transaction as may reasonably be requested of it by the Selling
Stockholders.
(d) In the event a contract with respect to the
transaction contemplated by the Buyout Notice has not been entered into within
the 90 days after the date of delivery of the Buyout Notice, the obligations of
the Purchaser under this Section 9 with respect to such Buyout Notice shall
terminate, subject, however, to the right of the Selling Stockholders to deliver
a further Buyout Notice.
(e) None of the parties to this Agreement nor any of
the affiliates of the parties hereto shall receive any benefit or remuneration
from any Third Party Purchaser beyond customary investment banking fees.
10. Right to Purchase. The Company shall give the Purchaser 30
days' prior written notice of the proposed issuance by the Company of any
capital stock or any
<PAGE> 12
12
security convertible for or exchangeable into capital stock (each a "New
Issuance") (other than capital stock to be issued in connection with an employee
stock option plan that is approved by the Company's Board of Directors, an
issuance of capital stock as a stock split or stock dividend, an issuance of
capital stock pursuant to the exercise of any option, warrant or convertible
security outstanding on the date of this Agreement, an issuance of capital stock
pursuant to the exercise of any option, warrant or convertible security issued
after the date hereof whose original issuance entitled the Purchaser to purchase
the Purchaser Percentage of such securities pursuant to this Section 10, or the
issuance of capital stock upon the conversion of any share of convertible
capital stock outstanding on the date hereof or upon conversion of any share of
convertible capital stock subsequently issued in respect of shares of
convertible capital stock outstanding on the date hereof). Such notice shall
specify the number and class of securities to be issued, the rights, terms and
privileges thereof and the price at which such securities will be issued. By
written notice to the Company given within fifteen (15) business days of being
notified of such New Issuance, the Purchaser shall be entitled to purchase the
Purchaser's Percentage (as defined below) of the New Issuance. The Purchaser
Percentage shall mean the percentage of the outstanding Common Stock of the
Company prior to the New Issuance represented by a fraction, (A) the numerator
of which is equal to the sum of (a) the total number of shares of Common Stock
owned directly by the Purchaser and (b) the product of (i) the total number of
shares owned by Co-Invest multiplied by (ii) a fraction, the numerator of which
is the Original Available Capital (as such term is defined in the Partnership
Agreement) of the Purchaser in Co-Invest and the denominator of which is the
Original Available Capital of all parties in Co-Invest taken together;
provided, that if
<PAGE> 13
13
Co-Invest purchases a portion of the New Issuance, the numerator set forth in
(A) shall be reduced by the product of (x) the total number of shares acquired
in such New Issuance by Co-Invest multiplied by (y) a fraction, the numerator of
which is the Original Available Capital (as such term is defined in the
Partnership Agreement) of the Purchaser in Co-Invest and the denominator of
which is the Original Available Capital of all parties in Co-Invest taken
together and (B) the denominator of which is the total number of shares of
Common Stock then outstanding; provided, however, that the Purchaser shall not
have any right to purchase securities pursuant to this Section 10 if, prior to a
sale of securities to the Purchaser pursuant to this Section 10, such securities
would be required to be registered under the Securities Act.
11. Registration Rights. The Purchaser and its Affiliates (as
such term is defined in the Partnership Agreement) shall be granted demand
registration rights for an aggregate of two such registrations of any Common
Stock directly owned by the Purchaser or its Affiliates. The Purchaser, its
Affiliates and certain other Stockholders shall also be granted piggy-back
rights on other registrations by the Company, subject to customary exceptions.
The foregoing shall be provided to the Purchaser and its Affiliates pursuant to
a Registration Rights Agreement in form and substance reasonably acceptable to
the Purchaser, the Fund and Co-Invest. This Section 11 shall not limit
registration rights granted to other Stockholders pursuant to any registration
rights agreement as may be executed after the Effective Time.
12. Governance. The Purchaser shall be entitled to designate
one of the members of the Company's Board of Directors (the "Purchaser
Director"); provided that if the Purchaser directly owns less than 25% of the
Shares, as adjusted for any stock-
<PAGE> 14
14
splits, stock dividends or other similar changes in the capital structure of the
Company, the Purchaser Director shall resign from the Company's Board of
Directors and the Purchaser shall no longer have the right to designate a
director. Each year, the Purchaser Director shall have the right to bring to one
meeting of the Company's Board of Directors one observer designated by the
Purchaser. The Company shall pay all reasonable costs incurred by the Purchaser
Director in attending meetings of the Company's Board of Directors upon
presentation to the Company of expense statements or vouchers or such other
supporting information as the Company shall require from its directors.
13. Information Rights; Access. Until such time as the Company
shall have become subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, the Company shall provide the Purchaser with
(a) such information, statements and reports required under any credit agreement
to which the Company is a party, (b) such information, statements and reports
required under the credit agreement (the "Credit Agreement") by and among the
Company, each of the financial institutions from time to time a party thereto
and Bankers Trust Company, as agent, whether or not the Credit Agreement remains
in effect or any amounts are outstanding thereunder, and (c) such other
information as the Purchaser may reasonably request.
As long as the Purchaser has the right to appoint the
Purchaser Director, the Company and its subsidiaries shall afford the Purchaser
and the Purchaser's accountants, counsel and other representatives full and
reasonable access during normal business hours to its properties, books,
contracts, commitments, records and personnel.
14. Regulatory Problem. Notwithstanding any other provision of
this Agreement to the contrary, in the event that the Purchaser or any of its
affiliates shall
<PAGE> 15
15
determine that, if the Purchaser or such affiliate shall continue to hold some
or all of the shares of Common Stock or any other securities of the Company held
by it, there is a material risk that such ownership will result in a Regulatory
Problem or the cost of continuing to hold such securities has, in the reasonable
judgment of the Purchaser or such affiliate, significantly increased, the
Purchaser or such affiliate, may sell, exchange, convert to an investment in
Co-Invest or otherwise dispose of such securities, in a prompt and orderly
manner. In connection with the foregoing sentence, if requested by the
Purchaser, (a) the Company shall cooperate with the Purchaser or such affiliate
in (i) disposing of such securities to a third party or (ii) exchanging all or
any portion of such voting securities on a share-for-share basis for shares of a
non-voting security of the Company (such non-voting security to be identical in
all respects to such voting securities or other securities, except that they
shall be non-voting and shall be convertible or exercisable into voting
securities on such conditions as are requested by the Purchaser in light of the
regulatory considerations prevailing) and (b) Co-Invest shall cooperate with the
Purchaser or such affiliate in order to permit the Purchaser to convert the
Shares or any portion thereof into a Capital Contribution in Co-Invest with
appropriate modifications to the Partnership Agreement, including but not
limited to a modification of the allocation of income/loss provisions of the
Partnership Agreement to give effect to the fact that the Purchaser's direct
investment in the Company has been reduced, provided that such conversion and
modifications are in compliance with federal and state law. Without limiting the
foregoing, at the request of the Purchaser or such affiliate, the Company shall
provide (and authorize the Purchaser or such affiliate, to provide) financial
and other information concerning the Company to any prospective purchaser of
<PAGE> 16
16
such securities owned by the Purchaser or such affiliate, and shall amend this
Agreement, the articles or organization of the Company, the operating agreement
of the Company, and any related agreements and instruments and shall take such
additional actions in order to effectuate and reflect the foregoing. The Company
shall not be required to provide any such information unless the recipient
thereof signs a confidentiality agreement reasonably satisfactory to the
Company.
For purposes of this Section 14 "Regulatory Problem" shall
mean, with respect to the Purchaser or any of its affiliates any set of facts,
events or circumstances the existence of which would cause Purchaser or any of
its affiliates to believe that there is a substantial risk of assertion by a
governmental entity (which belief shall be reasonable in light of the prevailing
regulatory environment) that the Purchaser or any of its affiliates is or would
be in violation of any law, regulation, rule or other requirement of any
governmental authority (including without limitation, the SBIA).
15. Merger. The Company shall not enter into any merger or
consolidation unless the terms of such merger or consolidation provide that all
shares of Common Stock held by Purchaser shall be treated no less favorably than
any other shares of Common Stock.
16. Miscellaneous.
(a) Rules of Construction. In this Agreement, unless the
context otherwise requires, words in the singular number or in the plural number
shall each include the singular number and the plural number, words of the
masculine gender shall include the feminine and the neuter, and, when the sense
so indicates, words of the neuter shall refer to any gender.
<PAGE> 17
17
(b) Further Assurances. Each party hereto shall do and perform
or cause to be done and performed all further acts and shall execute and deliver
all other agreements, including, without limitation, such stockholders'
agreements as may be executed into pursuant to the Merger, certificates,
instruments and documents as any other party hereto reasonably may request in
order to carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.
(c) Governing Law. This Agreement and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware, without giving
effect to the conflicts of laws principles thereof.
(d) Specific Performance. The parties hereto
acknowledge that there will be no adequate remedy at law for a violation of any
of the provisions of this Agreement and that, in addition to any other remedies
that may be available, all of the provisions of this Agreement shall be
specifically enforceable in accordance with their respective terms.
(e) Invalidity of Provision. The invalidity or
unenforceability of any provision of this Agreement in any jurisdiction shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of this Agreement, including
that provision, in any other jurisdiction.
(f) Notice. All notices and other communications
hereunder shall be in writing and, unless otherwise provided herein, shall be
deemed to have been given when received by the party to whom such notice is to
be given at its address set
<PAGE> 18
18
forth below, or such other address for the party as shall be specified by notice
given pursuant hereto:
If to the Company, to:
Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: The President
Telephone: (805) 259-0753
Facsimile: (805) 254-4721
with a copy to:
Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, California 90071
Attention: Richard A. Strong, Esq.
Telephone:
Facsimile:
If to the Fund or Co-Invest, to:
c/o J.F. Lehman & Company
450 Park Avenue
New York, New York 10022
Attention: Donald Glickman
Telephone: (212) 634-1160
Facsimile: (212) 634-1155
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert M. Hirsh, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
<PAGE> 19
19
If to the Purchaser, to:
Paribas Principal Inc.
787 7th Avenue
New York, New York 10019
Attention: Steven Eisenstein
Telephone: (212) 841-2127
Facsimile: (212) 841-2502
with a copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: John Reiss, Esq.
Telephone: (212) 819-8247
Facsimile: (212) 819-2582
(g) Binding Effect. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives, successors and assigns.
(h) Amendment and Modification. This Agreement may be
amended, modified or supplemented only by written agreement of the party against
whom enforcement of such amendment, modification or supplement is sought.
(i) Headings; Execution in Counterparts. The headings
and captions contained herein are for convenience only and shall not control or
affect the meaning or construction of any provision hereof. This Agreement may
be executed in any number of counterparts, each of which shall be deemed to be
an original and all of which together shall constitute one and the same
instrument.
(j) Entire Agreement. This Agreement constitutes the
entire agreement, and supersedes all prior agreements and understandings, oral
and written, between the parties hereto with respect to the subject matter
hereof.
<PAGE> 20
20
(k) Termination Upon the termination of the Merger
Agreement pursuant to Section 6.1 of the Merger Agreement, this Agreement shall
terminate and there shall be no liability or obligation on the part of any party
or its affiliates, directors, officers or stockholders with respect to this
Agreement.
<PAGE> 21
21
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
SPECIAL DEVICES, INCORPORATED
By: /s/ Thomas F. Treinen
---------------------------
Name: Thomas F. Treinen
Title: President and
Chief Executive Officer
PARIBAS PRINCIPAL INC.
By: /s/ Stephen Eisenstein
------------------------
Name: Stephen Eisenstein
Title: Director
J.F. LEHMAN EQUITY INVESTORS I, L.P.
By: JFL Investors, L.L.C., Its General
Partner
By: /s/ Donald Glickman
------------------------
Name: Donald Glickman
Title: Managing Member
JFL CO-INVEST PARTNERS I, L.P.
By: JFL Investors, L.L.C., Its General
Partner
By: /s/ Donald Glickman
-----------------------
Name: Donald Glickman
Title: Managing Member
<PAGE> 1
EXHIBIT 10.9
AMENDMENT NO. 1
TO THE
SUBSCRIPTION AGREEMENT
AMONG
SPECIAL DEVICES, INCORPORATED,
PARIBAS PRINCIPAL INC.,
J.F. LEHMAN EQUITY INVESTORS I, L.P.
AND
JFL CO-INVEST PARTNERS I, L.P.
THIS AMENDMENT NO. 1 to the Subscription Agreement (the
"Subscription Agreement", dated as of September 7, 1998, among Special Devices,
Incorporated, a Delaware corporation (the "Company"), Paribas Principal Inc., a
New York corporation (the "Purchaser"), J.F. Lehman Equity Investors I, L.P.
(the "Fund") and JFL Co-Invest Partners I, L.P. ("Co-Invest") is made by and
between the Company, the Purchaser, the Fund and Co-Invest as of this 3rd day of
December, 1998 (this "Amendment").
On October 27, 1998, the Agreement and Plan of Merger, dated
as of June 19, 1998 and amended and restated as of August 17, 1998, between SDI
Acquisition Corp. and the Company (the "Merger Agreement"), was amended to
change the cash consideration from $37.00 to $34.00 per share of the Common
Stock of the Company and to provide for the rollover of additional shares of
Common Stock of the Company held by Thomas Treinen and Walter Neubauer (the
"Additional Rollover Shares").
The Company, the Purchaser, the Fund and Co-Invest wish to
amend the Subscription Agreement so that the terms of the purchase and sale of
the shares of the Company's Common Stock being purchased thereby are adjusted to
reflect the amended terms of the Merger Agreement.
Accordingly, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendments. Notwithstanding anything to the contrary
contained in the Subscription Agreement, as of the date hereof, the Subscription
Agreement is modified and amended as set forth below. All terms used in this
Amendment shall have the same definitions as set forth in the Subscription
Agreement unless otherwise indicated herein.
(a) Section 1 of the Subscription Agreement is hereby replaced
in its entirety by the following:
"1. Purchase and Sale of Shares. Subject to the terms set
forth in this Agreement, and in reliance upon the representations,
warranties and agreements of the Purchaser and the Company, contained
herein, the Company hereby issues and sells to the Purchaser, and the
Purchaser hereby subscribes for,
<PAGE> 2
2
323,529 shares of Common Stock of the Company (the "Shares"). Payment
will be made (upon the issuance of an appropriate certificate or
certificates representing the Shares to and in the name of the
Purchaser) in cash or by wire transfer of immediately available funds,
at the price of $34.00 per share, for the aggregate purchase price of
$10,999,986 (the "Purchase Price")."
(b) The first sentence of Section 3(c) of the Subscription
Agreement is hereby replaced in its entirety by the following:
"As of the Closing, the authorized capital stock of
the Company will consist of 20,000,000 shares of Common Stock, par
value $.01 per share, and 2,000,000 shares of preferred stock, of which
3,706,889 shares of Common Stock are issued and outstanding (excluding
101,575 unexercised options), and no shares of preferred stock are
outstanding."
(c) Section 16(k) of the Subscription Agreement is hereby
replaced in its entirety by the following:
"If the Merger has not been consummated on or before
February 19, 1999, this Agreement shall terminate, and there shall be
no liability or obligation on the part of any party or its affiliates,
directors, officers or stockholders with respect to this Agreement."
2. Consent to Amendment of Merger Agreement. The Purchaser hereby
consents to the Amendment to the Merger Agreement dated October 27, 1998, a copy
of which Amendment is attached hereto as Exhibit A.
3. No Other Amendments. Except as provided above, the Subscription
Agreement shall remain in full force and effect. The execution of this Amendment
is not a waiver by the Company, the Purchaser, the Fund or Co-Invest of any of
the terms or provisions of the Subscription Agreement.
4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
<PAGE> 3
3
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be duly executed on its behalf as of the day and year first above
written.
SPECIAL DEVICES, INCORPORATED
By: /s/ Thomas F. Treinen
------------------------
Name: Thomas F. Treinen
Title: President and
Chief Financial Officer
PARIBAS PRINCIPAL, INC.
By: /s/ Stephen Eisenstein
--------------------------
Name: Stephen Eisenstein
Title: Director
J.F. LEHMAN EQUITY INVESTORS I, L.P.
By: JFL Investors, L.L.C., Its General Part
By: /s/ Donald Glickman
------------------------
Name: Donald Glickman
Title: Managing Director
JFL CO-INVEST PARTNERS I, L.P.
By: JFL Investors, L.L.C., Its General Partner
By: /s/ Donald Glickman
-------------------------
Name: Donald Glickman
Title: Managing Director
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 2
TO THE
SUBSCRIPTION AGREEMENT
AMONG
SPECIAL DEVICES, INCORPORATED,
PARIBAS PRINCIPAL INC.,
J.F. LEHMAN EQUITY INVESTORS I, L.P.
AND
JFL CO-INVEST PARTNERS I, L.P.
THIS AMENDMENT NO. 2 to the Subscription Agreement (the
"Subscription Agreement", dated as of September 7, 1998 and amended as of
December 3, 1998, among Special Devices, Incorporated, a Delaware corporation
(the "Company"), Paribas Principal Inc., a New York corporation (the
"Purchaser"), J.F. Lehman Equity Investors I, L.P. (the "Fund") and JFL
Co-Invest Partners I, L.P. ("Co-Invest") is made by and between the Company, the
Purchaser, the Fund and Co-Invest as of this 15th day of December, 1998 (this
"Amendment").
The Company, the Purchaser, the Fund and Co-Invest wish to
amend the Subscription Agreement to set forth certain rights and obligations
with respect to the shares of Common Stock purchased pursuant to the
Subscription Agreement.
Accordingly, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendments. Notwithstanding anything to the contrary
contained in the Subscription Agreement, as of the date hereof, the Subscription
Agreement is modified and amended as set forth below. All terms used in this
Amendment shall have the same definitions as set forth in the Subscription
Agreement unless otherwise indicated herein.
(A) Section 7 of the Subscription Agreement is hereby replaced
in its entirety by the following:
"7. Limitations on Transfer.
(a) General Restrictions on Transfer. The Purchaser agrees
that it shall not, either directly or indirectly, offer, sell, transfer, assign,
mortgage, hypothecate, pledge, create a security interest in or Lien upon,
encumber, donate, contribute, place in trust, or otherwise voluntarily or
involuntarily dispose of (any of the foregoing actions, to "Transfer" and, any
offer, sale, transfer, assignment, mortgage, hypothecation, pledge, security
interest or Lien, encumbrance, donation, contribution, placing in trust or other
disposition, a "Transfer") any Shares, or any interest therein, except pursuant
to a Permitted Transfer described in Section 7(c), unless such Transfer is made
in accordance with the applicable provisions of Sections 8, 9, 14 or 17.
<PAGE> 2
2
(b) Void Transfers. Any attempt to Transfer any
Shares, or any interest therein, which is not in compliance with this Agreement
shall be null and void ab initio, and the Company shall not give any effect in
the Company's stock records to such attempted Transfer.
(c) Permitted Transfers. None of the restrictions
contained in this Agreement with respect to the Transfer of Shares (other than
those set forth in this Section 7(c) and in Section 7(d)) shall apply:
(i) to any transfer by the Purchaser to any
of its directors, officers, employees or Affiliates (as defined in the
Partnership Agreement);
(ii) to any transfer by the Purchaser in a
Tag-Along Offer made in accordance with the applicable provisions of
Section 8;
(iii) to any transfer by the Purchaser
pursuant to Section 9;
(iv) to any transfer by the Purchaser
pursuant to Section 14;
(v) to any transfer by the Purchaser
pursuant to the applicable provisions of Section 17; and
(vi) to any transfer by the Purchaser of
Shares for cash in a bona fide public offering (a "Registered
Offering") pursuant to an effective registration statement under the
Securities Act
Transfers made pursuant to this Section 7(c) are referred to herein as
"Permitted Transfers" and transferees taking under a Permitted Transfer are
referred to herein as "Permitted Transferees." Transferees taking under a
Permitted Transfer described in Section 7(c)(i) are referred to herein as
"Related Transferees."
(d) Registration of Transfer by Company. No transfer of Shares by the
Purchaser (other than transfers of Shares pursuant to a Registered Offering
permitted under Section 7(c)(vi)) shall be effective (and the Company shall not
transfer on its books any such Shares) unless
(i) the certificates representing such Shares issued to the
Permitted Transferee shall bear any legends required by Section 18;
(ii) the Permitted Transferee (if not already a party hereto)
agrees in writing to be bound by the terms and conditions of this
Agreement;
<PAGE> 3
3
(iii) such transfer is exempt from registration under the
Securities Act and the Company, should it so request, has received a
written legal opinion of counsel to the Purchaser satisfactory to its
counsel that the proposed transfer is exempt from such registration;
and
(iv) such transfer complies with the other provisions of this
Agreement.
(e) Legend. In the event that any Shares become free of the
rights and restrictions imposed by this Agreement, the Purchaser shall be
entitled to receive, promptly upon presentment to the Company of the certificate
or certificates evidencing the same, a new certificate or certificates not
bearing the restrictive legend provided for in the second paragraph of Section
18. In the event that any Shares are (i) transferred in connection with a
Registered Offering, or (ii) transferred pursuant to an exemption from
registration under the Securities Act and the Company has received a written
legal opinion of counsel to the Purchaser satisfactory to its counsel (A) as to
the availability of and the compliance with such exemption and (B) that such
shares need not bear the restrictive legend set forth in the first paragraph of
Section 18 hereof, the Company shall issue a new certificate or certificates
representing such securities not bearing such legend."
(B) Section 9(a) of the Subscription Agreement is hereby replaced in
its entirety by the following:
"(a) In the event that one or more Selling Stockholders
holding at least 40% of the outstanding shares of Common Stock receives a bona
fide offer from a Third Party Purchaser (excluding offers from affiliates of any
of the holders of Common Stock (each a "Stockholder")) to purchase (including a
purchase by merger) at least a majority of the outstanding shares of Common
Stock, the Selling Stockholders may send written notice (a "Buyout Notice") to
the Purchaser notifying the Purchaser that it will be required to sell the same
percentage of its shares of Common Stock in such sale as the Selling
Stockholders propose to sell (which percentage shall be specified in such Buyout
Notice) (the "Designated Percentage")."
(C) Section 11 of the Subscription Agreement is hereby amended by
appending the following sentence to the end of Section 11:
"Notwithstanding anything to the contrary in the Registration
Rights Agreement, neither the Company, the Fund nor Co-Invest shall agree to any
amendment, modification or supplement of the Registration Rights Agreement or
any waiver or consent to or departure from the provisions thereof which
materially and adversely affects any right of the Purchaser, without the prior
written consent of the Purchaser."
<PAGE> 4
4
(D) Section 12 of the Subscription Agreement is hereby
replaced in its entirety by the following:
"12. Governance. (a) The Purchaser shall be entitled to
designate one of the members of the Company's Board of Directors (the "Purchaser
Director"); provided that if the Purchaser directly owns less than 25% of the
Shares, as adjusted for any stock-splits, stock dividends or other similar
changes in the capital structure of the Company, the Purchaser Director shall
resign from the Company's Board of Directors and the Purchaser shall no longer
have the right to designate a director. Each year, the Purchaser Director shall
have the right to bring to one meeting of the Company's Board of Directors one
observer designated by the Purchaser. The Company shall pay all reasonable costs
incurred by the Purchaser Director in attending meetings of the Company's Board
of Directors upon presentation to the Company of expense statements or vouchers
or such other supporting information as the Company shall require from its
directors.
(b) Composition and Election of Board of Directors.
(i) The Board of Directors of the Company shall
initially consist of 12 members (collectively, the "Directors" and
each, individually, a "Director"), who shall be John M. Cuthbert,
Oliver C. Boileau, Jr., Stephen Eisenstein, Donald Glickman, John F.
Lehman, Keith Oster, William Paul, Thomas G. Pownall, George Sawyer,
Joseph Stroud, Thomas F. Treinen and Jack B. Watson. The Fund shall be
entitled to designate all of the Directors of the Company other than
the Person designated by the Purchaser pursuant to Section 12(a).
(ii) The Purchaser agrees to vote all shares of
Common Stock now or hereafter owned by it (or over which it exercises
voting power pursuant to a valid proxy or otherwise), to cause each of
its Affiliates to vote all shares of Common Stock now or hereafter
owned by it (or over which it exercises voting power pursuant to a
valid proxy or otherwise) and otherwise to use its reasonable best
efforts, to:
(A) elect as Directors the persons
designated by the Fund in accordance with Section
12(b)(i);
(B) remove, with or without cause, (x) any
Director designated by the Fund in accordance with
Section 12(b)(i), if requested by the Fund and (y)
any Purchaser Director once the Purchaser ceases to
own at least twenty-five percent (25%) of the Shares;
and
(C) cause any vacancy on the Board of
Directors of the Company created by the death,
resignation, incapacity
<PAGE> 5
5
any Director designated by the Fund in accordance with Section
12(b)(i), to be filled by a replacement Director designated by
the Fund."
(E) Section 16(k) of the Subscription Agreement is hereby
replaced in its entirety by the following:
"(k) Termination
(i) Termination as to Shares. This Agreement shall
terminate with respect to any particular Shares when such Shares shall
have been sold in a Registered Offering or distributed to the public
pursuant to Rule 144 under the Securities Act.
(ii) Termination of Agreement. This Agreement shall
terminate and there shall be no liability or obligation on the part of
any party or its affiliates, directors, officers or stockholders with
respect to this Agreement upon the earliest to occur of (1) the
Purchaser and its Affiliates having ceased to beneficially own any
Shares, (2) the sale of shares of Common Stock at an aggregate offering
price of at least $40,000,000 in a Registered Offering, (3) the tenth
anniversary of this Agreement and (4) February 19, 1999 if the Merger
has not been consummated on or before February 19, 1999; provided,
however, that the provisions of this Agreement shall continue in effect
for the purpose of enforcing against any party hereto all obligations
and undertakings that shall have theretofore become operative;
provided, further, however, that, in connection with a termination
pursuant to clause (1) above, the provisions of this Agreement shall be
binding upon any transferee of the Purchaser or its Affiliates, whether
such transfer was pursuant to a Permitted Transfer (other than a
Registered Offering) or otherwise. Notwithstanding the foregoing, the
benefits of this Agreement shall inure only to a Permitted Transferee
of the Purchaser.
(F) The following shall be added to the Subscription Agreement
in its entirety as Section 17:
"17. Right of First Offer.
(a) First Offer Notice. If the Purchaser, the Fund or
Co-Invest desire to transfer any shares of Common Stock other than pursuant to
a Permitted Transfer (each party desiring to make such a transfer an "Offeror
Stockholder"), the Offeror Stockholder shall, prior to soliciting a bona fide
written offer from an independent third-party (the "Third-Party Offer"), deliver
a written notice (the "First Offer Notice") offering to sell the shares of
Common Stock proposed to be sold ("Offered Securities") to the Purchaser, the
other stockholders of the Company who enter into the Stockholders Agreement (as
described in Section 17(e)) (the "Other Stockholders") and all other persons
that acquire any shares of Common Stock that agree to be bound by the terms of
this Agreement or such Stockholders Agreement in accordance with the terms or
removal of
<PAGE> 6
6
and provisions hereof or thereof (together with the Purchaser and the Other
Stockholders, the "Offeree Stockholders") or to the Company. The First Offer
Notice shall state (i) that the Offeror Stockholder desires to sell the Offered
Securities and (ii) the purchase price per share and other material terms on
which and the material conditions subject to which the Offered Securities are
offered; provided, however that this Section 17 shall not apply to any shares of
Common Stock with respect to which a first offer notice has been delivered to
the Offeree Stockholders on substantially similar terms to this Agreement; and
provided, further, that this Section 17 shall terminate and there shall be no
liability or obligation on the part of any party or its affiliates, directors,
officers or stockholders with respect to this Section 17 upon the termination of
the Stockholders Agreement.
(b) Exercise of Right of First Offer.
(i) Upon receipt of the First Offer Notice, each
Offeree Stockholder shall have the option (the "Stockholders' Right of
First Offer"), which shall be exercisable by written notice (the
"Notice of Election") delivered to the Offeror Stockholder within ten
(10) days after the date of the First Offer Notice (the "Stockholders'
First Offer Option Period"), to purchase from the Offeror Stockholder,
at the price and upon the terms specified in the First Offer Notice, a
number of Securities up to the sum of (A) the number of shares of
Common Stock included in the Offered Securities multiplied by a
fraction, the numerator of which is the number of shares of Common
Stock owned by such Offeree Stockholder and the denominator of which is
the number of shares of Common Stock held by all Offeree Stockholders
and (B) the number of shares of Common Stock that, under the formula in
clause (A), all Offeree Stockholders could have elected to purchase but
did not so elect, multiplied by a fraction, the numerator of which is
the number of shares of Common Stock owned by such Offeree Stockholder
and the denominator of which is the total number of shares of Common
Stock owned by the Offeree Stockholders (including such Offeree
Stockholder) that exercised the option provided herein. Each Offeree
Stockholder who desires to exercise its option to purchase Offered
Securities shall state in its Notice of Election the number of shares
of Common Stock that such Offeree Stockholder proposes to purchase
determined in accordance with clause (b)(i)(A) plus an amount of
additional shares of Common Stock, if any, that such Offeree
Stockholder would be willing to purchase from the Offeror Stockholder
in the event that one or more Offeree Stockholders (other than such
Offeree Stockholder) elect not to exercise their Stockholders' Right of
First Offer, in whole or in part. If any Offeree Stockholder shall fail
to deliver the Notice of Election within the Stockholders' First Offer
Option Period, such failure shall be deemed an election not to purchase
any Offered Securities subject to the Stockholders' Right of First
Offer and such Stockholders' Right of First Offer shall thereupon
expire with respect to the Offered Securities only.
(ii) If the number of shares of Common Stock with
respect to which the Stockholders' Right of First Offer has been
exercised is less
<PAGE> 7
7
than the number of Offered Securities, the Company shall have the
option (the "Company's Right of First Offer"), which shall be
exercisable by written notice delivered to the Offeror Stockholder
within five (5) days after the expiration of the Stockholders' First
Offer Option Period (the "Company's First Offer Option Period"), to
purchase any or all of the Offered Securities not purchased by the
Offeree Stockholders at the price and upon the terms specified in the
First Offer Notice. If the Company shall fail to deliver a notice (the
"Company Notice") of its election to exercise the Company's Right of
First Offer within the Company First Offer Option Period, such failure
shall be deemed an election not to purchase any Offered Securities
subject to the Company's Right of First Offer and the Company's Right
of First Offer shall thereupon expire with respect to the Offered
Securities only.
(iii) The Stockholders' Right of First Offer and
the Company's Right of First Offer shall be exercisable only if the
Offeree Stockholders and/or the Company, in the aggregate, elect to
purchase all, and not less than all, of the Offered Securities. Each
Notice of Election and Company Notice shall recite that such Notice of
Election or Company Notice, as the case may be, constitutes a binding
obligation of the Offeree Stockholder or the Company, as the case may
be, submitting same to purchase, upon the same terms and subject to the
same conditions as the Third-Party Offer, up to the number of shares of
Common Stock set forth in the Notice of Election or the Company Notice,
as the case may be.
(iv) The closing of the purchase of the Offered
Securities subscribed to by the Offeree Stockholders and the Company
pursuant to this Article 4 shall be held at the principal office of the
Company at 10:00 a.m., local time not later than the thirtieth (30th)
day after the Company First Offer Option Period shall have expired.
(c) Sale to Third-Party Purchaser.
(i) If the First Offer Notice shall have been
duly delivered, and the Offeree Stockholders and the Company together
shall not have exercised the Stockholders' Right of First Offer and the
Company's Right of First Offer to purchase all of the Offered
Securities, the Offeror Stockholder may solicit Third-Party Offers to
purchase all (but not less than all) of the Offered Securities and, so
long as any sale of the Offered Securities made pursuant to a Third
Party Offer that is (A) upon such terms, including price, and subject
to such conditions as are, in the aggregate, no less favorable to the
Offeror Stockholder than those set forth in the First Offer Notice;
provided, however, that the price may be not less than 90% of the price
set forth in the First Offer Notice (B) bona fide, (C) consummated
within one hundred eighty (180) days from the expiration date of the
Company First Offer Option Period, (D) if applicable, subject to any
Tag-Along Right and (E) in accordance with clause (ii) below, such
transfer may be
<PAGE> 8
8
consummated without further restriction under this Article 17 and shall
be a Permitted Transfer under this Agreement.
(ii) Offered Securities transferred by the
Purchaser in accordance with clause (i) above shall remain, and the
third-party purchaser shall agree to take and hold such Offered
Securities, subject to all of the obligations and restrictions imposed
upon the Purchaser by this Agreement. No transfer of Offered Securities
to which the preceding sentence applies shall be effective unless and
until the third-party purchaser shall have executed and delivered to
the Company an appropriate instrument to the foregoing effect.
(d) Involuntary Transfers.
(i) If an Involuntary Transfer of any shares of
Common Stock (the "Transferred Securities") owned by the Offeror
Stockholder shall occur, each of the other stockholders of the Company
shall have the same rights as specified in Sections 17(a) and (b) with
respect to such Transferred Securities as if the Involuntary Transfer
had been a proposed voluntary transfer by the Offeror Stockholder,
except that (a) the Stockholders First Offer Option Period shall run
from the date of receipt by the Company and such Stockholders of notice
of the Involuntary Transfer, (b) the closing date of the sale shall be
90 days after the expiration of the Company's First Offer Option
Period, (c) such rights shall be exercised by notice to the transferee
of such Transferred Securities (the "Involuntary Transferee") rather
than to the Offeror Stockholder and (d) the purchase price per
Transferred Security shall be agreed to between the Involuntary
Transferee and the Offeree Stockholders; provided however, that if such
parties fail to agree as to such purchase price, the purchase price
shall be the fair market value thereof as determined in accordance with
paragraph (ii) below.
(ii) The fair market value of the Transferred
Securities shall be determined by a panel of three independent
appraisers, which shall be recognized investment banking firms or
recognized experts experienced in the evaluation of corporations.
Within fifteen (15) days after the notice to the Involuntary Transferee
with respect to the exercise of the right to purchase the Transferred
Securities, the Involuntary Transferee and the Board of Directors of
the Company shall each designate one such appraiser that is willing and
able to conduct such determination. If either of the Involuntary
Transferee or the Board of Directors of the Company fails to make such
designation within such period, the other party that has made the
designation shall have the right to make the designation on its behalf.
The two appraisers designated shall, within a period of fifteen (15)
days after the designation of the second appraiser, agree to designate
a third appraiser. The three appraisers shall conduct their
determination as promptly as practicable, and the fair market value of
the Transferred Securities shall be the average of the determination of
the two appraisers that are closer to each other than to the
determination of the third appraiser, which third
<PAGE> 9
9
determination shall be discarded. Such determination shall be final and
binding on the Involuntary Transferee and the Offeree Stockholders and
the Company. The Involuntary Transferee shall be responsible for the
fees and expenses of the appraiser designated by or on behalf of it and
the Offeree Stockholders and the Company shall be responsible for the
fees and expenses of the appraiser designated by or on behalf of the
Board. The Involuntary Transferee and the Offeree Stockholders and the
Company shall each share half of the fees and expenses of the third
party appraiser designated by the other appraisers.
(iii) The closing of any purchase under this
paragraph (d) shall be held at the principal office of the Company at
10:00 o'clock A.M., local time, on the designated closing date or such
other time and place as the parties to the transaction may agree.
(iv) In the event any of the provisions of this
paragraph (d) shall be held to be unenforceable with respect to any
particular Involuntary Transfer, the Offeree Stockholders and the
Company shall have the rights specified in this Section 17 with respect
to any transfer by an Involuntary Transferee and each Stockholder
agrees that any Involuntary Transfer shall be subject to such rights,
in which case the Involuntary Transferee shall be deemed to be the
Offeror Stockholder for purposes of this Section 17 of this Agreement
and shall be bound by the provisions of this Section 17 and the other
provisions of this Agreement. If an Involuntary Transfer of any shares
of Common Stock owned by the Offeror Stockholder shall occur prior to
the termination of this Agreement, such transferee in the Involuntary
Transfer (and each of its transferees) shall have none of the rights of
the Offeror Stockholder under this Agreement unless and until it
complies with the provisions of Section 7(c).
(v) For the purposes of this Section 17,
Involuntary Transfer means any Transfer, proceeding or action by or in
which a Stockholder shall be deprived or divested of any right, title
or interest in or to any of the shares of Common Stock owned by the
Offeror Stockholder, including, without limitation, any seizure under
levy of attachment or execution, any transfer, in connection with
bankruptcy (whether pursuant to the filing of a voluntary or
involuntary petition under the United States Bankruptcy Code of 1978,
or any amendments thereto) or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or
agency, any transfer to a state or to a public officer or agency
pursuant to any statute pertaining to escheat or abandoned property and
any transfer pursuant to a final decree of a court in a divorce action.
(e) The Company, the Fund and Co-Invest shall use
their best efforts to enter into a Stockholders Agreement (the "Stockholders
Agreement"), with the Treinen Family Trust and the Neubauer Family Trust in
which the Company, the Fund, Co-Invest, the Treinen Family Trust and the
Neubauer Family Trust agree to grant the
<PAGE> 10
10
Purchaser a right as an Offeree Stockholder substantially similar to the
Stockholders' Right of First Offer set forth in this Section 17."
(G) The following shall be added in its entirety as Section
18:
"18. Legends. Each stock certificate representing the Shares
shall bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY BE
OFFERED, PLEDGED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF
THE ACT AND SUCH LAWS, OR IF AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
SPECIAL DEVICES, INCORPORATED (THE "COMPANY")
IS A DELAWARE CORPORATION, AND THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE
DIRECTLY OR INDIRECTLY, SOLD, GIVEN,
TRANSFERRED, ASSIGNED, CHARGED, MORTGAGED,
HYPOTHECATED, PLEDGED OR ENCUMBERED OR
OTHERWISE DISPOSED OF (WHETHER BY OPERATION
OF LAW OR OTHERWISE) WITHOUT COMPLIANCE
WITH THE PROVISIONS OF THAT CERTAIN
SUBSCRIPTION AGREEMENT, DATED AS OF
SEPTEMBER 7, 1998, AS AMENDED (THE
"SUBSCRIPTION AGREEMENT"), AMONG THE
COMPANY, PARIBAS PRINCIPAL INC., J.F. LEHMAN
EQUITY INVESTORS I, L.P. AND JFL CO-INVEST
PARTNERS I, L.P. A COPY OF SUCH AGREEMENT IS
ON FILE AT THE REGISTERED OFFICES OF THE
COMPANY. THE COMPANY WILL NOT REGISTER THE
TRANSFER OF SUCH SECURITIES ON THE REGISTER OF
THE STOCKHOLDERS OF THE COMPANY UNLESS AND
UNTIL TRANSFER HAS BEEN MADE IN COMPLIANCE
WITH THE TERMS OF SUCH AGREEMENT."
2. No Other Amendments. Except as provided above, the
Subscription Agreement shall remain in full force and effect. The execution of
this Amendment is not a waiver by the Company, the Purchaser, the Fund or
Co-Invest of any of the terms or provisions of the Subscription Agreement.
<PAGE> 11
11
3. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
<PAGE> 12
12
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be duly executed on its behalf as of the day and year first above
written.
SPECIAL DEVICES, INCORPORATED
By: /s/ John T. Vinke
-------------------------
Name: John T. Vinke
Title: Chief Financial Officer
PARIBAS PRINCIPAL INC.
By:/s/ Stephen Eisenstein
----------------------------
Name: Stephen Eisenstein
Title: Director
J.F. LEHMAN EQUITY INVESTORS I, L.P.
By: JFL Investors, L.L.C., Its General Partner
By: /s/ Donald Glickman
---------------------------
Name: Donald Glickman
Title: Managing Director
JFL CO-INVEST PARTNERS I, L.P.
By: JFL Investors, L.L.C., Its General Partner
By: /s/ Donald Glickman
-----------------------------
Name: Donald Glickman
Title: Managing Director
<PAGE> 1
EXHIBIT 10.11
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of December 15, 1998, among Special
Devices, Incorporated, a Delaware corporation (the "Company"), J.F. Lehman & Co.
("JFL"), J.F. Lehman Equity Investors I, L.P. ("JFLEI"), JFL Co-Invest Partners
I, L.P. ("JFLCP"), the Neubauer Family Trust, by Walter Neubauer trustee (the
"Neubauer Trust"), and the Treinen Family Trust, by Thomas F. Treinen trustee
(the "Treinen Trust").
On June 19, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with SDI Acquisition Corp., a Delaware
corporation ("Acquisition"). The Merger Agreement, which was amended and
restated as of August 17, 1998, provided for the merger of Acquisition with and
into the Company (the "Merger") and the conversion of each outstanding share of
common stock, par value $0.01 per share, of the Company (the "Common Stock"),
into the right to receive $37.00 in cash payable to the holder thereof other
than certain of the shares held by Messrs. Neubauer and Treinen.
On October 27, 1998, the Merger Agreement was further amended (as
amended to date, the "Amended Merger Agreement") (i) to reduce the cash
consideration payable in respect of the shares of the Common Stock from $37.00
to $34.00 per share, (ii) to provide for the rollover of 735,294 additional
shares of Common Stock held by Messrs. Treinen and Neubauer that are described
on Schedule 1 hereto (the "Additional Rollover Shares") and (iii) to extend the
termination date under the Merger Agreement to the second business day after
approval of such amendment by the stockholders of the Company.
On October 19, 1998, in connection with the foregoing proposed
amendments to the Merger Agreement, the Company, Acquisition and JFL entered
into a letter agreement (the "Letter Agreement") with Messrs. Neubauer and
Treinen describing in principle certain of the agreements set forth herein with
respect to the Additional Rollover Shares.
Concurrently with the execution and delivery of this Agreement, each of
the Neubauer Trust and the Treinen Trust is entering into a Rollover
Stockholders Agreement with JFL and the Company (the "Rollover Stockholders
Agreement") to more completely set forth the terms and conditions agreed to
pursuant to the Letter Agreement with respect to the Additional Rollover Shares
and a Pledge Agreement (each a "Pledge Agreement") pursuant to which it is
granting to JFL a first priority security interest in the Pledged Collateral (as
defined in the Pledge Agreement) to secure its performance of the Purchase Right
(as defined in the Rollover Stockholders Agreement) with respect to the
Additional Rollover Shares.
On December 15, 1998 Acquisition merged with and into the Company
pursuant to the Amended Merger Agreement, and the Company continued as the
surviving corporation of the Merger.
Immediately after the Effective Time (as such term is defined in the
Amended Merger Agreement), Paribas Principal Inc. ("Paribas") subscribed for and
purchased, and the Company
1
<PAGE> 2
issued and sold to Paribas, 323,529 shares of Common Stock (the "Paribas
Shares") pursuant to a Subscription Agreement, dated as of September 7, 1998 and
amended as of December 3, 1998 and December 15, 1998 (the "Subscription
Agreement"), attached hereto as Exhibit A.
As of the closing of the transactions contemplated by the Amended
Merger Agreement and the Subscription Agreement, the Stockholders (as defined in
Article 1) owned all of the issued and outstanding shares of the Common Stock.
The parties hereto desire to enter into this Agreement to set forth the
rights and obligations with respect to all shares of Common Stock owned and
hereafter acquired. Certain capitalized terms used herein without definition
shall have the meanings ascribed thereto in Article 1.
Accordingly, in consideration of the foregoing recitals and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized
terms shall have the following meanings:
"Additional Rollover Securities" means the Additional Rollover
Shares together with all Securities received in exchange therefor.
"Additional Rollover Stockholder" means a Stockholder and all
other Persons that acquire any of the Additional Rollover Securities that agree
to be bound by the terms of this Agreement in accordance with Section 3(c)
hereof and by the terms of the Rollover Stockholders Agreement.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
For the purposes of this definition, "control," when used with respect to any
Person, means the power to direct or cause the direction of the management or
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Involuntary Transfer" means any Transfer, proceeding or
action by or in which a Stockholder shall be deprived or divested of any right,
title or interest in or to any of the Securities, including, without limitation,
any seizure under levy of attachment or execution, any transfer, in connection
with bankruptcy (whether pursuant to the filing of a voluntary or involuntary
petition under the United States Bankruptcy Code of 1978, or any amendments
thereto) or other court proceeding to a debtor in possession, trustee in
bankruptcy or receiver or other officer or agency, any transfer to a state or to
a public officer or agency pursuant to any statute pertaining to escheat or
abandoned property and any transfer pursuant to a final decree of a court in a
divorce action.
2
<PAGE> 3
"JFL Securities" means the shares of Common Stock held on the
date hereof by J.F. Lehman Equity Investors I, L.P. or JFL Co-Invest Partners I,
L.P. together with all Securities in respect of such shares of Common Stock.
"Paribas Transferee" means any Person that acquire and hold
any of the Paribas Shares and that agrees to be bound by the terms of the
Subscription Agreement in accordance with terms and provisions thereof.
"Person" means any natural person, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, governmental body or other
entity of any kind.
"Rollover Termination Date" means December 14, 2002.
"Securities" means shares of Common Stock (including the
Additional Rollover Shares) together with (i) all shares, securities, monies or
property resulting from any subdivision, combination, revision, reclassification
or other change of the Common Stock or otherwise received in exchange therefor,
(ii) any warrants, options or other rights to purchase shares of Common Stock
issued to the holders thereof and (iii) in the event of any consolidation,
merger or other business combination in which the Company is not the surviving
entity, all shares of each class of the capital stock of the successor business
entity formed by or resulting from such transaction issued or issuable in
respect of the Common Stock.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholder" means each of JFLEI, JFLCP, the Neubauer Trust
and the Treinen Trust and all other Persons that acquire any of the Securities
that agree to be bound by the terms of this Agreement in accordance with Section
3(c) hereof.
2. CORPORATE GOVERNANCE.
(a) Articles of Incorporation; By-Laws. The Amended and
Restated Articles of Incorporation and the By-Laws of the Company, each as in
effect on the date hereof, are attached hereto as Exhibit B and Exhibit C,
respectively.
(b) Composition and Election of Board of Directors.
(i) The Board of Directors of the Company shall
initially consist of 12 members (collectively, the "Directors" and
each, individually, a "Director"), who shall be John M. Cuthbert,
Oliver C. Boileau, Jr., Stephen Eisenstein, Donald Glickman, John F.
Lehman, Keith Oster, William Paul, Thomas G. Pownall, George Sawyer,
Joseph Stroud, Thomas F. Treinen and Jack B. Watson. JFLEI shall be
entitled to designate all of the Directors of the Company other than
the Person designated by Paribas pursuant to the Subscription
Agreement.
3
<PAGE> 4
(ii) Each Stockholder agrees to vote all shares of
Common Stock now or hereafter owned by it (or over which it exercises
voting power pursuant to a valid proxy or otherwise), to cause each of
its Related Transferees (as defined herein) to vote all shares of
Common Stock now or hereafter owned by it (or over which it exercises
voting power pursuant to a valid proxy or otherwise) and otherwise to
use its reasonable best efforts, to:
(A) elect as Directors the Persons
designated by JFLEI in accordance with Section 2(b)(i) and the
Person designated by Paribas in accordance with the
Subscription Agreement (a "Paribas Director");
(B) remove, with or without cause, (x) any
Director designated by JFLEI in accordance with Section
2(b)(i), if requested by JFLEI, (y) any Paribas Director, if
requested by Paribas and (z) any Paribas Director once Paribas
ceases to own at least twenty-five percent (25%) of the Shares
(as defined in the Subscription Agreement); and
(C) cause any vacancy on the Board of
Directors of the Company created by the death, resignation,
incapacity or removal of (x) any Director designated by JFLEI
in accordance with Section 2(b)(i), to be filled by a
replacement Director designated by JFLEI and (y) if Paribas
owns at least twenty-five percent (25%) of the Shares, any
Paribas Director, to be filled by a replacement Director
designated by Paribas.
(c) Information Rights of Stockholders. Until such time as the
Company shall have become subject to the reporting requirements of Sections 12
or 13 of the Exchange Act, the Company shall (A) provide each Stockholder with
quarterly financial statements and reports of and any other regularly prepared
monthly financial data related to the Company's and its subsidiaries'
performance, (B) use reasonable efforts to deliver all other financial
information distributed by the Company to any Stockholder in its capacity as
such to each other Stockholder and (C) cause members of senior management of the
Company to be reasonably available to each Stockholder from time to time to
review the Company's performance.
3. RESTRICTIONS ON TRANSFER OF SECURITIES.
(a) General. No Stockholder shall, directly or indirectly,
transfer or otherwise dispose of any Securities owned by such Stockholder, or
any interest therein, except pursuant to a Permitted Transfer described in
Section 3(b), unless such transfer or disposition is made in accordance with the
applicable provisions of Articles 4, 5 or 6 of this Agreement. Any attempt by a
Stockholder to effect a transfer or disposition in violation of this Agreement
shall be void and ineffective for all purposes. The words "transfer" and
"dispose" mean the making of any sale, exchange, assignment, gift, security
interest, pledge or other encumbrance, or any contract therefor, any voting
trust or other agreement or arrangement with respect to the transfer or voting
rights or any other beneficial interests, the creation of any other claim
thereto or any other transfer
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or disposition whatsoever, whether voluntary or involuntary, affecting the
right, title, interest or possession in or to the Securities.
(b) Permitted Transfers. None of the restrictions contained in
this Agreement with respect to transfers of Securities (other than those set
forth in this Section 3(b) and Section 3(c)) shall apply:
(i) to any transfer (including any gift) by any
Stockholder who is an individual to:
(A) such Stockholder's spouse or children
(collectively, "relatives");
(B) a trust of which there are no
beneficiaries other than one or more of such Stockholder and
the relatives of such Stockholder;
(C) a partnership of which there are no
partners other than one or more of such Stockholder and the
relatives of such Stockholder;
(D) a corporation of which there are no
Stockholders other than one or more of such Stockholder and
the relatives of such Stockholder;
(E) a legal representative or guardian of
such Stockholder or a relative of such Stockholder if such
Stockholder or relative becomes mentally incompetent; or
(F) any Person by will or by the laws of
descent;
(ii) to any transfer by any Stockholder that is not
an individual to any Affiliate thereof;
(iii) to any transfer by any Stockholder that is a
partnership to the general and/or limited partners of such partnership
as of the date hereof, provided that such transfer is made pro rata
according to the economic interests of such partners thereof as
determined under the governing instructions of such partnership;
(iv) to any transfer by a Selling Stockholder (as
hereinafter defined) made in accordance with the applicable provisions
of Article 4 and, unless such transfer is to an Offeree Stockholder (as
hereinafter defined), the applicable provisions of Article 5;
(v) to any transfer by a Tag-Along Stockholder (as
hereinafter defined) pursuant to the Tag-Along Right (as hereinafter
defined);
(vi) to any transfer by a Drag-Along Stockholder (as
hereinafter defined) made pursuant to the Drag-Along Right (as
hereinafter defined);
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(vii) to any transfer by a Stockholder of Securities
(other than Additional Rollover Securities prior to the earlier of the
Rollover Termination Date and the date of the Triggering Event (as
defined in the Rollover Stockholders Agreement)) for cash in a bona
fide public offering (a "Registered Offering") pursuant to an effective
registration statement under the Securities Act; and
(viii) to any transfer of Additional Rollover
Securities permitted under the Rollover Stockholders Agreement.
Transfers made pursuant to this Section 3(b) are referred to herein as
"Permitted Transfers" and transferees taking under a Permitted Transfer are
referred to herein as "Permitted Transferees." Transferees taking under a
Permitted Transfer described in Sections 3(b)(i) through (iii) are referred to
herein as "Related Transferees."
(c) Registration of Transfer by Company. No transfer of
Securities by any Stockholder (other than transfers of Securities pursuant to a
Registered Offering permitted under Section 3(b)(vii)) shall be effective (and
the Company shall not transfer on its books any such Securities) unless
(i) the certificates representing such Securities
issued to the Permitted Transferee shall bear any legends required by
Article 11;
(ii) the Permitted Transferee (if not already a party
hereto) agrees in writing to be bound as a Stockholder (and, in the
event of a transfer of Additional Rollover Securities, as an Additional
Rollover Stockholder pursuant to the Rollover Stockholders Agreement)
by the terms and conditions of this Agreement pursuant to a Deed of
Adherence substantially in the form attached hereto as Exhibit D;
(iii) such transfer is exempt from registration under
the Securities Act and the Company, should it so request, has received
a written legal opinion (which may be rendered by in-house legal
counsel of any Stockholder that is not an individual) satisfactory to
its counsel that the proposed transfer is exempt from such
registration; and
(iv) such transfer complies with the other provisions
of this Agreement.
(d) Legend. In the event that any Securities become free of
the rights and restrictions imposed by this Agreement, the Stockholders holding
such Securities shall be entitled to receive, promptly upon presentment to the
Company of the certificate or certificates evidencing the same, a new
certificate or certificates not bearing the restrictive legend provided for in
the second paragraph of Article 11. In the event that any Securities are (i)
transferred in connection with a Registered Offering, or (ii) transferred
pursuant to an exemption from registration under the Securities Act and the
Company has received a written legal opinion (which may be rendered by in-house
legal counsel of any Stockholder that is not an individual) satisfactory to its
counsel (A) as to the availability of and the compliance with such exemption and
(B) that such shares need
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not bear the restrictive legend set forth in the first paragraph of Article 11
hereof, the Company shall issue a new certificate or certificates representing
such securities not bearing such legend.
4. RIGHT OF FIRST OFFER.
(a) First Offer Notice. If a Stockholder (the "Selling
Stockholder") desires to transfer any Securities other than to a Permitted
Transferee or pursuant to a Drag-Along Sale (as defined in Section 6(a)), such
Selling Stockholder shall, prior to soliciting a bona fide written offer from an
independent third-party (the "Third-Party Offer"), deliver a written notice (the
"First Offer Notice") offering to sell the Securities proposed to be sold
("Offered Securities") to the remaining Stockholders, Paribas (while Paribas
owns any Paribas Shares) and any Paribas Transferee (the "Offeree Stockholders")
or to the Company. The First Offer Notice shall state (i) that the Selling
Stockholder desires to sell the Offered Securities and (ii) the purchase price
per share and other material terms on which and the material conditions subject
to which the Offered Securities are offered.
(b) Exercise of Right of First Offer.
(i) Upon receipt of the First Offer Notice, each
Offeree Stockholder shall have the option (the "Stockholders' Right of First
Offer"), which shall be exercisable by written notice (the "Notice of Election")
delivered to the Selling Stockholder within ten (10) days after the date of the
First Offer Notice (the "Stockholders' First Offer Option Period"), to purchase
from the Selling Stockholder, at the price and upon the terms specified in the
First Offer Notice, a number of Securities up to the sum of (A) the number of
Securities included in the Offered Securities multiplied by a fraction, the
numerator of which is the number of Securities owned by such Offeree Stockholder
and the denominator of which is the number of Securities held by all Offeree
Stockholders and (B) the number of Securities that, under the formula in clause
(A), all Offeree Stockholders could have elected to purchase but did not so
elect, multiplied by a fraction, the numerator of which is the number of
Securities owned by such Offeree Stockholder and the denominator of which is the
total number of Securities owned by the Offeree Stockholders (including such
Offeree Stockholder) that exercised the option provided herein. Each Offeree
Stockholder who desires to exercise its option to purchase Offered Securities
shall state in its Notice of Election the number of Securities that such Offeree
Stockholder proposes to purchase determined in accordance with clause (b)(i)(A)
plus an amount of additional Securities, if any, that such Offeree Stockholder
would be willing to purchase from the Selling Stockholder in the event that one
or more Offeree Stockholders (other than such Offeree Stockholder) elect not to
exercise their Stockholders' Right of First Offer, in whole or in part. If any
Offeree Stockholder shall fall to deliver the Notice of Election within the
Stockholders' First Offer Option Period, such failure shall be deemed an
election not to purchase any Offered Securities subject to the Stockholders'
Right of First Offer and such Stockholders' Right of First Offer shall thereupon
expire with respect to the Offered Securities only.
(ii) If the number of Securities with respect to
which the Stockholders' Right of First Offer has been exercised is less than the
number of Offered Securities, the Company shall have the option (the "Company's
Right of First Offer"), which shall be exercisable by written
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<PAGE> 8
notice delivered to the Selling Stockholder within five (5) days after the
expiration of the Stockholders' First Offer Option Period (the "Company's First
Offer Option Period"), to purchase any or all of the Offered Securities not
purchased by the Offeree Stockholders at the price and upon the terms specified
in the First Offer Notice. If the Company shall fail to deliver a notice (the
"Company Notice") of its election to exercise the Company's Right of First Offer
within the Company First Offer Option Period, such failure shall be deemed an
election not to purchase any Offered Securities subject to the Company's Right
of First Offer and the Company's Right of First Offer shall thereupon expire
with respect to the Offered Securities only.
(iii) The Stockholders' Right of First Offer and the
Company's Right of First Offer shall be exercisable only if the Offeree
Stockholders and/or the Company, in the aggregate, elect to purchase all, and
not less than all, of the Offered Securities. Each Notice of Election and
Company Notice shall recite that such Notice of Election or Company Notice, as
the case may be, constitutes a binding obligation of the Offeree Stockholder or
the Company, as the case may be, submitting same to purchase, upon the same
terms and subject to the same conditions as the Third-Party Offer, up to the
number of Securities set forth in the Notice of Election or the Company Notice,
as the case may be.
(iv) The closing of the purchase of the Offered
Securities subscribed to by the Offeree Stockholders and the Company pursuant to
this Article 4 shall be held at the principal office of the Company at 10:00
a.m., local time not later than the thirtieth (30th) day after the Company First
Offer Option Period shall have expired.
(c) Sale to Third-Party Purchaser.
(i) If the First Offer Notice shall have been duly
delivered, and the Offeree Stockholders and the Company together shall not have
exercised the Stockholders' Right of First Offer and the Company's Right of
First Offer to purchase all of the Offered Securities, the Selling Stockholder
may solicit Third-Party Offers to purchase all (but not less than all) of the
Offered Securities and, so long as any sale of the Offered Securities made
pursuant to a Third Party Offer that is (A) upon such terms, including price,
and subject to such conditions as are, in the aggregate, no less favorable to
the Selling Stockholder than those set forth in the First Offer Notice;
provided, however, that the price may be not less than 90% of the price set
forth in the First Offer Notice (B) bona fide, (C) consummated within one
hundred eighty (180) days from the expiration date of the Company First Offer
Option Period, (D) if applicable, subject to any Tag-Along Right and (E) in
accordance with clause (ii) below, such transfer may be consummated without
further restriction under this Article 4 and shall be a Permitted Transfer under
this Agreement.
(ii) Offered Securities transferred by the Selling
Stockholder in accordance with clause (i) above shall remain, and the
third-party purchaser shall agree to take and hold such Offered Securities,
subject to all of the obligations and restrictions imposed upon the Selling
Stockholder by this Agreement. No transfer of Offered Securities to which the
preceding sentence applies shall be effective unless and until the third-party
purchaser shall have executed and delivered to the Company an appropriate
instrument to the foregoing effect.
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(d) Involuntary Transfers.
(i) If an Involuntary Transfer of any Securities (the
"Transferred Securities") owned by any of the Stockholders shall occur, each of
the other Stockholders, Paribas and the Paribas Transferees shall have the same
rights as specified in Sections 4(a) and (b) with respect to such Transferred
Securities as if the Involuntary Transfer had been a proposed voluntary transfer
by a Selling Stockholder, except that (a) the Stockholders First Offer Option
Period shall run from the date of receipt by the Company and such Stockholders
of notice of the Involuntary Transfer, (b) the closing date of the sale shall be
90 days after the expiration of the Company's First Offer Option Period, (c)
such rights shall be exercised by notice to the transferee of such Transferred
Securities (the "Involuntary Transferee") rather than to the Stockholder who
suffered or will suffer the Involuntary Transfer and (d) the purchase price per
Transferred Security shall be agreed to between the Involuntary Transferee and
the Offeree Stockholders; provided however, that if such parties fail to agree
as to such purchase price, the purchase price shall be the fair market value
thereof as determined in accordance with paragraph (ii) below.
(ii) The fair market value of the Transferred
Securities shall be determined by a panel of three independent appraisers, which
shall be recognized investment banking firms or recognized experts experienced
in the evaluation of corporations. Within fifteen (15) days after the notice to
the Involuntary Transferee with respect to the exercise of the right to purchase
the Transferred Securities, the Involuntary Transferee and the Board of
Directors of the Company shall each designate one such appraiser that is willing
and able to conduct such determination. If either of the Involuntary Transferee
or the Board of Directors of the Company fails to make such designation within
such period, the other party that has made the designation shall have the right
to make the designation on its behalf. The two appraisers designated shall,
within a period of fifteen (15) days after the designation of the second
appraiser, agree to designate a third appraiser. The three appraisers shall
conduct their determination as promptly as practicable, and the fair market
value of the Transferred Securities shall be the average of the determination of
the two appraisers that are closer to each other than to the determination of
the third appraiser, which third determination shall be discarded. Such
determination shall be final and binding on the Involuntary Transferee and the
Offeree Stockholders and the Company. The Involuntary Transferee shall be
responsible for the fees and expenses of the appraiser designated by or on
behalf of it and the Offeree Stockholders and the Company shall be responsible
for the fees and expenses of the appraiser designated by or on behalf of the
Board. The Involuntary Transferee and the Offeree Stockholders and the Company
shall each share half of the fees and expenses of the third party appraiser
designated by the other appraisers.
(iii) The closing of any purchase under this
paragraph (d) shall be held at the principal office of the Company at 10:00
o'clock A.M., local time, on the designated closing date or such other time and
place as the parties to the transaction may agree.
(iv) In the event any of the provisions of this
paragraph (d) shall be held to be unenforceable with respect to any particular
Involuntary Transfer, the Offeree Stockholders and the Company shall have the
rights specified in this Article 4 with respect to any transfer by an
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Involuntary Transferee and each Stockholder agrees that any Involuntary Transfer
shall be subject to such rights, in which case the Involuntary Transferee shall
be deemed to be the Selling Stockholder for purposes of this Article 4 of this
Agreement and shall be bound by the provisions of this Article 4 and the other
provisions of this Agreement. If an Involuntary Transfer of any Securities owned
by any Stockholder shall occur prior to the termination of this Agreement, such
transferee in the Involuntary Transfer (and each of its transferees) shall have
none of the rights of a Stockholder under this Agreement unless and until it
complies with the provisions of Section 3(c).
5. TAG-ALONG RIGHTS.
(a) The Right. If JFLEI and/or JFLCP and/or any of their
Affiliates (collectively, the "JFL Group") proposes to transfer any JFL
Securities to a Prospective Purchaser other than in a Permitted Transfer
pursuant to Sections 3(b)(i) - 3(b)(vi) or Section 3(b)(viii) (a "Tag-Along
Sale"), then each of the remaining Stockholders shall have the right to
participate in any such sale of Securities by the JFL Group in accordance with
the procedures set forth below; provided that such right may not be exercised
with respect to any shares acquired by any such remaining Stockholder pursuant
to the exercise of a Right of First Offer within One Hundred Eighty (180) days
prior to the proposed date of consummation of the Tag-Along Sale, provided
further, however, that such participation shall be on the same terms and subject
to the same conditions as those on which JFLEI or JFLCP proposes to transfer its
shares (except that transfer of any Additional Rollover Shares shall be
conditional on and subject to compliance with the Rollover Stockholders
Agreement); and provided still further, however, that, in addition to receiving
their ratable portion of any consideration paid in respect of the Securities,
the Stockholders shall be entitled to receive a ratable portion of any
consideration to be paid other than in respect of Securities, to the extent that
such consideration exceeds (i) the fair market value of any tangible property
transferred by the JFL Group in exchange for such consideration or (ii) an
amount that is customary and reasonable for any intangible property rights or
transferred or granted in exchange for such consideration.
(b) Election to Participate. Stockholders shall have the right
(the "Tag-Along Right") for fifteen (15) days from receipt of the First Offer
Notice described in Section 4(a) (the "Tag-Along Option Period") to elect to
participate in the Tag-Along Sale. Any Stockholder electing to participate in
the Tag-Along Sale (a "Tag-Along Stockholder") shall give JFLEI and JFLCP
written notice thereof (the "Election Notice") within the Tag-Along Option
Period. The Election Notice shall specify the number of Securities that such
Tag-Along Stockholder desires to sell to the Prospective Purchaser, which amount
shall be equal to or less than the total number of Securities held by such
Stockholder multiplied by a fraction, the numerator of which is the total number
of Securities to be sold by the Tag-Along Stockholder and the denominator of
which is the total number of Securities then owned by the JFL Group and all
Tag-Along Stockholders. The failure of any remaining Stockholder to submit an
Election Notice within the Tag-Along Option Period shall constitute an election
by such remaining Stockholder not to participate in such Tag-Along Sale,
provided such Tag-Along Sale is consummated within forty-five (45) days of the
expiration of the Tag-Along Option Period. By delivering an Election Notice to
JFLEI or JFLCP within the Tag-Along Option Period, a Tag-Along Stockholder shall
have the right to sell to the
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Prospective Purchaser that number of Securities specified in the Election Notice
(except that Transfer of any Additional Rollover Securities shall be conditioned
on and subject to compliance with the Rollover Stockholders Agreement) provided,
however, that, to the extent the Prospective Purchaser is unwilling or unable to
purchase all of the Securities proposed to be sold by the JFL Group and the
Tag-Along Stockholders, the number of shares to be sold by each of the JFL Group
and each of the Tag-Along Stockholders shall be ratably reduced so that the
number of Securities to be sold by the JFL Group and each of the Tag-Along
Stockholders equals the number of shares that the Prospective Purchaser is
willing or able to purchase.
6. DRAG-ALONG RIGHTS.
(a) The Right. If the JFL Group (the "Majority Stockholders")
proposes to sell at least a majority of the issued and outstanding Securities
owned by such Majority Stockholders to a Prospective Purchaser other than a
Related Transferee (a "Drag-Along Sale"), then such Majority Stockholders shall
have the right (the "Drag-Along Right") to compel the remaining Stockholders
(the "Drag-Along Stockholders") to sell the same percentage of the Securities
owned by them to the Prospective Purchaser as the Majority Stockholders propose
to sell for such consideration per share and on the same terms and subject to
the same conditions as the Majority Stockholders are able to obtain. The
Majority Stockholders shall exercise the Drag-Along Right by giving written
notice (the "Drag-Along Notice") to the Company and the Drag-Along Stockholders
stating (i) that they propose to effect such transaction, (ii) the name and
address of the Prospective Purchaser, (iii) the proposed purchase price per
share and other terms and conditions of the proposed sale (including any
consideration proposed to be paid other than in respect of the Securities) and
(iv) that all the Stockholders shall be obligated to sell their Securities upon
the same terms and subject to the same conditions; provided, however, that, in
addition to receiving their ratable portion of any consideration paid in respect
of the Securities, the Stockholders shall be entitled to receive a ratable
portion of any consideration paid other than in respect of the Securities, to
the extent that such consideration exceeds (i) the fair market value of any
tangible property transferred by the Majority Stockholders in exchange for such
consideration or (ii) an amount that is customary and reasonable for any
intangible property or rights transferred or granted in exchange for such
consideration.
(b) Procedure. Not later than twenty (20) days following the
date of receipt of the Drag-Along Notice, each of the other Stockholders shall
deliver to the Majority Stockholders certificates representing all Securities
held by a Drag-Along Stockholder, accompanied by duly executed stock powers. If
any Drag-Along Stockholder fails to deliver such certificates to the Majority
Stockholders, the Company shall cause the books and records of the Company to
show that the shares represented by such certificates of such Drag-Along
Stockholder are bound by the provisions of this Article 6 and are transferable
only to the Prospective Purchaser or a Related Transferee of such Prospective
Purchaser upon surrender for transfer by the holder thereof. Upon the
consummation of the sale of the Securities of the Majority Stockholders and the
Drag-Along Stockholders pursuant to this Article 6, the Majority Stockholders
shall give notice thereof to the Drag-Along Stockholders and shall remit to each
of the Drag-Along Stockholders the total sales price (net of any exercise costs,
if any) received for the Securities of such Drag-Along Stockholder sold pursuant
hereto. Notwithstanding anything herein to the contrary, no
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Stockholder shall be obligated to receive as consideration for any Drag-Along
Sale any property or securities the holding of which by such Stockholder would
be prohibited by any law, rule or regulation of any governmental entity or
insurance industry regulatory body. In the event a contract with respect to the
transaction contemplated by the Drag-Along Notice has not been entered into
within 90 days after the date of delivery of the Drag-Along Notice, the
obligations of the Stockholders under this Article 6 with respect to such
Drag-Along Notice shall terminate, subject, however, to the right of the
Majority Stockholders to deliver a further Drag-Along Notice.
7. SUBSCRIPTION OFFER WITH RESPECT TO PRIMARY ISSUANCES.
(a) Subscription Offer. The Company shall not issue (a
"Primary Issuance") equity securities, or securities convertible into equity
securities, of the Company to any Person (a "Primary Purchaser") unless the
Company has offered to issue to each of the other Stockholders, on a pro rata
basis (assuming, for the purposes of such calculation and for so long as the
Rollover Stockholders Agreement is in effect, that JFL had exercised its
Purchase Right with respect to any Additional Rollover Securities not previously
acquired by it or any other Purchaser pursuant to the Rollover Stockholders
Agreement), an opportunity to purchase such securities on the same terms,
including price, and subject to the same conditions as those applicable to the
Primary Purchaser. Notwithstanding the foregoing, this Article 7 shall not apply
to (i) the issuance of options, warrants or rights to subscribe for Securities
to officers, directors, employees, consultants or agents of the Company pursuant
to the terms of any stock option plan or arrangement approved by the Board of
Directors, (ii) the issuance of Securities upon the exercise of any such stock
options, warrants or rights, (iii) the issuance of Securities as a result of a
stock split, or (iv) the issuance of Securities as consideration for an
acquisition, approved by the Board of Directors, by the Company or any of its
subsidiaries of another firm, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, limited
liability company, unlimited liability company, or other entity of any kind.
(b) Procedure. Not less than ten (10) days prior to the date
described in clause (i) of this paragraph, the Company shall make to each
Stockholder an offer (the "Subscription Offer") to purchase any securities that
are the subject of a Primary Issuance, which offer shall specify (i) the date on
which the Company and the Primary Purchaser intend to consummate the Primary
Issuance, (ii) the material rights, preferences, privileges and restrictions
granted to or imposed upon the securities, including, (iii) the principal terms
of and conditions applicable to the Primary Issuance and (iv) the number of
securities proposed to be issued to the Primary Purchaser pursuant to the
Primary Issuance multiplied by a fraction, the numerator of which is the number
of Securities held by such Stockholder (assuming, for the purposes of such
calculation and for so long as the Rollover Stockholders Agreement is in effect,
that JFL had exercised its Purchase Right with respect to any Additional
Rollover Securities not previously acquired by it or any other Purchaser
pursuant to the Rollover Stockholders Agreement) and the denominator of which is
the total number of Securities outstanding, on a fully diluted basis. Each
Stockholder electing to participate in the Primary Issuance (a "Subscribing
Stockholder") shall give the Primary Purchaser and the Company written notice
(the "Subscription Notice") of such election not less than five (5) days after
receipt of the Subscription Offer (the "Subscription
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Period"). The Subscription Notice shall specify the number of securities with
respect to which such Stockholder desires to subscribe, which amount shall be
equal to or less than the total number of securities set forth in the
Subscription Offer. The failure of any Stockholder to submit a Subscription
Notice within the Subscription Period shall constitute an election by such
Stockholder not to accept such Subscription Offer.
8. REGISTRATION RIGHTS. Each of the Stockholders shall have the rights,
if any, with respect to registration of the Securities (other than, prior to the
earlier of the Rollover Termination Date and the date of the Triggering Event,
Additional Rollover Securities held by any holder other than JFL or its
transferees or designees) held by them as are set forth in the Registration
Rights Agreement, the form of which is attached hereto as Exhibit E.
9. MERGER. The Company shall not enter into any merger or consolidation
unless the terms of such merger or consolidation provide that all Securities
shall be treated no less favorably than any Securities.
10. CERTAIN CLOSING CONDITIONS. At the closing of any transfer or
disposition of Securities pursuant to this Agreement, in addition to any other
conditions specifically set out herein concerning such transfer or disposition,
the transferor shall (i) deliver the certificates representing the Securities
that are the subject of the transfer, duly endorsed for transfer and bearing any
necessary tax stamps; (ii) by delivering such certificates and Warrants, be
deemed to have represented and warranted that the transferor has valid and
marketable title to the Securities represented by such certificates and the
Warrants free of all encumbrances and (iii) deliver such certificates of
authority, tax releases, consents to transfer and evidences of title as may
reasonably be required by the transferee. The transferor shall be responsible
for the payment of all transfer taxes unless otherwise specified.
11. LEGENDS. Each stock certificate representing shares of Common Stock
now held or hereafter acquired by any Stockholder shall bear the following
legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY BE
OFFERED, PLEDGED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF
THE ACT AND SUCH LAWS, OR IF AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
SPECIAL DEVICES, INCORPORATED (THE "COMPANY") IS A DELAWARE
CORPORATION, AND THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE DIRECTLY OR INDIRECTLY, SOLD, GIVEN,
TRANSFERRED, ASSIGNED, CHARGED, MORTGAGED,
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HYPOTHECATED, PLEDGED OR ENCUMBERED OR OTHERWISE DISPOSED OF
(WHETHER BY OPERATION OF LAW OR OTHERWISE) WITHOUT COMPLIANCE
WITH THE PROVISIONS OF THAT CERTAIN STOCKHOLDERS AGREEMENT,
DATED AS OF DECEMBER 15, 1998 (THE "STOCKHOLDERS AGREEMENT"),
AMONG THE COMPANY, J.F. LEHMAN & COMPANY AND THE STOCKHOLDERS
THEREUNDER. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
REGISTERED OFFICES OF THE COMPANY. THE COMPANY WILL NOT
REGISTER THE TRANSFER OF SUCH SECURITIES ON THE REGISTER OF
THE STOCKHOLDERS OF THE COMPANY UNLESS AND UNTIL TRANSFER HAS
BEEN MADE IN COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT.
12. TERMINATION.
(a) Termination as to Stockholder. This Agreement shall
terminate with respect to any Stockholder at such time as the Stockholder ceases
to hold any Securities; provided, however, that the provisions of this Agreement
shall continue in effect for the purpose of enforcing against such Stockholder
all obligations and undertakings that shall have theretofore become operative;
provided, further, however, that the provisions of this Agreement shall be
binding upon any transferee of any Stockholder, whether such transfer was
pursuant to a Permitted Transfer (other than a Registered Offering) or
otherwise. Notwithstanding the foregoing, the benefits of this Agreement shall
inure only to a Permitted Transferee of a Stockholder.
(b) Termination as to Shares. This Agreement shall terminate
with respect to any particular Securities when such Securities shall have been
sold in a Registered Offering or distributed to the public pursuant to Rule 144
under the Securities Act.
(c) Termination of Agreement. This Agreement shall terminate
upon the earliest to occur of (i) the Agreement having been terminated as to all
Stockholders and all transferees of all Stockholders pursuant to paragraph (a)
hereof, (ii) the Agreement having been terminated as to all Securities pursuant
to paragraph (b) hereof, (iii) the sale of Securities at an aggregate offering
price of at least $20,000,000 in a Registered Offering and (iv) the tenth
anniversary of this Agreement.
13. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each
Stockholder and each JFL Stockholder represents and warrants to the other
parties hereto that:
(a) Such Person has full power and authority, and has taken
all action necessary, to execute and deliver this Agreement and to fulfill his
obligations under, and consummate the transactions contemplated by, this
Agreement;
14
<PAGE> 15
(b) The making and performance by such Person of this
Agreement does not and will not violate any law or regulation, or any agreement
or other instrument, applicable to such Person;
(c) The Securities or JFL Securities, as applicable, owned by
such Person are free and clear of any Lien, and are not subject to any
shareholders' agreement or other contractual restrictions binding on such Person
(other than this Agreement and the Rollover Stockholders Agreement);
(d) This Agreement has been duly executed and delivered by
such Person and constitutes the legal, valid and binding obligation of such
Person, enforceable against such Person in accordance with its terms, subject to
the effects of (i) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and (ii) general equitable principles (whether
considered in a proceeding in equity or at law);
(e) all approvals and authorizations of, all filings with and
all actions by any governmental or other administrative or judicial authority
necessary for the execution and delivery by such Person of this Agreement and
the validity or enforceability of the obligations of such Person under this
Agreement have been obtained; and
(f) Such Person has fully reviewed the terms of this Agreement
and has independently and without any reliance whatsoever upon any other party
hereto and based on such information as such Person has deemed appropriate, made
his or its own analysis and decision to enter into this Agreement.
14 MISCELLANEOUS PROVISIONS.
(a) Further Action. Each party hereto agrees to execute and
deliver any instrument and take any action that may reasonably be requested by
any other party for the purpose of effectuating the provisions of this
Agreement.
(b) Incorporation of Schedule and Exhibits. The schedule and
exhibits attached hereto are incorporated into this Agreement and shall be
deemed a part hereof as if set forth herein in full. References herein to "this
Agreement" and the words "herein," "hereof" and words of similar import refer to
this Agreement (including its schedules and exhibits) as an entirety. In the
event of any conflict between the provisions of this Agreement and any such
schedule or exhibit, the provisions of this Agreement shall control.
(c) Assignment. Except as otherwise provided in this Section
14(c) or in Articles 3, 4, 5 and 6 hereof, no right under this Agreement shall
be assignable and any attempted assignment, in violation of this provision shall
be void. The Company shall have the right to assign its rights and obligations
hereunder to any successor entity (including any entity acquiring substantially
all of the assets of the Company), whereupon references herein to the Company
shall be deemed to be to such successor. Except as expressly otherwise provided
herein, this
15
<PAGE> 16
Agreement, and the rights and obligations of the parties hereunder, shall be
binding upon and inure to the benefit of any and all transferees of the
Securities subject hereto, in each case with the same force and effect as if
such transferees were named herein as parties hereto.
(d) Enforcement. The parties recognize that irreparable damage
will result in the event that this Agreement shall not be specifically
performed. Should any dispute arise concerning the disposition of any Securities
hereunder, the parties hereto agree that an injunction may be issued restraining
such disposition pending determination of such controversy and that no bond or
other security may be required in connection therewith. Should any dispute arise
concerning the right or obligation of the Stockholders or the Company to
purchase or sell any of the Securities subject hereto, such right or obligation
shall be enforceable by a decree of specific performance. Such remedies shall,
however, not be exclusive and shall be in addition to any other remedy which the
parties may have.
(e) Notices. Any notice or other communication required or
which may be given hereunder shall be in writing by hand delivery, registered or
certified first class mail, telecopier or air courier guaranteeing overnight
delivery:
(i) if to the Company, to:
Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: The President
Fax: (805) 259-0753
with a courtesy copy to:
c/o J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
(ii) if to JFL, JFLEI or JFLCP, to:
c/o J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
in either case, with a courtesy copy to:
16
<PAGE> 17
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Neale M. Albert, Esq.
Paul D. Ginsberg, Esq.
Fax: (212) 757-3990
(iii) if to the Treinen Trust, to:
c/o Thomas F. Treinen
Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Fax: (805) 254-4721
or if to the Neubauer Trust, to:
c/o Walter Neubauer
Ordnance Products, Inc.
21200 South Figueroa Street
Carson, California 90745
Fax: (310) 203-0567
in either case, with a courtesy copy to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars, tenth floor
Los Angeles, California 90067
Attention: Robert Goon, Esq.
Fax: (310) 203-0567
or at such other address, notice of which is given in accordance with the
provisions of this Section 14(e). All such notices shall be deemed to have been
duly given when delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
(f) Applicable Law.
(i) This Agreement shall be governed by, and
construed and enforced in accordance with and subject to, the laws of the State
of Delaware applicable to agreements made and to be performed entirely within
such State.
17
<PAGE> 18
(ii) Each party to this Agreement agrees that all
disputes between them arising out of or relating to the relationship established
between them in connection with this Agreement, whether arising in contract,
tort, equity, or otherwise, shall be resolved only by federal courts located in
New York, New York, to the extent such courts have jurisdiction. Each of the
parties hereto waives any objection that each may have (including, without
limitation, any objection to the laying of venue or based on forum non
conveniens) to the location of the court in which any proceeding is commenced in
accordance with this paragraph. Each party hereto waives personal service of any
process upon him or it and irrevocably consents to service of process of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage pre-paid, to such
Person's address specified in this Agreement or such other address designated by
such Person in accordance with the terms of this Agreement.
(g) Amendment and Waiver
(i) No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
parties hereto at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or
to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by any party hereto from the terms
of any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by parties hereto holding at least
seventy-five-percent (75%) of the voting power represented by the Securities
(pursuant to a valid proxy or otherwise) and (ii) only in the specific instance
and for the specific purpose for which made or given.
(h) Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the transactions contemplated
herein and understandings among the parties relating to the subject matter
hereof. Any and all previous agreements and understandings between or among the
parties hereto regarding the subject matter hereof are, whether written or oral,
superseded by this Agreement; provided, however that (i) this Agreement shall
not be deemed to supersede the Subscription Agreement or the Rollover
Stockholders Agreement and (ii) the execution of this Agreement is not a waiver
by the parties hereto of any of the terms or provisions of the Subscription
Agreement or Rollover Stockholders Agreement.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect
18
<PAGE> 19
and of the remaining provisions hereof shall not be in any way impaired, unless
the provisions held invalid, illegal or unenforceable shall substantially impair
the benefits of the remaining provisions hereof.
(k) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
SPECIAL DEVICES, INCORPORATED
By: /s/ John T. Vinke
--------------------------------
Name: John T. Vinke
Title: Chief Financial Officer
J.F. LEHMAN & CO.
By: /s/ Donald Glickman
--------------------------------
Name: Donald Glickman
Title: Partner
19
<PAGE> 20
J.F. LEHMAN EQUITY INVESTORS I,
L.P.,
a Delaware limited partnership
By: JFL INVESTORS L.L.C., its
General Partner
By: /s/ Donald Glickman
-----------------------
Name: Donald Glickman
Title: Managing Member
JFL CO-INVEST PARTNERS I, L.P.,
a Delaware limited partnership
By: JFL INVESTORS L.L.C., its
General Partner
By: /s/ Donald Glickman
-----------------------
Name: Donald Glickman
Title: Managing Member
THE NEUBAUER FAMILY TRUST
By: /s/ Walter Neubauer
------------------------------
Walter Neubauer
Trustee
THE TREINEN FAMILY TRUST
By: /s/ Thomas F. Treinen
--------------------------------
Thomas Treinen
Trustee
20
<PAGE> 21
SCHEDULE 1
Additional Rollover Shares
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
EXISTING STOCKHOLDER NUMBER OF SHARES CERTIFICATE NUMBER(S)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Walter Neubauer 367,647
- -------------------------------------------------------------------------------------
Thomas Treinen 367,647
- -------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 1
EXHIBIT 10.12
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of December 15, 1998 (this "Agreement"),
between the Neubauer Family Trust, by Walter Neubauer, trustee (the "Pledgor")
and J. F. Lehman & Company (the "Pledgee").
On June 19, 1998, Special Devices, Incorporated, a Delaware
corporation (the "Company"), entered into an Agreement and Plan of Merger (as
amended and restated and in effect from time to time, the "Merger Agreement")
with SDI Acquisition Corp. a Delaware corporation ("Acquisition"). The Merger
Agreement, which was amended and restated as of August 17, 1998, provided for
the merger of Acquisition with and into the Company and the conversion of each
outstanding share of common stock, par value $0.01 per share, of the Company
(the "Common Stock"), into the right to receive $37.00 in cash payable to the
holder thereof other than certain of the shares held by Messrs. Neubauer and
Treinen.
On October 27, 1998, the Merger Agreement was further amended (i) to
reduce the cash consideration payable in respect of the shares of Common Stock
from $37.00 to $34.00 per share, (ii) to provide for the rollover of 735,294
additional shares of Common Stock held by Messrs. Neubauer and Treinen (the
"Additional Rollover Shares") and (iii) to extend the Termination Date under the
Merger Agreement to the second business day after approval of such amendment by
the stockholders of the Company.
On October 19, 1998, in connection with the foregoing proposed
amendments to the Merger Agreement, the Company, Acquisition and the Pledgee
entered into a letter agreement (the "Letter Agreement") with Messrs. Neubauer
and Treinen setting forth in principle certain agreements among them.
Concurrently with the execution and delivery of this Agreement, the
Neubauer Family Trust and the Treinen Family Trust are entering into a Rollover
Stockholders Agreement with Pledgee and the Company (the "Stockholders
Agreement") setting forth, among other things, certain rights and obligations of
the parties with respect to the Additional Rollover Shares outlined in the
Letter Agreement. In order to induce the Pledgee to enter into the Stockholders
Agreement, Pledgor is entering into this Agreement with Pledgee.
<PAGE> 2
2
NOW, THEREFORE, in consideration of the receipt of the sum of $1.00
and the mutual premises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor and the Pledgee hereby agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in the
Stockholders Agreement. The term "Transfer" as used herein shall have the
meaning ascribed to it in Section 5(a) of the Stockholders Agreement.
2. Pledge. The Pledgor hereby pledges and grants to the Pledgee, for
its benefit, a first priority, perfected security interest in the following,
whether now existing or hereafter arising (collectively, the "Pledged
Collateral"):
(a) The Additional Rollover Shares now owned by Pledgor and
the certificate no. ___ representing such shares (all of such shares are
referred to herein as the "Pledged Stock"), and stock powers in the form
attached hereto as Exhibit A (the "Powers"), duly executed in blank, and, except
as provided in Section 9, all dividends, instruments, securities and other
property and distributions from time to time received, receivable or otherwise
distributed in respect of, or in exchange for, any or all of the Pledged Stock;
and
(b) All proceeds of any or all of the foregoing of any kind or
description (subject to Section 10 hereof).
3. Security for Liabilities. The Pledged Collateral secures the
prompt performance and observance of each of the Pledgor's obligations and
liabilities arising under or out of Section 3(a) of the Stockholders Agreement
(together with the related definitions and ancillary provisions) and this
Agreement (all such obligations and liabilities of the Pledgor now existing or
hereafter arising being hereinafter referred to as the "Liabilities").
4. Pledged Collateral Adjustments. If, during the term of this
Agreement:
(a) any stock dividend, reclassification, readjustment or
other change is declared or made in the capital structure of the Company with
respect to the Pledged Collateral; or
(b) any subscription warrants or any other rights or options
shall be issued in connection with the Pledged Collateral,
then all new, substituted and additional shares, warrants, rights, options or
other securities issued by reason of any of the foregoing shall be immediately
delivered to and held by the
<PAGE> 3
3
Pledgee under the terms of this Agreement and shall constitute additional
Pledged Collateral hereunder.
5. Subsequent Changes Affecting Pledged Collateral. The Pledgor
represents and warrants that he has made his own arrangements for keeping
himself informed of changes or potential changes affecting the Pledged
Collateral (including, without limitation, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and the Pledgor agrees that the Pledgee shall not
have any obligation to inform the Pledgor of any such changes or potential
changes or to take any action or omit to take any action with respect thereto.
In addition to, and not in limitation of, the rights of the Pledgee under the
Stockholders Agreement, the Pledgee may, after the failure of the Pledgor to
comply strictly with the terms of Section 3(a) of the Stockholders Agreement (an
"Event of Default"), without notice and at its option, transfer or register the
Pledged Collateral or any part thereof into its or its nominee's name with or
without any indication that such Pledged Collateral is subject to the security
interest hereunder; provided, however, that nothing herein shall serve to modify
Pledgor's obligation to pay the Call Price as required by the Stockholders
Agreement for any Pledge Collateral so transferred or registered. In addition,
the Pledgee may at any time exchange certificates or instruments representing or
evidencing Pledged Stock for certificates or instruments of smaller or larger
denominations.
6. Delivery of Pledged Collateral. Concurrently with the execution
and delivery of this Agreement, the Pledgor shall deliver to the Pledgee all
certificates representing the Pledged Stock and such certificates shall be
accompanied by the Powers, with signature appropriately guaranteed, and
accompanied by any required transfer tax stamps, all in form and substance
satisfactory to the Pledgee.
7. Representations and Warranties. The Pledgor represents and
warrants to the Pledgee as follows:
(a) The Pledgor is the sole record and beneficial owner of the
Pledged Stock, free and clear of all claims, pledges, liens, encumbrances,
charges and security interests of every nature whatsoever (collectively,
"Liens"), except Liens created by this Agreement, and has good and marketable
title to the Pledged Stock.
(b) The Pledgor has the capacity to enter into this Agreement.
(c) All of the Pledged Stock owned by the Pledgor has been
duly authorized and validly issued, is fully paid and nonassessable, and is not
subject to any options, warrants or rights of any other Person (other than in
connection with the Stockholders Agreement). The Pledgor is not and will not
become a party to or otherwise bound by any agreement, other than this Agreement
and the Stockholders Agreement,
<PAGE> 4
4
which restricts in any manner the rights of any present or future holder of any
of the Pledged Stock with respect thereto.
(d) Except for the irrevocable voting proxy granted to Pledgee
in the Stockholders Agreement and the restrictions, if any, contained in that
certain Stockholders Agreement, of even date herewith, by and among Pledgor,
Pledgee, the Company and certain other Stockholders of the Company, there are no
restrictions upon the voting rights associated with the Pledged Stock owned by
the Pledgor or upon the transfer of any of the Pledged Collateral owned by the
Pledgor, and the Pledgor has full right and authority to vote the Pledged Stock
owned by such Pledgor, subject to the irrevocable voting proxy granted to
Pledgee contained in the Stockholders Agreement and the restrictions, if any,
contained in that certain Stockholders Agreement, of even date herewith, by and
among Pledgor, Pledgee, the Company and certain other Stockholders of the
Company, and to pledge and grant to the Pledgee a security interest in or
otherwise transfer, subject to federal and state securities laws, the Pledged
Collateral free of any Liens.
(e) None of the Pledged Stock has been issued or transferred
in violation of the securities laws of the United States of America or any State
to which such issuance or transfer may be subject.
(f) This Agreement has been duly executed and delivered by the
Pledgor and constitutes the legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(g) No approval, consent, authorization, or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required either for the pledge of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by the
Pledgor.
(h) This Agreement is effective to create in favor of the
Pledgee, for the benefit of the Pledgee, a legal, valid and enforceable security
interest in the Pledged Collateral, and the delivery by the Pledgor of a
certificate or certificates representing the Pledged Stock to the Pledgee
pursuant to Section 6 hereof, will create in favor of the Pledgee, for the
benefit of the Pledgee, a valid and perfected first priority security interest
in the Pledged Collateral securing the performance of the Liabilities.
(i) The Powers have been duly executed and, when delivered to
the Pledgee, will give the Pledgee the authority they purport to confer.
<PAGE> 5
5
8. Voting Rights. Under the Stockholders Agreement, Pledgor has
granted to Pledgee an irrevocable voting proxy to vote the Pledged Stock as set
forth in the Stockholders Agreement.
9. Dividends and Other Distributions.
(a) So long as there shall exist no condition, event or act
which constitutes an Event of Default or which with notice or lapse of time or
both would constitute an Event of Default:
(i) The Pledgor shall be entitled to receive and retain
any and all dividends or interest paid in respect of the Pledged Collateral;
provided, however, that any and all:
(x) dividends paid or payable other than in cash
with respect to, and instruments and other property received, receivable
or otherwise distributed with respect to, or in exchange for, any of the
Pledged Collateral;
(y) dividends and other distributions paid or
payable in cash with respect to any of the Pledged Collateral on account
of a partial or total liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in surplus; and
(z) cash paid, payable or otherwise distributed
with respect to principal of, or in redemption of, or in exchange for, any
of the Pledged Collateral; provided, however, that in the case of a
redemption or exchange of shares for cash, Pledgee shall only be entitled
to receive the portion, if any, of the cash paid that exceeds the Call
Price for the shares so redeemed or exchanged.
shall be Pledged Collateral, and shall be forthwith delivered to the Pledgee to
hold for the benefit of the Pledgee as Pledged Collateral and shall, if received
by the Pledgor, be held in trust for the benefit of the Pledgee as Pledged
Collateral and shall be segregated from the other property or funds of the
Pledgor, and shall be delivered immediately to the Pledgee as Pledged Collateral
in the same form as so received (with any necessary endorsement).
(ii) The Pledgee shall execute and deliver (or cause
to be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of enabling
the Pledgor to receive the dividends or interest payments that it is authorized
to receive and retain pursuant to clause (i) above.
<PAGE> 6
6
(b) After the occurrence of an Event of Default and subject to
Pledgee's payment of the Call Price pursuant to the requirements of Section 3 of
the Stockholders Agreement:
(i) All rights of the Pledgor to receive the
dividends that it would otherwise be authorized to receive and retain pursuant
to Section 9(a)(i) hereof shall cease, and all such rights shall thereupon
become vested in the Pledgee, for the benefit of the Pledgee, which shall
thereupon have the sole right to receive and retain as Pledged Collateral such
dividends and interest payments; and
(ii) All dividends that are received by the Pledgor
contrary to the provisions of clause (i) of this Section 9(b) shall be held in
trust for the benefit of the Pledgee, shall be segregated from other funds of
the Pledgor and shall be delivered immediately to the Pledgee as Pledged
Collateral in the same form as so received (with any necessary endorsements).
10. Defense of Title, Transfers and Other Liens. Until the
performance in full of the Liabilities, the Pledgor shall defend the Pledgee's
title to and security interest in the Pledged Collateral against the claims of
all Persons, and the Pledgor shall not without complying with Section 3 of the
Stockholders Agreement (a) sell, assign, transfer, pledge or otherwise dispose
of or encumber, or grant any option with respect to, any of the Pledged
Collateral or any unpaid dividends or other distributions with respect thereto
to which the Pledgee is entitled pursuant to Section 9 hereof, or (b) create or
permit to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement. Notwithstanding the
foregoing, so long as no Event of Default has occurred, the Pledgor may Transfer
all or any of the Pledged Collateral in accordance with the Stockholders
Agreement, provided that the purchaser or transferee, as the case may be, (i)
acknowledges that the Pledged Collateral is subject to the terms of this
Agreement and (ii) executes an assumption of the obligations of such Pledgor
under this Agreement in form and substance reasonably acceptable to the Pledgee.
If such a sale or transfer is made in accordance with this Section 10, the
Pledgee shall permit the Pledged Collateral to be registered initially in the
name of the purchaser or transferee, as the case may be, and the proceeds from
such sale shall be released from the Lien hereunder and delivered to Pledgor;
provided that, the Pledged Collateral is immediately redeposited with the
Pledgee.
11. Rights and Remedies.
If the Purchase Right is exercised under Section 3(a) of the
Stockholders Agreement, the Pledgee shall have the right to transfer to itself
or such other Purchaser record and beneficial ownership of all or any portion of
the Pledged Collateral in exchange for payment by Pledgee or such other
Purchaser of the Call Price therefor in accordance with Section 3(a) of the
Stockholders Agreement. In addition, upon the occurrence of an Event of Default,
Pledgee also shall have all of the applicable rights and
<PAGE> 7
7
remedies with respect to the Pledged Collateral of a secured party under the
Uniform Commercial Code as in effect in the State of New York. The Pledgor
agrees to pay to the Pledgee all reasonable expenses (including, without
limitation, court costs and reasonable attorneys' fees and expenses) of, or
incident to, the enforcement of any of the provisions of this Agreement and such
expenses shall constitute Liabilities hereunder.
12. Security Interest Absolute. All rights of the Pledgee and
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of (a) any change in any manner
of any term of all or any part of the Liabilities, and (b) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Liabilities or of this Agreement.
13. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee as his attorney-in-fact, which appointment is
irrevocable and coupled with an interest, with full authority, in the name of
such Pledgor or otherwise, after the occurrence of an uncured Event of Default,
from time to time in the Pledgee's reasonable discretion, to take any action and
to execute any instrument that the Pledgee may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, to
take the following actions with respect to the Pledged Collateral:
(a) to receive, endorse and collect all instruments made
payable to the Pledgor representing any dividend or other distribution in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same;
(b) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due thereon or by virtue thereof;
(c) to settle, compromise, combine, prosecute or defend any
action or proceeding with respect thereto; and
(d) to sell, transfer, assign or otherwise deal in or with the
same or the proceeds thereof, as fully and effectually as if the Pledgee were
the absolute owner thereof; provided, however, that nothing in this Section 13
shall eliminate or modify Pledgee's obligation to pay the Call Price pursuant to
Section 3 of the Stockholders Agreement.
14. Waivers.
(a) The Pledgor hereby agrees that his obligations under this
Agreement shall be unconditional, irrespective of: (i) the validity or
enforceability, avoidance or subordination of the Liabilities; (ii) the absence
of any attempt by, or on behalf
<PAGE> 8
8
of, the Pledgee to collect, or take any other action to enforce, all or any part
of the Liabilities; (iii) the election of any remedy by, or on behalf of, the
Pledgee with respect to all or any part of the Liabilities; (iv) the failure of
the Pledgee to take any steps to perfect and maintain its security interests in,
or to the preserve its right to any of the Pledged Collateral for all or any
part of the Liabilities; or (v) any other circumstance that might otherwise
constitute a legal or equitable discharge or defense of the Pledgor.
(b) The Pledgor hereby waives any requirement of diligence,
presentment, demand of payment, protest or notice with respect to all or any
part of the Liabilities, the benefit of any statutes of limitation, and all
demands whatsoever, and covenants that this Agreement will not be discharged,
except by complete performance of the Liabilities, unless prior to such complete
performance, by an order or decree a court of competent jurisdiction states that
this Agreement is discharged.
(c) The Pledgor consents and agrees that neither the Pledgee
nor any party acting for or on behalf of the Pledgee shall be under any
obligation to marshal any assets in favor of the Pledgor or against or
satisfaction of all or any part of the Liabilities.
15. Term. This Agreement shall remain in full force and effect until
the Liabilities have been performed in full. Upon the termination of this
Agreement as provided above (other than as a result of the transfer of the
Pledged Collateral to Pledgee as provided in Section 11 or the sale of all of
the Pledged Collateral), all rights to the Pledged Collateral shall revert to
the Pledgor and the Pledgee shall (a) release the security interest created
hereunder, (b) promptly execute and deliver to the Pledgor a proper instrument
or instruments acknowledging the release and discharge of the security interest
created hereby and (c) assign, transfer and deliver to the Pledgor, at the
Pledgee's expense, the Pledged Collateral and the Powers then in the possession
of the Pledgee, together with any moneys at the time held by the Pledgee
hereunder.
16. Waiver of Bond. The Pledgor waives the posting of any bond
otherwise required of the Pledgee in connection with any judicial process or
proceeding to realize on the Pledged Collateral or any other security for the
Liabilities, to enforce any judgment or other court order entered in favor of
the Pledgee, or to enforce by specific performance, temporary restraining order,
or preliminary or permanent injunction, this Agreement.
17. Pledgee's Duty of Care. The Pledgee shall not be liable for any
acts, omissions, errors of judgment or mistakes of fact or law including,
without limitation, acts, omissions, errors or mistakes with respect to the
Pledged Collateral, except for those arising out of or in connection with the
Pledgee's (a) gross negligence or willful misconduct or (b) failure to exercise
reasonable care with respect to the safe custody and preservation of the Pledged
Collateral in the Pledgee's possession; provided, however, that the Pledgee
shall be deemed to have exercised reasonable care in the
<PAGE> 9
9
custody and preservation of the Pledged Collateral in the Pledgee's possession
if the Pledged Collateral is accorded treatment substantially equal to that
which it accords its own securities and property. Without limiting the
generality of the foregoing, the Pledgee shall be under no obligation to take
any steps necessary to preserve rights in the Pledged Collateral against any
other parties but may do so at its option. All expenses incurred in connection
therewith shall be for the sole account of the Pledgor, and shall constitute
part of the Liabilities secured hereby.
18. Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, pre-paid
overnight delivery service, or personal delivery:
(a) if to the Pledgor:
Mr. Walter Neubauer
c/o Ordnance Products Inc.
21200 S. Figueroa Street
Carson, California 90745
Telecopy: 310-618-3738
with a copy to:
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars
Tenth Floor
Los Angeles, California 90067
Telecopy: 310-203-0567
Attention: Robert H. Goon, Esq.
(b) if to the Pledgee:
J.F. Lehman & Company
450 Park Avenue
New York, New York 10022
Telecopy: (212) 634-1155
Attention: Mr. Keith Oster
with a copy to:
<PAGE> 10
10
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Paul D. Ginsberg, Esq.
(c) or such other address and to the attention of such other
person as any party hereto may designate by written
notice to the other in accordance with the terms of this
Section 18.
All such notices and communications shall be deemed to have been duly given when
delivered by hand, if personally delivered; on the business day following
deposit with the overnight delivery service, if delivered by overnight delivery
service; five (5) [business] days after being deposited in the mail, postage
prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied.
19. Amendments, Waivers and Consents. No amendment or waiver of any
provision of this Agreement nor consent to any departure by any party herefrom,
shall in any event be effective unless the same shall be in writing and signed
by all of the parties, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
20. Severability. In the event that any provision of this Agreement
shall be declared to be invalid, illegal or unenforceable, such provision shall
survive to the extent it is not so declared, and the validity, legality and
enforceability of the other provisions hereof shall not in any way be affected
or impaired thereby, unless such action would substantially impair the benefits
to either party of the remaining provisions of this Agreement.
21. Entire Agreement. This Agreement, together with the exhibits
hereto, and the Stockholders Agreement, are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement, together with
the exhibits hereto, and the Stockholders Agreement, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
22. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meanings hereof.
23. Variations in Pronouns. All pronouns and any variations thereof
refer to masculine, feminine or neuter, singular or plural, as the context may
require.
<PAGE> 11
11
24. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
25. Consent to Jurisdiction; Counterclaims; Forum Non Conveniens.
(a) Exclusive Jurisdiction. Except as provided in subsection
(b) of this Section 25, the Pledgor and the Pledgee agree that all disputes
between them arising out of or related to the relationship established between
them in connection with this Agreement, whether arising in contract, tort,
equity, or otherwise, shall be resolved only by federal courts located in New
York, New York to the extent such courts have jurisdiction.
(b) Other Jurisdictions. The Pledgee shall have the right to
proceed against the Pledgor or his real or personal property in a court in any
location to enable the Pledgee to obtain personal jurisdiction over the Pledgor,
to realize on the Pledged Collateral or any other security for the Liabilities
or to enforce a judgment or other court order entered in favor of the Pledgee.
The Pledgor shall not assert any permissive counterclaims in any proceeding
brought by the Pledgee arising out of or relating to this Agreement.
(c) Venue; Forum Non Conveniens. Each of the Pledgor and the
Pledgee waives any objection that each may have (including, without limitation,
any objection to the laying of venue or based on forum non conveniens) to the
location of the court in which any proceeding is commenced in accordance with
this Section 25.
26. Service of Process. The Pledgor waives personal service of any
process upon him and, as security for the Liabilities, irrevocably consents to
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Pledgor's address specified in Section 18 or such other
address designated by the Pledgor if the Pledgor has designated such other
address by written notice to the Pledgee in accordance with the terms of Section
18(c).
27. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE PLEDGEE WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, BETWEEN THE PLEDGOR AND THE PLEDGEE ARISING OUT OF OR RELATED TO
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EITHER THE
PLEDGOR OR THE PLEDGEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
<PAGE> 12
12
28. Advice of Counsel. The Pledgor represents and warrants to the
Pledgee that he has discussed this Agreement and, specifically, the provisions
of Sections 25 through 27 hereof, with the Pledgor's lawyers.
29. Further Assurances. The Pledgor agrees that, from time to time,
upon written request of the Pledgee, the Pledgor shall promptly execute and
deliver such further documents and do such other acts and things as the Pledgee
may from time to time reasonably request to enable the Pledgee to enforce its
rights hereunder with respect to the Pledged Collateral and in order to fully
effectuate the purposes of this Agreement.
30. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Pledgee and the Pledgor and their respective heirs,
executors, personal representatives, successors and assigns; provided, however,
that the Pledgor may not assign this Agreement or any of the rights and
obligations of the Pledgor hereunder without the prior written consent of the
Pledgee.
31. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same agreement.
<PAGE> 13
13
IN WITNESS WHEREOF, the Pledgor and the Pledgee have executed this
Agreement as of the date set forth above.
PLEDGOR:
THE NEUBAUER FAMILY TRUST
By: /s/ Walter Neubauer
--------------------------
Walter Neubauer
Trustee
PLEDGEE:
J.F. LEHMAN & COMPANY
By: /s/ Donald Glickman
--------------------------
Name: Donald Glickman
Title: Partner
<PAGE> 14
Exhibit A
Form of Stock Power
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to ______________________________ _____ shares, par value $.01 per
share (the "Stock"), of Common Stock of SPECIAL DEVICES INCORPORATED, a Delaware
corporation (the "Corporation"), represented by Certificate No. __, standing in
the name of the undersigned on the books of the Corporation and does hereby
irrevocably constitute and appoint _______________________ as the undersigned's
true and lawful attorney, for it and in its name and stead, to sell, assign and
transfer all or any of the Stock, and for that purpose to make and execute all
necessary acts of assignment and transfer thereof; and to substitute one or more
persons with like full power, hereby ratifying and confirming all that said
attorney or substitute or substitutes shall lawfully do by virtue hereof.
Dated: ________________
THE NEUBAUER FAMILY TRUST
By:_____________________________
Walter Neubauer
Trustee
<PAGE> 1
EXHIBIT 10.13
ROLLOVER STOCKHOLDERS AGREEMENT
ROLLOVER STOCKHOLDERS AGREEMENT, dated as of December 15, 1998, among
Special Devices, Incorporated, a Delaware corporation (the "Company"), J.F.
Lehman & Co. ("JFL"), the Neubauer Family Trust, by Walter Neubauer trustee (the
"Neubauer Trust"), and the Treinen Family Trust, by Thomas F. Treinen trustee
(the "Treinen Trust").
On June 19, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with SDI Acquisition Corp., a Delaware corporation
("Acquisition"). The Merger Agreement, which was amended and restated as of
August 17, 1998, provided for the merger of Acquisition with and into the
Company (the "Merger") and the conversion of each outstanding share of common
stock, par value $0.01 per share, of the Company (the "Common Stock"), into the
right to receive $37.00 in cash payable to the holder thereof other than certain
of the shares held by Messrs. Neubauer and Treinen.
On October 27, 1998, the Merger Agreement was further amended (as amended
to date, the "Amended Merger Agreement") (i) to reduce the cash consideration
payable in respect of the shares of the Common Stock from $37.00 to $34.00 per
share, (ii) to provide for the rollover of 735,294 additional shares of Common
Stock held by Messrs. Treinen and Neubauer that are described on Schedule 1
hereto (the "Additional Rollover Shares") and (iii) to extend the termination
date under the Merger Agreement to the second business day after approval of
such amendment by the stockholders of the Company.
On October 19, 1998, in connection with the foregoing proposed amendments
to the Merger Agreement, the Company, Acquisition and JFL entered into a letter
agreement (the "Letter Agreement") with Messrs. Neubauer and Treinen describing
in principle certain of the agreements set forth herein with respect to the
Additional Rollover Shares.
Concurrently with the execution and delivery of this Agreement, each of
the Neubauer Trust and the Treinen Trust is entering into (i) a Pledge Agreement
(each a "Pledge Agreement") pursuant to which it is granting to JFL a first
priority security interest in the Pledged Collateral (as defined in the Pledge
Agreement) to secure its performance of the Purchase Right (as defined herein)
under Section 3 of this Agreement with respect to the Additional Rollover
Shares, and (ii) a Stockholders Agreement (the "Stockholders Agreement") with
the Company, JFL, Paribas Principal Inc., J.F. Lehman Equity Investors I, L.P.
and JFL Co-Invest Partners I, L.P.
On December 15, 1998 Acquisition merged with and into the Company pursuant
to the Amended Merger Agreement, and the Company continued as the surviving
corporation of the Merger.
The parties hereto desire to enter into this Agreement to more completely
set forth the terms and conditions agreed to pursuant to the Letter Agreement
with respect to the Additional Rollover Shares. Certain capitalized terms used
herein without definition shall have the meanings ascribed thereto in Article 1.
<PAGE> 2
Accordingly, in consideration of the foregoing recitals and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized terms
shall have the following meanings:
"Additional Rollover Securities" means the Additional Rollover
Shares together with all Securities received in exchange therefor.
"Additional Rollover Stockholder" means each of the Treinen Trust
and the Neubauer Trust and all other Persons that acquire any of the Additional
Rollover Securities that agree to be bound by the terms of the Stockholder
Agreement and this Agreement in accordance with the terms and provisions
thereof.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
For the purposes of this definition, "control," when used with respect to any
Person, means the power to direct or cause the direction of the management or
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Change of Control" shall have the meaning set forth in the
Indenture governing the Company's 11 3/8% Senior Subordinated Notes due 2008, as
such Indenture is in effect on the date of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Involuntary Transfer" means any Transfer, proceeding or action by
or in which an Additional Rollover Stockholder shall be deprived or divested of
any right, title or interest in or to any of the Additional Rollover Securities,
including, without limitation, any seizure under levy of attachment or
execution, any transfer, in connection with bankruptcy (whether pursuant to the
filing of a voluntary or involuntary petition under the United States Bankruptcy
Code of 1978, or any amendments thereto) or other court proceeding to a debtor
in possession, trustee in bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant to any statute
pertaining to escheat or abandoned property and any transfer pursuant to a final
decree of a court in a divorce action.
"Person" means any natural person, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Qualified Public Offering" means the first firm commitment
underwritten public offering by the Company pursuant to an effective
registration statement under the Securities Act
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<PAGE> 3
covering the offer and sale of Common Stock to the public that results in gross
proceeds to the Company in excess of $20 million.
"Rollover Termination Date" means December 14, 2002.
"Securities" means shares of Common Stock (including the Additional
Rollover Shares) together with (i) all shares, securities, monies or property
resulting from any subdivision, combination, revision, reclassification or other
change of the Common Stock or otherwise received in exchange therefor, (ii) any
warrants, options and other rights to purchase shares of Common Stock issued to
the holders Common Stock and (iii) in the event of any consolidation, merger or
other business combination in which the Company is not the surviving entity, all
shares of each class of the capital stock of the successor business entity
formed by or resulting from such transaction issued or issuable in respect of
the Common Stock.
"Securities Act" means the Securities Act of 1933, as amended.
"Triggering Event" means the earliest to occur of the following
events:
(a) the repayment in full of all amounts under and termination of
(i) all indebtedness and other amounts under the Credit Agreement, dated as of
December 15, 1998, among the Company and the lenders parties thereto and any
instrument or agreement evidencing indebtedness incurred for the purpose of
refinancing, extending, renewing, refunding, repaying, prepaying, redeeming,
defeasing, retiring or exchanging such indebtedness and (ii) the Company's 11
3/8% Senior Subordinated Notes due 2008;
(b) the occurrence of a Change of Control; or
(c) the occurrence of a Qualified Public Offering.
2. ROLLOVER PROXY.
(a) Each Additional Rollover Stockholder hereby appoints JFL as such
Additional Rollover Stockholder's lawful attorney and proxy and
attorney-in-fact, with full power of substitution, to vote all Rollover
Additional Securities held by such Additional Rollover Stockholder and to act on
such Additional Rollover Stockholder's behalf and in such Additional Rollover
Stockholder's name, place and stead with respect to the Additional Rollover
Securities held by such Additional Rollover Stockholder, at any annual, special
or other meeting of stockholders of the Company or any successor and at any
adjournment of any such meeting and to act by written consent with respect to
all Additional Rollover Securities held by such Additional Rollover Stockholder,
in each case at all times prior to the Rollover Termination Date, with respect
to any matter on which holders of Additional Rollover Securities are entitled to
vote or act by written consent.
(b) Each Additional Rollover Stockholder acknowledges, consents and
agrees that the proxy and power of attorney (together, with respect to each
Additional Rollover Stockholder, a "Proxy") granted by such Additional Rollover
Stockholder pursuant to this Agreement (i) is
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<PAGE> 4
irrevocable prior to the Rollover Termination Date, (ii) is coupled with an
interest and revokes all prior proxies granted by such Additional Rollover
Stockholder with respect to his Additional Rollover Securities and (iii) shall
not be affected by the disability, death or incompetence of such Additional
Rollover Stockholder. Each Proxy is effective as of the date of this Agreement
and shall remain in force until the Rollover Termination Date.
(c) Each Additional Rollover Stockholder hereby represents, warrants
and covenants that, at all times prior to the Rollover Termination Date, its
Proxy is and will be a valid, binding and enforceable obligation of such
Additional Rollover Stockholder.
(d) Each Additional Rollover Stockholder agrees to take all such
further actions as may be reasonably requested by JFL to ensure the validity of
his Proxy.
3. PURCHASE RIGHT.
(a) Each Additional Rollover Stockholder hereby acknowledges and
agrees that at any time and from time to time prior to the Rollover Termination
Date, JFL or one or more of its assignees or designees (the "Purchaser") shall
have the right (the "Purchase Right") to purchase all or any portion of the
Additional Rollover Securities held by such Additional Rollover Stockholder at a
purchase price per Additional Rollover Security (the "Call Price") initially
equal to $34.00 plus a premium equal to $2.04 for each full six month period
elapsed since the date hereof (subject to adjustment in accordance with
paragraph (d) below). The Purchaser shall exercise its Purchase Right pro rata
with respect to the Additional Rollover Securities held by all of the Additional
Rollover Stockholders, in accordance with the respective ownership of each
Additional Rollover Stockholder.
(b) The Purchaser shall exercise the Purchase Right described in
paragraph (a) above by delivering written notice to each Additional Rollover
Stockholder specifying (i) the total number of Additional Rollover Securities to
be purchased from each Additional Rollover Stockholder, (ii) the Call Price
therefor and (iii) the date that such Additional Rollover Securities shall be
purchased (which date shall be not less than five (5) nor more than sixty (60)
days after the date of such written notice) and may be subject to such
conditions as shall be specified in such notice.
(c) The closing of any purchase under this Article 3, shall be held
at the principal office of the Company at 11:00 o'clock A.M. local time on the
closing date specified in the written notice delivered pursuant to paragraph (b)
above or at such other time and place as the parties to the transaction may
agree upon. The Purchaser shall deliver at the closing, by a certified or bank
check or wire transfer, payment in full for the Additional Rollover Securities
being purchased by it. At such closing, the parties shall execute such
additional documents as are necessary or appropriate to consummate the
transactions.
(d) The Call Price shall be adjusted from time to time as follows:
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<PAGE> 5
(i) In case the Company (A) pays a dividend on any class of
its capital stock payable in shares of its Common Stock, (B) subdivides
its outstanding shares of Common Stock into a greater number of shares or
(C) combines its outstanding shares of Common Stock into a smaller number
of shares, the Board of Directors of the Company shall adjust the Call
Price proportionately to account for such events. The good faith
determination of the Board of Directors shall be conclusive and binding on
the parties.
(ii) In case of (A) any reclassification of the Common Stock,
any consolidation of the Company with, or merger of the Company into, any
other entity, any merger of another entity into the Company (other than a
merger that does not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of Common Stock of the Company), (B)
any sale or transfer of all or a substantial portion of the assets of the
Company, (C) any compulsory share exchange pursuant to which share
exchange the Common Stock is converted into other securities, cash or
other property or (D) any other event as to which the provisions of this
Section 3(d) are not strictly applicable, but the failure to make an
adjustment would not fairly protect the Purchase Right granted by Section
3(a) or the Put Right granted by Section 4(a), as applicable, in
accordance with the essential intent and principles of such Sections, then
the Board of Directors of the Company shall make a good-faith equitable
adjustment to the Call Price or the other terms of this Agreement in a
manner consistent with the essential intent and principles established in
this Section 3 or Section 4, as applicable, necessary to preserve the
Purchase Right granted by Section 3(a) or the Put Right granted by Section
4(a), as applicable. The good faith determination of the Board of
Directors of the Company shall be conclusive and binding on the parties.
4. PUT RIGHT.
(a) The Company hereby covenants and agrees to promptly provide
written notice to the Additional Rollover Stockholders of the occurrence of a
Triggering Event. Within 5 days after receiving written notice from the Company
of the occurrence of the Triggering Event, each Additional Rollover Stockholder
shall have the right (the "Put Right") to require the Company to purchase all or
any portion of its Additional Rollover Securities at a purchase price per
Additional Rollover Security equal to the Call Price (as such price may be
adjusted pursuant to Section 3(d)), in accordance with the terms of this Article
4.
(b) Such Additional Rollover Stockholder shall exercise the Put
Right described in paragraph (a) above by delivering written notice (the "Put
Notice") to the Company specifying (i) the number of Additional Rollover
Securities to be sold to the Company, (ii) the Call Price therefor and (iii) the
date that such Additional Rollover Securities shall be sold to the Company
(which date shall be not less than 30 nor more than 60 days after the date of
such written notice).
(c) The closing of any purchase under this Article 4 shall be held
at the principal office of the Company at 11:00 o'clock A.M. local time on the
date specified in the Put Notice or at such other time and place as the parties
to the transaction may agree upon. The Company shall deliver at the closing by
certified or bank check or wire transfer, payment in full for the Additional
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<PAGE> 6
Rollover Securities being acquired by it. At such closing, the parties shall
execute such additional documents as are otherwise necessary or appropriate to
consummate the transfers.
(d) Notwithstanding anything to the contrary in this Agreement, if
the Company has determined in its reasonable judgment that it does not have
sufficient funds legally available or is otherwise not permitted pursuant to
applicable law or the Credit Agreement, dated as of December 15, 1998, among the
Company and the lenders parties thereto (the "Credit Agreement") or the
indenture relating to the Company's 11 3/8% Senior Subordinated Notes due 2008
(the "Indenture") to make the payment for the purchase of the Additional
Rollover Securities, the Company shall purchase the maximum amount of Additional
Rollover Securities that it can purchase without violating any applicable law or
any of its debt instruments and each Additional Rollover Stockholder (a
"Withdrawing Stockholder") shall be deemed to have automatically withdrawn the
exercise of its Put Right under this Article 4 with respect to those Additional
Rollover Securities not so purchased by the Company. As soon as the Company has
additional funds legally available for the purchase of the remaining Additional
Rollover Securities and is otherwise permitted under the Credit Agreement and
the Indenture and able to make payment for the remaining Additional Rollover
Securities, it shall promptly notify each Withdrawing Stockholder and shall use
its best efforts to either (i) obtain the consents or waivers necessary to
permit the purchase of the remaining Additional Rollover Securities or (ii)
refinance the Credit Agreement or the Indenture to permit the repurchase of the
remaining Additional Rollover Securities. Each Withdrawing Stockholder shall
have 60 days from the date of such notice from the Company to elect to
reexercise its Put Right (at the then applicable Call Price) in accordance with
this Article 4 with respect to all Additional Rollover Securities that the
Company was theretofore unable to purchase. If a Withdrawing Stockholder fails
to exercise such right within that 60 day period, it shall have no further right
to require the Company to purchase any of its Additional Rollover Securities.
Notwithstanding any provision of this Agreement to the contrary, until all
amounts under the Credit Agreement and the Indenture have been repaid in full
and the Credit Agreement and the Indenture have been terminated, the rights and
obligations under this Section 4(d) may be enforced solely by a decree of
specific performance and the Company shall not be liable for any monetary
damages.
(e) Notwithstanding anything to the contrary in this Agreement, the
Put Right shall not apply to any Additional Rollover Securities to be purchased
pursuant to the exercise of the Purchase Right at any time prior to the Rollover
Termination Date and prior to the closing of the purchase pursuant to Section
4(c), whether the Purchase Right is exercised prior to, or after, the exercise
of the Put Right.
5. RESTRICTIONS ON TRANSFER OF SECURITIES.
(a) General. No Additional Rollover Stockholder shall, directly or
indirectly, transfer or otherwise dispose of any Additional Rollover Securities
owned by such Additional Rollover Stockholder, or any interest therein, except
as permitted by the Stockholders Agreement or pursuant to Articles 3 or 4 of
this Agreement or in compliance with the requirements of Section 5(b); provided,
however that any transfer of Additional Rollover Securities other than a
transfer pursuant to Articles 3 or 4 hereof shall be subject to Article 4 of the
Stockholders Agreement. Any attempt by an Additional Rollover Stockholder to
effect a transfer or disposition in violation of this
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<PAGE> 7
Agreement shall be void and ineffective for all purposes. The words "transfer"
and "dispose" mean the making of any sale, exchange, assignment, gift, security
interest, pledge or other encumbrance, or any contract therefor, any voting
trust or other agreement or arrangement with respect to the transfer or voting
rights or any other beneficial interests, the creation of any other claim
thereto or any other transfer or disposition whatsoever, whether voluntary or
involuntary, affecting the right, title, interest or possession in or to the
Additional Rollover Securities.
(b) Registration of Transfer by Company. No transfer of Additional
Rollover Securities by any Additional Rollover Stockholder prior to the Rollover
Termination Date shall be effective (and the Company shall not transfer on its
books any such Additional Rollover Securities) unless
(i) the transferee pledges the Additional Rollover
Securities to be acquired by it to secure the performance of its
obligations under Article 3 of this Agreement, pursuant to a Pledge
Agreement substantially in the form of the Pledge Agreements being
entered into on the date hereof;
(ii) the transferee (if not already a party hereto)
agrees in writing to be bound as an Additional Rollover Stockholder
by the terms and conditions of this Agreement pursuant to a Deed of
Adherence substantially in the form attached hereto as Exhibit A;
(iii) the transferee provides JFL with an opinion of
reputable counsel in form and substance reasonably satisfactory to
JFL as to the continued validity of the Proxy contained in Article
2;
(iv) the transferee agrees to be bound by the
Stockholders Agreement in accordance with the terms thereof; and
(v) such transfer complies with the other provisions of
this Agreement.
(c) Involuntary Transfer of Additional Rollover Securities. If an
Involuntary Transfer of any Additional Rollover Securities owned by any
Additional Rollover Stockholder shall occur prior to the Rollover Termination
Date, (i) JFL shall have the same rights as specified in this Agreement with
respect to such Additional Rollover Securities as if the transferee in such
Involuntary Transfer (and each of its transferees) were an Additional Rollover
Stockholder hereunder and (ii) such transferee in the Involuntary Transfer (and
each of its transferees) shall have none of the rights of an Additional Rollover
Stockholder under this Agreement unless and until it complies with the
provisions of Section 5(b).
6. CERTAIN CLOSING CONDITIONS. At the closing of any transfer or
disposition of Additional Rollover Securities pursuant to this Agreement, in
addition to any other conditions specifically set out herein concerning such
transfer or disposition, the transferor shall (i) deliver the certificates
representing the Additional Rollover Securities that are the subject of the
transfer, duly
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<PAGE> 8
endorsed for transfer and bearing any necessary tax stamps; (ii) by delivering
such certificates, be deemed to have represented and warranted that the
transferor has valid and marketable title to the Additional Rollover Securities
represented by such certificates free of all encumbrances and (iii) deliver such
certificates of authority, tax releases, consents to transfer and evidences of
title as may reasonably be required by the transferee. The transferor shall be
responsible for the payment of all transfer taxes unless otherwise specified.
7. LEGENDS. (a) In addition to any other legends required to be placed
thereon by the terms of any other agreement, each stock certificate representing
shares of Additional Rollover Securities now held or hereafter acquired by any
Stockholder shall bear the following additional legend:
IN ADDITION, THE SECURITIES EVIDENCED BY
THIS CERTIFICATE ARE SUBJECT TO AN
IRREVOCABLE VOTING PROXY GRANTED IN FAVOR
OF J.F. LEHMAN & COMPANY AND A CALL
RIGHT EXERCISABLE BY J.F. LEHMAN &
COMPANY AS MORE FULLY PROVIDED IN THE
ROLLOVER STOCKHOLDERS AGREEMENT, DATED AS
OF DECEMBER 15, AMONG THE COMPANY, J.F.
LEHMAN & COMPANY AND THE STOCKHOLDERS
THEREUNDER. A COPY OF SUCH AGREEMENT IS
ON FILE AT THE REGISTERED OFFICES OF THE
COMPANY.
(b) Legend. In the event that any Securities become free of the
rights and restrictions imposed by this Agreement, the Stockholders holding such
Securities shall be entitled to receive, promptly upon presentment to the
Company of the certificate or certificates evidencing the same, a new
certificate or certificates not bearing the restrictive legend provided for in
Section 7(a).
8. TERMINATION. (a) This Agreement shall terminate and be of no further
force and effect with respect to any Additional Rollover Securities transferred
pursuant to (i) the Purchase Right, (ii) a bona fide registered public offering,
or (iii) the exercise of a Tag-Along Right (as defined in the Stockholders
Agreement) if, after such transfer, the Additional Rollover Stockholder
exercising such Tag-Along Right no longer owns any Securities other than
Additional Rollover Securities.
(b) This Agreement shall terminate and be of no further force and
effect on the earlier of (i) the date that all of the Additional Rollover
Securities shall have been sold pursuant to the Purchase Right or the Put Right
and (ii) the date that is five days after the Additional Rollover Stockholders
receive notice of the Triggering Event; provided, however that Section 4(d)
shall
8
<PAGE> 9
survive the termination of this Agreement with respect to Additional Rollover
Securities that the Company is unable to purchase pursuant to the exercise of
the Put Right under Article 4.
9. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Additional
Rollover Stockholder represents and warrants to the other parties hereto that:
(a) Such Person has full power and authority, and has taken all
action necessary, to execute and deliver this Agreement and to fulfill his
obligations under, and consummate the transactions contemplated by, this
Agreement;
(b) The making and performance by such Person of this Agreement does
not and will not violate any law or regulation, or any agreement or other
instrument, applicable to such Person;
(c) The Additional Rollover Securities are owned by such Person free
and clear of any Lien, and are not subject to any shareholders' agreement or
other contractual restrictions binding on such Person (other than this Agreement
and the Stockholders Agreement);
(d) This Agreement has been duly executed and delivered by such
Person and constitutes the legal, valid and binding obligation of such Person,
enforceable against such Person in accordance with its terms, subject to the
effects of (i) bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally and (ii) general equitable principles (whether considered in a
proceeding in equity or at law);
(e) all approvals and authorizations of, all filings with and all
actions by any governmental or other administrative or judicial authority
necessary for the execution and delivery by such Person of this Agreement and
the validity or enforceability of the obligations of such Person under this
Agreement have been obtained; and
(f) Such Person has fully reviewed the terms of this Agreement and
has independently and without any reliance whatsoever upon any other party
hereto and based on such information as such Person has deemed appropriate, made
his or its own analysis and decision to enter into this Agreement.
10. MISCELLANEOUS PROVISIONS.
(a) Further Action. Each party hereto agrees to execute and deliver
any instrument and take any action that may reasonably be requested by any other
party for the purpose of effectuating the provisions of this Agreement.
(b) Incorporation of Schedule and Exhibits. The schedule and
exhibits attached hereto are incorporated into this Agreement and shall be
deemed a part hereof as if set forth herein in full. References herein to "this
Agreement" and the words "herein," "hereof" and words of similar import refer to
this Agreement (including its schedules and exhibits) as an entirety. In the
event of
9
<PAGE> 10
any conflict between the provisions of this Agreement and any such schedule or
exhibit, the provisions of this Agreement shall control.
(c) Assignment. Except as otherwise provided in this Section 10(c)
or in Article 3 hereof, no right under this Agreement shall be assignable and
any attempted assignment, in violation of this provision shall be void. The
Company shall have the right to assign its rights and obligations hereunder to
any successor entity (including any entity acquiring substantially all of the
assets of the Company), whereupon references herein to the Company shall be
deemed to be to such successor. Except as expressly otherwise provided herein,
this Agreement, and the rights and obligations of the parties hereunder, shall
be binding upon and inure to the benefit of any and all transferees of the
Additional Rollover Securities pursuant to transfers permitted under this
Agreement, in each case with the same force and effect as if such transferees
were named herein as parties hereto.
(d) Enforcement. The parties recognize that irreparable damage will
result in the event that this Agreement shall not be specifically performed.
Should any dispute arise concerning the disposition of any Additional Rollover
Securities hereunder, the parties hereto agree that an injunction may be issued
restraining such disposition pending determination of such controversy and that
no bond or other security may be required in connection therewith. Should any
dispute arise concerning the right or obligation of the Additional Rollover
Stockholders, JFL or the Company to purchase or sell any of the Additional
Rollover Securities subject hereto, such right or obligation shall be
enforceable by a decree of specific performance. Such remedies shall, however,
not be exclusive and shall be in addition to any other remedy which the parties
may have.
(e) Notices. Any notice or other communication required or which may
be given hereunder shall be in writing by hand delivery, registered or certified
first class mail, telecopier or air courier guaranteeing overnight delivery:
(i) if to the Company, to:
Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: The President
Fax: (805) 259-0753
with a courtesy copy to:
c/o J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
(ii) if to JFL, to:
10
<PAGE> 11
c/o J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
in either case, with a courtesy copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Neale M. Albert, Esq.
Paul D. Ginsberg, Esq.
Fax: (212) 757-3990
(iii) if to the Treinen Trust to:
c/o Thomas F. Treinen
Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Fax: (805) 259-0753
or if to the Neubauer Trust, to:
c/o Walter Neubauer
Ordnance Products, Inc.
21200 South Figueroa Street
Carson, California 90745
Fax: (310) 203-0567
in either case, with a courtesy copy to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars, tenth floor
Los Angeles, California 90067
Attention: Robert Goon, Esq.
Fax: (310) 203-0567
or at such other address, notice of which is given in accordance with the
provisions of this Section 10(e). All such notices shall be deemed to have been
duly given when delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
11
<PAGE> 12
(f) Applicable Law; Consent to Jurisdiction.
(i) This Agreement shall be governed by, and construed and
enforced in accordance with and subject to, the laws of the State of Delaware
applicable to agreements made and to be performed entirely within such State.
(ii) Each party to this Agreement agrees that all disputes
between them arising out of or relating to the relationship established between
them in connection with this Agreement, whether arising in contract, tort,
equity, or otherwise, shall be resolved only by federal courts located in New
York, New York, to the extent such courts have jurisdiction. Each of the parties
hereto waives any objection that each may have (including, without limitation,
any objection to the laying of venue or based on forum non conveniens) to the
location of the court in which any proceeding is commenced in accordance with
this paragraph. Each party hereto waives personal service of any process upon
him or it and irrevocably consents to service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage pre-paid, to such Person=s
address specified in this Agreement or such other address designated by such
Person in accordance with the terms of this Agreement.
(g) Amendment and Waiver
(i) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the parties
hereto at law, in equity or otherwise.
(ii) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party hereto from the terms of any provision
of this Agreement, shall be effective (i) only if it is made or given in writing
and signed by all of the parties hereto and (ii) only in the specific instance
and for the specific purpose for which made or given.
(h) Entire Agreement. This Agreement contains the entire agreement
among the parties hereto with respect to the transactions contemplated herein
and understandings among the parties relating to the subject matter hereof. Any
and all previous agreements and understandings between or among the parties
hereto regarding the subject matter hereof are, whether written or oral,
superseded by this Agreement; provided, however that (i) this Agreement shall
not be deemed to supersede the Stockholders Agreement and (ii) the execution of
this Agreement is not a waiver by any of the parties hereto of any of the terms
or provisions of the Stockholders Agreement.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
12
<PAGE> 13
(j) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
(k) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
13
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first set forth above.
SPECIAL DEVICES, INCORPORATED
By: /s/ John T. Vinke
-----------------------------
Name: John T. Vinke
Title: Chief Financial Officer
J.F. LEHMAN & CO.
By: /s/ Donald Glickman
-----------------------------
Name: Donald Glickman
Title: Partner
THE NEUBAUER FAMILY TRUST
By: /s/ Walter Neubauer
-----------------------------
Walter Neubauer
Trustee
THE TREINEN FAMILY TRUST
By: /s/ Thomas F. Treinen
--------------------------
Thomas F. Treinen
Trustee
14
<PAGE> 15
SCHEDULE 1
Additional Rollover Shares
EXISTING STOCKHOLDER NUMBER OF SHARES CERTIFICATE NUMBER(S)
- -------------------- ---------------- ---------------------
Walter Neubauer 367,647
Thomas Treinen 367,647
15
<PAGE> 16
EXHIBIT A
DEED OF ADHERENCE
THIS DEED OF ADHERENCE is made the __________ day of _________
AMONG:
(1) Special Devices, Incorporated, a Delaware corporation (the "Company");
(2) J.F. Lehman & Company, a [ ] ("JFL"); and
(3) [Name of New Stockholder] (the "New Stockholder").
WHEREAS:
(A) On the 15th day of December 1998, the Company, JFL, the Neubauer Family
Trust, by Walter Neubauer trustee, and the Treinen Family Trust, by Thomas
F. Treinen trustee, entered into a Rollover Stockholders Agreement (the
"Agreement") to which a form of this Deed is attached as Exhibit A.
(B) The New Stockholder wishes to [have transferred to him/her/it] [______]
shares of Common Stock of the Company, par value $0.01 per share [or
insert name of other Security] (the "Shares") which constitute Additional
Rollover Securities from [Name of Old Stockholder] (the "Old Stockholder")
and in accordance with Article 5 of the Agreement has agreed to enter into
this Deed.
(C) The Company enters this Deed on behalf of itself and as agent for all the
Additional Rollover Stockholders of the Company.
NOW THIS DEED WITNESSES as follows:
1. Interpretation.
In this Deed, except as the context may otherwise require, all capitalized
terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
2. Covenant.
The New Stockholder hereby covenants with (i) JFL and (ii) the Company in
its own capacity and as trustee for all other persons who are at present
bound by the Agreement as Additional Rollover Stockholders or who may
hereafter become bound by the Agreement as Additional Rollover
Stockholders, to adhere to and be bound by all the duties, burdens and
obligations of an Additional Rollover Stockholder under the Agreement and
all documents
1
<PAGE> 17
expressed in writing to be supplemental or ancillary thereto as if the New
Stockholder had been an Additional Rollover Stockholder under the
Agreement since the date thereof.
3. Enforceability.
Each other Additional Rollover Stockholder, JFL and the Company shall be
entitled to enforce the Agreement against the New Stockholder, and the New
Stockholder shall be entitled to all rights and benefits of the Old
Stockholder (other than those that are non-assignable) under the Agreement
in each case as if the New Stockholder had been an Additional Rollover
Stockholder under the Agreement since the date thereof.
4. Governing Law.
THIS DEED OF ADHERENCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
IN WITNESS WHEREOF, this Deed of Adherence has been executed as a
deed on the date first above written.
SPECIAL DEVICES, INCORPORATED
By: _________________________
Name:
Title:
J.F. LEHMAN & COMPANY
By: _________________________
Name:
Title:
[Name of New Stockholder]
By:______________________________
Name:
Title:
2
<PAGE> 1
EXHIBIT 10.14
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of December 15, 1998 (this
"Agreement"), between the Thomas Treinen Family Trust, by Thomas F. Treinen,
trustee (the "Pledgor") and J. F. Lehman & Company (the "Pledgee").
On June 19, 1998, Special Devices, Incorporated, a Delaware
corporation (the "Company"), entered into an Agreement and Plan of Merger (as
amended and restated and in effect from time to time, the "Merger Agreement")
with SDI Acquisition Corp. a Delaware corporation ("Acquisition"). The Merger
Agreement, which was amended and restated as of August 17, 1998, provided for
the merger of Acquisition with and into the Company and the conversion of each
outstanding share of common stock, par value $0.01 per share, of the Company
(the "Common Stock"), into the right to receive $37.00 in cash payable to the
holder thereof other than certain of the shares held by Messrs. Treinen and
Neubauer.
On October 27, 1998, the Merger Agreement was further amended (i) to
reduce the cash consideration payable in respect of the shares of Common Stock
from $37.00 to $34.00 per share, (ii) to provide for the rollover of 735,294
additional shares of Common Stock held by Messrs. Treinen and Neubauer (the
"Additional Rollover Shares") and (iii) to extend the Termination Date under the
Merger Agreement to the second business day after approval of such amendment by
the stockholders of the Company.
On October 19, 1998, in connection with the foregoing proposed
amendments to the Merger Agreement, the Company, Acquisition and the Pledgee
entered into a letter agreement (the "Letter Agreement") with Messrs. Treinen
and Neubauer setting forth in principle certain agreements among them.
Concurrently with the execution and delivery of this Agreement, the
Treinen Family Trust and the Neubauer Family Trust are entering into a Rollover
Stockholders Agreement with Pledgee and the Company (the "Stockholders
Agreement") setting forth, among other things, certain rights and obligations of
the parties with respect to the Additional Rollover Shares outlined in the
Letter Agreement. In order to induce the Pledgee to enter into the Stockholders
Agreement, Pledgor is entering into this Agreement with Pledgee.
<PAGE> 2
2
NOW, THEREFORE, in consideration of the receipt of the sum of $1.00
and the mutual premises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor and the Pledgee hereby agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in the
Stockholders Agreement. The term "Transfer" as used herein shall have the
meaning ascribed to it in Section 5(a) of the Stockholders Agreement.
2. Pledge. The Pledgor hereby pledges and grants to the Pledgee, for
its benefit, a first priority, perfected security interest in the following,
whether now existing or hereafter arising (collectively, the "Pledged
Collateral"):
(a) The Additional Rollover Shares now owned by Pledgor and
the certificate no. ___ representing such shares (all of such shares are
referred to herein as the "Pledged Stock"), and stock powers in the form
attached hereto as Exhibit A (the "Powers"), duly executed in blank, and, except
as provided in Section 9, all dividends, instruments, securities and other
property and distributions from time to time received, receivable or otherwise
distributed in respect of, or in exchange for, any or all of the Pledged Stock;
and
(b) All proceeds of any or all of the foregoing of any kind or
description (subject to Section 10 hereof).
3. Security for Liabilities. The Pledged Collateral secures the
prompt performance and observance of each of the Pledgor's obligations and
liabilities arising under or out of Section 3(a) of the Stockholders Agreement
(together with the related definitions and ancillary provisions) and this
Agreement (all such obligations and liabilities of the Pledgor now existing or
hereafter arising being hereinafter referred to as the "Liabilities").
4. Pledged Collateral Adjustments. If, during the term of this
Agreement:
(a) any stock dividend, reclassification, readjustment or
other change is declared or made in the capital structure of the Company with
respect to the Pledged Collateral; or
(b) any subscription warrants or any other rights or options
shall be issued in connection with the Pledged Collateral,
then all new, substituted and additional shares, warrants, rights, options or
other securities issued by reason of any of the foregoing shall be immediately
delivered to and held by the
<PAGE> 3
3
Pledgee under the terms of this Agreement and shall constitute additional
Pledged Collateral hereunder.
5. Subsequent Changes Affecting Pledged Collateral. The Pledgor
represents and warrants that he has made his own arrangements for keeping
himself informed of changes or potential changes affecting the Pledged
Collateral (including, without limitation, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and the Pledgor agrees that the Pledgee shall not
have any obligation to inform the Pledgor of any such changes or potential
changes or to take any action or omit to take any action with respect thereto.
In addition to, and not in limitation of, the rights of the Pledgee under the
Stockholders Agreement, the Pledgee may, after the failure of the Pledgor to
comply strictly with the terms of Section 3(a) of the Stockholders Agreement (an
"Event of Default"), without notice and at its option, transfer or register the
Pledged Collateral or any part thereof into its or its nominee's name with or
without any indication that such Pledged Collateral is subject to the security
interest hereunder; provided, however, that nothing herein shall serve to modify
Pledgor's obligation to pay the Call Price as required by the Stockholders
Agreement for any Pledge Collateral so transferred or registered. In addition,
the Pledgee may at any time exchange certificates or instruments representing or
evidencing Pledged Stock for certificates or instruments of smaller or larger
denominations.
6. Delivery of Pledged Collateral. Concurrently with the execution
and delivery of this Agreement, the Pledgor shall deliver to the Pledgee all
certificates representing the Pledged Stock and such certificates shall be
accompanied by the Powers, with signature appropriately guaranteed, and
accompanied by any required transfer tax stamps, all in form and substance
satisfactory to the Pledgee.
7. Representations and Warranties. The Pledgor represents and
warrants to the Pledgee as follows:
(a) The Pledgor is the sole record and beneficial owner of the
Pledged Stock, free and clear of all claims, pledges, liens, encumbrances,
charges and security interests of every nature whatsoever (collectively,
"Liens"), except Liens created by this Agreement, and has good and marketable
title to the Pledged Stock.
(b) The Pledgor has the capacity to enter into this Agreement.
(c) All of the Pledged Stock owned by the Pledgor has been
duly authorized and validly issued, is fully paid and nonassessable, and is not
subject to any options, warrants or rights of any other Person (other than in
connection with the Stockholders Agreement). The Pledgor is not and will not
become a party to or otherwise bound by any agreement, other than this Agreement
and the Stockholders Agreement,
<PAGE> 4
4
which restricts in any manner the rights of any present or future holder of any
of the Pledged Stock with respect thereto.
(d) Except for the irrevocable voting proxy granted to Pledgee
in the Stockholders Agreement and the restrictions, if any, contained in that
certain Stockholders Agreement, of even date herewith, by and among Pledgor,
Pledgee, the Company and certain other Stockholders of the Company, there are no
restrictions upon the voting rights associated with the Pledged Stock owned by
the Pledgor or upon the transfer of any of the Pledged Collateral owned by the
Pledgor, and the Pledgor has full right and authority to vote the Pledged Stock
owned by such Pledgor, subject to the irrevocable voting proxy granted to
Pledgee contained in the Stockholders Agreement and the restrictions, if any,
contained in that certain Stockholders Agreement, of even date herewith, by and
among Pledgor, Pledgee, the Company and certain other Stockholders of the
Company, and to pledge and grant to the Pledgee a security interest in or
otherwise transfer, subject to federal and state securities laws, the Pledged
Collateral free of any Liens.
(e) None of the Pledged Stock has been issued or transferred
in violation of the securities laws of the United States of America or any State
to which such issuance or transfer may be subject.
(f) This Agreement has been duly executed and delivered by the
Pledgor and constitutes the legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(g) No approval, consent, authorization, or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required either for the pledge of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by the
Pledgor.
(h) This Agreement is effective to create in favor of the
Pledgee, for the benefit of the Pledgee, a legal, valid and enforceable security
interest in the Pledged Collateral, and the delivery by the Pledgor of a
certificate or certificates representing the Pledged Stock to the Pledgee
pursuant to Section 6 hereof, will create in favor of the Pledgee, for the
benefit of the Pledgee, a valid and perfected first priority security interest
in the Pledged Collateral securing the performance of the Liabilities.
(i) The Powers have been duly executed and, when delivered to
the Pledgee, will give the Pledgee the authority they purport to confer.
<PAGE> 5
5
8. Voting Rights. Under the Stockholders Agreement, Pledgor has
granted to Pledgee an irrevocable voting proxy to vote the Pledged Stock as set
forth in the Stockholders Agreement.
9. Dividends and Other Distributions.
(a) So long as there shall exist no condition, event or act
which constitutes an Event of Default or which with notice or lapse of time or
both would constitute an Event of Default:
(i) The Pledgor shall be entitled to receive and any and
all dividends or interest paid in respect of the Pledged Collateral; provided,
however, that any and all:
(x) dividends paid or payable other than in cash
with respect to, and instruments and other property received, receivable
or otherwise distributed with respect to, or in exchange for, any of the
Pledged Collateral;
(y) dividends and other distributions paid or
payable in cash with respect to any of the Pledged Collateral on account
of a partial or total liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in surplus; and
(z) cash paid, payable or otherwise distributed
with respect to principal of, or in redemption of, or in exchange for, any
of the Pledged Collateral; provided, however, that in the case of a
redemption or exchange of shares for cash, Pledgee shall only be entitled
to receive the portion, if any, of the cash paid that exceeds the Call
Price for the shares so redeemed or exchanged.
shall be Pledged Collateral, and shall be forthwith delivered to the Pledgee to
hold for the benefit of the Pledgee as Pledged Collateral and shall, if received
by the Pledgor, be held in trust for the benefit of the Pledgee as Pledged
Collateral and shall be segregated from the other property or funds of the
Pledgor, and shall be delivered immediately to the Pledgee as Pledged Collateral
in the same form as so received (with any necessary endorsement).
(ii) The Pledgee shall execute and deliver (or cause
to be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of enabling
the Pledgor to receive the dividends or interest payments that it is authorized
to receive and retain pursuant to clause (i) above.
<PAGE> 6
6
(b) After the occurrence of an Event of Default and subject to
Pledgee's payment of the Call Price pursuant to the requirements of Section 3 of
the Stockholders Agreement:
(i) All rights of the Pledgor to receive the
dividends that it would otherwise be authorized to receive and retain pursuant
to Section 9(a)(i) hereof shall cease, and all such rights shall thereupon
become vested in the Pledgee, for the benefit of the Pledgee, which shall
thereupon have the sole right to receive and retain as Pledged Collateral such
dividends and interest payments; and
(ii) All dividends that are received by the Pledgor
contrary to the provisions of clause (i) of this Section 9(b) shall be held in
trust for the benefit of the Pledgee, shall be segregated from other funds of
the Pledgor and shall be delivered immediately to the Pledgee as Pledged
Collateral in the same form as so received (with any necessary endorsements).
10. Defense of Title, Transfers and Other Liens. Until the
performance in full of the Liabilities, the Pledgor shall defend the Pledgee's
title to and security interest in the Pledged Collateral against the claims of
all Persons, and the Pledgor shall not without complying with Section 3 of the
Stockholders Agreement (a) sell, assign, transfer, pledge or otherwise dispose
of or encumber, or grant any option with respect to, any of the Pledged
Collateral or any unpaid dividends or other distributions with respect thereto
to which the Pledgee is entitled pursuant to Section 9 hereof, or (b) create or
permit to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement. Notwithstanding the
foregoing, so long as no Event of Default has occurred, the Pledgor may Transfer
all or any of the Pledged Collateral in accordance with the Stockholders
Agreement, provided that the purchaser or transferee, as the case may be, (i)
acknowledges that the Pledged Collateral is subject to the terms of this
Agreement and (ii) executes an assumption of the obligations of such Pledgor
under this Agreement in form and substance reasonably acceptable to the Pledgee.
If such a sale or transfer is made in accordance with this Section 10, the
Pledgee shall permit the Pledged Collateral to be registered initially in the
name of the purchaser or transferee, as the case may be, and the proceeds from
such sale shall be released from the Lien hereunder and delivered to Pledgor;
provided that, the Pledged Collateral is immediately redeposited with the
Pledgee.
11. Rights and Remedies.
If the Purchase Right is exercised under Section 3(a) of the
Stockholders Agreement, the Pledgee shall have the right to transfer to itself
or such other Purchaser record and beneficial ownership of all or any portion of
the Pledged Collateral in exchange for payment by Pledgee or such other
Purchaser of the Call Price therefor in accordance with Section 3(a) of the
Stockholders Agreement. In addition, upon the occurrence of an Event of Default,
Pledgee also shall have all of the applicable rights and
<PAGE> 7
7
remedies with respect to the Pledged Collateral of a secured party under the
Uniform Commercial Code as in effect in the State of New York. The Pledgor
agrees to pay to the Pledgee all reasonable expenses (including, without
limitation, court costs and reasonable attorneys' fees and expenses) of, or
incident to, the enforcement of any of the provisions of this Agreement and such
expenses shall constitute Liabilities hereunder.
12. Security Interest Absolute. All rights of the Pledgee and
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of (a) any change in any manner
of any term of all or any part of the Liabilities, and (b) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Liabilities or of this Agreement.
13. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee as his attorney-in-fact, which appointment is
irrevocable and coupled with an interest, with full authority, in the name of
such Pledgor or otherwise, after the occurrence of an uncured Event of Default,
from time to time in the Pledgee's reasonable discretion, to take any action and
to execute any instrument that the Pledgee may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, to
take the following actions with respect to the Pledged Collateral:
(a) to receive, endorse and collect all instruments made
payable to the Pledgor representing any dividend or other distribution in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same;
(b) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due thereon or by virtue thereof;
(c) to settle, compromise, combine, prosecute or defend any
action or proceeding with respect thereto; and
(d) to sell, transfer, assign or otherwise deal in or with the
same or the proceeds thereof, as fully and effectually as if the Pledgee were
the absolute owner thereof; provided, however, that nothing in this Section 13
shall eliminate or modify Pledgee's obligation to pay the Call Price pursuant to
Section 3 of the Stockholders Agreement.
14. Waivers.
(a) The Pledgor hereby agrees that his obligations under this
Agreement shall be unconditional, irrespective of: (i) the validity or
enforceability, avoidance or subordination of the Liabilities; (ii) the absence
of any attempt by, or on behalf
<PAGE> 8
8
of, the Pledgee to collect, or take any other action to enforce, all or any part
of the Liabilities; (iii) the election of any remedy by, or on behalf of, the
Pledgee with respect to all or any part of the Liabilities; (iv) the failure of
the Pledgee to take any steps to perfect and maintain its security interests in,
or to the preserve its right to any of the Pledged Collateral for all or any
part of the Liabilities; or (v) any other circumstance that might otherwise
constitute a legal or equitable discharge or defense of the Pledgor.
(b) The Pledgor hereby waives any requirement of diligence,
presentment, demand of payment, protest or notice with respect to all or any
part of the Liabilities, the benefit of any statutes of limitation, and all
demands whatsoever, and covenants that this Agreement will not be discharged,
except by complete performance of the Liabilities, unless prior to such complete
performance, by an order or decree a court of competent jurisdiction states that
this Agreement is discharged.
(c) The Pledgor consents and agrees that neither the Pledgee
nor any party acting for or on behalf of the Pledgee shall be under any
obligation to marshal any assets in favor of the Pledgor or against or
satisfaction of all or any part of the Liabilities.
15. Term. This Agreement shall remain in full force and effect until
the Liabilities have been performed in full. Upon the termination of this
Agreement as provided above (other than as a result of the transfer of the
Pledged Collateral to Pledgee as provided in Section 11 or the sale of all of
the Pledged Collateral), all rights to the Pledged Collateral shall revert to
the Pledgor and the Pledgee shall (a) release the security interest created
hereunder, (b) promptly execute and deliver to the Pledgor a proper instrument
or instruments acknowledging the release and discharge of the security interest
created hereby and (c) assign, transfer and deliver to the Pledgor, at the
Pledgee's expense, the Pledged Collateral and the Powers then in the possession
of the Pledgee, together with any moneys at the time held by the Pledgee
hereunder.
16. Waiver of Bond. The Pledgor waives the posting of any bond
otherwise required of the Pledgee in connection with any judicial process or
proceeding to realize on the Pledged Collateral or any other security for the
Liabilities, to enforce any judgment or other court order entered in favor of
the Pledgee, or to enforce by specific performance, temporary restraining order,
or preliminary or permanent injunction, this Agreement.
17. Pledgee's Duty of Care. The Pledgee shall not be liable for any
acts, omissions, errors of judgment or mistakes of fact or law including,
without limitation, acts, omissions, errors or mistakes with respect to the
Pledged Collateral, except for those arising out of or in connection with the
Pledgee's (a) gross negligence or willful misconduct or (b) failure to exercise
reasonable care with respect to the safe custody and preservation of the Pledged
Collateral in the Pledgee's possession; provided, however, that the Pledgee
shall be deemed to have exercised reasonable care in the
<PAGE> 9
9
custody and preservation of the Pledged Collateral in the Pledgee's possession
if the Pledged Collateral is accorded treatment substantially equal to that
which it accords its own securities and property. Without limiting the
generality of the foregoing, the Pledgee shall be under no obligation to take
any steps necessary to preserve rights in the Pledged Collateral against any
other parties but may do so at its option. All expenses incurred in connection
therewith shall be for the sole account of the Pledgor, and shall constitute
part of the Liabilities secured hereby.
18. Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, pre-paid
overnight delivery service, or personal delivery:
(a) if to the Pledgor:
Mr. Thomas F. Treinen
c/o Ordnance Products Inc.
21200 S. Figueroa Street
Carson, California 90745
Telecopy: 310-618-3738
with a copy to:
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars
Tenth Floor
Los Angeles, California 90067
Telecopy: 310-203-0567
Attention: Robert H. Goon, Esq.
(b) if to the Pledgee:
J.F. Lehman & Company
450 Park Avenue
New York, New York 10022
Telecopy: (212) 634-1155
Attention: Mr. Keith Oster
with a copy to:
<PAGE> 10
10
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Paul D. Ginsberg, Esq.
(c) or such other address and to the attention of such other
person as any party hereto may designate by written
notice to the other in accordance with the terms of this
Section 18.
All such notices and communications shall be deemed to have been duly given when
delivered by hand, if personally delivered; on the business day following
deposit with the overnight delivery service, if delivered by overnight delivery
service; five (5) [business] days after being deposited in the mail, postage
prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied.
19. Amendments, Waivers and Consents. No amendment or waiver of any
provision of this Agreement nor consent to any departure by any party herefrom,
shall in any event be effective unless the same shall be in writing and signed
by all of the parties, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
20. Severability. In the event that any provision of this Agreement
shall be declared to be invalid, illegal or unenforceable, such provision shall
survive to the extent it is not so declared, and the validity, legality and
enforceability of the other provisions hereof shall not in any way be affected
or impaired thereby, unless such action would substantially impair the benefits
to either party of the remaining provisions of this Agreement.
21. Entire Agreement. This Agreement, together with the exhibits
hereto, and the Stockholders Agreement, are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement, together with
the exhibits hereto, and the Stockholders Agreement, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
22. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meanings hereof.
23. Variations in Pronouns. All pronouns and any variations thereof
refer to masculine, feminine or neuter, singular or plural, as the context may
require.
<PAGE> 11
11
24. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
25. Consent to Jurisdiction; Counterclaims; Forum Non Conveniens.
(a) Exclusive Jurisdiction. Except as provided in subsection
(b) of this Section 25, the Pledgor and the Pledgee agree that all disputes
between them arising out of or related to the relationship established between
them in connection with this Agreement, whether arising in contract, tort,
equity, or otherwise, shall be resolved only by federal courts located in New
York, New York to the extent such courts have jurisdiction.
(b) Other Jurisdictions. The Pledgee shall have the right to
proceed against the Pledgor or his real or personal property in a court in any
location to enable the Pledgee to obtain personal jurisdiction over the Pledgor,
to realize on the Pledged Collateral or any other security for the Liabilities
or to enforce a judgment or other court order entered in favor of the Pledgee.
The Pledgor shall not assert any permissive counterclaims in any proceeding
brought by the Pledgee arising out of or relating to this Agreement.
(c) Venue; Forum Non Conveniens. Each of the Pledgor and the
Pledgee waives any objection that each may have (including, without limitation,
any objection to the laying of venue or based on forum non conveniens) to the
location of the court in which any proceeding is commenced in accordance with
this Section 25.
26. Service of Process. The Pledgor waives personal service of any
process upon him and, as security for the Liabilities, irrevocably consents to
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Pledgor's address specified in Section 18 or such other
address designated by the Pledgor if the Pledgor has designated such other
address by written notice to the Pledgee in accordance with the terms of Section
18(c).
27. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE PLEDGEE WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, BETWEEN THE PLEDGOR AND THE PLEDGEE ARISING OUT OF OR RELATED TO
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EITHER THE
PLEDGOR OR THE PLEDGEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
<PAGE> 12
12
28. Advice of Counsel. The Pledgor represents and warrants to the
Pledgee that he has discussed this Agreement and, specifically, the provisions
of Sections 25 through 27 hereof, with the Pledgor's lawyers.
29. Further Assurances. The Pledgor agrees that, from time to time,
upon written request of the Pledgee, the Pledgor shall promptly execute and
deliver such further documents and do such other acts and things as the Pledgee
may from time to time reasonably request to enable the Pledgee to enforce its
rights hereunder with respect to the Pledged Collateral and in order to fully
effectuate the purposes of this Agreement.
30. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Pledgee and the Pledgor and their respective heirs,
executors, personal representatives, successors and assigns; provided, however,
that the Pledgor may not assign this Agreement or any of the rights and
obligations of the Pledgor hereunder without the prior written consent of the
Pledgee.
31. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same agreement.
<PAGE> 13
13
IN WITNESS WHEREOF, the Pledgor and the Pledgee have executed this
Agreement as of the date set forth above.
PLEDGOR:
THE TREINEN FAMILY TRUST
By:_____________________________________
Thomas Treinen
Trustee
PLEDGEE:
J.F. LEHMAN & COMPANY
By:_____________________________________
Name:
Title:
<PAGE> 14
Exhibit A
Form of Stock Power
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to ______________________________ _____ shares, par value $.01 per
share (the "Stock"), of Common Stock of SPECIAL DEVICES INCORPORATED, a Delaware
corporation (the "Corporation"), represented by Certificate No. __, standing in
the name of the undersigned on the books of the Corporation and does hereby
irrevocably constitute and appoint _______________________ as the undersigned's
true and lawful attorney, for it and in its name and stead, to sell, assign and
transfer all or any of the Stock, and for that purpose to make and execute all
necessary acts of assignment and transfer thereof; and to substitute one or more
persons with like full power, hereby ratifying and confirming all that said
attorney or substitute or substitutes shall lawfully do by virtue hereof.
Dated: ________________
THE TREINEN FAMILY TRUST
By:_____________________________
Thomas F. Treinen
Trustee
<PAGE> 1
EXHIBIT 10.15
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of December 15, 1998
(this "Agreement"), by and among Special Devices, Incorporated, a Delaware
corporation (the "Company"), J.F. Lehman Equity Investors I, L.P. ("JFLEI"), JFL
Co-Invest Partners I, L.P. ("JFLCP"), Paribas Principal Inc., a New York
corporation (together with its affiliates, "Paribas"), the Neubauer Family
Trust, by Walter Neubauer trustee (the "Neubauer Trust"), and the Treinen Family
Trust, by Thomas F. Treinen trustee (the "Treinen Trust"). Paribas, JFLEI,
JFLCP, the Neubauer Trust and the Treinen Trust are hereinafter sometimes
referred to collectively as the "Stockholders" and individually as a
"Stockholder."
WHEREAS, the Board of Directors of the Company has effected a
recapitalization of the Company pursuant to which, among other things, SDI
Acquisition Corp., a Delaware corporation ("Acquisition") has merged with and
into the Company, with the Company surviving such merger (the "Merger"),
pursuant to which the Company assumed the liabilities and obligations of
Acquisition;
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Company and the Stockholders that, in
connection with the Merger, the Company provide the registration rights set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, the following
terms shall have the following meanings below:
"Common Stock" means the common stock of the Company, $.01 par
value per share, upon consummation of the Merger.
"Person" means an individual, corporation, unincorporated
association, partnership, group (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934), trust, joint stock company, joint
venture, business trust or unincorporated organization, any
governmental entity or any other entity of whatever nature.
"Registrable Shares" means any shares of Common Stock which
may be (i) held from time to time by the Stockholders or (ii) issued or
distributed in respect of the Common Stock referred to in clause (i)
above by way of stock dividend or stock split or other distribution,
recapitalization or reclassification. As to any particular Registrable
Share, such Registrable Share shall cease to be a Registrable Share
when (1) it shall have been sold, transferred or otherwise disposed of
or exchanged pursuant to a registration statement under the Securities
Act or (ii) it shall have been distributed to the public pursuant to
Rule 144 (or any successor provision) under the Securities Act;
provided that prior to the earlier of the Rollover Termination Date and
the date of the Triggering Event
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(as defined in the Rollover Stockholders Agreement), Registrable Shares
shall not include any Additional Rollover Shares (as defined in the
Rollover Stockholders Agreement) held by any holder other than J.F.
Lehman & Co. or its transferees or designees.
"SEC" has the meaning assigned to such term in Section
5(a)(i).
"Rollover Stockholders Agreement" means the Rollover
Stockholders Agreement, dated as of December 15, 1998, among the
Company, J.F. Lehman & Co., the Neubauer Trust and the Treinen Trust.
"Subscription Agreement" means the Subscription Agreement
dated as of September 7, 1998 and amended as of December 3, 1998 and as
of December 15, 1998, among the Company, Paribas, J.F. Lehman Equity
Investors I, L.P. and JFL Co-Invest Partners I, L.P.
2. Incidental Registrations
(a) Right to Include Registrable Shares. After the
completion of the initial public offering by the Company of its Common Stock,
each time the Company shall determine to file a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of Common
Stock (other than debt securities which are convertible into Common Stock and
other than registration statements on Form S-4 or S-8) either by it or by any
holders of its outstanding equity securities, the Company shall give prompt
written notice of its determination to each Stockholder and of such
Stockholder's rights under this Article 2. Upon the written request of each
Stockholder made within 15 days after the receipt of any such notice from the
Company, (which request shall specify the Registrable Shares intended to be
disposed of by such Stockholder), the Company shall, subject to Section 2(b),
use its best efforts to effect the registration under the Securities Act of all
Registrable Shares which the Company has been so requested to register by the
Stockholders thereof, to the extent required to permit the disposition of the
Registrable Shares so to be registered; provided, however, that (i) if, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
proceed with the proposed registration of the securities to be sold by it, the
Company may, at its election, give written notice of such determination to each
Stockholder of Registrable Shares and thereupon shall be relieved of its
obligation to register any Registrable Shares in connection with such
registration (but not from its obligation to pay the Registration Expenses (as
defined in Section 8(b)) in connection therewith) and (ii) if such registration
involves an underwritten offering, all Stockholders of Registrable Shares
requesting to be included in the Company's registration must sell their
Registrable Shares to the underwriters on the same terms and conditions as apply
to the Company, with such differences, including any with respect to
indemnification, as may be customary or appropriate in combined primary and
secondary offerings (provided that no Stockholder shall be required to provide
indemnification which is more expansive than the indemnification provided in
Section 9(b) hereof and provided, further, that the representations and
warranties provided by any Stockholder shall be limited to such matters as the
authority of such Stockholder to sell its Registrable Shares, its title thereto
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<PAGE> 3
and the absence of liens thereon). If a registration requested pursuant to this
Section 2(a) involves an underwritten public offering, any Stockholder of
Registrable Shares requesting to be included in such registration may elect in
writing prior to the effective date of the registration statement filed in
connection with such registration, not to register such securities in connection
with such registration. No registration effected under this Article 2 shall
relieve the Company of its obligations to effect any registration upon request
under Article 4 hereof.
(b) Priority in Incidental Registrations. If a
registration pursuant to this Article 2 involves an underwritten offering and
the managing underwriter in good faith advises the Company in writing that, in
its opinion, the number or type of securities which the Company, the
Stockholders and any other Persons intend to include in such registration
exceeds the largest number of securities which can be sold in such offering
without having a material adverse effect on such offering (including the price
at which such securities can be sold), then the Company shall include in such
registration: (i) first, 100% of the securities the Company proposes to sell for
its own account; and (ii) second, such number of Registrable Shares which the
Stockholders have requested to be included in such registration which, in the
opinion of such managing underwriter, can be sold without having the adverse
effect referred to above, such number of Registrable Shares to be included on a
pro rata basis among all requesting Stockholders on the basis of the relative
number of shares of Common Stock requested to be included in such registration
by such Stockholders; and (iii) third, to the extent that the number of
securities which are to be included in such registration pursuant to clauses (i)
and (ii), in the aggregate, is less than the number of securities which the
Company has been advised can be sold in such offering without having the adverse
effect referred to above, such number of other securities requested to be
included in the offering for the account of any other Persons which, in the
opinion of such managing underwriter, can be sold without having the adverse
effect referred to above, such number to be allocated pro rata among all holders
of such other securities on the basis of the relative number of such other
securities each other person has requested to be included in such registration.
3. Holdback Agreements. If any registration of Registrable
Shares shall be effected in connection with an underwritten public offering, the
Stockholders agree not to effect any public sale or distribution without the
consent of the managing underwriter (except in connection with such public
offering), of any equity securities of the Company, or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (in each case, other than as part of such underwritten public offering),
during the 90-day period, or, in connection with an initial public offering, the
120-day period (or such lesser periods as the managing underwriter may permit)
beginning on the effective date of such registration, if, and to the extent, the
managing underwriter of any such offering determines such action is necessary or
desirable to effect such offering and if and to the extent that each director
and executive officer of the Company so agrees; provided, however, that each
Stockholder has received the written notice required by Section 2(a) hereof
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<PAGE> 4
4. Registration on Demand.
(a) Demand by Stockholders. At any time on or after
the one hundred and eighty-first (181st) day after completion of the initial
public offering by the Company of its Common Stock, upon the written request by
(i) JFLEI or JFLCP, (ii) Paribas, (iii) the Neubauer Trust or (iv) the Treinen
Trust, that the Company effect the registration under the Securities Act of all
or part of the Registrable Shares of such requesting party, and specifying the
amount and intended method of disposition thereof, the Company shall promptly
give notice of such requested registration to all other Stockholders and, as
expeditiously as possible, use its best efforts to effect the registration under
the Securities Act of: (i) the Registrable Shares which the Company has been so
requested to register; and (ii) all other Registrable Shares which the Company
has been requested to register by any other Stockholder by written request
received by the Company within 15 days after the giving of such written notice
by the Company (which request shall specify the intended method of disposition
of such Registrable Shares); provided, however, that the Company shall not be
required to effect such registration unless the Registrable Shares requested to
be so registered have an aggregate proposed offering price of not less than
$5,000,000; provided, further, however, that the Company shall not be required
to effect more than (i) two registrations requested by JFLEI or JFLCP, (ii) two
registrations requested by Paribas, (iii) one registration requested by the
Neubauer Trust and (iv) one registration requested by the Treinen Trust,
pursuant to this Section 4(a) unless (X) all of the Registrable Shares that the
Stockholders initially requesting registration pursuant to this Section 4(a)
requested to be registered are not included in such registration statement or
(Y) the Company is eligible to file on Form S-3, in which case the Stockholders
shall be entitled to request an unlimited number of registrations pursuant to
this Section 4(a) except that the Company shall not be required to effect such
registration pursuant to this clause (Y) unless the Registrable Shares requested
to be so registered have an aggregate proposed offering price of not less than
$5,000,000 and no other registration statement on Form S-3 has been filed by the
Company and been declared effective within the previous twelve months. Promptly
after the expiration of the 15-day period referred to in clause (ii) above, the
Company shall notify all Stockholders to be included in the registration of the
other Stockholders participating in such registration and the number of
Registrable Shares requested to be included therein. The Stockholders initially
requesting a registration pursuant to this Section 4(a) may, at any time prior
to the effective date of the registration statement relating to such
registration, revoke such request by providing a written notice to the Company
revoking such request, provided, however, that if such revocation occurs after
the date of the filing of such registration statement, then the Registration
Expenses incurred by the Company in connection with the revoked request shall be
payable by the Stockholders participating in such demand registration.
(b) Effective Registration Statement. A registration
requested pursuant to this Article 4 shall not be deemed to have been effected
unless it has become effective under the Securities Act and has remained
effective for 180 days or such shorter period as all the Registrable Shares
included in such registration have actually been sold thereunder.
(c) Priority in Demand Registrations. If a demand
registration pursuant to this Section 4 involves an underwritten offering and
the managing underwriter in good faith advises the Company in writing that, in
its opinion, the number of securities requested to be
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<PAGE> 5
included in such registration (including securities of the Company which are not
Registrable Shares) exceeds the largest number of securities which can be sold
in such offering without having an adverse effect on such offering (including
the price, acceptable to the Stockholders requesting such registration, at which
such securities can be sold), then the Company will include in such registration
(i) first, 100% of the Registrable Shares requested to be registered pursuant to
Section 4(a) (provided that (x) if the number of Registrable Shares requested to
be registered pursuant to Section 4(a) (other than in a registration requested
by Paribas pursuant to the Subscription Agreement (a "Paribas Registration"))
exceeds the number which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, the number of such
Registrable Shares to be included in such registration by the Stockholders shall
be allocated pro rata among such Stockholders on the basis of the relative
number of Registrable Shares each Stockholder has requested to be included in
such registration and (y) if the number of Registrable Shares requested to be
registered pursuant to a Paribas Registration exceeds the number which the
Company has been advised can be sold in such offering without having the adverse
effect referred to above, the number of Registrable Shares to be included in
such registration by the Stockholders shall be allocated (1) first as to Paribas
and (2) second, pro rata among such Stockholders (other than Paribas) on the
basis of the relative number of Registrable Shares each Stockholder has
requested to be included in such registration); and (ii) second, to the extent
that the number of Registrable Shares requested to be registered pursuant to
Section 4(a) is less than the number of securities which the Company has been
advised can be sold in such offering without having the adverse effect referred
to above, such number of shares of equity securities that the Company may
request to be included in such registration.
5. Registration Procedures.
(a) If and whenever the Company is required by the
provisions of Articles 2 or 4 hereof to use its best efforts to effect the
registration of Registrable Shares, the Company shall, as expeditiously as
possible:
(i) prepare and, in any event within 100
days after the date on which a request for registration may be given to the
Company, file with the Securities and Exchange Commission (the "SEC") a
registration statement with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become effective; provided,
however, that the Company may discontinue any registration of its securities
which are not Registrable Shares (and, under the circumstances specified in
Article 4, Registrable Shares) at any time prior to the Effective Date of the
Registration Statement relating thereto;
(ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of 180 days (or such shorter period if all
Registrable Shares included in such registration have actually been sold
thereunder) and to comply with the provisions of the Securities Act, the
Exchange Act, and the rules and regulations promulgated thereunder with respect
to the disposition of all the securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
Stockholders thereof set forth in such registration statement;
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<PAGE> 6
provided, that the Company shall notify each Stockholder of Registrable Shares
covered by such registration statement of any stop order issued or threatened by
the SEC, any other order suspending the use of any preliminary prospectus or of
the suspension of the qualification of the registration statement for offering
or sale in any jurisdiction, and take all reasonable actions required to prevent
the entry of such stop order, other order or suspension or to remove it if
entered;
(iii) furnish to each seller of Registrable
Shares covered by such registration statement such number of copies of the
registration statement and of each amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the Securities Act,
and such other documents as each seller of Registrable Shares covered by such
registration statement may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such Stockholder;
(iv) use its best efforts to register or
qualify such Registrable Shares covered by such registration statement under the
state securities or blue sky laws of such jurisdictions as each Stockholder of
Registrable Shares covered by such registration statement and, if applicable,
each underwriter, may reasonably request, and do any and all other acts and
things which may be reasonably necessary to consummate the disposition in such
jurisdictions of the Registrable Shares owned by such Stockholder; provided,
however, that in connection therewith, the Company shall not be required to (A)
qualify as a foreign corporation to do business or to register as a broker or
dealer in any such jurisdiction where it would not otherwise be required to
qualify or register but for this clause (iv), (B) subject itself to taxation in
any jurisdiction or (C) file a general consent to service of process in any such
jurisdiction.
(v) use its best efforts to cause such
Registrable Shares covered by such registration statement to be registered with
or approved by such other federal or state governmental agencies or authorities
as may be necessary to enable the Stockholders thereof to consummate the
disposition of such Registrable Shares;
(vi) if at any time when a prospectus
relating to the Registrable Shares is required to be delivered under the
Securities Act any event shall have occurred as the result of which any such
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, immediately give
written notice thereof to each Stockholder and the managing underwriter, if any,
of such Registrable Shares and prepare and furnish to each such Stockholder a
reasonable number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(vii) use its best efforts to cause such
Registrable Shares to be accepted for listing or quotation on any securities
exchange or automated quotation system on
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<PAGE> 7
which similar securities of the Company are then listed, and enter into
customary agreements including a listing application and indemnification
agreement in customary form, provided that the applicable listing requirements
are satisfied, and provide a transfer agent and registrar for such Registrable
Shares covered by such registration statement not later than the effective date
of such registration statement;
(viii) enter into such customary agreements
(including an underwriting agreement in customary form) and take such other
actions as each Stockholder of Registrable Shares being sold or the underwriter,
if any, reasonably requests in order to expedite or facilitate the disposition
of such Registrable Shares, including customary indemnification and opinions;
(ix) to the extent reasonably requested by
Paribas, JFLEI, JFLCP, the Neubauer Trust or the Treinen Trust, or the
underwriters, if any, use its best efforts to obtain a "cold comfort" letter or
letters from the Company's independent public accountants in customary form and
covering matters of the type customarily covered by "cold comfort" letters;
(x) make available, at the Company's
expense, for inspection by representatives of any Stockholder of Registrable
Shares covered by such registration statement, by any underwriter participating
in any disposition to be effected pursuant to such registration statement and by
any attorney, accountant or other agent retained by such Stockholders or any
such underwriter (collectively, the "Stockholder Representatives"), all relevant
financial and other records, pertinent corporate documents and properties of the
Company and its subsidiaries (excluding any such records and documents as are
protected by attorney-client privilege or which the Company is prohibited from
disclosing pursuant to the terms of any nondisclosure agreements to which the
Company or any of its subsidiaries is a party; provided that, to the extent
permitted under any such nondisclosure agreement, the Company shall disclose any
information subject to such nondisclosure agreement upon execution and delivery
by such Stockholder or Stockholder Representative of a confidentiality agreement
for the benefit of the parties to such nondisclosure agreement);
(xi) otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable after the effective
date of the registration statement, an earnings statement which shall satisfy
the provisions of Section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder;
(xii) notify counsel for the Stockholders of
Registrable Shares included in such registration statement and the managing
underwriter, if any, immediately, and confirm the notice in writing, (A) when
the registration statement, or any post-effective amendment to the registration
statement, shall have become effective, or any supplement to the prospectus or
any amendment prospectus shall have been filed and (B) of any request of the SEC
to amend the registration statement or amend or supplement the prospectus or for
additional information; and
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<PAGE> 8
(xiii) cause its officers, employees and
personnel to use their reasonable best efforts to support the marketing of the
Registrable Shares (including, without limitation, the participation in "road
shows," at the reasonable request of the underwriters, Paribas or the holders of
a majority of the Registrable Shares to be included in such registration) to the
extent possible taking into account the Company's business needs and the
requirements of the marketing process.
(b) Each Stockholder of Registrable Shares hereby
agrees that, upon receipt of any notice from the Company of the happening of any
event of the type described in Section 5(a)(vi) hereof, such Stockholder shall
forthwith discontinue disposition of such Registrable Shares covered by such
registration statement or related prospectus until such Stockholder's receipt of
the copies of the supplemental or amended prospectus contemplated by Section
5(a)(vi) hereof. In the event the Company shall give any such notice, the period
mentioned in Section 5(a)(ii) hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 5(a)(vi) hereof and including the date when such Stockholder
shall have received the copies of the supplemental or amended prospectus
contemplated by Section 5(a)(vi) hereof. If for any other reason the
effectiveness of any registration statement filed pursuant to Article 4 hereof
is suspended or interrupted prior to the expiration of the time period regarding
the maintenance of the effectiveness of such Registration Statement required by
Section 5(a)(ii) hereof so that Registrable Shares may not be sold pursuant
thereto, the applicable time period shall be extended by the number of days
equal to the number of days during the period beginning with the date of such
suspension or interruption to and ending with the date when the sale of
Registrable Shares pursuant to such registration statement may be recommenced.
(c) Each Stockholder hereby agrees to provide the
Company, upon receipt of its request, with such information about such
Stockholder to enable the Company to comply with the requirements of the
Securities Act and to execute such certificates as the Company may reasonably
request in connection with such information and otherwise to satisfy any
requirements of law. Each Stockholder further agrees to furnish to the Company
in writing such information regarding the Stockholder and his, her or its
proposed distribution of Registrable Shares as the Company may from time to time
reasonably request.
6. Underwritten Registrations. Subject to the provisions of
Articles 2, 3 and 4 hereof, any of the Registrable Shares covered by a
registration statement may be sold in an underwritten offering at the discretion
of the Stockholder thereof. In the case of an underwritten offering pursuant to
Article 2 or Article 4 hereof, the managing underwriter or underwriters that
will administer the offering shall be selected by the Company, provided that
such managing underwriter or underwriters is reasonably satisfactory to the
Stockholders of a majority of the Registrable Shares to be registered.
8
<PAGE> 9
7. Suspension of Registration Requirement.
(a) Notwithstanding anything to the contrary set
forth in this Agreement, the Company's obligation to use its best efforts to
cause a registration statement and any filings with any state securities
authorities to become effective or to amend or supplement any such registration
statement or filings shall be suspended during such period as circumstances
exist (including, without limitation, pending negotiations relating to, or the
consummation of, any transaction) which (i) would require additional disclosure
of material information by the Company in such registration statement or filing
which the Company has a bona fide business purpose for not disclosing in such
registration statement or (ii) render the Company unable to comply with SEC
requirements (any such circumstances hereinafter referred to as a "Suspension
Event"). The Company shall use all commercially reasonable efforts to minimize
the length of such suspension as a result of a Suspension Event and in no event
shall the length of a suspension due to clause (i) alone exceed 90 days in any
12-month period. To the extent that any such suspension occurs during a period
in which a registration statement has been filed pursuant hereto and remains
effective, the time during which the Company shall be required to maintain the
effectiveness of such registration statement shall be extended for the number of
days during which such suspension continued.
(b) Notwithstanding anything to the contrary set
forth in this Agreement, the Company shall not be required to cause a
registration statement requested pursuant to Section 4(a) to become effective
during the period beginning 30 days prior to the Company's good faith estimate
of the date of filing of, and ending 180 days after the effective date of, a
Company-initiated registration, provided that the Company is actively employing
in good faith all reasonable efforts to cause such registration statement to
become effective and provided, however that the Company shall be entitled to
delay the effectiveness of such requested registration for one such period in
any 12-month period.
(c) The Company shall give the Stockholders written
notice immediately upon the occurrence of any Suspension Event instructing such
Stockholders to suspend sales of Registrable Shares as a result of such
Suspension Event. The Stockholders agree that after receipt of such notice they
will not effect any sales of Registrable Shares pursuant to any registration
statement filed pursuant to this Agreement until such time as such Stockholders
shall have received further notice from the Company that such sales may be
recommenced, which notice shall be given by the Company not later than five days
after the conclusion of any such Suspension Event.
8. Expenses
(a) The fees, costs and expenses of all registrations
in accordance with Articles 2 and 4 hereof shall be borne by the Company,
subject to the provisions of Section 8(b) hereof.
(b) The fees, costs and expenses of registration to
be borne as provided in Section 8(a) hereof shall include, without limitation,
all expenses incident to the Company's
9
<PAGE> 10
performance of or compliance with this Agreement, including without limitation
all SEC and stock exchange or NASD registration and filing fees and expenses,
fees and expenses of compliance with securities or blue sky laws (including
without limitation reasonable fees and disbursements of counsel for the
underwriters, if any, or for the selling Stockholders in connection with blue
sky qualifications of the Registrable Shares), rating agency fees, printing
expenses (including expenses of printing certificates for Registrable Shares and
prospectuses), the fees and expenses incurred in connection with the listing of
the securities to be registered on each securities exchange or automated
quotation system on which similar securities issued by the Company are then
listed, fees and disbursements of counsel for the Company and all independent
certified public accountants (including the expenses of any annual audit,
special audit and "cold comfort" letters required by or incident to such
performance and compliance) (but in any event not including any underwriting
discounts or commissions or transfer taxes, if any, attributable to the sale of
Registrable Shares by such Stockholders) (collectively, "Registration
Expenses").
9. Indemnification
(a) Indemnification by the Company. In the event of
any registration of any securities of the Company under the Securities Act
pursuant to Articles 2 or 4 hereof, the Company shall, and it hereby does,
indemnify and hold harmless, to the extent permitted by law, each of the
Stockholders of any Registrable Shares covered by such registration statement,
each affiliate of such Stockholder and their respective directors and officers
(and the directors, officers, affiliates and controlling Persons thereof), each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such Stockholder or any
such underwriter within the meaning of the Securities Act (collectively, the
"Indemnified Parties"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses, including, without limitation, the
reasonable fees and expenses of legal counsel, (including any amounts paid in
any settlement effected with the Company's consent, and including any expenses
paid in connection with the enforcement of the indemnification rights contained
herein) to which any Indemnified Party may become subject under the Securities
Act, state securities or blue sky laws, common law, any other applicable law,
foreign or domestic, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof, whether or not such
Indemnified Party is a party thereto) or expenses arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement thereto, (ii) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(iii) any violation by the Company of any federal, state or common law rule or
regulation applicable to the Company and relating to action required of or
inaction by the Company in connection with any such registration, and the
Company shall reimburse such Indemnified Party for any reasonable legal or any
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
the Company shall not be liable to any Indemnified Party in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission
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<PAGE> 11
made in such registration statement or amendment or supplement thereto or in any
such preliminary, final or summary prospectus in reliance upon and in conformity
with written information with respect to such Stockholder furnished to the
Company by such Stockholder specifically for use therein. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Stockholder or any Indemnified Party and shall survive the
transfer of such securities by such Stockholder.
(b) Indemnification by the Stockholders and Underwriters. The
Company may require as a condition to including any Registrable Shares in any
registration statement filed in accordance with Articles 2 or 4 hereof, that the
Company shall have received an undertaking reasonably satisfactory to it from
the Stockholders of such Registrable Shares or any underwriter to, severally and
not jointly, indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 9(a) hereof) the Company with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information with respect to such Stockholder or such underwriter
furnished to the Company by such Stockholder or such underwriter specifically
for use in such registration statement, preliminary, final or summary prospectus
or amendment or supplement, or a document incorporated by reference into any of
the foregoing; provided, however, that the liability of such indemnifying party
under this section 9(b) shall be limited to the amount of proceeds received by
such indemnifying party in the offering giving rise to such liability. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any of the Stockholders, or any of their
respective affiliates, directors, officers or controlling Persons, and shall
survive the transfer of such securities by such Stockholder.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 9, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided that the failure of the
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 9, except to the extent
that the indemnifying party is actually materially prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation; that the indemnified party shall have the right to employ counsel
to represent the indemnified party and its respective controlling persons,
directors, officers, general or limited partners, employees or agents who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the indemnified party against such indemnifying party under this
Section 9 provided that the employment of such counsel shall be at the expense
of the indemnified party, unless (i) the indemnifying party shall have agreed in
writing to pay the
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<PAGE> 12
expenses of such counsel, (ii) the indemnifying party shall not have promptly
employed counsel reasonably satisfactory to the indemnified party to assume the
defense of such action or counsel or (iii) any indemnified party shall have
reasonably concluded that there may be defenses available to such indemnified
party or its respective controlling persons, directors, officers, employees or
agents which are in conflict with or in addition to those available to the
indemnifying party, and in that event the reasonable fees and expenses of one
firm of separate counsel for the indemnified party (in addition to the
reasonable fees and expenses of one firm serving as local counsel) shall be paid
by the indemnifying party. No indemnifying party shall consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section 9 shall for any reason be unavailable to any indemnified party under
Section 9(a) or 9(b) hereof or is insufficient to hold it harmless in respect of
any loss, claim, damage or liability, or any action in respect thereof referred
to therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability, or action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the indemnified party
and indemnifying party or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) but also the relative
fault of the indemnified party and indemnifying party with respect to the
statements or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations. Notwithstanding any other provision of this Section 9(d), no
Stockholder of Registrable Shares shall be required to contribute an amount
greater than the dollar amount of the proceeds received by such Stockholder with
respect to the sale of any such Registrable Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. In addition, no person shall be
required to contribute hereunder any amounts in payment for any settlement of
any action or claim effected without such person's prior consent, which consent
shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution
similar to that specified in the preceding subdivisions of this Section 9 (with
appropriate modifications) shall be given by the Company and each Stockholder of
Registrable Shares with respect to any required registration or other
qualification of securities under any federal or state law or regulation or
governmental authority other than the Securities Act.
(f) Non-Exclusivity. The obligations of the parties under this
Section 9 shall be in addition to any liability which any party may otherwise
have to any other party.
10. Assignability. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. In addition, and whether or not any express assignment shall
have been made, the provisions of this Agreement which are for the benefit of
the parties hereto other than the Company shall also be for
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<PAGE> 13
the benefit of and enforceable by any subsequent Stockholder of any Registrable
Shares, subject to the provisions contained herein. The Company may not assign
any of its rights or delegate any of its duties under this Agreement without the
written consent of the Stockholders of a majority of the Registrable Shares.
11. Notices. Any and all notices, designations, consents, offers,
acceptances or any other communications shall be given in writing by either (a)
personal delivery to and receipted for by the addressee or by (b) telecopy or
registered or certified mail which shall be addressed:
(i) if to the Company, to:
Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Attention: The President
Fax: (805) 254-4721
with a courtesy copy to:
c/o J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
(ii) if to JFLEI or JFLCP, to:
c/o J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
in either case, with a courtesy copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Neale M. Albert, Esq.
Paul D. Ginsberg, Esq.
Fax: (212) 757-3990
(iii) if to the Paribas, to:
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<PAGE> 14
c/o Paribas Principal Partners
787 Seventh Avenue
New York, New York 10019
Attention: Stephen Eisenstein
Fax: (212) 841-2502
with a courtesy copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: John Reiss, Esq.
Fax: (212) 819-2582
(iv) if to Thomas Treinen, to:
c/o Special Devices, Incorporated
16830 West Placerita Canyon Road
Newhall, California 91321
Fax: (805) 254-4721
or if to Walter Neubauer, to:
c/o Ordnance Products, Inc.
21200 South Figueroa Street
Carson, California 90745
Fax: (310) 203-0567
in either case, with a courtesy copy to:
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars, tenth floor
Los Angeles, California 90067
Attention: Robert Goon, Esq.
Fax: (310) 203-0567
All such notices and communications shall be deemed to have been duly
given and effective: when delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed; and
when receipt acknowledged, if telecopied.
12. Arbitration. Any controversy, dispute or claim arising out of, in
connection with or in relation to the interpretation, performance or breach of
this Agreement shall be determined, at the request of any party, by arbitration
in a city mutually agreeable to the parties to such controversy, dispute or
claim, or, failing such agreement, in New York, New York, before
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<PAGE> 15
and in accordance with the then-existing Rules for Commercial Arbitration of the
American Arbitration Association, and any judgment or award rendered by the
arbitrator will be final, binding and unappealable and judgment may be entered
by any state or Federal court having jurisdiction thereof. The pre-trial
discovery procedures of the Federal Rules of Civil Procedure shall apply to any
arbitration under this Section 12. Any controversy concerning whether a dispute
is an arbitrable dispute or as to the interpretation or enforceability of this
Section 12 shall be determined by the arbitrator. The arbitrator shall be a
retired or former United States District Judge or other person acceptable to
each of the parties, provided such individual has substantial professional
experience with regard to corporate or partnership legal matters. The parties
intend that this agreement to arbitrate be valid, enforceable and irrevocable.
13. Severability. If any provision of this Agreement or any portion
thereof is finally determined to be unlawful or unenforceable, such provision or
portion thereof shall be deemed to be severed from this Agreement. Every other
provision, and any portion of such an invalidated provision that is not
invalidated by such a determination, shall remain in full force and effect.
14. Amendments, Waivers. This Agreement may not be amended, modified or
supplemented and no waivers of or consents to departures from the provisions
hereof may be given unless consented to in writing by (x) the Company and (y)
Stockholders or other Persons holding at least seventy-five percent (75%) of the
voting power represented by the Registrable Shares (pursuant to a valid proxy or
otherwise).
15. Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to any other available remedy.
16. Entire Agreement. This Agreement contains the entire agreement
among the parties hereto with respect to the transactions contemplated herein
and understandings among the parties relating to the subject matter hereof. Any
and all previous agreements and understandings between or among the parties
hereto regarding the subject matter hereof are, whether written or oral,
superseded by this Agreement; provided, however that (i) this Agreement shall
not be deemed to supersede the Subscription Agreement or the Rollover
Stockholders Agreement and (ii) the execution of this Agreement is not a waiver
by the parties hereto of any of the terms or provisions of the Subscription
Agreement or the Rollover Stockholders Agreement.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which,
together, shall constitute one and the same instrument.
18. Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
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<PAGE> 16
19. Limitation of Liability of Stockholders and Officers of Company.
ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE COMPANY WHICH MAY ARISE AT ANY
TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY BE INCURRED
BY IT PURSUANT TO ANY INSTRUMENT, TRANSACTION OR UNDERTAKING CONTEMPLATED HEREBY
SHALL BE SATISFIED OUT OF THE COMPANY'S ASSETS ONLY. NO SUCH OBLIGATION OR
LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT
THEREOF BE HAD TO, THE PROPERTY OF ANY OF THE COMPANY'S STOCKHOLDERS (SOLELY AS
A RESULT OF THEIR STATUS AS STOCKHOLDERS), DIRECTORS, OFFICERS, EMPLOYEES OR
AGENTS, REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE NATURE OF
CONTRACT, TORT OR OTHERWISE. NOTWITHSTANDING THE FOREGOING, THIS SECTION 19
SHALL NOT IN ANY WAY AFFECT OR LIMIT ANY RIGHTS OR OBLIGATIONS OF THE COMPANY OR
ANY STOCKHOLDER UNDER THIS AGREEMENT.
20. Limitation of Liability of Stockholders and Officers of each
Stockholder. ANY OBLIGATION OR LIABILITY WHATSOEVER OF ANY STOCKHOLDER WHICH MAY
ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY
BE INCURRED BY IT PURSUANT TO ANY INSTRUMENT, TRANSACTION OR UNDERTAKING
CONTEMPLATED HEREBY SHALL BE SATISFIED OUT OF THE SHAREHOLDER'S ASSETS ONLY. NO
SUCH OBLIGATION OR LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT
FOR THE ENFORCEMENT THEREOF BE HAD TO, THE PROPERTY OF ANY OF SUCH STOCKHOLDERS
(SOLELY AS A RESULT OF THEIR STATUS AS STOCKHOLDERS), DIRECTORS, OFFICERS,
EMPLOYEES OR AGENTS, REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN
THE NATURE OF CONTRACT, TORT OR OTHERWISE. NOTWITHSTANDING THE FOREGOING, THIS
SECTION 20 SHALL NOT IN ANY WAY AFFECT OR LIMIT ANY RIGHTS OR OBLIGATIONS OF THE
COMPANY OR ANY STOCKHOLDER UNDER THIS AGREEMENT.
21. Governing Law. This Agreement is made pursuant to and shall be
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
22. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with the
rights granted to the holders of Registrable Shares in this Agreement. Without
limiting the generality of the foregoing, the Company will not hereafter enter
into any agreement with respect to its securities which grants, or modify any
existing agreement with respect to its securities to grant, to the holder of its
securities in connection with an incidental registration of such securities
equal or higher priority to the rights granted to the Purchasers under Article 2
or Article 4.
23. Remedies. Each holder of Registrable Shares, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages
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<PAGE> 17
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
SPECIAL DEVICES, INCORPORATED
By: /s/ John T. Vinke
-------------------------------
Name: John T. Vinke
Title: Chief Financial Officer
PARIBAS PRINCIPAL INC.
By: /s/ Stephen Eisenstein
--------------------------------
Name: Stephen Eisenstein
Title: Director
J.F. LEHMAN EQUITY INVESTORS I, L.P., a
Delaware limited partnership
By: JFL INVESTORS L.L.C., its:
General Partner
By: /s/ Donald Glickman
-----------------------
Name: Donald Glickman
Title: Managing Member
JFL CO-INVEST PARTNERS I, L.P.,
a Delaware limited partnership
By: JFL INVESTORS L.L.C., its:
General Partner
By: /s/ Donald Glickman
---------------------------
Name: Donald Glickman
Title: Managing Member
17
<PAGE> 18
THE NEUBAUER FAMILY TRUST
By: /s/ Walter Neubauer
--------------------------
Walter Neubauer
Trustee
THE TREINEN FAMILY TRUST
By: /s/ Thomas Treinen
---------------------------
Thomas Treinen
Trustee
18
<PAGE> 1
EXHIBIT 12.1
Computation of Ratios of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
------------------------------------------------
Three Months
Ended Jan. 31,
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense $ 458 $ 964 $ 365 $ 259 $ 156 $ 2,341
Capitalized interest -- -- -- 101 112 21
Estimated interest portion of
rent expense 166 166 166 175 175 44
------ ------ ------- ------- ------- --------
Fixed charges 624 1,130 531 535 443 2,405
------ ------ ------- ------- ------- --------
Income (loss) before income
taxes 5,280 9,300 12,173 17,838 25,857 (13,679)
Fixed charges 624 1,130 531 535 443 2,405
Capitalized interest -- -- -- (101) (112) (21)
------ ------ ------- ------- ------- --------
Earnings 5,904 10,430 12,704 17,772 26,188 (11,294)
------ ------ ------- ------- ------- --------
Ratio of earnings to fixed
charges 9.5x 9.2x 23.9x 33.2x 59.1x (4.7x)
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SPECIAL DEVICES, INCORPORATED
Scot, Incorporated (100% owned)
<PAGE> 1
EXHIBIT 23.2
Independent Accountants' Consent
The Board of Directors
Special Devices, Incorporated
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Los Angeles, California
April 5, 1999
<PAGE> 1
EXHIBIT 25.1
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
SPECIAL DEVICES, INCORPORATED
(Exact name of obligor as specified in its charter)
Delaware 95-3008754
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
14370 White Sage Road
Moorpark, California 93021
(Address of principal executive offices) (Zip Code)
<PAGE> 2
SCOT, INCORPORATED
(Exact name of obligor as specified in its charter)
Delaware 36-3972852
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
14370 White Sage Road
Moorpark, California 93021
(Address of principal executive offices) (Zip Code)
11 3/8% Senior Subordinated Notes due 2008
(Title of the indenture securities)
<PAGE> 3
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Special Devices, Incorporated currently is not in default under any of its
outstanding securities for which United States Trust Company of New York is
Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the
State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE> 4
- 3 -
16. LIST OF EXHIBITS
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15, 1995
with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b)
of the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of April 1, 1999, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 1st day
of April, 1999.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Margaret Ciesmelewski
----------------------------
Margaret Ciesmelewski
Assistant Vice President
<PAGE> 5
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
---------------------
By: /S/Gerard F. Ganey
Senior Vice President
<PAGE> 6
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, 1998
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and Due from Banks $ 104,220
Short-Term Investments 207,292
Securities, Available for Sale 578,874
Loans 2,061,582
Less: Allowance for Credit Losses 17,199
----------
Net Loans 2,044,383
Premises and Equipment 58,263
Other Assets 124,079
----------
TOTAL ASSETS $3,117,111
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 709,221
Interest Bearing 1,908,861
----------
Total Deposits 2,618,082
Short-Term Credit Facilities 170,644
Accounts Payable and Accrued Liabilities 146,324
----------
TOTAL LIABILITIES $2,935,050
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 53,041
Retained Earnings 111,402
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,623
----------
TOTAL STOCKHOLDER'S EQUITY 182,061
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $3,117,111
==========
</TABLE>
I, Richard E. Brinkmann, Managing Director & Comptroller of the named bank do
hereby declare that this Statement of Condition has been prepared in conformance
with the instructions issued by the appropriate regulatory authority and is true
to the best of my knowledge and belief.
Richard E. Brinkmann, Managing Director & Controller
February 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000875525
<NAME> SPECIAL DEVICES, INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,592,578
<SECURITIES> 10,700,000
<RECEIVABLES> 12,663,230
<ALLOWANCES> 0
<INVENTORY> 18,298,705
<CURRENT-ASSETS> 45,326,158
<PP&E> 58,228,703
<DEPRECIATION> 17,597,716
<TOTAL-ASSETS> 86,159,195
<CURRENT-LIABILITIES> 10,369,203
<BONDS> 0
0
0
<COMMON> 76,756
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 86,159,195
<SALES> 104,482,025
<TOTAL-REVENUES> 104,482,025
<CGS> 84,327,787
<TOTAL-COSTS> 84,327,787
<OTHER-EXPENSES> 8,110,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364,992
<INCOME-PRETAX> 12,173,039
<INCOME-TAX> 4,725,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,448,039
<EPS-PRIMARY> .97
<EPS-DILUTED> .96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000875525
<NAME> SPECIAL DEVICES, INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,415,335
<SECURITIES> 6,750,000
<RECEIVABLES> 18,192,877
<ALLOWANCES> 0
<INVENTORY> 14,554,614
<CURRENT-ASSETS> 43,407,256
<PP&E> 80,242,848
<DEPRECIATION> 23,974,540
<TOTAL-ASSETS> 99,824,280
<CURRENT-LIABILITIES> 13,270,694
<BONDS> 0
0
0
<COMMON> 77,712
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 99,824,280
<SALES> 140,502,420
<TOTAL-REVENUES> 140,502,420
<CGS> 112,553,611
<TOTAL-COSTS> 112,553,611
<OTHER-EXPENSES> 10,721,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,678
<INCOME-PRETAX> 17,337,894
<INCOME-TAX> 6,660,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,677,894
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000875525
<NAME> SPECIAL DEVICES, INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,248,130
<SECURITIES> 0
<RECEIVABLES> 19,410,344
<ALLOWANCES> 0
<INVENTORY> 16,609,014
<CURRENT-ASSETS> 39,179,322
<PP&E> 116,259,759
<DEPRECIATION> 31,488,641
<TOTAL-ASSETS> 124,619,118
<CURRENT-LIABILITIES> 23,508,049
<BONDS> 0
0
0
<COMMON> 78,098
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 124,619,118
<SALES> 170,537,769
<TOTAL-REVENUES> 170,537,769
<CGS> 131,610,049
<TOTAL-COSTS> 131,610,049
<OTHER-EXPENSES> 13,023,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,996
<INCOME-PRETAX> 25,856,584
<INCOME-TAX> 10,410,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,446,584
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.90
</TABLE>
