UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1997
Commission File No. 0-2251
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SCI SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0583436
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
c/o SCI Systems (Alabama), Inc.
2101 West Clinton Avenue
Huntsville, Alabama 35805
(Address of principal executive offices) (Zip Code)
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(302) 998-0592
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, $.10 Par Value New York Stock Exchange
----------------------------------------
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes .X. No ....
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ X ]
At August 25, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $2,356,557,174. At August 25,
1997, there were 59,734,224 outstanding shares of the registrant's Common Stock.
Documents Incorporated By Reference Portions of the registrant's 1997
Annual Report to Shareholders are incorporated by reference into Parts I and II.
Portions of the registrant's definitive Proxy Statement for its October 24,
1997, Annual Meeting of Shareholders are incorporated by reference into Part
III.
<PAGE>
PART I AND II DOCUMENTS INCORPORATED BY REFERENCE
The following information required by Parts I and II is incorporated herein
by reference to the Company's 1997 Annual Report to Shareholders, included
herein as Exhibit 13: Excerpts from
Form 10-K
(contained in the 1997
Annual Report to
Annual Shareholders)
Report Page (s)
Pages
PART I.
ITEM 1. Business Inside Front 1 to 3
Cover and 4 to
20
ITEM 2. Properties 3
ITEM 3. Legal Proceedings 3 and 4
ITEM 4. Submission of Matters to
a Vote of Security Holders 4
PART II.
ITEM 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 4 and 13
ITEM 6. Selected Financial Data 1
ITEM 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 2 and 3 4 and 5
ITEM 8. Consolidated Financial Statements
and Supplementary Data 6 to 13
ITEM 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure Not Applicable
PART III
DOCUMENT INCORPORATED BY REFERENCE
The following information required by Part III is incorporated herein by
reference to the Company's definitive Proxy Statement pursuant to Regulation 14A
for the October 24, 1997 Annual Meeting of Shareholders, filed with The
Securities and Exchange Commission within 120 days after close of the fiscal
year:
Proxy Statement
Page (s)
ITEM 10. Directors and Executive Officers
of the Registrant 2 to 5
ITEM 11. Executive Compensation 6 and 7
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 1 and 2
ITEM 13. Certain Relationships and Related Transactions None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to exhibits, financial statements and schedules
1. Financial Statements
The following consolidated financial statements of the registrant
are included in Item 8:
Excerpts from
Form 10-K
(contained in
the 1997 Annual
Report to
Shareholders)
Page (s)
------------------
Consolidated Balance Sheets as of June 30, 1997,
1996, and 1995 6
For the years ended June 30, 1997, 1996 and 1995:
Consolidated Statements of Income 7
Consolidated Statements of Shareholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9 to 13
Report of Ernst & Young LLP, Independent Auditors 13
<PAGE>
2. Schedules
Financial Statements Schedules are omitted as allowed by Rule 4-02
for immaterial amounts. Accounts receivable valuation accounts at
June 30, 1997, 1996, and 1995, represent less than five percent (5%)
of the year end gross accounts receivable balance.
3. Exhibits
Number DESCRIPTION
2 Purchase Agreement between the Company and Apple Computer,
Inc. concerning purchase of Fountain, Colorado plant and
certain other assets. (Incorporated by reference to Exhibit
2 to Form 8-K filed on June 14, 1996.)
3.1 Second Restated Certificate of Incorporation, as amended,
and Certificate of Amendment of the Second Restated
Certificate of Incorporation as filed with the Secretary of
State of Delaware on January 26, 1996. (Incorporated herein
by reference to Exhibit 4.1 to Registration Statement on
Form S-3, File No. 333-05917, as amended.)
3.2 By-laws of the Registrant, as amended. (Incorporated herein
by reference to Exhibit 4.2 to Registration Statement on
Form S-3, File No. 333-05917, as amended.)
4.1 Indenture dated as of April 23, 1996, between the Company
and PNC Bank, Kentucky, Inc., as trustee, relating to the
Company's 5% Convertible Subordinated Notes due 2006.
(Incorporated herein by reference to Exhibit 4.3 to
Registration Statement on Form S-3, File No. 333-05917,
as amended.)
4.2 Registration Agreement dated April 23, 1996, by and
among the Company, Salomon Brothers Inc, Merrill Lynch
& Co., and Montgomery Securities, as initial purchasers
of the Company's 5% Convertible Subordinated Notes due
2006. (Incorporated herein by reference to Exhibit 4.4 to
Registration Statement on Form S-3, File No.333-05917,
as amended.)
10(a)(1) Credit Agreement dated June 25, 1993, by and between the
Registrant, its Obligated Subsidiaries and its Lenders.
(Incorporated herein by reference to exhibit of the same
number to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1993.)
(2) Amended and Restated Credit Agreement dated as of
August 3, 1995, by and between the Registrant, its
Obligated Subsidiaries and its Lenders. (Incorporated
herein by reference to exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year ended
June 30, 1995.)
(3) First Modification of Amended and Restated Credit Agreement
(dated as of August 3, 1995) made as of December 8, 1995
between the Registrant, its Obligated Subsidiaries and its
Lenders. (Incorporated by reference to Exhibit 10 to Form
10-Q for the quarter ended December 24, 1995.)
(4) Second Modification of Amended and Restated Credit
Agreement (dated as of August 3, 1995) made as of March 26,
1996 between the Registrant, its Obligated Subsidiaries and
its Lenders. (Incorporated herein by reference to Exhibit of
the same number to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1996.)
(5) Third Modification of Amended and Restated Credit Agreement
(dated as of August 3, 1995) made as of June 28, 1996
between the Registrant, its Obligated Subsidiaries and its
Lenders. (Incorporated herein by reference to Exhibit of
the same number to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1996.)
(b)(1) Receivable Purchase Agreement dated as of June 30, 1995,
among SCI Technology, Inc., as Seller, SCI Systems, Inc.,
as Guarantor, and Receivables Capital Corporation, as
Purchaser, and Bank of America National Trust and Savings
Association, as Administrative Agent. (Incorporated herein
by reference to exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year
ended June 30, 1995.)
(2) First Amendment to Receivable Purchase Agreement dated
as of July 14,1995. (Incorporated herein by reference to
Exhibit of the same number to the Registrant's Annual Report
on Form 10-K for the year ended June 30, 1996.)
(3) Second Amendment to Receivable Purchase Agreement dated
as of August 30,1995. (Incorporated herein by reference to
Exhibit of the same number to the Registrant's Annual Report
on Form 10-K for the year ended June 30, 1996.)
(4) Third Amendment to Receivable Purchase Agreement dated
as of December 15,1995. (Incorporated herein by reference to
Exhibit of the same number to the Registrant's Annual Report
on Form 10-K for the year ended June 30, 1996.)
3. Exhibits
Number DESCRIPTION
(5) Fourth Amendment to Receivable Purchase Agreement dated
as of April 1, 1996. (Incorporated herein by reference to
Exhibit of the same number to the Registrant's Annual Report
on Form 10-K for the year ended June 30, 1996.)
(c)(1) Directors and Officers Liability Insurance Policies
(d)(1) SCI Systems, Inc. 1994 Stock Option Incentive Plan.
(Management contracts or compensatory plan) (Incorporated
herein by reference to exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year
ended June 30, 1995.)
(e)(1) Savings Plan of the SCI Systems, Inc. Employee Financial
Security Program, dated July 1, 1991.(Management
contracts or compensatory plan)(Incorporated herein by
reference to Exhibit 10 (i)(1) to the Registrant's Report
on Form 10-K for the fiscal year ended June 30, 1994.)
(f)(1) Deferred Compensation Plan of SCI Systems Employee
Financial Security Program, as amended and restated January
1, 1992.(Management contracts or compensatory plan)
(Incorporated herein by reference to Exhibit 10(j)(1) to
the Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1994.)
(g)(1) Supplemental Retirement Plan of the SCI Systems, Inc.
Employee Financial Security Program, as amended and
restated April 1994. (Management contracts or
compensatory plan) (Incorporated herein by reference
to Exhibit 10 (k)(1) to the Registrant's Report on
Form 10-K for the fiscal year ended June 30, 1994.)
(h)(1) Adjustable Rate Senior Notes due 2006 Purchase Agreement,
made as of June 28, 1996.
(i)(1) Receivable Purchase Agreement dated as of October 31, 1996,
among SCI Technology, Inc. , as Seller, SCI Systems, Inc.,
as Guarantor, and Gotham Funding as Purchaser, and Bank of
Tokyo-Mitsubishi Trust Company, as Agent. (Incorporated
herein by reference to Exhibit 10 to Form 10-Q for the
quarter ended March 30, 1997.)
(j)(1) Senior Executive Officers Annual Incentive Plan. (Management
contracts or compensatory plan)
11 Computation of primary and fully diluted earnings per share
for the years ended June 30, 1997, 1996 and 1995.
13 1997 Annual Report to Shareholders. Except for the parts
of the SCI Systems, Inc. Annual Report expressly
incorporated into this Form 10-K by reference, the Annual
Report is not to be deemed filed with the Securities and
Exchange Commission.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule
(b) Reports
The Company filed no reports on Form 8-K during the period of March 31,
1997 to June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SCI SYSTEMS, INC.
Date: September 26, 1997 By:/s/Olin B. King
Olin B. King
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
DATE SIGNATURE TITLE
September 26, 1997 /s/Olin B. King Chairman of the Board and
Olin B. King Chief Executive Officer
(Principal Executive Officer)
(Principal Financial and
Accounting Officer)
September 26, 1997 /s/A. Eugene Sapp, Jr. Director, President, and
A. Eugene Sapp, Jr. Chief Operating Officer
(Principal Operating Officer)
September 26, 1997 /s/Howard H. Callaway Director
Howard H. Callaway
September 26, 1997 /s/William E. Fruhan Director
William E. Fruhan
September 26, 1997 /s/Wayne Shortridge Director
Wayne Shortridge
September 26, 1997 /s/G. Robert Tod Director
G. Robert Tod
September 26, 1997 /s/Jackie M. Ward Director
Jackie M. Ward
[EXHIBIT 10 (c) (1)]
SUMMARY OF DIRECTORS AND OFFICERS LIABILITY
INSURANCE POLICIES
Primary Coverage:
Carrier: CNA Insurance Co.
Insurance Company
Coverage: $5,000,000
Deductibles: $250,000
Policy Number: 161805777
Policy period: 10/01/96 to 11/01/97
Secondary Coverage:
Carrier: St Paul Insurance Co.
Insurance Company
Coverage: $5,000,000
Deductibles: $250,000
Policy Number: 900DX0359
Policy period: 10/01/96 to 11/01/97
[END OF EXHIBIT 10 (c) (1)]
<PAGE>
[EXHIBIT 10 (h) (1)]
SCI SYSTEMS, INC.
Adjustable Rate Senior Notes due 2006
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NOTE PURCHASE AGREEMENT
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Dated as of June 28, 1996
<PAGE>
Table of Contents
Page
1. AUTHORIZATION OF NOTES, ETC.1
1.1. The Notes.1
1.2. The Guarantees; Intercreditor Agreement.1
2. SALE AND PURCHASE OF NOTES.2
3. CLOSING.2
4. CONDITIONS TO CLOSING.3
4.1. Representations and Warranties.3
4.2. Performance; No Default.3
4.3. Compliance Certificates.3
4.4. Opinions of Counsel.4
4.5. Subsidiary Guarantees.4
4.6. Purchase Permitted by Applicable Law, Etc.4
4.7. Sale of Notes to Other Purchasers.4
4.8. Payment of Special Counsel Fees.5
4.9. Private Placement Number.5
4.10. Changes in Corporate Structure.5
4.11. Existing Bank Credit Facility; Etc.5
4.12. Proceedings and Documents.5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.5
5.1. Organization; Power and Authority; Capital Stock.5
5.2. Authorization, Etc.6
5.3. Disclosure.6
5.4. Organization and Ownership of Shares of
Subsidiaries; Affiliates.7
5.5. Financial Statements.7
5.6. Compliance with Laws, Other Instruments, Etc.8
5.7. Governmental Authorizations, Etc.8
5.8. Litigation; Observance of Agreements, Statutes and
Orders.8
5.9. Taxes.9
5.10. Title to Property; Leases.9
5.11. Licenses, Permits, Etc.9
5.12. Compliance with ERISA and Similar Laws.10
5.13. Private Offering by the Company.11
5.14. Use of Proceeds; Margin Regulations.11
5.15. Existing Indebtedness; Future Liens.12
5.16. Foreign Assets Control Regulations, Etc.12
5.17. Status Under Certain Statutes.12
5.18. Solvency.12
5.19. Environmental Matters.13
6. REPRESENTATION OF THE PURCHASER.13
6.1. Purchase for Investment, Etc.13
6.2. Source of Funds.14
7. INFORMATION AS TO THE COMPANY.16
7.1. Financial and Business Information.16
7.2. Officer's Certificate.19
7.3. Inspection.20
8. PREPAYMENT OF THE NOTES.20
8.1. Required Prepayments.20
8.2. Optional Prepayments.21
8.3. Notice of Prepayments.21
8.4. Allocation of Partial Prepayments.22
8.5. Maturity; Surrender, Etc.22
8.6. Purchase of Notes.22
8.7. Make-Whole Amount.23
9. AFFIRMATIVE COVENANTS.24
9.1. Compliance with Law.24
9.2. Insurance.25
9.3. Maintenance of Properties.25
9.4. Payment of Taxes and Claims.25
9.5. Corporate Existence, Etc.26
9.6. Additional Subsidiary Guarantees; Release of
Subsidiary Guarantees; Etc.26
10. NEGATIVE COVENANTS.27
10.1. Subsidiary Indebtedness.28
10.2. Liens.28
10.3. Certain Financial Conditions.31
10.4. Asset Sales.32
10.5. Merger, Consolidation, Etc.33
10.6. Sale of Notes or Accounts; Securitization
Transactions.34
10.7. Restricted Investments.35
10.8. Sale and Leaseback Transactions.35
10.9. Transactions with Affiliates.36
11. EVENTS OF DEFAULT.36
12. REMEDIES ON DEFAULT, ETC.39
12.1. Acceleration.39
12.2. Other Remedies.39
12.3. Rescission.40
12.4. No Waivers or Election of Remedies, Expenses,
Etc.40
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.40
13.1. Registration of Notes.40
13.2. Transfer and Exchange of Notes.41
13.3. Replacement of Notes.42
14. PAYMENTS ON NOTES.42
14.1. Place of Payment.42
14.2. Home Office Payment.42
15. EXPENSES, ETC.43
15.1. Transaction Expenses.43
15.2. Survival.44
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT.44
17. AMENDMENT AND WAIVER.44
17.1. Requirements.44
17.2. Solicitation of Holders of Notes.45
17.3. Binding Effect, Etc.45
17.4. Notes Held by the Company, Etc.45
18. NOTICES.46
19. REPRODUCTION OF DOCUMENTS.46
20. CONFIDENTIAL INFORMATION.47
21. SUBSTITUTION OF PURCHASER.48
22. MISCELLANEOUS.48
22.1. Successors and Assigns.48
22.2. Construction.48
22.3. Jurisdiction and Process; Waiver of Jury Trial.49
22.4. Payments Due on Non-Business Days.49
22.5. Severability.50
22.6. Accounting Terms.50
22.7. Counterparts.50
22.8. Governing Law.50
Exhibit 1.1 -- Form of Adjustable Rate Senior Note due 2006
Exhibit 1.2(a) -- Form of Subsidiary Guarantee
Exhibit 1.2(b) -- Form of Intercreditor Agreement
Exhibit 4.4(a) -- Form of Opinion of Counsel to the Company
Exhibit 4.4(b) -- Form of Opinion of Special Counsel for the
Company
Exhibit 4.4(c) -- Form of Opinion of Local Counsel for
Subsidiary Guarantors
Exhibit 4.4(d) -- Form of Opinion of Special Counsel for the
Purchasers
Schedule A -- Names and Addresses of Purchasers
Schedule B -- Defined Terms
Schedule 5.4 -- Subsidiaries
Schedule 5.5 -- Financial Statements
Schedule 5.8 -- Litigation
Schedule 5.11 -- Licenses, Permits, Etc.
Schedule 5.15 -- Existing Indebtedness and Liens
SCI SYSTEMS, INC.
c/o SCI Systems (Alabama), Inc.
2101 West Clinton Avenue
Huntsville, Alabama 35805
New York, New York
As of June 28, 1996
TO THE PURCHASER LISTED IN
THE ATTACHED SCHEDULE A
WHICH IS A SIGNATORY HERETO:
Ladies and Gentlemen:
SCI SYSTEMS, INC., a Delaware corporation (the "Company"),
agrees with you as follows:
1. AUTHORIZATION OF NOTES, ETC.
(a) The Notes.
The Company has duly authorized the issue and sale of
$100,000,000 aggregate principal amount of its Adjustable Rate Senior Notes due
2006 (the "Notes"), each such note to be substantially in the form set out in
Exhibit 1.1. As used herein, the term "Notes" means all notes originally
delivered pursuant to this Agreement and the Other Agreements referred to below
and all notes delivered in substitution or exchange for any such note and, where
applicable, shall include the singular number as well as the plural. Certain
capitalized and other terms used in this Agreement are defined in Schedule B;
references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a
Schedule or an Exhibit attached to this Agreement.
(a) The Guarantees; Intercreditor Agreement.
(i) The Notes and the obligations of the Company hereunder and
under the Other Agreements will be unconditionally guaranteed by each Domestic
Subsidiary identified as such in Schedule 5.4 (individually a "Subsidiary
Guarantor" and collectively the "Subsidiary Guarantors", which term shall
include after the date of the Closing all additional guarantors from time to
time executing and delivering Subsidiary Guarantees (as defined below) pursuant
to Section 9.6), pursuant to guarantee agreements substantially in the form of
Exhibit 1.2(a) (individually a "Subsidiary Guarantee" and collectively the
"Subsidiary Guarantees").
(ii)An Intercreditor Agreement substantially in the form of
Exhibit 1.2(b), among the Purchasers, the Credit Facility Banks, Citibank, N.A.,
as agent for said Banks (the "Agent"), The Governor and Company of the Bank of
Ireland ("BOI") and C&I (Division) Holdings ("Holdings") (the "Intercreditor
Agreement") shall govern the respective rights of the holders of the Notes, the
Credit Facility Banks, BOI and Holdings with respect to certain collateral
securing Indebtedness of the Company and certain Subsidiaries under the Existing
Bank Credit Facility. Pursuant to the Intercreditor Agreement the parties
thereto agree, among other things, to share in all recoveries in respect of
claims of such parties against the Company, each Subsidiary Guarantor and
certain other Subsidiaries on a parity.
1. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and you will purchase from the Company, at
the Closing provided for in Section 3, Notes in the principal amount specified
opposite your name in Schedule A at the purchase price of 100% of the principal
amount thereof. Contemporaneously with entering into this Agreement, the Company
is entering into separate Note Purchase Agreements (the "Other Agreements")
identical with this Agreement with each of the other purchasers named in
Schedule A (the "Other Purchasers"), providing for the sale at such Closing to
each of the Other Purchasers of Notes in the principal amount specified opposite
its name in Schedule A. Your obligation hereunder and the obligations of the
Other Purchasers under the Other Agreements are several and not joint
obligations and you shall have no obligation under any Other Agreement and no
liability to any Person for the performance or non-performance by any Other
Purchaser thereunder.
1. CLOSING.
The sale and purchase of the Notes to be purchased by you and
the Other Purchasers under this Agreement and the Other Agreements shall occur
at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, NY 10022, at a closing (the "Closing") on July 19, 1996 or on
such other Business Day thereafter as may be agreed upon by the Company and you
and the Other Purchasers. At the Closing the Company will deliver to you the
Notes to be purchased by you in the form of a single Note (or such greater
number of Notes in denominations of at least $100,000 as you may request) dated
the date of the Closing and registered in your name (or in the name of your
nominee), in each case against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 7733879 at Bank of America Illinois, Chicago, Illinois (ABA No.
071000039).
If at the Closing the Company shall fail to tender such Notes
to you as provided above in this Section 3, or any of the conditions specified
in Section 4 shall not have been fulfilled to your satisfaction or waived by
you, you shall, at your election, be relieved of all further obligations under
this Agreement, without thereby waiving any rights you may have by reason of
such failure or such nonfulfillment by the Company.
1. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold
to you at the Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:
(a) Representations and Warranties.
The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing.
(a) Performance; No Default.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing; after giving effect to the
issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by Section 5.14) no Default or Event of Default shall have occurred
and be continuing; and neither the Company nor any Subsidiary shall have entered
into any transaction since March 24, 1996 that would have been prohibited by any
of Sections 10.1 through 10.8, inclusive, had such Sections applied since such
date.
(a) Compliance Certificates.
(i) Officer's Certificate. The Company shall have delivered to
you an Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2, 4.10 and 4.11 have been fulfilled.
(ii)Secretary's Certificate. The Company shall have delivered
to you a certificate of the Secretary or an Assistant Secretary of the Company,
certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of the Notes,
this Agreement, the Other Agreements and the other documents contemplated by
this Agreement and the Other Agreements.
(iii) Subsidiary Guarantor's Secretary's Certificate. Each
Subsidiary Guarantor shall have delivered to you a certificate of the Secretary
or an Assistant Secretary of such Subsidiary Guarantor certifying as to the
resolutions attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of its respective Subsidiary Guarantee.
(b) Opinions of Counsel.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing, from
(i) Michael M. Sullivan, Esq., Corporate Counsel to the
Company, and Powell, Goldstein, Frazer & Murphy, special counsel for
the Company, substantially in the respective forms set forth in
Exhibits 4.4(a) and 4.4(b), and Birch, de Jongh, Hindels & Hall, local
counsel for SCI Foreign Sales, Inc., substantially in the form set
forth in Exhibit 4.4(c) (and the Company hereby instructs such counsel
to deliver such opinions to you), and
(ii)Willkie Farr & Gallagher, your special counsel in
connection with the transactions contemplated hereby, substantially in
the form set forth in Exhibit 4.4(d).
Each such opinion shall also cover such other matters incident to such
transactions as you may reasonably request.
(a) Subsidiary Guarantees.
Separate Subsidiary Guarantees, each dated as of a date on or
before the date of the Closing, shall have been executed and delivered by each
Subsidiary Guarantor in the form hereinabove recited and shall be in full force
and effect.
(a) Purchase Permitted by Applicable Law, Etc.
On the date of the Closing, your purchase of Notes shall (a)
be permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (b) not
violate any applicable law or regulation (including without limitation
Regulation G, T or X of the Board of Governors of the Federal Reserve System)
and (c) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
(a) Sale of Notes to Other Purchasers.
The Company shall sell to the Other Purchasers and the Other
Purchasers shall purchase the Notes to be purchased by them at the Closing as
specified in Schedule A.
(a) Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the reasonable fees, charges and
disbursements of your special counsel referred to in Section 4.4 to the extent
reflected in a statement of such counsel rendered to the Company at least one
Business Day prior to the Closing.
(a) Private Placement Number.
A Private Placement Number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Notes.
(a) Changes in Corporate Structure.
The Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity
at any time following the date of the most recent financial statements referred
to in Schedule 5.5.
(a) Existing Bank Credit Facility; Etc.
The Intercreditor Agreement shall have been duly executed and
delivered in the form hereinabove recited and such document and the Existing
Bank Credit Facility shall be in full force and effect.
(a) Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be reasonably satisfactory to you and your
special counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
(a) Organization; Power and Authority; Capital Stock.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement, the Other Agreements and the Notes and to perform the
provisions hereof and thereof.
(a) Authorization, Etc.
This Agreement, the Other Agreements and the Notes have been
duly authorized by all necessary corporate action on the part of the Company,
and this Agreement constitutes, and upon execution and delivery thereof each
Note will constitute, legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms. Each
Subsidiary Guarantee required to be delivered by a Subsidiary on the date of the
Closing has been duly authorized by all necessary corporate and shareholder
action on the part of the respective Subsidiary and, upon execution and delivery
thereof as hereinabove provided, will constitute a legal, valid and binding
obligation of such Subsidiary enforceable against such Subsidiary in accordance
with its terms.
(a) Disclosure.
The Company, through its agent Citicorp Securities, Inc., has
delivered to you a copy of a Confidential Offering Memorandum, dated April 1996
(the "Memorandum"), relating to the transactions contemplated hereby. The
Memorandum fairly describes, in all material respects, the general nature of the
business and principal properties of the Company and its Subsidiaries. This
Agreement, the Memorandum, SEC filings, documents, certificates or other
writings delivered to you by or on behalf of the Company in connection with the
transactions contemplated hereby (together with the Memorandum, the "Disclosure
Documents"), and the financial statements listed in Schedule 5.5, taken as a
whole, do not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made. Since June 30, 1995,
there has been no change in the financial condition, operations, business,
properties or prospects of the Company or any Subsidiary except as disclosed in
the Disclosure Documents or in the financial statements listed in Schedule 5.5
and other changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to the
Company that could reasonably be expected to have a Material Adverse Effect that
has not been set forth herein or in the Disclosure Documents or such financial
statements.
(a) Organization and Ownership of Shares of Subsidiaries; Affiliates.
(i) Schedule 5.4 contains (except as noted therein)
complete and correct lists of the Company's (i) Subsidiaries, showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its organization,
the percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by the Company and each other Subsidiary, and
whether it is a Subsidiary Guarantor, (ii) Affiliates, other than Subsidiaries,
and (iii) directors and senior officers.
(ii) All of the outstanding shares of capital stock or
similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned
by the Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and clear
of any Lien (except as otherwise disclosed in Schedule 5.4).
(iii) Each Subsidiary identified in Schedule 5.4 is a
corporation duly organized, validly existing and, where applicable, in good
standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease
and to transact the business it transacts and proposes to transact and, in the
case of Subsidiary Guarantors, to execute and deliver and perform its
obligations under its respective Subsidiary Guarantee. No Subsidiary is a
guarantor under the Existing Bank Credit Facility other than Subsidiaries listed
as Subsidiary Guarantors in Schedule 5.4.
(iv) No Subsidiary is a party to, or otherwise subject to
any legal restriction or any agreement (other than this Agreement, the
agreements listed in Schedule 5.4 and customary limitations imposed by corporate
law statutes) restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the Company or any
of its Subsidiaries that owns outstanding shares of capital stock or similar
equity interests of such Subsidiary.
(b) Financial Statements.
The Company has delivered to you copies of the financial
statements of the Company and its Subsidiaries listed in Schedule 5.5. All of
said financial statements (including in each case the related schedules and
notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
(a) Compliance with Laws, Other Instruments, Etc.
The execution, delivery and performance by the Company of this
Agreement and the Notes, and by its Subsidiaries of their respective Subsidiary
Guarantees, will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of the Company or any Subsidiary under, any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, corporate charter or by-laws, or any other
material agreement or instrument to which the Company or any Subsidiary is bound
or by which the Company or any Subsidiary or any of their respective properties
may be bound or affected, (ii) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree or ruling of any
court, arbitrator or Governmental Authority applicable to the Company or any
Subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Subsidiary. The representation by the Company in clause (iii) of the preceding
sentence is made in reliance upon and subject to the accuracy of your
representations in Sections 6.1 and 6.2
(a) Governmental Authorizations, Etc.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by the Company of this Agreement or
the Notes or by the Subsidiary Guarantors of their respective Subsidiary
Guarantees. The representation by the Company in this Section 5.7 is made in
reliance upon and subject to the accuracy of your representation in Section 6.1.
(a) Litigation; Observance of Agreements, Statutes and Orders.
(i) Except as disclosed in Schedule 5.8, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary or any property of
the Company or any Subsidiary in any court or before any arbitrator of any kind
or before or by any Governmental Authority that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(ii) Neither the Company nor any Subsidiary is in default
under any term of any agreement or instrument to which it is a party or by which
it is bound, or any order, judgment, decree or ruling of any court, arbitrator
or Governmental Authority or is in violation of any applicable law, ordinance,
rule or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(b) Taxes.
The Company and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (a) the amount
of which is not individually or in the aggregate Material or (b) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
federal, state or other taxes for all fiscal periods are adequate. The Federal
income tax liabilities of the Company and its Subsidiaries have been determined
by the Internal Revenue Service and paid for all fiscal years up to and
including the fiscal year ended in June, 1989.
(a) Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient
title to their respective properties that individually or in the aggregate are
Material, including all such properties reflected in the most recent audited
balance sheet listed on Schedule 5.5 or purported to have been acquired by the
Company or any Subsidiary after said date (except as sold or otherwise disposed
of in the ordinary course of business), in each case free and clear of Liens
prohibited by this Agreement. All leases that individually or in the aggregate
are Material are valid and subsisting and are in full force and effect in all
material respects.
(a) Licenses, Permits, Etc.
Except as disclosed in Schedule 5.11,
(i) the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks, trade names and proprietary software, or rights thereto, that
individually or in the aggregate are Material, free and clear of any Liens
prohibited by Section 10.2 and without known conflict with the rights of others;
(ii) to the best knowledge of the Company, no product of
the Company or any Subsidiary infringes in any material respect any license,
permit, franchise, authorization, patent, copyright, service mark, trademark,
trade name, proprietary software or other right owned by any other Person; and
(iii) to the best knowledge of the Company, there is no
Material violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark, trademark,
trade name, proprietary software or other right owned or used by the Company or
any of its Subsidiaries.
(a) Compliance with ERISA and Similar Laws.
(i) The Company and each ERISA Affiliate have operated
and administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not reasonably
be expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and, to the best knowledge of the
Company, no event, transaction or condition has occurred or exists that would
reasonably be expected to result in the incurrence of any such liability by the
Company or any ERISA Affiliate, or in the imposition of any Lien on any of the
rights, properties or assets of the Company or any ERISA Affiliate, in either
case pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as could not be individually or in the aggregate Material.
(ii) The present value of the aggregate benefit
liabilities under each of the Plans subject to Title IV of ERISA or Section 412
of the Code, determined as of the end of such Plan's most recently ended plan
year on the basis of the actuarial assumptions specified for funding purposes in
such Plan's most recent actuarial valuation report, did not exceed the aggregate
current value of the assets of such Plan allocable to such benefit liabilities.
The term "benefit liabilities" has the meaning specified in section 4001 of
ERISA and the terms "current value" and "present value" have the meaning
specified in section 3 of ERISA.
(iii) The Company and its ERISA Affiliates have not
incurred withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(iv) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any transaction that
is subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code.
The representation by the Company in the first sentence of this Section 5.12(d)
is made in reliance upon and subject to the accuracy of your representation in
Section 6.2 as to the sources of the funds to be used to pay the purchase price
of the Notes to be purchased by you.
(v) All Foreign Plans have been established, operated,
administered and maintained in material compliance with all laws, regulations
and orders applicable thereto. All premiums, contributions and any other amounts
required by applicable Foreign Plan documents or applicable laws to be paid or
accrued by the Company and its Subsidiaries, to the extent Material, have been
paid or accrued as required.
(b) Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has
offered the Notes, the Subsidiary Guarantees or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any person other than you, the Other
Purchasers and not more than 40 other Institutional Investors, each of which has
been offered the Notes at a private sale for investment. Neither the Company nor
anyone acting on its behalf has taken or will take, any action that would
subject the issuance or sale of the Notes or the execution and delivery of the
Subsidiary Guarantees to the registration requirements of Section 5 of the
Securities Act.
(a) Use of Proceeds; Margin Regulations.
The Company will apply the net proceeds of the sale of the
Notes for general corporate purposes. No part of the proceeds from the sale of
the Notes hereunder will be used, directly or indirectly, for the purpose of
buying or carrying any margin stock within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System (12 CFR 207), or for the
purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220). Margin stock does not constitute more
than 10% of the value of the consolidated assets of the Company and its
Subsidiaries, and the Company does not have any present intention that margin
stock will constitute more than 10% of the value of such assets. As used in this
Section, the terms "margin stock" and "purpose of buying or carrying" shall have
the meanings assigned to them in said Regulation G.
(a) Existing Indebtedness; Future Liens.
(i) Schedule 5.15 sets forth a complete and correct list
of each item of outstanding Indebtedness of the Company and its Subsidiaries
exceeding $2,000,000 as of June 29, 1996, since which date there has been no
Material change in the amounts, interest rates, sinking funds, installment
payments or maturities of the Indebtedness of the Company or its Subsidiaries.
Neither the Company nor any Subsidiary is in default, and no waiver of default
is currently in effect, in the payment of any principal or interest on any
Indebtedness of the Company or such Subsidiary, and no event or condition exists
with respect to any such Indebtedness of the Company or any Subsidiary Guarantor
or, to the best knowledge of the Senior Financial Officers of the Company, any
other Subsidiary that would permit (or that with the giving of notice or the
lapse of time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment. Schedule 5.15 also indicates whether such
Indebtedness is by its terms subordinate or junior in right of payment to any
other Indebtedness of the obligor.
(ii) Except as disclosed in Schedule 5.15, neither the
Company nor any Subsidiary has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien not permitted
to exist by Section 10.2.
(b) Foreign Assets Control Regulations, Etc.
Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
(a) Status Under Certain Statutes.
Neither the Company nor any Subsidiary is subject to
regulation as an investment company under the Investment Company Act of 1940, as
amended, the Public Utility Holding Company Act of 1935, as amended, or the
Federal Power Act, as amended.
(a) Solvency.
Each of the Company and the Subsidiary Guarantors is, and
after giving effect to the issuance of the Notes and the Subsidiary Guarantees
on the date of the Closing will be, a "solvent institution", as said term is
used in Section 1405(c) of the New York Insurance Law, whose "obligations. . .
are not in default as to principal or interest", as said terms are used in said
Section 1405(c).
(a) Environmental Matters.
Neither the Company nor any Subsidiary has knowledge of any
claim or has received any notice of any claim, or that any proceeding has been
instituted raising any claim against the Company or any of its Subsidiaries or
any of their respective real properties now or formerly owned, leased or
operated by any of them or other assets, alleging any damage to the environment
or violation of any Environmental Laws, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect. Without limiting
the foregoing,
(i) neither the Company nor any Subsidiary has knowledge
of any facts which would give rise to any claim, public or private, of violation
of Environmental Laws or damage to the environment emanating from, occurring on
or in any way related to real properties now or formerly owned, leased or
operated by any of them or to other assets or their use, except, in each case,
such as could not reasonably be expected to result in a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary has stored any
Hazardous Materials on real properties now or formerly owned, leased or operated
by any of them and has not disposed of any Hazardous Materials in a manner
contrary to any Environmental Laws, in each case in any manner that could
reasonably be expected to result in a Material Adverse Effect; and
(iii) to the knowledge of the Company, all buildings on all
real properties now owned, leased or operated by the Company or any Subsidiary
are in compliance with applicable Environmental Laws, except where failure to
comply could not reasonably be expected to result in a Material Adverse Effect.
1. REPRESENTATION OF THE PURCHASER.
(a) Purchase for Investment, Etc.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that, and the
Notes may bear a legend to the effect that, the Notes have not been registered
under the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law, and that the Company is not required to
register the Notes; provided that such legend will be removed (and one or more
new Notes will be issued as provided in Section 13.2 but without such legend) if
at any time you or a holder from time to time of any Note shall surrender such
Note for registration of transfer or exchange and concurrently provide the
Company with an opinion of counsel (who may be in-house counsel) to the effect
that the conditions to paragraph (k) of Rule 144 under the Securities Act have
been met with respect to such Note.
You also represent that:
(i) you are an "accredited investor", as defined in Rule
501(a)(1) of the Securities Act;
(ii) the Company has made available to you, a reasonable
time prior to the consummation of the transactions contemplated hereby, the
opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Notes and to obtain any additional information
which the Company possesses or could acquire without unreasonable effort or
expense; and
(iii) you have such knowledge and experience in financial
and business matters that you are capable of evaluating the merits and risks of
your investment in the Notes, and you and any accounts for which you are acting
are each able to bear the economic risk of your or its investment and can afford
the complete loss of such investment;
provided that nothing contained in this Section 6.1 shall in any manner or to
any degree affect the scope of the representations and warranties made by the
Company or any Subsidiary or by any officer of the Company or any Subsidiary in
this Agreement, any Subsidiary Guarantee or any other writing furnished in
connection with the transactions contemplated hereby or your right or the right
of the holder of any Note to rely thereon.
(a) Source of Funds.
You represent that at least one of the following statements is
an accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(i) the Source is a general account of an insurance
company, and the amount of the reserves and liabilities (as defined by the
annual statement for life insurance companies approved by the National
Association of Insurance Commissioners (the "NAIC Annual Statement")) for the
general account contract(s) held by or on behalf of any employee benefit plan,
when combined with the amount of the reserves and liabilities (as defined by the
NAIC Annual Statement) for the general account contract(s) held by or on behalf
of all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Prohibited Transaction
Exemption ("PTE") 95-60) of such employer or by the same employee organization,
do not exceed 10% of the total reserves and liabilities of such general account
(exclusive of separate account liabilities) plus surplus as set forth in the
NAIC Annual Statement filed with the state of domicile of the insurance company
(the amount of reserves and liabilities for the general account contract(s) held
by or on behalf of an employee benefit plan being determined before reduction
for credits on account of any reinsurance ceded on a coinsurance basis); or
(ii) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or
(ii) a bank collective investment fund, within the meaning of PTE 91-38 (issued
July 12, 1991) and, except as you have disclosed to the Company in writing
pursuant to this paragraph (b), no employee benefit plan or group of plans
maintained by the same employer or employee organization beneficially owns more
than 10% of all assets allocated to such pooled separate account or collective
investment fund; or
(iii) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM
Exemption), no employee benefit plan's assets that are included in such
investment fund, when combined with the assets of all other employee benefit
plans established or maintained by the same employer or by an affiliate (within
the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of the total
client assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling or
controlled by the QPAM (applying the definition of "control" in Section V(e) of
the QPAM Exemption) owns a 5% or more interest in the Company and (i) the
identity of such QPAM and (ii) the names of all employee benefit plans whose
assets are included in such investment fund have been disclosed to the Company
in writing pursuant to this paragraph (c); or
(iv) the Source is a governmental plan; or
(v) the Source is one or more employee benefit plans, or
a separate account or trust fund comprising one or more employee benefit plans,
each of which has been identified to the Company in writing pursuant to this
paragraph (e); or
(vi) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of Title I of ERISA.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan" and "separate account" shall have the respective meanings
assigned to such terms in section 3 of ERISA.
1. INFORMATION AS TO THE COMPANY.
(a) Financial and Business Information.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(i) Quarterly Statements -- within 45 days after the end
of each quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year),
(1) a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such quarter, and
(2) consolidated statements of income, changes
in shareholders' equity and cash flows of the Company and its
Subsidiaries for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally
(including notes thereto, as applicable), and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial position
of the companies being reported on and their results of operations and cash
flows, subject to changes resulting from year-end adjustments, provided that
delivery within the time period specified above of copies of the Company's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of this Section 7.1(a);
(i) Annual Statements -- within 90 days after the end of
each fiscal year of the Company,
(1) a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such year, and
(2) consolidated statements of income, changes
in shareholders' equity and cash flows of the Company and its
Subsidiaries for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP
(including notes thereto, as applicable), and accompanied by
(x) an opinion thereon of independent accountants of
recognized national standing, which shall state that such
financial statements present fairly, in all material respects,
the financial position of the companies being reported upon
and their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination of
such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for
such opinion in the circumstances, and
(y) a certificate of such accountants stating that
they have reviewed this Agreement and stating further whether,
in making their audit, they have become aware of any condition
or event that then constitutes a Default or an Event of
Default, and, if they are aware that any such condition or
event then exists, specifying the nature and period of the
existence thereof (it being understood that such accountants
shall not be liable, directly or indirectly, for any failure
to obtain knowledge of any Default or Event of Default unless
such accountants should have obtained knowledge thereof in
making an audit in accordance with generally accepted auditing
standards or did not make such an audit);
provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with the
Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3
under the Exchange Act) prepared in accordance with the requirements therefor
and filed with the SEC, together with the accountants' certificate described in
clause (x) above, shall be deemed to satisfy the requirements of this Section
7.1(b);
(i) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or proxy
statement sent by the Company or any Subsidiary to the Credit Facility Banks or
the banks or other financial institutions party to any New Credit Facility or
generally to its public shareholders or other creditors, and (ii) each regular
or periodic report, each registration statement (without exhibits except as
expressly requested by such holder), an each prospectus and all amendments
thereto filed by the Company or any Subsidiary with the SEC and all press
releases and other statements made available generally by the Company or any
Subsidiary to the public concerning developments that are Material;
(ii) Notice of Default or Event of Default (Including
Other Indebtedness Defaults) -- promptly, and in any event within five Business
Days after a Responsible Officer becoming aware of the existence of any Default
or Event of Default or that any Person has given any notice or taken any action
with respect to a claimed default hereunder or under the Existing Bank Credit
Facility or that any Person has given any notice or taken any action with
respect to a claimed default of the type referred to in Section 11(f), a written
notice specifying the nature and period of existence thereof and what action the
Company is taking or proposes to take with respect thereto;
(iii) ERISA Matters -- promptly, and in any event within
five days after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any, that the
Company or an ERISA Affiliate proposes to take with respect thereto:
(1) with respect to any Plan subject to Title
IV of ERISA or Section 412 of the Code, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(2) the taking by the PBGC of steps to
institute, or the threatening by the PBGC of the institution
of, proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,
any Plan, or the receipt by the Company or any ERISA Affiliate
of a notice from a Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer
Plan; or
(3) any event, transaction or condition that
could result in the incurrence of any liability by the Company
or any ERISA Affiliate pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating
to employee benefit plans, or in the imposition of any Lien
on any of the rights, properties or assets of the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(iv) Notices from Governmental Authority -- promptly, and
in any event within 30 days of receipt thereof, copies of any notice to the
Company or any Subsidiary from any federal, state or local Governmental
Authority relating to any order, ruling, statute or other law or regulation that
could reasonably be expected to have a Material Adverse Effect;
(v) Requested Information -- with reasonable promptness,
such other data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries or relating to the ability of the Company to perform its
obligations hereunder and under the Notes or the ability of any Subsidiary to
perform its obligations under its respective Subsidiary Guarantee, in each case
as from time to time may be reasonably requested by any such holder of Notes.
(a) Officer's Certificate.
Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(i) Covenant Compliance -- the information (including
detailed calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.1 through 10.4, inclusive, and
Sections 10.6 and 10.7 during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such Section,
where applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such Sections,
and the calculation of the amount, ratio or percentage then in existence) and
the Applicable Margin calculated as of the date of the certificate; and
(ii) Default -- a statement that such Senior Financial
Officer has reviewed the relevant terms hereof and, to the best knowledge of
such Officer, after due inquiry, no Default or Event of Default exists, or
existed during the period from the beginning of the quarterly or annual period
covered by the statements then being furnished to the date of the certificate
or, if any such condition or event existed or exists (including without
limitation any such event or condition resulting from the failure of the Company
or any Subsidiary to comply with any Environmental Law), specifying the nature
and period of existence thereof and what action the Company shall have taken or
proposes to take with respect thereto.
(a) Inspection.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
(i) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with the
Company's Senior Financial Officers, and (with the consent of the Company, which
consent will not be unreasonably withheld) its independent public accountants,
and (with the consent of the Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of the Company and each
Subsidiary, all at such reasonable times and as often as may be reasonably
requested in writing; and
(ii) Default -- if a Default or Event of Default then
exists, at the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective Senior Financial Officers and independent public accountants
(and by this provision the Company authorizes said accountants to discuss the
affairs, finances and accounts of the Company and its Subsidiaries so long as
notice of such discussions is given to the Company substantially
contemporaneously therewith), all at such times and as often as may be
requested.
1. PREPAYMENT OF THE NOTES.
In addition to the payment of the entire unpaid principal
amount of the Notes at the final maturity thereof, the Company will make
required, and may make optional, prepayments in respect of the Notes, all as
hereinafter provided.
(a) Required Prepayments.
On July 19, 2001 and on each July 19 thereafter to and
including July 19, 2005, the Company will prepay $16,667,000 principal amount
(or such lesser principal amount as shall then be outstanding) of the Notes,
such prepayment to be made at the principal amount to be prepaid, together with
accrued interest thereon to the date of such prepayment, without premium and
allocated as provided in Section 8.4, provided that upon any partial prepayment
of the Notes pursuant to Section 8.2 or purchase of less than all of the
outstanding Notes pursuant to Section 8.6, the principal amount of each required
prepayment of the Notes becoming due under this Section 8.1 on and after the
date of such prepayment or purchase shall be reduced in the same proportion as
the aggregate unpaid principal amount of the Notes is reduced as a result of
such prepayment or purchase.
(a) Optional Prepayments.
The Company may, at its option and upon notice as provided in
Section 8.3, prepay at any time all, or from time to time any part of, the Notes
(but, if in part, then in a minimum amount of $1,000,000 and otherwise in
multiples of $100,000) at the principal amount so prepaid, together with
interest accrued thereon to the date of such prepayment, plus the Make-Whole
Amount determined for the prepayment date with respect to such principal amount.
(a) Notice of Prepayments.
The Company will give each holder of Notes being prepaid
written notice of each optional prepayment under Section 8.2 not less than 15
days and not more than 30 days prior to the date fixed for such prepayment. Each
such notice shall specify the date fixed for such prepayment (which shall be a
Business Day), the aggregate principal amount of the Notes to be prepaid on such
date, the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.4) and the interest to be paid on the
prepayment date with respect to such principal amount being prepaid.
Each such notice of prepayment shall be accompanied by a
certificate of a Senior Financial Officer as to the estimated Make-Whole Amount
for the Notes being prepaid due in connection with such prepayment (calculated
as if the date of such notice were the date of the prepayment), setting forth
the details of such computation. Two Business Days prior to such prepayment, the
Company shall deliver to each holder of Notes being prepaid a certificate of a
Senior Financial Officer specifying the calculation of such Make-Whole Amount as
of the specified prepayment date. If for any reason any holder of the Notes, by
notice to the Company, objects to such calculation of the Make-Whole Amount, the
Make-Whole Amount calculated by such holder and specified in such notice shall
be final and binding upon the Company and the holders of the Notes absent
manifest error. If any such holder of a Note shall give the notice specified in
the preceding sentence, the Company will forthwith provide copies of such notice
to all other holders of outstanding Notes.
(a) Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes, the
principal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof.
(a) Maturity; Surrender, Etc.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Make-Whole Amount, if any, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall thereafter
be surrendered to the Company and canceled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of any Note.
(a) Purchase of Notes.
The Company will not, and will not permit any Affiliate to,
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except (a) upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes; or (b) pursuant to an
offer to purchase made by the Company or an Affiliate pro rata to the holders of
all Notes at the time outstanding upon the same terms and conditions, and in any
event at a price not less than the amount (including without limitation interest
accrued on the principal amount of the Notes to be so purchased to the date of
such purchase and the Make-Whole Amount determined for the purchase date with
respect to such principal amount) that would be payable in connection with an
optional prepayment pursuant to Section 8.2. Any such offer shall provide each
holder with sufficient information to enable it to make an informed decision
with respect to such offer, and shall remain open for at least ten Business
Days. If the holders of more than 25% of the principal amount of the Notes then
outstanding accept such offer, the Company shall promptly notify the remaining
holders of such fact and the expiration date for the acceptance by holders of
Notes of such offer shall be extended by the number of days necessary to give
each such remaining holder at least five Business Days from its receipt of such
notice to accept such offer. The Company will promptly cancel (or will cause to
be promptly canceled) all Notes acquired by it or any Affiliate in connection
with any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
(a) Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2,
purchased pursuant to Section 8.6 or has become or is declared to be
immediately due and payable pursuant to Section 12.1, as the context
requires.
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on such Note is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (i)
the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the Bloomberg Financial Markets News screen Px
(bid side) or the equivalent screen provided by Bloomberg Financial
Markets News (or any nationally recognized publicly available on-line
source of similar market data) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or (ii) if such
yields are not reported as of such time or the yields reported as of
such time are not ascertainable, the Treasury Constant Maturity Series
Yields reported, for the latest day for which such yields have been so
reported as of the second Business Day preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield will be determined, if necessary,
by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b)
interpolating linearly between (1) the actively traded U.S. Treasury
security with a maturity closest to and greater than the Remaining
Average Life and (2) the actively traded U.S. Treasury security with a
maturity closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon (calculated at the interest rate in effect on the date
of determination with respect to the Notes) that would be due after the
Settlement Date with respect to such Called Principal if no payment of
such Called Principal were made prior to its scheduled due date,
provided that if such Settlement Date is not a date on which interest
payments are due to be made under the terms of the Notes, then the
amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to Section 8.2,
8.6 or 12.1.
"Settlement Date" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or purchased pursuant to Section 8.6 or has
become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
1. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding (and without limiting specific obligations of the Company or any
Subsidiary under any Security Document):
(a) Compliance with Law.
The Company will and will cause each of its Subsidiaries to
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, including without limitation Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(a) Insurance.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
(a) Maintenance of Properties.
Subject to Sections 10.4 and 10.5, the Company will and will
cause each of its Subsidiaries to maintain and keep, or cause to be maintained
and kept, their respective properties in good repair, working order and
condition (other than ordinary wear and tear and losses due to casualties
covered by insurance), so that the business carried on in connection therewith
may be properly conducted at all times, provided that this Section shall not
prevent the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(a) Payment of Taxes and Claims.
The Company will and will cause each of its Subsidiaries to
file all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
reasonably be expected to become a Lien on properties or assets of the Company
or any Subsidiary, provided that neither the Company nor any Subsidiary need pay
any such tax or assessment or claim if (i) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, and the Company or a Subsidiary has
established adequate reserves therefor in accordance with GAAP on the books of
the Company or such Subsidiary and (ii) the nonpayment of all such contested
taxes and assessments in the aggregate could not reasonably be expected to have
a Material Adverse Effect.
(a) Corporate Existence, Etc.
The Company will at all times preserve and keep in full force
and effect its corporate existence, except as otherwise permitted by Section
10.5. Subject to Sections 10.4 and 10.5, the Company will at all times preserve
and keep in full force and effect the corporate existence of each of its
Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and
franchises of the Company and its Subsidiaries unless, in the good faith
judgment of the Company, the termination of or failure to preserve and keep in
full force and effect such corporate existence, right or franchise could not,
individually or in the aggregate, have a Material Adverse Effect.
(a) Additional Subsidiary Guarantees; Release of Subsidiary Guarantees; Etc.
(i) If after the date of the Closing any Person that has
not theretofore executed and delivered a Subsidiary Guarantee shall become a
Domestic Subsidiary, promptly and in any event within 60 days thereafter, the
Company will cause such Subsidiary to execute and deliver a Subsidiary
Guarantee, in the form hereinabove recited, and will furnish each holder of the
Notes with (i) a counterpart of such executed Subsidiary Guarantee and (ii) an
opinion of Powell, Goldstein, Frazer & Murphy or other counsel reasonably
satisfactory to the Required Holders (which opinion shall be reasonably
satisfactory to the Required Holders and may be subject to customary exceptions,
qualifications and limitations under the circumstances) to the effect that such
Subsidiary Guarantee has been duly authorized, executed and delivered by such
Subsidiary and is valid, binding and enforceable in accordance with its terms,
provided that if the execution, delivery or performance by such Subsidiary of a
Subsidiary Guarantee would not be permitted under applicable law, the Company
will (x) cause to be delivered to each holder of the Notes an opinion of counsel
reasonably satisfactory to the Required Holders to such effect and (y) make
effective provision (pursuant to documentation in form and substance
satisfactory to the Required Holders) whereby the Notes will be secured by a
Lien on all of such capital stock.
(ii) If after the date of the Closing any Subsidiary that
has not theretofore executed and delivered a Subsidiary Guarantee shall
guarantee or become a direct obligor under the Existing Bank Credit Facility or
any other credit facility, loan agreement, credit agreement or other agreement
that from time to time directly or indirectly replaces the Existing Bank Credit
Facility (a "New Credit Facility"), then prior to or concurrently with the
incurrence (as guarantor or direct obligor) of any Indebtedness under the
Existing Bank Credit Facility or under such New Credit Facility, as applicable,
the Company will cause such Subsidiary to execute and deliver a Subsidiary
Guarantee in the form hereinabove recited and will furnish each holder of the
Notes with a counterpart of such executed Subsidiary Guarantee and an opinion
with respect thereto as described in clause (a)(ii) above, subject to compliance
then or thereafter with the requirements of Section 9.6(c) in respect of such
Subsidiary Guarantee.
(iii) Prior to or concurrently with the incurrence of any
Indebtedness (as a direct obligor or guarantor) under a New Credit Facility by
any Subsidiary which executes and delivers a Subsidiary Guarantee after the date
of the Closing (or is concurrently required to do so as aforesaid) the Company
will cause to be delivered to the holders of the Notes an intercreditor
agreement among the holders of the Notes and the banks or financial institutions
party to such New Credit Facility, in form and substance satisfactory to the
Required Holders, pursuant to which the holders of the Notes and each such bank
or financial institution party to the New Credit Facility agree to treat their
respective claims against such Subsidiary in bankruptcy or liquidation on a
parity (without regard to any differences in any benefits derived by such
Subsidiary from such Subsidiary Guarantee and from such Indebtedness under such
New Credit Facility).
(iv) The Company will cause each Subsidiary Guarantee to
remain in full force and effect at all times after the execution and delivery
thereof (so long as the respective Subsidiary Guarantor remains in existence in
compliance with Section 9.5). Any Subsidiary Guarantor the Voting Stock of which
is being disposed of as an entirety in any Asset Sale in accordance with the
provisions of Section 10.4 and any other Subsidiary Guarantor shall, at the
Company's request, be discharged from all of its obligations and liabilities
under its Subsidiary Guarantee by the Required Holders entering into a release
in form and substance reasonably satisfactory to the Required Holders, and you
and each other holder of a Note, by acceptance of such Note, agree to enter into
such a reasonably satisfactory release promptly upon request, except that this
sentence shall not apply (i) if before and immediately after giving effect to
such release a Default or an Event of Default shall have occurred and be
continuing, (ii) to a Subsidiary if any amount is then due and payable under its
Subsidiary Guarantee or (iii) to a Subsidiary which at the time is a guarantor
of any other Indebtedness of the Company or another Subsidiary Guarantor that is
not also concurrently being released.
1. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
(a) Subsidiary Indebtedness.
The Company will not permit any Subsidiary which is not a
Subsidiary Guarantor to create, assume, incur, guarantee or otherwise become
liable in respect of any Indebtedness except
(i) Indebtedness owing to the Company or a Subsidiary
Guarantor;
(ii) Indebtedness with respect to the Existing Bank Credit
Facility or a New Credit Facility; and
(iii) other Indebtedness (including Capitalized Lease
Obligations), provided that immediately after giving effect thereto the sum
(without duplication) of (i) the aggregate unpaid principal amount of
Indebtedness of the Company and its Subsidiaries secured by Liens permitted by
Section 10.2(n) plus (ii) the aggregate unpaid principal amount of Indebtedness
of all Subsidiaries (other than Indebtedness permitted by clause (a) or (b)
above and other unsecured Indebtedness of Subsidiary Guarantors) plus (iii) the
aggregate Attributable Debt in connection with all sale and leaseback
transactions of the Company and its Subsidiaries does not exceed 25% of
Consolidated Tangible Net Worth.
In addition, and notwithstanding the foregoing, the Company
will not permit any Subsidiary to become a direct obligor with respect to any
Indebtedness under the Existing Bank Credit Facility.
For purposes of this Section 10.1, a Subsidiary shall be
deemed to have incurred Indebtedness in respect of any obligation previously
owed to the Company or a Subsidiary Guarantor on the date the obligee ceases for
any reason to be the Company or a Subsidiary Guarantor, and a Person that
hereafter becomes a Subsidiary or a Subsidiary Guarantor that for any reason
ceases to be a Subsidiary Guarantor shall be deemed at that time to have
incurred all of its outstanding Indebtedness.
(a) Liens.
The Company will not and will not permit any Subsidiary to
create, assume, incur or suffer to exist any Lien upon or with respect to any
property or assets, whether now owned or hereafter acquired, provided that
nothing in this Section 10.2 shall prohibit
(i) Liens existing on the date of the Closing and set
forth in Schedule 5.15;
(ii) Liens in respect of property acquired or constructed
by the Company or a Subsidiary after the date of the Closing, which are created
at the time of or within 270 days after acquisition or completion of
construction of such property to secure Indebtedness assumed or incurred to
finance all or any part of the purchase price or cost of construction of such
property, provided that in any such case
(1) no such Lien shall extend to or cover any
other property of the Company or such Subsidiary, as the case
may be,
(2) the aggregate principal amount of
Indebtedness secured by all such Liens in respect of any such
property shall not exceed the cost of such property and any
improvements then being financed, and
(3) the aggregate principal amount of
Indebtedness secured by all such Liens in respect of all such
properties shall not exceed 5% of the average Consolidated
Tangible Net Worth as of the last day of each of the four
quarterly accounting periods then most recently ended (such
average being equal to the product of (x) the sum of
Consolidated Tangible Net Worth as of the last day of each of
the four quarterly accounting periods then most recently
ended, and (y).25);
(iii) Liens in respect of property acquired by the Company
or a Subsidiary after the date of the Closing, existing on such property at the
time of acquisition thereof (and not created in anticipation thereof), or in the
case of any Person that after the date of the Closing becomes a Subsidiary or is
consolidated with or merged with or into the Company or a Subsidiary or sells,
leases or otherwise disposes of all or substantially all of its property to the
Company or a Subsidiary, Liens existing at the time such Person becomes a
Subsidiary or is so consolidated or merged or effects such sale, lease or other
disposition of property (and not created in anticipation thereof), provided that
in any such case (i) no such Lien shall extend to or cover any other property of
the Company or such Subsidiary, as the case may be, and (ii) such Lien shall be
discharged or released within 180 days following any such transaction;
(iv) Liens securing Indebtedness of a Subsidiary owing to
the Company or to a Subsidiary Guarantor;
(v) Liens relating to any extension, renewal or (subject
to the final paragraph of this Section 10.2) replacement of any Lien described
in clauses (a) through (d) above, provided that the principal amount of
Indebtedness secured by any such Lien (other than Indebtedness with respect to
the Existing Bank Credit Facility) is not increased and such Lien does not
extend to or cover any property other than the property covered by such Lien
immediately prior to such extension, renewal or replacement;
(vi) Liens incurred in the ordinary course of business
securing obligations that do not constitute Indebtedness, provided that all such
Liens in the aggregate could not reasonably be expected to have a Material
Adverse Effect;
(vii) Liens for taxes and assessments or governmental
charges or levies, provided that payment thereof is not at the time required by
Section 9.4;
(viii) Liens of or resulting from any judgment or award the
time for the appeal or petition for rehearing of which shall not have expired,
or in respect of which the Company or a Subsidiary shall at any time in good
faith be prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review shall
have been secured and the Company or such Subsidiary shall have set aside
adequate reserves on its books, in accordance with GAAP;
(ix) Liens permitted pursuant to Section 10.6 (including
without limitation Liens in respect of inventory under the Loan/Purchase
Transaction included as a Permitted Asset Securitization Transaction under and
as defined in the Existing Bank Credit Facility);
(x) any Lien created in favor of a customer of the
Company or any Subsidiary with respect to specific goods or work-in-process to
secure advances by the customer to the Company or any Subsidiary to purchase or
cause the manufacture of the goods or work-in-process securing the advances,
provided that in any such case
(1) no such Lien shall extend to or cover any
property of the Company or such Subsidiary other than the
applicable goods or work-in-process, and
(2) such Lien shall not secure any Indebtedness
other than the amounts used to purchase or manufacture such
goods or work-in-process;
(xi) workers', mechanics' and materialmen's Liens and
similar Liens incurred in the ordinary course of business remaining undischarged
or unstayed for not longer than 60 days following the receipt by the Company or
a Subsidiary of notice of the attachment thereof;
(xii) attachments remaining undischarged or unstayed for
not longer than 60 days from the making thereof;
(xiii) Liens in respect of pledges or deposits under
workers' compensation laws, unemployment insurance or similar legislation and in
respect of pledges or deposits to secure bids, tenders, contracts (other than
contracts for the payment of money), leases or statutory obligations, or in
connection with surety, appeal and similar bonds incidental to the conduct of
litigation; and
(xiv) Liens which would otherwise not be permitted by
clauses (a) through (m) above, securing additional Indebtedness of the Company
or a Subsidiary, provided that immediately after giving effect thereto the sum
(without duplication) of (i) the aggregate unpaid principal amount of
Indebtedness (including Capitalized Lease Obligations) of the Company and its
Subsidiaries secured by such Liens permitted by this Section 10.2(n) plus (ii)
the aggregate unpaid principal amount of Indebtedness of all Subsidiaries (other
than Indebtedness of Subsidiaries permitted by clause (a) or (b) of Section 10.1
and other unsecured Indebtedness of Subsidiary Guarantors) plus (iii) the
aggregate Attributable Debt in connection with all sale and leaseback
transactions of the Company and its Subsidiaries does not exceed 25% of
Consolidated Tangible Net Worth.
For purposes of this Section 10.2, a Subsidiary shall be deemed to have created
Liens securing Indebtedness previously owed to the Company or a Subsidiary
Guarantor on the date the obligee ceases for any reason to be the Company or a
Subsidiary Guarantor, and any Lien existing in respect of property at the time
such property is acquired or in respect of property of a Person at the time such
Person is acquired, consolidated or merged with or into the Company or a
Subsidiary shall be deemed to have been created at that time.
The Company will not and will not permit any Subsidiary to
create any Lien upon or with respect to any property or assets securing
Indebtedness under a New Credit Facility without making effective provision
(pursuant to documentation reasonably satisfactory to the Required Holders which
shall be accompanied by a written opinion of counsel reasonably satisfactory to
the Required Holders to the effect that such documentation is enforceable in
accordance with its terms and complies with the requirements of this Section
10.2) whereby the Notes shall be secured equally and ratably with any and all
obligations in respect of such New Credit Facility secured by such Lien.
(a) Certain Financial Conditions.
The Company will not permit
(i) Consolidated Total Debt at any time to exceed 65% of
Total Capitalization,
(ii) Consolidated Senior Debt at any time to exceed 60% of
Total Capitalization,
(iii) EBIT for any period of four consecutive fiscal
quarters (commencing with the period ending March 24, 1996) to be less than 125%
of Consolidated Interest Expense for such period,
(iv) Consolidated Tangible Net Worth at any time to be
less than the sum of (i) $344,000,000 plus (ii) 50% of Consolidated Net Income
for each fiscal year (beginning with the fiscal year ending June 30, 1996) for
which Consolidated Net Income is positive, or
(v) Consolidated Current Assets at any time to be less
than 150% of Consolidated Current Liabilities.
For purposes of this Section 10.3, the A-12 Program Financial Statements
Adjustments previously recognized or recognized after the date hereof in
accordance with GAAP shall be added back into the computation of Total
Capitalization, EBIT, Consolidated Tangible Net Worth, Consolidated Current
Assets and Consolidated Current Liabilities unless such A-12 Program Financial
Statements Adjustments equal or exceed $50,000,000. If the A-12 Program
Financial Statements Adjustments equal or exceed $50,000,000, then no A-12
Program Financial Statements Adjustments shall be added back into the
computation of Total Capitalization, EBIT, Consolidated Tangible Net Worth,
Consolidated Current Assets or Consolidated Current Liabilities for purposes of
this Section 10.3.
(a) Asset Sales.
The Company will not and will not permit any Subsidiary to,
directly or indirectly, make any sale, transfer, lease (as lessor), loan or
other disposition of any property or assets (an "Asset Sale") other than
(i) Asset Sales in the ordinary course of business;
(ii) Asset Sales by the Company to a Subsidiary or by a
Subsidiary to the Company or another Subsidiary, provided that in each case
after giving pro forma effect to such Asset Sale at least 35% of consolidated
gross revenues of the Company and its Subsidiaries for the four consecutive
fiscal quarters then most recently ended shall be attributable to assets
situated in North America;
(iii) Asset Sales involving Receivables pursuant to the
provisions of Section 10.6; and
(iv) other Asset Sales, provided that in each case
(1) immediately before and after giving effect
thereto, no Default or Event of Default shall have occurred
and be continuing, and
(2) the aggregate net book value of property or
assets disposed of in such Asset Sale and all other Asset
Sales by the Company and its Subsidiaries permitted by this
clause (d) (A) during the 365-day period ending on the date of
such Asset Sale does not exceed 10% of Consolidated Total
Assets and (B) during the period from the date of the Closing
to and including the effective date of such proposed Asset
Sale does not exceed 25% of Consolidated Total Assets (in each
case determined as of the last day of the quarterly accounting
period ending on or most recently prior to the effective date
of such proposed Asset Sale),
and provided further that for purposes of clause (ii) above there shall
be excluded the net book value of property or assets disposed
of in an Asset Sale if and to the extent such Asset Sale is
made for cash, payable in full upon the completion of such Asset Sale,
and an amount equal to the net proceeds realized upon such Asset Sale
is applied by the Company or a Subsidiary, as the case may be, within
365 days after the effective date of such Asset Sale (x) to the
acquisition of operating assets for use in the electronics and contract
manufacturing services industries business of the Company and its
consolidated Subsidiaries or (y) to repay Senior Indebtedness of the
Company (and in that connection the Company shall have prepaid pursuant
to Section 8.2 Notes in an unpaid principal amount at least equal to a
pro rata portion of all such Senior Indebtedness to be repaid).
For purposes of this Section 10.4, (1) any shares of Voting
Stock of a Subsidiary that are the subject of an Asset Sale shall be valued at
the greater of (A) the fair market value of such shares as determined in good
faith by the Board of Directors of the Company and (B) the aggregate net book
value of the assets of such Subsidiary multiplied by a fraction of which the
numerator is the aggregate number of shares of Voting Stock of such Subsidiary
disposed of in such Asset Sale and the denominator is the aggregate number of
shares of Voting Stock of such Subsidiary outstanding immediately prior to such
Asset Sale.
(a) Merger, Consolidation, Etc.
The Company will not and will not permit any Subsidiary to
consolidate with or merge or amalgamate with any other corporation or convey,
transfer or lease all or substantially all of its assets in a single transaction
or series of transactions to any Person except:
(i) a Subsidiary (other than a Subsidiary Guarantor) may
consolidate with or merge or amalgamate with, or convey or transfer all or
substantially all of its assets to the Company or a Subsidiary Guarantor
(provided that the Company or such Subsidiary Guarantor shall be the continuing
or surviving corporation) or another Subsidiary;
(ii) a Subsidiary Guarantor may consolidate with or merge
or amalgamate with, or convey or transfer all or substantially all of its assets
to the Company (provided that the Company shall be the continuing or surviving
corporation) or another Subsidiary Guarantor; and
(iii) the Company may consolidate with or merge or
amalgamate with or convey or transfer all or substantially all of its assets to
any Person, provided that
(1) the Company shall be the continuing or
surviving corporation or the successor formed by such
consolidation or amalgamation or the survivor of such merger
shall be a solvent corporation organized and existing under
the laws of the United States or any State thereof (including
the District of Columbia), and such corporation shall have (x)
executed and delivered to each holder of Notes its assumption
of the due and punctual performance and observance of each
covenant and condition of this Agreement and the Notes; and
(ii) caused to be delivered to each holder of Notes an opinion
of counsel reasonably satisfactory to the Required Holders to
the effect that all agreements or instruments effecting such
assumption are enforceable in accordance with their terms and
comply with the terms hereof; and
(2) immediately before and after giving effect
to such transaction, (x) no Default or Event of Default shall
have occurred and be continuing and (y) the Company could have
incurred at least $1 of secured Indebtedness under Section
10.2(n).
Notwithstanding the foregoing provisions of this Section 10.5, the Company may
liquidate SCI U.K. Limited, a corporation organized and existing under the laws
of Guernsey, and Newmoor Industries Limited (f.k.a. Cambridge Computer Limited),
a corporation organized under the laws of England and Wales.
(a) Sale of Notes or Accounts; Securitization Transactions.
The Company will not and will not permit any of its
Subsidiaries to engage in any Securitization Transaction (as defined below)
unless:
(i) the Securitization Transaction is not prohibited by
the Existing Bank Credit Facility, if then in effect; and
(ii) the aggregate face amount of all Securitized
Receivables outstanding, after completion of such Securitization Transaction,
does not exceed 50% of (i) the aggregate outstanding amount of all Receivables
included in Consolidated Total Assets, plus (ii) the aggregate outstanding
amount of all Securitized Receivables, in both cases as of the last day of the
then most recently ended quarterly accounting period.
For purposes of this Section 10.6: "Receivables" means those assets classified
as accounts or notes receivable under GAAP; a "Securitization Transaction" means
a securitization transaction in which Receivables are sold and such transaction
is a true sale for bankruptcy purposes and is accounted for by the seller as a
sale in accordance with GAAP; and "Securitized Receivables" means Receivables of
the Company or any Subsidiary which have been the subject of a Securitization
Transaction.
(a) Restricted Investments.
The Company will not and will not permit any Subsidiary to
make any loan or advance to, or extend credit to, or own, purchase or acquire
any stock, obligations or securities of, or any other interests in, or make any
capital contribution to, any Person (each of the foregoing an "Investment"),
except
(i) the acquisition and ownership of stock, obligations
or securities received in settlement of debt (created in the ordinary course of
business) owing to the Company or any Subsidiary;
(ii) Permitted Investments;
(iii) Investments by the Company or a Subsidiary in another
Subsidiary, provided that in each case after giving pro forma effect to such
Investment at least 35% of consolidated gross revenues of the Company and its
Subsidiaries for the four consecutive fiscal quarters then most recently ended
shall be attributable to assets situated in North America;
(iv) the engagement, directly or indirectly, in any
transaction permitted by Section 10.6; and
(v) other Investments, provided that the aggregate amount
of all Investments permitted by this clause (e) shall not at any time exceed 10%
of Consolidated Tangible Net Worth.
In computing the amount of any Investment in any Person, unrealized increases or
decreases in value or write-ups, write-downs or write-offs of Investments in
such Person shall be disregarded (except to the extent included in the
determination of net income of the Company or a Subsidiary).
(a) Sale and Leaseback Transactions.
The Company will not and will not permit any Subsidiary to
sell, lease, transfer or otherwise dispose of (collectively, a "transfer") any
asset on terms whereby the asset owned at the time of such transfer (and not
acquired in anticipation of such transfer) is then or thereafter leased by the
Company or a Subsidiary (as lessee) for a period in excess of three years,
unless immediately after giving effect to such transaction and the incurrence of
Attributable Debt in respect thereof, the sum (without duplication) of (a) the
aggregate unpaid principal amount of Indebtedness of the Company and its
Subsidiaries secured by Liens permitted by Section 10.2(n) plus (b) the
aggregate unpaid principal amount of Indebtedness of all Subsidiaries (other
than Indebtedness permitted by clause (a) or (b) of Section 10.1 and other
unsecured Indebtedness of Subsidiary Guarantors) plus (c) the aggregate
Attributable Debt in connection with all sale and leaseback transactions of the
Company and its Subsidiaries, does not exceed 25% of Consolidated Tangible Net
Worth.
(a) Transactions with Affiliates.
The Company will not and will not permit any Subsidiary to
enter into directly or indirectly any transaction or group of related
transactions (including without limitation the purchase, lease, sale or exchange
of properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Subsidiary), except pursuant to the
reasonable requirements of the Company's or such Subsidiary's business, in each
case upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would be obtainable in a comparable arm's-length transaction
with a Person not an Affiliate.
1. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing
(i) default in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise; or
(ii) default in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable; or
(iii) default in the performance of or compliance with any
term contained in Section 7.1(d) or Sections 10.1 to 10.8, inclusive; or
(iv) default in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b) and
(c) of this Section 11) or default by the Company in the payment of any amount
required to be paid by it pursuant to the Intercreditor Agreement and any such
default is not remedied within the earlier to expire of (i) 45 days after a
Senior Financial Officer obtains actual knowledge thereof and (ii) 30 days after
the Company receives written notice of such default from any holder of a Note
(any such written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (d) of Section 11); or
(v) any representation or warranty made in writing by or
on behalf of the Company or any Subsidiary or by any officer of the Company or
any Subsidiary in this Agreement, any Subsidiary Guarantee or any Security
Document or in any writing furnished in connection with the transactions
contemplated hereby proves to have been false, incorrect or incomplete in any
material respect on the date as of which made; or
(vi) (i) the Company or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or make-whole amount or interest on any Indebtedness that is outstanding
in an aggregate principal amount of at least $10,000,000 beyond any period of
grace provided with respect thereto, or (ii) the Company or any Subsidiary is in
default in the performance of or compliance with any term of any evidence of any
Indebtedness that is outstanding in an aggregate principal amount of at least
$10,000,000 or of any mortgage, indenture or other agreement relating thereto or
any other condition exists, and as a consequence of such default or condition
such Indebtedness has become, or has been declared, due and payable before its
stated maturity or before its regularly scheduled dates of payment; or
(vii) the Company or any Subsidiary (i) admits in writing
its inability to pay its debts as they become due, (ii) files, or consents by
answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an assignment
for the benefit of its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(viii) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company or any
of its Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any of its
Subsidiaries, or any such petition shall be filed against the Company or any of
its Subsidiaries and such petition shall not be dismissed within 60 days; or
(ix) a final judgment or judgments for the payment of
money aggregating in excess of $5,000,000 are rendered against one or more of
the Company and its Subsidiaries which judgments are not, within 60 days after
entry thereof, bonded, paid, discharged or stayed pending appeal, or are not
discharged within 60 days after the expiration of such stay; or
(x) any Security Document or Subsidiary Guarantee shall
cease to be in full force and effect as an enforceable instrument of the Company
or a Subsidiary, or the Company or a Subsidiary (or any Person at its authorized
direction or on its behalf) shall assert that any Security Document or
Subsidiary Guarantee is unenforceable in any material respect, or the security
interests purported to be created by the Security Documents shall cease to be
enforceable and of the same effect and priority as purported to be created
thereby, except in any case where such Security Document or Subsidiary Guarantee
shall have been released or terminated by the beneficiary or secured party
thereunder; or
(xi) if (i) any Plan shall fail to satisfy the minimum
funding standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought or
granted under section 412 of the Code, (ii) a notice of intent to terminate any
Plan shall have been or is reasonably expected to be filed with the PBGC or the
PBGC shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined
in accordance with Title IV of ERISA, shall exceed $500,000, (iv) the Company or
any ERISA Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) the Company or
any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company
or any Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase the
liability of the Company or any Subsidiary thereunder; and any such event or
events described in clauses (i) through (vi) above, either individually or
together with any other such event or events, could reasonably be expected to
have a Material Adverse Effect.
As used in Section 11(k), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in section 3 of ERISA.
1. REMEDIES ON DEFAULT, ETC.
(a) Acceleration.
(i) If an Event of Default with respect to the Company
described in paragraph (g) or (h) of Section 11 has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.
(ii) If any other Event of Default has occurred and is
continuing, the holder or holders of at least 51% in unpaid principal amount of
the Notes at the time outstanding may at any time at its or their option, by
notice or notices to the Company, declare all the Notes at the time outstanding
to be immediately due and payable.
(iii) If any Event of Default described in paragraph (a) or
(b) of Section 11 has occurred and is continuing, any holder or holders of Notes
at the time outstanding affected by such Event of Default may at any time, at
its or their option, by notice or notices to the Company, declare all the Notes
held by such holder or holders to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest
thereon and (y) (to the full extent permitted by applicable law) the Make-Whole
Amount determined in respect of such principal amount, shall all be immediately
due and payable, in each and every case without presentment, demand, protest or
further notice, all of which are hereby waived. The Company acknowledges, and
the parties hereto agree, that each holder of a Note has the right to maintain
its investment in the Notes free from repayment by the Company (except as herein
specifically provided) and that the provision for payment of a Make-Whole Amount
by the Company in respect thereof in the event that the Notes are prepaid or are
accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
(a) Other Remedies.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
(a) Rescission.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the Required Holders, by written
notice to the Company, may rescind and annul any such declaration and its
consequences if (a) all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, has been paid, (b) all Events of Default and Defaults, other than the
non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 17, and (c)
no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to such Notes. No rescission and annulment under this Section
12.3 will extend to or affect any subsequent Event of Default or Default or
impair any right consequent thereon.
(a) No Waivers or Election of Remedies, Expenses, Etc.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 15,
the Company agrees to pay to the holder of each Note on demand such further
amount as shall be sufficient to cover all costs and expenses of such holder
reasonably incurred in any enforcement or collection under this Section 12,
including without limitation reasonable attorneys' fees, expenses and
disbursements.
1. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
(a) Registration of Notes.
The Company shall keep at its principal executive offices a
register for the registration and registration of transfers of the Notes. The
name and address of each holder of one or more Notes, each transfer thereof and
the name and address of each transferee of one or more Notes shall be registered
in such register. Prior to due presentment for registration of transfer, the
Person in whose name any Note shall be registered shall be deemed and treated as
the owner and holder thereof for all purposes hereof, and the Company shall not
be affected by any notice or knowledge to the contrary. The Company shall give
to any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
(a) Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or such holder's attorney duly authorized in writing and accompanied by the
address for notices of each transferee of such Note or part thereof), within
five Business Days thereafter the Company shall execute and deliver, at its
expense (except as provided below), one or more new Notes (as requested by the
holder thereof) in exchange therefor, in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Note (which new Notes will not
contain a legend set forth in Section 6.1 under the circumstances described in
such Section 6.1). Each such new Note shall be payable to such Person as such
holder may request. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or dated the
date of the surrendered Note if no interest shall have been paid thereon. The
Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred except in denominations of $100,000 or more, provided
that if necessary to enable the registration of transfer by a holder of its
entire holding of Notes, one Note may be issued to such holder in a denomination
of less than $100,000.
You agree that the Company shall not be required to register
the transfer of any Note to any Person (other than your nominee) unless the
Company receives from the transferee a representation to the effect that the
transferee is not a Competing Person. In addition, you agree that the Company
shall not be required to register the transfer of any Note to any Person (other
than your nominee) or to any separate account maintained by you unless the
Company receives from the transferee a representation (and appropriate
information as to any separate accounts or other matters) to the same or similar
effect with respect to the transferee as is contained in Section 6.2 or other
assurances reasonably satisfactory to the Company that such transfer does not
involve a non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code. You shall not be liable for any damages in connection
with any such representation or assurances provided to the Company by any
transferee. Any transferee of a Note, by the acceptance of such Note, shall be
deemed to have agreed to be bound by the provisions of this paragraph.
(a) Replacement of Notes.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and
(i) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it (provided that if the holder of such
Note is, or is a nominee for, an original Purchaser or any other Institutional
Investor, such Person's own unsecured agreement of indemnity shall be deemed to
be satisfactory), or
(ii) in the case of mutilation, upon surrender and
cancellation thereof,
within five Business Days thereafter the Company at its own expense shall
execute and deliver, in lieu thereof, a new Note, dated and bearing interest
from the date to which interest shall have been paid on such lost, stolen,
destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or
mutilated Note if no interest shall have been paid thereon.
1. PAYMENTS ON NOTES.
(a) Place of Payment.
Subject to Section 14.2, payments of principal, premium, if
any, and interest becoming due and payable on the Notes shall be made at the
principal office of Citibank, N.A. in New York City. The Company may at any
time, by notice to each holder of a Note, change the place of payment of the
Notes so long as such place of payment shall be either the principal office of
the Company in New York City or the principal office of a bank or trust company
in New York City.
(a) Home Office Payment.
So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such Note to
the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by wire transfer of
immediately available funds to you prior to 11:00 A.M., New York time, at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the
Company at the place for notices most recently designated by the Company
pursuant to Section 18. Prior to any sale or other disposition of any Note held
by you or your nominee you will, at your election, either endorse thereon the
amount of principal paid thereon and the last date to which interest has been
paid thereon or surrender such Note to the Company in exchange for a new Note or
Notes pursuant to Section 13.2. The Company will afford the benefits of this
Section 14.2 to any Institutional Investor that is the direct or indirect
transferee of any Note purchased by you under this Agreement and that has made
the same agreement relating to such Note as you have made in this Section 14.2.
1. EXPENSES, ETC.
(a) Transaction Expenses.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all out-of-pocket costs and expenses
(including reasonable attorneys' fees of your one special counsel and, if
reasonably required, local or other counsel) incurred by you and each holder of
a Note in connection with such transactions and in connection with any
amendments, waivers, consents or other actions under or in respect of this
Agreement, the Notes, any Subsidiary Guarantee or the Intercreditor Agreement
(whether or not such amendment, waiver or consent or other action becomes
effective), including without limitation: (a) the costs and expenses incurred in
enforcing or defending (or determining whether or how to enforce or defend) any
rights under this Agreement, the Notes, any Subsidiary Guarantee or the
Intercreditor Agreement or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement, the
Notes, any Subsidiary Guarantee or the Intercreditor Agreement, or by reason of
being a holder of any Note; (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring of
the transactions contemplated hereby and by the Notes and (c) the costs and
expenses incurred from time to time in connection with execution and delivery of
Subsidiary Guarantees and other instruments or documents contemplated by this
Agreement or the Intercreditor Agreement. The Company will pay, and will save
you and each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses, if any, of brokers and finders (other than those
retained by you).
In furtherance of the foregoing, on the date of the Closing
the Company will pay or cause to be paid the reasonable fees and disbursements
(including estimated unposted disbursements as of the date of the Closing) of
your special counsel which are reflected in the statement of such counsel
submitted to the Company at least one Business Day prior to the date of the
Closing. The Company will also pay, promptly upon receipt of supplemental
statements therefor, reasonable additional fees, if any, and disbursements of
such counsel in connection with the transactions hereby contemplated (including
disbursements unposted as of the date of the Closing to the extent such
disbursements exceed estimated disbursements paid as aforesaid).
(a) Survival.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the termination of
this Agreement.
1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the purchase
or transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument or document delivered by or on behalf of the Company pursuant to this
Agreement shall be deemed representations and warranties of the Company under
this Agreement.
1. AMENDMENT AND WAIVER.
(a) Requirements.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that (a) no amendment or waiver of any
of the provisions of Section 1, 2, 3, 4, 5, 6 or 21, or any defined term (as it
is used therein), will be effective as to you unless consented to by you in
writing and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding, (i) subject to the provisions
of Section 12 relating to acceleration or rescission, change the amount or time
of any prepayment or payment of principal of, or reduce the rate or change the
time of payment or method of computation of interest or of the Make-Whole Amount
on, the Notes, (ii) change the percentage of the principal amount of the Notes
the holders of which are required to consent to any such amendment or waiver, or
(iii) amend any of Section 8, 9.6, 11(a), 11(b), 12, 17 or 20.
(a) Solicitation of Holders of Notes.
(i) Solicitation. The Company will provide each holder
of the Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered decision with
respect to any proposed amendment, waiver or consent in respect of any of the
provisions hereof or of the Notes. The Company will deliver executed or true and
correct copies of each amendment, waiver or consent effected pursuant to the
provisions of this Section 17 to each holder of outstanding Notes promptly
following the date on which it is executed and delivered by, or receives the
consent or approval of, the requisite holders of Notes.
(ii) Payment. The Company will not directly or indirectly
pay or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder of
Notes as consideration for or as an inducement to the entering into by any
holder of such Notes of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of such Notes
then outstanding even if such holder did not consent to such waiver or
amendment.
(b) Binding Effect, Etc.
Any amendment or waiver consented to with respect to the Notes
as provided in this Section 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any such Note and upon the
Company without regard to whether such Note has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of dealing
between the Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note. As used herein, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
(a) Notes Held by the Company, Etc.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
1. NOTICES.
All notices and communications provided for hereunder shall be
in writing and, unless otherwise herein provided, sent (a) by telecopy if the
sender on the same day sends a confirming copy of such notice by a recognized
overnight delivery service (charges prepaid), or (b) by registered or certified
mail with return receipt requested (postage prepaid), or (c) by a recognized
overnight delivery service (charges prepaid). Any such notice must be sent:
(1) if to you or your nominee, to you or it at
the address specified for such communications in Schedule
A, or at such other address as you or it shall have specified
to the Company in writing,
(2) if to any other holder of any Note, to
such holder at such address as such other holder shall have
specified to the Company in writing, or
(3) if to the Company, to the Company at its
address set forth at the beginning hereof to the attention
of the Chief Executive Officer, or at such other address as
the Company shall have specified to the holder of each Note
in writing.
Notices under this Section 18 will be deemed given only when actually received.
1. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
1. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential
Information" means information delivered to you by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
you as being confidential information of the Company or such Subsidiary,
provided that such term does not include information that (a) was publicly known
or otherwise known to you prior to the time of such disclosure, (b) subsequently
becomes publicly known through no act or omission by you or any person acting on
your behalf, (c) otherwise becomes known to you other than through disclosure by
the Company or any Subsidiary or (d) constitutes financial statements delivered
to you under Section 7.1 that are otherwise publicly available. You will
maintain the confidentiality of such Confidential Information in accordance with
your normal practices in handling confidential information of third parties
delivered to you, provided that you may deliver or disclose Confidential
Information to (i) your directors, officers, trustees, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by your Notes), (ii) your
financial advisors and other professional advisors whose duties require them to
hold confidential the Confidential Information substantially in accordance with
the terms of this Section 20, (iii) any other holder of any Note, (iv) any
Institutional Investor to which you sell or offer to sell such Note or any part
thereof or any participation therein (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the provisions of
this Section 20), (v) any Person from which you offer to purchase any security
of the Company (if such Person has agreed in writing prior to its receipt of
such Confidential Information to be bound by the provisions of this Section 20),
(vi) any federal or state regulatory authority having jurisdiction over you,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about your investment portfolio or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to you, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which you are a party or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to have agreed to
be bound by and to be entitled to the benefits of this Section 20 as though it
were a party to this Agreement. On reasonable request by the Company in
connection with the delivery to any holder of a Note of information required to
be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 20.
1. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed by
both you and such Affiliate, shall contain such Affiliate's agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in Section 6.
Upon receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this Section 21), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so substituted as
a purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement, such word shall no
longer be deemed to refer to such Affiliate, but shall refer to you, and you
shall have all the rights of an original holder of the Notes under this
Agreement.
1. MISCELLANEOUS.
(a) Successors and Assigns.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including without limitation any
subsequent holder of a Note) whether so expressed or not.
(a) Construction.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
(a) Jurisdiction and Process; Waiver of Jury Trial.
(a) The Company irrevocably submits to the non-exclusive
in personam jurisdiction of any New York State or federal court sitting in the
Borough of Manhattan, The City of New York, over any suit, action or proceeding
arising out of or relating to this Agreement, the Notes, any Subsidiary
Guarantee or any Security Document. To the fullest extent permitted by
applicable law, the Company irrevocably waives and agrees not to assert, by way
of motion, as a defense or otherwise, any claim that it is not subject to the in
personam jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
(b) The Company consents to process being served in any suit,
action or proceeding of the nature referred to in Section 22.3(a) by mailing a
copy thereof by registered or certified mail, postage prepaid, return receipt
requested, to the Company at its address specified in Section 18 or at such
other address of which you shall then have been notified pursuant to said
Section. The Company agrees that such service upon receipt by the Company as
aforesaid (i) shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by applicable law, be taken and held to be valid personal service upon
and personal delivery to the Company. Notices hereunder shall be conclusively
presumed received as evidenced by a delivery receipt furnished by the United
States Postal Service or any reputable commercial delivery service.
(c) Nothing in this Section 22.3 shall affect the right of
any holder of a Note to serve process in any manner permitted by law, or limit
any right that the holders of any of the Notes may have to bring proceedings
against the Company in the courts of any appropriate jurisdiction or to enforce
in any lawful manner a judgment obtained in one jurisdiction in any other
jurisdiction.
(d) THE COMPANY AND YOU WAIVE TRIAL BY JURY IN ANY ACTION
BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT, THE OTHER AGREEMENTS, THE NOTES OR
ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH.
(a) Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding (but without limiting the requirement in Section 8.3 that notice
of any optional prepayment specify a Business Day as the date fixed for such
prepayment), any payment of principal of or Make-Whole Amount (if any) or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day without including the additional days
elapsed in the computation of the interest payable on such next succeeding
Business Day, except for interest in respect of any principal then being paid or
prepaid (which interest shall accrue to, but not including, such following
Business Day).
(a) Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the fullest extent permitted by applicable law) not
invalidate or render unenforceable such provision in any other jurisdiction.
(a) Accounting Terms.
All accounting terms used herein which are not expressly
defined in this Agreement have the meanings respectively given to them in
accordance with GAAP. Except as otherwise specifically provided herein, all
computations made pursuant to this Agreement shall be made in accordance with
GAAP and all balance sheets and other financial statements with respect thereto
shall be prepared in accordance with GAAP. Except as otherwise specifically
provided herein, any consolidated financial statement or financial computation
shall be done in accordance with GAAP; and, if at the time that any such
statement or computation is required to be made the Company shall not have any
Subsidiary, such terms shall mean a financial statement or a financial
computation, as the case may be, with respect to the Company only.
(a) Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
(a) Governing Law.
This Agreement and the Notes shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of New York excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction other
than such State.
<PAGE>
If you are in agreement with the foregoing, please sign the form of agreement in
the space below provided on a counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
SCI SYSTEMS, INC.
By:________________________
Title:
The foregoing is hereby agreed to as of the date thereof.
[PURCHASER]
By:________________________
Title:
<PAGE>
SCHEDULE A
This Schedule A shows the names and addresses of the
Purchasers under the foregoing Note Purchase Agreement and the Other Agreements
referred to therein and the respective principal amounts of Notes to be
purchased by each.
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
METROPOLITAN LIFE INSURANCE COMPANY $40,000,000
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to its Account No. 002-2-410591 at The
Chase Manhattan Bank, Metropolitan Branch,
33 East 23rd Street, New York, NY 10010,
ABA #021000021, with sufficient information
setting forth (i) the names of the Company,
(ii) the maturity date, (iii) the PPN:
of the Notes, (iv) the amount of principal,
interest and premium, if any, and (v) the due
date of the payment being made.
(2) Address for all communications:
Metropolitan Life Insurance Company
1 Madison Avenue
New York, NY 10010
Attention: Treasurer
With a copy to:
Metropolitan Life Insurance Company
334 Madison Avenue
P.O. Box 633
Convent Station, NJ 07961
Attn: Vice President
Telecopy: (201) 254-3050
(3) Tax Identification Number: 13-558-1829
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
THE NORTHWESTERN MUTUAL LIFE $30,000,000
INSURANCE COMPANY
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to the account of The Northwestern Mutual
Life Insurance Company, at Account No. 00-000-027
at Bankers Trust Company, 16 Wall Street, Insurance
Unit - 4th Floor, New York, NY 10005, ABA #021-001-
033 with sufficient information to identify the
source and application of such funds including the
PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
720 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Treasurer's Department/
Securities Operations
Fax: 414-299-5714
(3) Address for all other communications:
720 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Securities Department
Fax: 414-299-7124
(4) Tax Identification No.: 39-0509570
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
THE LINCOLN NATIONAL LIFE INSURANCE $8,500,000
COMPANY (IAL)
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
Bankers Trust Company
New York, New York
ABA #021001033
Private Placement Processing
Account No.: 99-911-145
For the Account of: The Lincoln
National Life Insurance Company (IAL)
Custody Account No. 98194
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Bankers Trust Company
Attn: Private Placement Unit
P.O. Box 998, Bowling Green Station
New York, NY 10274
(3) Address for all communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 35-0472300
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
THE LINCOLN NATIONAL LIFE INSURANCE $2,750,000
COMPANY (UIN)
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
Bankers Trust Company
New York, New York
ABA #021001033
Private Placement Processing
Account No.: 99-911-145
For the Account of: The Lincoln
National Life Insurance Company (UIN)
Custody Account No. 98127
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Bankers Trust Company
Attn: Private Placement Unit
P.O. Box 998, Bowling Green Station
New York, NY 10274
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 35-0472300
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
THE LINCOLN NATIONAL LIFE INSURANCE $2,250,000
COMPANY (GAN)
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
Bankers Trust Company
New York, New York
ABA #021001033
Private Placement Processing
Account No.: 99-911-145
For the Account of: The Lincoln
National Life Insurance Company (GAN)
Custody Account No. 98152
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Bankers Trust Company
Attn: Private Placement Unit
P.O. Box 998, Bowling Green Station
New York, NY 10274
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 35-0472300
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
THE LINCOLN NATIONAL LIFE INSURANCE $900,000
COMPANY (FPB)
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
Bankers Trust Company
New York, New York
ABA #021001033
Private Placement Processing
Account No.: 99-911-145
For the Account of: The Lincoln
National Life Insurance Company (FPB)
Custody Account No. 98166
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Bankers Trust Company
Attn: Private Placement Unit
P.O. Box 998, Bowling Green Station
New York, NY 10274
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 35-0472300
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
LINCOLN NATIONAL HEALTH & CASUALTY $1,750,000
INSURANCE COMPANY
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
The Chase Manhattan Bank
New York, NY
ABA #: 021 000 021
Chase NYC/CTR/BNF
A/C #900-9-000200
Further Credit to: G06323 Lincoln Natl
Health & Cas Ins Co
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 35-1495207
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
LINCOLN NATIONAL REINSURANCE $300,000
COMPANY (BARBADOS) LTD.
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
Bankers Trust Company
New York, New York
ABA #021001033
Private Placement Processing
Account No.: 99-911-145
For the Account of: The Lincoln
National Reinsurance Company (Barbados) Ltd.
Custody Account No. 98168
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Bankers Trust Company
Attn: Private Placement Unit
P.O. Box 998, Bowling Green Station
New York, NY 10274
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 35-1716060
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
OXFORD LIFE INSURANCE COMPANY $600,000
(I/N/O SALKELD & CO)
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
Bankers Trust Company
New York, New York
ABA #021001033
Private Placement Processing
Account No.: 99-911-145
For the Account of: Oxford Life
Insurance Company
Custody Account No. 98169
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Bankers Trust Company
Attn: Private Placement Unit
P.O. Box 998, Bowling Green Station
New York, NY 10274
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 86-0216483
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
LONDON LIFE INTERNATIONAL REINSURANCE $200,000
CORPORATION
(I/N/O SALKELD & CO)
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
Bankers Trust Company
New York, New York
ABA #021001033
Private Placement Processing
Account No.: 99-911-145
For the Account of: London Life
International Reinsurance Corporation
Custody Account No. 98167
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Bankers Trust Company
Attn: Private Placement Unit
P.O. Box 998, Bowling Green Station
New York, NY 10274
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 98-0107498
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
LINCOLN-SECURITY LIFE INSURANCE $500,000
COMPANY
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
The Chase Manhattan Bank
New York, NY
ABA #: 021 000 021
A/C #900-9-000200
Further Credit to: LINC-SEC LIFE (NY)
Account #: G04847
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Lincoln-Security Life Insurance Company (New York)
c/o Security-Connecticut Life Insurance Company
20 Security Drive
Avon, CT 06001
Attn: Jodi Dean
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 22-2491079
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
SECURITY-CONNECTICUT LIFE INSURANCE $1,750,000
COMPANY
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, CT 06115
ABA #: 011900445
For Acct of: Security-Connecticut Life Ins Co
Account #: 0156196
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Security-Connecticut Life Insurance Company
20 Security Drive
Avon, CT 06001
Attn: Jodi Dean
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 35-1468921
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
SONS OF NORWAY $500,000
(I/N/O VAR & CO)
(1) All payments on account of the Notes shall be
made by wire transfer of immediately available
funds to:
First Bank N.A., Minneapolis, MN
ABA #: 091 000 053
CR: First Trust National Association
A/C #: 180121167365 - TSU 020
F/C: 12601910, Sons of Norway
with sufficient information to identify the
source and application of such funds, including
the PPN: 783890 A# 3 of the Notes.
(2) Address for all notices in respect of payments:
Mail Code: SPEN0402
First Trust Center
180 E. 5th St., P.O. Box 64190
St. Paul, MN 55164-0190
Attn: Ms. Kathy Budewitz
(3) Address for all other communications:
Lincoln Investment Management, Inc.
200 East Berry Street
Renaissance Square
Fort Wayne, IN 46802
Attn: Investments/Private Placements
(4) Tax ID: 41-0547795
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
LIFE INVESTORS INSURANCE COMPANY OF AMERICA $4,000,000
(1) All payments on account of the Notes shall be
made by wire or intrabank transfer of
immediately available funds to its Account No.
119-09310-2 at Firstar Bank of Iowa 222
Second Street S.E., Cedar Rapids, IA 52401,
ABA #073000545, with sufficient information
(including issuer, interest rate, maturity, PPN
and whether payment is of principal, premium or
interest) to identify the source and application
of such funds.
(2) Address for notices with respect to payments:
AEGON USA Investment Management, Inc.
Attn: Michael Meese
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-5112
(3) Address for all other communications:
AEGON USA Investment Management, Inc.
Attn: Director of Private Placements
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499
Telecopy No: 319-369-2009
(4) Tax Identification Number: 42-0191090
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
BANKERS UNITED LIFE ASSURANCE COMPANY $6,000,000
(1) All payments on account of the Notes shall be
made by wire or intrabank transfer of immediately
available funds to its Account No. 121-25533-5
at Firstar Bank of Iowa 222 Second Street S.E.,
Cedar Rapids, IA 52401, ABA #073000545,
with sufficient information (including issuer,
interest rate, maturity, PPN and whether payment is
of principal, premium or interest) to identify
the source and application of such funds.
(2) Address for notices with respect to payments:
AEGON USA Investment Management, Inc.
Attn: Michael Meese
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-5112
(3) Address for all other communications:
AEGON USA Investment Management, Inc.
Attn: Director of Private Placements
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499
Telecopy No: 319-369-2009
(4) Tax Identification Number: 37-0806904
<PAGE>
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective
meanings set forth below or set forth in the Section hereof following such term:
"A-12 Program" means the full scale engineering, development,
production and delivery of electronic assemblies for the Navy's proposed A-12
Advanced Tactical Fighter contemplated by the following McDonnell-Douglas
purchase orders: E83006, E83004, E91369, E91324, E02929, E02927 and J00545.
"A-12 Program Financial Statements Adjustments" means any
charge, expense, write-off or reserve change of the Company arising out of or
relating to the A-12 Program as determined in accordance with GAAP, cumulatively
determined for the periods as applicable, and which arose after March 28, 1993.
"Adjusted Consolidated Net Income" for any period means
Consolidated Net Income, adjusted so all cash items of extraordinary gain or
loss for such period shall be included therein and all non-cash items of
extraordinary gain or loss for such period shall be excluded therefrom.
"Affiliate" means, at any time, (a) with respect to any Person
(including without limitation the Company), any other Person that at such time
directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, such first Person, and (b) with
respect to the Company, any Person beneficially owning or holding, directly or
indirectly, 5% or more of any class of voting or equity interests of the Company
or any Subsidiary or any corporation of which the Company and its Subsidiaries
beneficially own or hold, in the aggregate, directly or indirectly, 5% or more
of any class of voting or equity interests. As used in this definition,
"Control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise. Unless the
context otherwise clearly requires, any reference to an "Affiliate" is a
reference to an Affiliate of the Company.
"Agent" is defined in Section 1.2(b).
"Applicable Margin" is defined in Exhibit 1.1.
"Applicable Rate" is defined in Exhibit 1.1.
"Attributable Debt" means, as to any particular lease relating
to a sale and leaseback transaction, the total amount of rent (discounted
semiannually from the respective due dates thereof at the interest rate implicit
in such lease) required to be paid by the lessee under such lease during the
remaining term thereof. The amount of rent required to be paid under any such
lease for any such period shall be (a) the total amount of the rent payable by
the lessee with respect to such period after excluding amounts required to be
paid on account of maintenance and repairs, insurance, taxes, assessments,
utilities, operating and labor costs and similar charges plus (b) without
duplication, any guaranteed residual value in respect of such lease to the
extent such guarantee would be included in indebtedness in accordance with GAAP.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which commercial banks in New York City are required or authorized
to be closed.
"Capital Lease" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"Capitalized Lease Obligations" means, with respect to any
Person, all outstanding obligations of such Person in respect of Capital Leases,
taken at the capitalized amount thereof accounted for as indebtedness in
accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Competing Person" means any Person or any Affiliate of any
Person which derives 25% or more of its annual gross revenues from the
manufacture, sale and distribution of printed circuit assemblies and loaded
boards or modules (printed circuit boards with inserted electronic components),
provided that no Person a predominant portion of whose business involves
banking, insurance, investment banking, broker/dealer, investment or similar
activities (including without limitation any entity involved in the investment
activities of or contributions to pension, retirement, medical or similar plans
or interests) shall be deemed a Competing Person if such Person is the holder or
prospective transferee of a Note by virtue of its normal sales, trading or
investment activities.
"Consolidated Current Assets" means, at any date, current
assets of the Company and its Subsidiaries, determined on a consolidated basis
in accordance with GAAP.
"Consolidated Current Liabilities" means, at any date, current
liabilities of the Company and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" for any period means the sum
for the Company and its Subsidiaries, consolidated in accordance with GAAP, of
(a) all amounts which would be deducted in computing Consolidated Net Income for
such period on account of interest on Indebtedness (including imputed interest
in respect of Capitalized Lease Obligations and amortization of debt discount
and expense) plus (b) all interest charges capitalized or deferred in computing
Consolidated Net Income for such period plus (c) all dividends and other
distributions paid during such period with respect to all Preferred Stock of the
Company and all Preferred Stock of Subsidiaries not owned by the Company
directly or indirectly through wholly-owned Subsidiaries.
"Consolidated Net Income" for any period means the net income
of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, excluding
(a) the proceeds of any life insurance policy,
(b) any gains arising from (i) the sale or other disposition
of any assets (other than current assets) to the extent that the aggregate
amount of the gains during such period exceeds the aggregate amount of the
losses during such period from the sale, abandonment or other disposition of
assets (other than current assets), (ii) any write-up of assets or (iii) the
acquisition of outstanding securities of the Company or any Subsidiary,
(c) any amount representing any interest in the undistributed
earnings of any other Person (other than a Subsidiary),
(d) any earnings, prior to the date of acquisition, of any
Person acquired in any manner, and any earnings of any Subsidiary prior to its
becoming a Subsidiary,
(e) any earnings of a successor to or transferee of the assets
of the Company prior to its becoming such successor or transferee,
(f) any deferred credit (or amortization of a deferred credit)
arising from the acquisition of any Person, and
(g) any extraordinary gains not covered by clause (b) above.
"Consolidated Net Worth" means, at any date, consolidated for
the Company and its Subsidiaries, (a) the sum of (i) capital stock taken at par
or stated value plus (ii) capital in excess of par or stated value relating to
capital stock plus (iii) retained earnings (or minus any retained earnings
deficit) minus (b) treasury stock, capital stock subscribed for and unissued,
other contra-equity accounts and Redeemable Preferred Stock, all determined in
accordance with GAAP and as shown by the latest consolidated balance sheet of
the Company and its Subsidiaries delivered pursuant to Section 7.1(b).
"Consolidated Senior Debt" means, at any date, all
Indebtedness of the Company and its Subsidiaries, consolidated in accordance
with GAAP, excluding any such Indebtedness that constitutes Subordinated Debt.
"Consolidated Tangible Net Worth" means, at any date (a)
Consolidated Net Worth minus (b) the aggregate net amounts of goodwill and other
intangibles that were included in consolidated assets or deducted from
consolidated liabilities in computing Consolidated Net Worth, all determined in
accordance with GAAP.
"Consolidated Total Assets" means, at any date, the book value
of the assets of the Company and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Total Debt" means, at any date, all Indebtedness
of the Company and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Credit Facility Banks" means the banks party to the Existing
Bank Credit Facility.
"Default" means an event or condition the occurrence or
existence of which would, with the giving of notice or the lapse of time, or
both, become an Event of Default.
"Default Rate" means that rate of interest that is 2% above
the greater of (i) the Applicable Rate and (ii) the rate of interest publicly
announced by Citibank, N.A. from time to time at its principal office in New
York City as its prime rate.
"Domestic Subsidiary" means any Subsidiary organized and
existing under the laws of the United States or any state thereof or any other
Subsidiary a predominant portion of the business of which is conducted in the
United States (but excluding a special purpose entity created in connection with
a transaction permitted by Section 10.6).
"EBIT" for any period means the sum of (a) Adjusted
Consolidated Net Income for such period, and (b) all amounts deducted from net
sales in the determination of Consolidated Net Income for such period on account
of Consolidated Interest Expense and income taxes.
"Environmental Laws" means any and all federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Existing Bank Credit Facility" means the Amended and Restated
Credit Agreement dated as of August 3, 1995 among the Company and Citibank,
N.A., ABN AMRO Bank, N.V. (Atlanta Agency), Bank of America (Illinois), CIBC
Inc., First Alabama Bank, Mellon Bank, N.A., NBD Bank, The Bank of Tokyo, Ltd.
(Atlanta Agency), The Development Bank of Singapore, Ltd. and The Long-Term
Credit Bank of Japan, Limited, as lenders, and Citibank, N.A., as agent, and ABN
AMRO Bank N.V., as Co-Agent, as supplemented, amended or restated from time to
time.
"Foreign Plan" means each plan that is, or within the
preceding five years has been, maintained, sponsored or otherwise contributed to
by the Company or any Subsidiary and that provides, or within the preceding five
years has provided, retirement or welfare benefits and is, or within the
preceding five years has been, maintained outside the United States primarily
for the benefit of individuals substantially all of whom are or were
"nonresident aliens", as defined in Section 7701(b) of the Code.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States.
"Governmental Authority" means
(a) the government of
(i) the United States or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business,
or which asserts jurisdiction over any properties of
the Company or any Subsidiary, or
(b) any entity exercising executive, legislative,
judicial, regulatory or administrative functions of, or pertaining to, any such
government (including without limitation the National Association of Insurance
Commissioners).
"Guarantee" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including without limitation
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such Indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement condition of
any other Person or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor under
any Guarantee, the Indebtedness or other obligations that are the subject of
such Guarantee shall be assumed to be direct obligations of such obligor. If the
amount of any direct obligation which is the subject of a Guarantee is not
stated and cannot be readily determined, the amount of such obligation shall be
deemed to be the maximum reasonably anticipated liability in respect thereof
(assuming the obligor is required to perform under such Guarantee) as determined
by the obligor in good faith.
"Hazardous Material" means any and all pollutants, toxic or
hazardous wastes or any other substances that are likely to pose a hazard to
health or safety, the removal of which may be required or the generation,
manufacture, refining, production, processing, treatment, storage, handling,
transportation, transfer, use, disposal, release, discharge, spillage, seepage,
or filtration of which is or shall be restricted, prohibited or penalized by any
applicable law (including without limitation asbestos, urea formaldehyde foam
insulation and polycholorinated biphenyls).
"holder" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to Section 13.1.
"Indebtedness" means, with respect to any Person, without
duplication,
(1) its liabilities for borrowed money,
(2) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in the
ordinary course of business and not overdue by more than 30 days but including
all liabilities created or arising under any conditional sale or other title
retention agreement with respect to any such property),
(3) its redemption obligations in respect of Redeemable
Preferred Stock,
(4) its Capitalized Lease Obligations,
(5) all liabilities for borrowed money secured by any
Lien with respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities),
(6) all its liabilities in respect of letters of credit
or instruments serving a similar function issued or accepted for its account by
banks and other financial institutions (whether or not representing obligations
for borrowed money),
(7) Swaps of such Person, and
(8) any Guarantee of such Person with respect to
liabilities of a type described in any of clauses (a) through (g) above.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (h) above to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP. Indebtedness of the Company
or any Subsidiary shall not include any transaction permitted by Section 10.6,
except to the extent that recourse may be had against the Company or such
Subsidiary in connection with any such transaction.
"Institutional Investor" means (a) any original purchaser of a
Note, (b) any holder of a Note holding (together with one or more of its
Affiliates) more than 1% of the aggregate principal amount of the Notes then
outstanding, and (c) any bank, trust company, savings and loan association or
other financial institution, any pension plan, any investment company, any
insurance company, any broker or dealer, or any other similar financial
institution or entity, regardless of legal form.
"Intercreditor Agreement" is defined in Section 1.2(b).
"Investment" is defined in Section 10.7.
"Lien" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance (including without
limitation any of the foregoing resulting from a sale or other disposition of
receivables), or any interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale or other title
retention agreement or Capital Lease, upon or with respect to any property or
asset of such Person (including in the case of stock, stockholder agreements,
voting trust agreements and all similar arrangements).
"Make-Whole Amount" is defined in Section 8.7.
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, properties or prospects of the
Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, affairs, financial condition, assets or properties
of the Company and its Subsidiaries taken as a whole, (b) the ability of the
Company to perform its obligations under this Agreement, the Notes and the
Security Documents to which it is a party or (c) the validity or enforceability
of this Agreement, the Notes, any Subsidiary Guarantee or any Security Document.
"Memorandum" is defined in Section 5.3.
"New Credit Facility" is defined in Section 9.6.
"Notes" is defined in Section 1.1.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose responsibilities
extend to the subject matter of such certificate.
"Other Agreements" is defined in Section 2.
"Other Purchasers" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"Permitted Bank" means any commercial bank or trust company
the long-term debt obligations of which are rated A or better (or comparably if
the rating system is changed) by Standard & Poor's Rating Group, a division of
McGraw-Hill, Inc., or A-2 or better (or comparably if the rating system is
changed) by Moody's Investors Service, Inc.
"Permitted Investment" means any Investment in
(1) commercial paper maturing no more than 270 days from
the date of creation thereof and rated as at any date of determination A-1 or
better (or comparably if the rating system is changed) by Standard & Poor's
Rating Group, a division of McGraw-Hill, Inc., or Prime-1 or better (or
comparably if the rating system is changed) by Moody's Investors Service, Inc.;
(2) obligations issued by the United States or any
agency or instrumentality thereof, having the benefit of the full faith and
credit of the United States, and obligations of foreign governments having
comparable credit quality, in each case maturing within one year from the date
of acquisition thereof;
(3) certificates of deposit maturing within one year
from the date of acquisition thereof issued by a Permitted Bank;
(4) repurchase agreements not exceeding 90 days in
duration entered into with a Permitted Bank; and
(5) in the case of Subsidiaries other than Subsidiary
Guarantors, Investments of the same general nature, duration and credit quality
as Investments set forth in clauses (a) through (d) above and, in the event that
the foregoing Investments are not readily available to any such Subsidiary,
Investments maturing within 90 days from the date of acquisition thereof that
are customary cash-equivalent investments in the locale in which such Subsidiary
conducts its business and in the reasonable business judgment of the Senior
Financial Officers of the Company or such Subsidiary are financially sound.
"Person" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.
"Preferred Stock" means, with respect to any corporation,
shares of such corporation that shall be entitled to preference or priority over
any other shares of such corporation in respect of either the payment of
dividends or the distribution of assets upon liquidation, or both.
"property" or "properties" means, unless otherwise
specifically limited, real or personal property of any kind, tangible or
intangible, inchoate or otherwise.
"Receivables" means, with respect to any Person, those assets
classified as accounts or notes receivable under GAAP.
"Redeemable Preferred Stock" means any shares of Preferred
Stock which are subject by their terms and conditions (including at the option
of the holder thereof) to any mandatory purchase, redemption or other retirement
obligation (including any right of the holder thereof to require such purchase,
redemption or retirement and whether or not such obligation is fixed or
contingent) on or prior to the final maturity of the Notes.
"Required Holders" means, at any time, the holders of at least
66 2/3% in unpaid principal amount of the Notes at the time outstanding.
"Responsible Officer" means any Senior Financial Officer and
any other officer of the Company from time to time designated by the Board of
Directors of the Company or a Senior Financial Officer as having responsibility
for the administration of the relevant portion of this Agreement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Security Documents" means the documents described in Schedule
5.15 as securing the Indebtedness under the Existing Bank Credit Facility.
"Senior Financial Officer" means the chief executive officer,
president, chief financial officer, principal accounting officer, treasurer or
comptroller of the Company.
"Subordinated Debt" means the Company's 5% Convertible
Subordinated Notes due 2006 in the aggregate original principal amount of
$287,500,000 and any other Indebtedness of the Company or any Subsidiary which
is subordinated in writing to all senior Indebtedness of the Company (including
without limitation the Notes) or such Subsidiary (including without limitation
its Subsidiary Guarantee, if any), as applicable, on terms and conditions
satisfactory in all respects to the Required Holders, including without
limitation with respect to interest rates, payment terms, maturities,
amortization schedules, covenants, defaults, remedies and subordination
provisions.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity more than 50% of the combined
voting power of all Voting Stock of which is owned by such Person or one or more
of its Subsidiaries or such Person and one or more of its Subsidiaries (but
excluding with respect to the Company any special purpose entity created in
connection with a transaction permitted by Section 10.6 but only if no recourse
may be had against the Company or a Subsidiary in connection with any such
transaction or any Indebtedness of such entity). Unless the context otherwise
clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary
of the Company.
"Subsidiary Guarantee" is defined in Section 1.2(a).
"Subsidiary Guarantor" is defined in Section 1.2(a).
"Swaps" means, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"Total Capitalization" means, at any date, the sum (without
duplication) of (a) Consolidated Net Worth plus (b) Consolidated Total Debt.
"Voting Stock" means, with respect to any Person, any shares
of stock or other equity interests of any class or classes of such Person whose
holders are entitled under ordinary circumstances (irrespective of whether at
the time stock or other equity interests of any other class or classes shall
have or might have voting power by reason of the happening of any contingency)
to vote for the election of a majority of the directors, managers, trustees or
other governing body of such Person.
<PAGE>
EXHIBIT 1.1
[FORM OF NOTE]
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") AND MAY BE RESOLD ONLY IF REGISTERED PURSUANT TO THE
PROVISIONS OF THE SECURITIES ACT OR IF AN EXEMPTION FROM REGISTRATION IS
AVAILABLE, EXCEPT UNDER CIRCUMSTANCES WHERE NEITHER SUCH REGISTRATION NOR SUCH
AN EXEMPTION IS REQUIRED BY LAW. THE COMPANY IS NOT REQUIRED TO REGISTER THIS
NOTE.]
SCI SYSTEMS, INC.
ADJUSTABLE RATE SENIOR NOTE DUE 2006
No. [_____] New York, New York
$[_______] [Date]
PPN 783890 A# 3
FOR VALUE RECEIVED, the undersigned, SCI SYSTEMS,
INC. (the "Company"), a Delaware corporation, hereby promises to pay to
[ ], or registered assigns, the principal sum of [ ] DOLLARS on July
19, 2006, with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) from the date hereof on the unpaid balance
thereof at the Applicable Rate (as defined below), payable semiannually
on January 19 and July 19 in each year, until the principal hereof
shall have become due and payable, and (b) on any overdue payment of
principal, any overdue payment of interest (to the extent permitted by
applicable law) and any overdue payment of any premium or Make-Whole
Amount (as defined in the Note Purchase Agreements referred to below),
payable semiannually as aforesaid (or, at the option of the registered
holder hereof, on demand) at a rate per annum from time to time equal
to 2% above the greater of (i) the Applicable Rate and (ii) the rate of
interest publicly announced by Citibank, N.A. from time to time at its
principal office in New York City as its prime rate.
As used herein, the term "Applicable Rate" means the
rate per annum equal to the sum of (i) 7.59% and (ii) the Applicable
Margin; and the term "Applicable Margin" means the number of basis
points (each constituting .01%), determined in each fiscal quarter of
the Company on the first Business Day following the last day on which
financial statements for the immediately preceding accounting period
are required to be delivered in accordance with Section 7.1 (whether or
not such financial statements are actually delivered) and in effect
from and including such date of determination to but excluding the next
succeeding date of determination, and equal to
(a) zero basis points, if (x) Consolidated Total Debt was less
than 60% of Total Capitalization as of the last day of the immediately preceding
fiscal quarter and (y) EBIT for the period of four consecutive fiscal quarters
ending on the last day of the immediately preceding fiscal quarter exceeded 250%
of Consolidated Interest Expense for such period,
(b) 25 basis points, if (x) Consolidated Total Debt was less
than 60% of Total Capitalization as of the last day of the immediately preceding
fiscal quarter and (y) EBIT for the period of four consecutive fiscal quarters
ending on the last day of the immediately preceding fiscal quarter was less than
250% of Consolidated Interest Expense for such period,
(c) 45 basis points, if (x) Consolidated Total Debt exceeded
60% of Total Capitalization as of the last day of the immediately preceding
fiscal quarter and (y) EBIT for the period of four consecutive fiscal quarters
ending on the last day of the immediately preceding fiscal quarter exceeded 250%
of Consolidated Interest Expense for such period, and
(d) 75 basis points, if (x) Consolidated Total Debt exceeded
60% of Total Capitalization as of the last day of the immediately preceding
fiscal quarter and (y) EBIT for the period of four consecutive fiscal quarters
ending on the last day of the immediately preceding fiscal quarter was less than
250% of Consolidated Interest Expense for such period.
Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the United
States of America at said principal office of Citibank, N.A. in New York City or
at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreements referred to
below.
This Note is one of an issue of Senior Notes issued pursuant
to separate Note Purchase Agreements dated as of June 28, 1996 (the "Note
Purchase Agreements") between the Company, and the respective Purchasers named
therein and is entitled to the benefits thereof. This Note is also entitled to
the benefits of certain Subsidiary Guarantees that are executed and delivered
pursuant to the Note Purchase Agreements. Each holder of this Note will be
deemed, by its acceptance hereof, to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements.
This Note is a registered Note and, as provided in the Note
Purchase Agreements, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
The Company will make required prepayments of principal on the
dates and in the amounts specified in the Note Purchase Agreements. This Note is
also subject to optional prepayment, in whole or from time to time in part, at
the times and on the terms specified in the Note Purchase Agreements, but not
otherwise.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner, at the price (including any
applicable premium or Make-Whole Amount) and with the effect provided in the
Note Purchase Agreements.
This Note shall be construed and enforced in accordance with,
and the rights of the Company and the holder hereof shall be governed by, the
laws of the State of New York, excluding choice-of-law principles of the law of
such State that would require the application of the laws of a jurisdiction
other than such State.
SCI SYSTEMS, INC.
By_________________________
Title:
To be inserted at the option of the Company and subject to removal under the
circumstances described in Section 6.1 of the Note Purchase Agreements referred
to below.
<PAGE>
A-1
EXHIBIT 1.2(a)
GUARANTEE AGREEMENT
GUARANTEE AGREEMENT dated as of ___________ made by
________________________, a _________________ corporation (the "Guarantor"), in
favor of the holders from time to time of the Notes referred to below
(collectively the "Obligees").
WHEREAS, SCI Systems, Inc., a Delaware corporation (the
"Company"), has entered into several Note Purchase Agreements dated as of June
28, 1996 (as amended or otherwise modified from time to time, collectively the
"Note Agreements" and terms defined therein and not otherwise defined herein are
being used herein as so defined) with the institutional purchasers listed in
Schedule A thereto, pursuant to which the Company proposes to issue and sell to
such purchasers $100,000,000 aggregate principal amount of its Adjustable Rate
Senior Notes due 2006 (the "Notes"); and
WHEREAS, it is a [condition precedent to the purchase of the
Notes by such purchasers under/a requirement of] the Note Agreements that the
Guarantor shall execute and deliver this Guarantee Agreement;
NOW, THEREFORE, in consideration of the premises the Guarantor
hereby agrees as follows:
SECTION 1. Guarantee. The Guarantor unconditionally and
irrevocably guarantees, as primary obligor and not merely as surety,
A. the punctual payment when due, whether at stated maturity,
by acceleration or otherwise, of all obligations of the Company arising
under the Notes and the Note Agreements, including all extensions,
modifications, substitutions, amendments and renewals thereof, whether
for principal, interest (including without limitation interest on any
overdue principal, premium and interest at the rate specified in the
Notes and interest accruing or becoming owing both prior to and
subsequent to the commencement of any proceeding against or with
respect to the Company under any chapter of the Bankruptcy Code of
1978, 11 U.S.C. ss.101 et seq.), Make-Whole Amount, fees, expenses,
indemnification or otherwise, and
B. the due and punctual performance and observance by the
Company of all covenants, agreements and conditions on its part to be
performed and observed under the Notes and the Note Agreements;
(all such obligations are called the "Guaranteed Obligations"); provided that
the aggregate liability of the Guarantor hereunder in respect of the Guaranteed
Obligations shall not exceed at any time the lesser of (1) the amount of the
Guaranteed Obligations and (2) the maximum amount for which the Guarantor is
liable under this Guarantee Agreement without such liability being deemed a
fraudulent transfer under applicable Debtor Relief Laws (as hereinafter
defined), as determined by a court of competent jurisdiction. As used herein,
the term "Debtor Relief Laws" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief laws affecting the rights of creditors generally from time to time
in effect.
The Guarantor also agrees to pay, in addition to the amount
stated above, any and all reasonable expenses (including reasonable counsel fees
and expenses) incurred by any Obligee in enforcing any rights under this
Guarantee Agreement or in connection with any amendment of this Guarantee
Agreement.
Without limiting the generality of the foregoing, this
Guarantee Agreement guarantees, to the extent provided herein, the payment of
all amounts which constitute part of the Guaranteed Obligations and would be
owed by any other Person to any Obligee but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Person.
SECTION 2. Guarantee Absolute. The obligations of the
Guarantor under Section 1 of this Guarantee Agreement constitute a present and
continuing guaranty of payment and not of collectability and the Guarantor
guarantees that the Guaranteed Obligations will be paid strictly in accordance
with the terms of the Notes and the Note Agreements, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of any Obligee with respect thereto. The obligations
of the Guarantor under this Guarantee Agreement are independent of the
Guaranteed Obligations, and a separate action or actions may be brought and
prosecuted against the Guarantor to enforce this Guarantee Agreement,
irrespective of whether any action is brought against the Company or any other
Person liable for the Guaranteed Obligations or whether the Company or any other
such Person is joined in any such action or actions. The liability of the
Guarantor under this Guarantee Agreement shall be primary, absolute,
irrevocable, and unconditional irrespective of:
(a) any lack of validity or enforceability of any
Guaranteed Obligation, any Note, the Note Agreements or any agreement or
instrument relating thereto;
(b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Guaranteed Obligations, or any
other amendment or waiver of or any consent to departure from any Note, the Note
Agreements or this Guarantee Agreement;
(c) any taking, exchange, release or nonperfection of any
collateral, or any taking, release or amendment or waiver of or consent to
departure by the Guarantor or other Person liable, or any other guarantee, for
all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any manner of sale or
other disposition of any collateral or any other assets of the Company or any
other Subsidiary;
(e) any change, restructuring or termination of the
corporate structure or existence of the Company or any other Subsidiary; or
(f) any other circumstance (including without limitation
any statute of limitations) that might otherwise constitute a defense, offset or
counterclaim available to, or a discharge of, the Company or the Guarantor.
This Guarantee Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Guaranteed Obligations is rescinded or must otherwise be returned by any
Obligee, or any other Person upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, all as though such payment had not been made.
SECTION 3. Waivers. The Guarantor hereby irrevocably waives,
to the extent permitted by applicable law:
(a) promptness, diligence, presentment, notice of
acceptance and any other notice (except notices specifically provided for
hereunder) with respect to any of the Guaranteed Obligations and this Guarantee
Agreement;
(b) any requirement that any Obligee or any other Person
protect, secure, perfect or insure any Lien or any property subject thereto or
exhaust any right or take any action against the Company or any other Person or
any collateral;
(c) any defense, offset or counterclaim arising by reason
of any claim or defense based upon any action by any Obligee;
(d) any duty on the part of any Obligee to disclose to
the Guarantor any matter, fact or thing relating to the business, operation or
condition of any Person and its assets now known or hereafter known by such
Obligee; and
(e) any rights by which it might be entitled to require
suit on an accrued right of action in respect of any of the Guaranteed
Obligations or require suit against the Company or the Guarantor or any other
Person.
SECTION 4. Waiver of Subrogation and Contribution. The
Guarantor shall not assert, enforce, or otherwise exercise (A) any right of
subrogation to any of the rights, remedies, powers, privileges or liens of any
Obligee or any other beneficiary against the Company or any other obligor on the
Guaranteed Obligations or any collateral or other security, or (B) any right of
recourse, reimbursement, contribution, indemnification, or similar right against
the Company, and the Guarantor hereby waives any and all of the foregoing
rights, remedies, powers, privileges and the benefit of, and any right to
participate in, any collateral or other security given to any Obligee or any
other beneficiary to secure payment of the Guaranteed Obligations, until such
time as the Guaranteed Obligations have been paid in full.
SECTION 5. Representations and Warranties. The Guarantor
hereby represents and warrants as follows:
(a) The Guarantor is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. The execution, delivery and performance of this Guarantee
Agreement have been duly authorized by all necessary action on the part of the
Guarantor.
(b) The execution, delivery and performance by the
Guarantor of this Guarantee Agreement will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Guarantor or any Subsidiary of the Guarantor
under, any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, corporate charter or by-laws, or any other material agreement or
instrument to which the Guarantor or any Subsidiary of the Guarantor is bound or
by which the Guarantor or any Subsidiary of the Guarantor or any of their
respective properties may be bound or affected, (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Guarantor or any Subsidiary of the Guarantor or (iii) violate any
provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Guarantor or any Subsidiary of the Guarantor.
(c) The Guarantor and the Company are members of the same
consolidated group of companies and the Guarantor will derive substantial direct
and indirect benefit from the execution and delivery of this Guarantee
Agreement.
SECTION 6. Amendments, Etc. No amendment or waiver of any
provision of this Guarantee Agreement and no consent to any departure by the
Guarantor therefrom shall in any event be effective unless the same shall be in
writing and signed by the Required Holders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided that no amendment, waiver or consent shall, unless in
writing and signed by all Obligees, or as contemplated by Section 9.6 of the
Note Agreements, (i) limit the liability of or release the Guarantor hereunder,
(ii) postpone any date fixed for, or change the amount of, any payment hereunder
or (iii) change the percentage of Notes the holders of which are, or the number
of Obligees, required to take any action hereunder.
SECTION 7. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and (A) by telecopy,
or (B) by registered or certified mail with return receipt requested (postage
prepaid), or (C) by a recognized overnight delivery service (with charges
prepaid). Such notice if sent to the Guarantor shall be addressed to it at the
address of the Guarantor provided below its name on the signature page of this
Guarantee Agreement or at such other address as the Guarantor may hereafter
designate by notice to each holder of Notes, or if sent to any holder of Notes,
shall be addressed to it as set forth in the Note Agreements. Any notice or
other communication herein provided to be given to the holders of all
outstanding Notes shall be deemed to have been duly given if sent as aforesaid
to each of the registered holders of the Notes at the time outstanding at the
address for such purpose of such holder as it appears on the Note register
maintained by the Company in accordance with the provisions of Section 13.1 of
the Note Agreements. Notices under this Section 7 will be deemed given only when
actually received.
SECTION 8. No Waiver; Remedies. No failure on the part of any
Obligee to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 9. Continuing Guarantee. This Guarantee Agreement is
a continuing guarantee of payment and performance and shall (A) remain in full
force and effect until payment in full of the Guaranteed Obligations and all
other amounts payable under this Guarantee Agreement, except as provided in
Section 9.6 of the Note Agreements, (B) be binding upon the Guarantor, its
successors and assigns and (C) inure to the benefit of and be enforceable by the
Obligees and their successors, transferees and assigns.
SECTION 10. Jurisdiction and Process; Waiver of Jury Trial.
The Guarantor irrevocably submits to the nonexclusive in personam jurisdiction
of any New York State or federal court sitting in the Borough of Manhattan, The
City of New York, over any suit, action or proceeding arising out of or relating
to this Guarantee Agreement. To the fullest extent permitted by applicable law,
the Guarantor irrevocably waives and agrees not to assert, by way of motion, as
a defense or otherwise, any claim that it is not subject to the in personam
jurisdiction of any such court, any objection that it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
The Guarantor consents to process being served in any suit,
action or proceeding of the nature referred to in this Section by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to the Guarantor at its address specified in Section 7 or at such
other address of which you shall then have been notified pursuant to said
Section. The Guarantor agrees that such service upon receipt (i) shall be deemed
in every respect effective service of process upon it in any such suit, action
or proceeding and (ii) shall, to the fullest extent permitted by applicable law,
be taken and held to be valid personal service upon and personal delivery to the
Guarantor. Notices hereunder shall be conclusively presumed received as
evidenced by a delivery receipt furnished by the United States Postal Service or
any recognized courier or overnight delivery service.
Nothing in this Section 10 shall affect the right of any
holder of a Note to serve process in any manner permitted by law, or limit any
right that the holders of any of the Notes may have to bring proceedings against
the Guarantor in the courts of any appropriate jurisdiction or to enforce in any
lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.
THE GUARANTOR WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR
WITH RESPECT TO THIS GUARANTEE AGREEMENT OR ANY OTHER DOCUMENT EXECUTED IN
CONNECTION HEREWITH.
SECTION 11. Governing Law. This Guarantee Agreement shall be
governed by and construed in accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee Agreement to be duly
executed and delivered as of the date first above written.
[GUARANTOR]
By________________________
Title:
Address:
Attention:
Telephone:
Telecopy:
<PAGE>
EXHIBIT 4.4(d)
July 19, 1996
Re: SCI Systems, Inc.
Adjustable Rate Senior Notes due 2006
To the several Purchasers listed in
Schedule A to the within-mentioned
Note Purchase Agreements
Ladies and Gentlemen:
We have acted as your special counsel in connection with the
issuance by SCI Systems, Inc. (the "Company") of its Adjustable Rate Senior
Notes due 2006 in an aggregate principal amount of $100,000,000 (the "Notes")
and the purchases by you pursuant to the several Note Purchase Agreements made
by you with the Company under date of June 28, 1996 (the "Note Purchase
Agreements") of Notes in the respective aggregate principal amounts specified in
Schedule A to the Note Purchase Agreements, which Notes are guaranteed by
certain subsidiaries of the Company (each a "Guarantor" and collectively the
"Guarantors") pursuant to guarantee agreements dated as of June 28, 1996 (each a
"Guarantee Agreement" and collectively the "Guarantee Agreements"). All
capitalized terms used herein without definition shall have the meanings
ascribed thereto in the Note Purchase Agreements.
We have examined such corporate records of the Company and the
Guarantors, agreements and other instruments, certificates of officers and
representatives of the Company and the Guarantors, certificates of public
officials, and such other documents, as we have deemed necessary in connection
with the opinions hereinafter expressed. In such examination we have assumed the
genuineness of all signatures, the authenticity of documents submitted to us as
originals and the conformity with the authentic originals of all documents
submitted to us as copies. As to questions of fact material to such opinions we
have, when relevant facts were not independently established, relied upon the
representations set forth in the Note Purchase Agreements and the Guarantee
Agreements and upon certifications by officers or other representatives of the
Company and the Guarantors. We have also assumed the valid existence of the
Guarantors and the due authorization, execution and delivery of the Guarantee
Agreements.
In addition, we attended the closing held today at our office
at which you purchased and made payment for Notes in the respective aggregate
principal amounts to be purchased by you, all in accordance with the Note
Purchase Agreements.
Based upon the foregoing and having regard for legal
considerations that we deem relevant, we render our opinion to you pursuant to
Section 4.4(b) of the Note Purchase Agreements as follows:
(i) The Company is a validly existing corporation in good
standing under the laws of the State of Delaware and has the corporate power to
execute and deliver the Note Purchase Agreements and the Notes and to perform
its obligations thereunder.
(ii) The Note Purchase Agreements have been duly authorized,
executed and delivered by the Company and constitute legal, valid and binding
agreements of the Company, enforceable against the Company in accordance with
their terms.
(iii) The Notes being purchased by you today have been duly
authorized, executed and delivered by the Company and constitute legal, valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms.
(iv) The Guarantee Agreements delivered today pursuant to
Section 4.5 of the Note Purchase Agreements constitute legal, valid and binding
obligations of the respective Guarantors, enforceable against the respective
Guarantors in accordance with their respective terms.
(v) No consent, approval or authorization of, or declaration,
registration or filing with, any New York or Federal Governmental Authority is
required to be obtained or made as a condition to the validity of the execution
and delivery by the Company of the Note Purchase Agreements or said Notes, by
the Guarantors of said Guarantee Agreements or for the performance by the
Company or the Guarantors of their respective obligations thereunder.
(vi) It was not necessary in connection with the offering, sale
and delivery of said Notes or said Guarantee Agreements, under the circumstances
contemplated by the Note Purchase Agreements, to register said Notes or said
Guarantee Agreements under the Securities Act of 1933, as amended, or to qualify
an indenture in respect of the Notes under the Trust Indenture Act of 1939, as
amended.
(vii) The opinions of even date herewith of Michael M. Sullivan,
Corporate Counsel to the Company, and Powell, Goldstein, Frazer & Murphy,
special counsel to the Company and the Guarantors, delivered to you pursuant to
Section 4.4(a) of the Note Purchase Agreements, are satisfactory to us in form
and scope with respect to the matters specified therein and we believe that you
are justified in relying thereon.
The opinions expressed above as to the enforceability of any
agreement or instrument in accordance with its terms are subject to the
exception that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and (ii) general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
We are members of the bar of the State of New York and do not
herein intend to express any opinion as to any matters governed by any laws
other than Federal laws, the laws of the State of New York and the General
Corporation Law of the State of Delaware.
This opinion is given solely for your benefit and for the
benefit of institutional investor holders from time to time of the Notes
purchased by you today, in connection with the closing held today of the
transactions contemplated by the Note Purchase Agreements, and may not be relied
upon by any other person for any purpose without our prior written consent.
Very truly yours,
[END OF EXHIBIT 10(h)(1)]
[EXHIBIT 10 (j) (1)]
SCI SYSTEMS, INC.
SENIOR EXECUTIVE OFFICERS ANNUAL INCENTIVE PLAN
I. Introduction
1.1. Purpose. The purpose of this Plan is to provide the senior
management with incentive bonus compensation based on the performance of the
Company in order to enhance shareholder value.
1.2. Definitions. As used in this Plan, capitalized terms shall have
the following meanings:
"Annual Incentive Bonus" means the bonus payable with respect to a
fiscal year of the Company, determined in accordance with Article III hereof.
"Board" means the Board of Directors of SCI Systems, Inc.
"Compensation Committee" means the Compensation Committee of the Board
of Directors.
"Company" means SCI Systems, Inc., a Delaware corporation.
"Participants" shall mean the Chief Executive Officer and the Chief
Operating Officer.
"Plan' means the SCI Systems, Inc. Senior Executive Officers Annual
Incentive Plan, as in effect and as amended from time to time.
1.3. Administration. The administration and operation of the Plan
shall be supervised by the Compensation Committee. The Compensation Committee
shall interpret and construe any and all provisions of the Plan and any
determination made by the Compensation Committee under the Plan shall be final
and conclusive. Neither the Board nor the Compensation Committee, nor any member
of the Board, nor any employee of the Company shall be liable for any act,
omission, interpretation, construction or determination made in connection with
the Plan (other than acts of willful misconduct) and the members of the Board
and the Compensation Committee and the employees of the Company shall be
entitled to indemnification and reimbursement by the Company to the maximum
extent permitted at law in respect of any claim, loss, damage or expense
(including counsel's fees) arising from their acts, omissions and conduct in
their official capacity with respect to the Plan.
II. Participation
Each executive of the Company holding a position of Chief Executive
Officer, or Chief Operating Officer shall be eligible to receive awards under
the Plan.
III. Annual Incentive Awards
3.1. Annual Incentive Bonus. With respect to each fiscal year of the
Company, the Chief Executive Officer of the Company and the Chief Operating
Officer of the Company shall each be entitled to an annual incentive bonus equal
to the following percentage of the Company's consolidated net income, as
determined in accordance with Generally Accepted Accounting Principles as
applied by the independent accounting firm then preparing the audited financial
statements of the Company for such fiscal year:
Net Income
Chief Executive Officer 1%
Chief Operating Officer .65%
3.2. Determination of Achievement of Performance Goals. The
Compensation Committee shall certify the level of achievement of the performance
goals as soon as practical after the end of the fiscal year for which the
determination is being made.
3.3. Payment of Annual Incentive Bonus. As soon as practical after the
expiration of each fiscal year of the Company, Participants who remained
employed until the last day of the fiscal year or who died, became disabled or
were terminated without Cause during such period, shall be entitled to receive
the Annual Incentive Bonus determined in accordance with this Article III.
Unless a Participant makes an election to defer receipt of an Annual Incentive
Bonus in accordance with a plan or program of deferred compensation sponsored by
the Company in which the Participant is eligible to participate, payment of
Annual Incentive Bonus shall be made in cash. As used herein, "Cause" shall mean
(a) any act that constitutes, on the part of the
Participant (i) fraud, dishonesty, a felony or gross
malfeasance of duty and (ii) that directly results in~
material injury to the Company; or
(b) misconduct which is grossly inappropriate and
demonstrably likely to lead to material injury to the
Company, as determined by the Board reasonably and in good
faith; provided however, that such conduct shall not
constitute Cause unless (i) the Board shall have delivered to
the Participant notice setting forth with specificity (A) the
conduct deemed to qualify as Cause, (B) reasonable action
that would remedy such objection, and (C) a reasonable time
(not less than thirty (30) days) within which the Participant
may take such remedial action, and (ii) the Participant
shall not have taken such specified remedial action within
such specified reasonable time.
IV. General Provisions
4.1. Amendment and Termination. The Board may at any time amend,
suspend, discontinue or terminate the Plan.
4.2. Miscellaneous.
(a) No Right of Continued Employment. Nothing in this
Plan shall be construed as conferring upon any employee any
right to continue in the employment of the Company or any of
its subsidiaries or affiliates.
(b) No Limitation on Company Actions. Nothing contained
in the Plan shall be construed to prevent the Company or any
subsidiary or affiliate from taking any corporate action
which is deemed by it to be appropriate or in its best
interest, whether or not such action would have an adverse
effect on the Plan or any awards made under the Plan. No
employee, beneficiary or other person shall have any claim
against the Company or any of its subsidiaries or affiliates
as a result of any such action.
(c) Nonalienation of Benefits. Except as expressly
provided herein, no employee or his beneficiaries shall have
the power or right to transfer, anticipate, or otherwise
encumber the employee's interest under the Plan. The
Company's obligations under this Plan are not assignable or
transferable except to a corporation which acquires all or
substantially all of the assets of the Company or any
corporation into which the Company may be merged or
consolidated. The provisions of the Plan shall inure to the
benefit of each employee and his beneficiaries, heirs,
executors, administrators or successors in interest.
(d) Severability. If any provision of this Plan is held
unenforceable, the remainder of the Plan shall continue in
full force and effect without regard to such unenforceable
provision and shall be applied as though the unenforceable
provision were not contained in the Plan.
(e) Governing Law. The Plan shall be construed in
accordance with and governed by the laws of the State of
Alabama, without reference to the principles of conflict of
laws.
(f) Headings. Headings are inserted in this Plan for
convenience of reference only and are to be ignored in a
construction of the provisions of the Plan.
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Plan the date first
above written.
SCI SYSTEMS, INC.
Dated: October 26, 1996 By:/s/ Michael M. Sullivan
Title: Secretary
Witness:
/s/ John M. Noll
Title: Controller
[END OF EXHIBIT 10 (j) (1)]
<TABLE>
EXHIBIT 11 - COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(In thousands of dollars except number of shares and per share amounts)
(Retroactively restated for August 1997's stock dividend in the form of a
two-for-one stock split)
<CAPTION>
Year Ended:
June 30, June 30, June 30,
1997 1996 1995
<S> <C> <C> <C>
Primary Earnings Per Share
Net Income $ 112,713 $ 80,955 $ 45,243
Add back after-tax interest expense for debentures N/A 218 N/A
----------------------------------------------
Adjusted net income used in primary computation $ 112,713 $ 81,173 $ 45,243
==============================================
Weighted average number of shares outstanding during period 59,495,448 58,934,718 54,669,102
Applicable number of shares for common stock equivalents
(stock options) outstanding for period, using Treasury
Stock Method based on average market price for period 1,377,740 1,346,226 972,494
----------------------------------------------
Weighted average number of shares used in computation 60,873,188 60,280,944 55,641,596
==============================================
Primary earnings per share: $1.85 $1.35 $.82
==============================================
Fully Diluted Earnings Per Share
Net Income $ 112,713 $ 80,955 $ 45,243
Add back after-tax interest expense for debentures N/A 218 N/A
Add back after-tax interest expense for outstanding
convertible subordinated notes and debentures 8,956 1,657 1,339
----------------------------------------------
Adjusted net income used in fully diluted computation $ 121,669 $ 82,830 $ 46,582
==============================================
Weighted average number of shares outstanding during period 59,495,448 58,934,718 54,669,102
Applicable number of shares for common stock equivalents
(stock options) outstanding for period, using Treasury
Stock Method based on period ended market price 1,493,246 1,373,424 1,279,352
Number of shares to be issued if convertible
subordinated notes and debentures were converted 11,794,872 2,223,624 3,700,688
----------------------------------------------
Weighted average number of shares used in computation 72,783,566 62,531,766 59,649,142
==============================================
Fully diluted earnings per share: $1.67 $1.33 $.78
==============================================
</TABLE>
[EXHIBIT 13]
BEGINNING OF 1997 ANNUAL REPORT TO SHAREHOLDERS
SCI SYSTEMS, INC.
Annual Report 1997
(INSIDE FRONT COVER OF 1997 ANNUAL REPORT TO SHAREHOLDERS)
The Company
SCI Systems, Inc. is a multinational electronics manufacturing services
provider with multibillion dollar annual sales. It designs, manufactures,
markets, distributes, and services products for computer, computer peripheral,
telecommunication, medical, industrial, consumer, and military and aerospace
markets. SCI, the world's largest contract manufacturer, operates the largest
surface mount technology (SMT) production capacity in the merchant market.
The Company conducts its operational activities through two functionally
oriented and six geographically organized divisions, closely integrated by an
efficient corporate center. See below.
Serving a diversified and growing customer base around the world, each
division operates multiple plants which design and manufacture both
subassemblies and finished products, primarily for original equipment
manufacturers. The divisions also offer a wide range of engineering, purchasing,
test, distribution, and support services. Geographical markets served by the
Company include North America, South America, Western Europe, Central Europe,
and East Asia.
Although the Company derives a majority of its revenues from hardware
manufacturing and maintains a broad technology base, it is primarily a
vertically integrated engineering and manufacturing services provider with
dedication to close customer interaction forming the cornerstone of its
activities. The key elements of SCI's operating philosophy -- quality products,
competitive pricing, and customer responsiveness -- form a proven foundation for
success. These fundamental tenets will continue to guide the Company as it
pursues its many opportunities for growth.
- --------------------------------------------------------------------------------
A circular organizational chart with corporate at the center and divisions shown
as a circumference.
- --------------------------------------------------------------------------------
<PAGE>
[PAGE 1 OF ANNUAL REPORT TO SHAREHOLDERS]
Financial Highlights
Annual Report for the Year Ended June 30, 1997
(Dollars in thousands except for per share data)
No cash dividends were declared in the periods presented.
(See Part II, Items 7 and 8 of Excerpts from Form 10-K for Fiscal 1997, bound
herein.)
All share and per share data has been restated for a two-for-one stock split in
the form of a stock dividend paid on August 22, 1997, to shareholders of record
on August 8, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal Year 1997 1996 1995 1994 1993
Net Sales $5,762,656 $4,544,759 $2,673,783 $1,852,478 $1,672,115
Income from Continuing Operations 112,713 80,955 45,243 29,936 30,615
Per Common Share (Fully Diluted) 1.67 1.33 .78 .54 .61
Net Income 112,713 80,955 45,243 21,161 26,559
Per Common Share (Fully Diluted) 1.67 1.33 .78 .38 .54
Interest Expense, net of interest income 17,993 24,165 16,945 14,520 17,323
Taxes on Income from Continuing Operations 76,721 55,103 30,418 16,980 12,268
Total Assets 1,869,852 1,283,195 981,292 920,212 780,339
Borrowings 458,702 343,738 162,090 284,283 253,341
Cash and Cash Equivalents 290,809 46,493 10,277 35,822 15,846
Working Capital 754,222 549,650 280,124 395,628 336,616
Capital Expenditures 109,739 109,912 80,316 46,488 84,084
Depreciation and Amortization 76,848 60,972 49,839 48,623 41,303
Net Property, Plant, and Equipment 300,997 264,054 214,025 182,768 184,032
Shareholders' Equity 594,662 472,261 349,776 304,634 277,856
Per Common Share 9.96 7.98 6.38 5.58 5.14
New Orders Received 6,112,894 5,248,926 3,574,820 2,074,205 1,922,366
Order Backlog $3,190,241 $2,840,003 $2,135,836 $1,234,800 $1,013,073
Common Shares Outstanding 59,715,424 59,184,424 54,871,984 54,612,198 54,100,564
Employees 18,470 15,524 13,185 12,027 10,811
Sales ($) Per Employee 339,040 316,609 212,104 162,228 164,544
Manufacturing Plants 24 21 20 19 18
Facility Square Footage 3,885,000 3,510,000 3,021,600 2,834,000 2,745,000
Sales ($) Per Square Foot 1,559 1,392 913 664 619
Automated Assembly Lines 229 198 169 154 139
Pin-in-Hole Technology 48 43 40 42 38
Surface Mount Technology 181 155 129 112 101
</TABLE>
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4 Bar Charts of Sales, Total Assets, Shareholders' Equity and Employment
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<PAGE>
[PAGE 2 OF ANNUAL REPORT TO SHAREHOLDERS]
Executive Letter
To the Shareholders:
The fiscal year ended June 30, 1997, was one of considerable progress for
SCI Systems, Inc. Revenues and earnings reached record highs. Profitability
improved. Capacity was increased. A strong balance sheet was enhanced by
additional liquidity. Customer relationships were strengthened. Commitments were
made to substantial infrastructure expansion. Importantly, the Company's
management structure was broadened to both stimulate and accommodate ongoing
growth.
Revenues. Sales in fiscal year 1997 increased 26.8% to $5.76 billion from
$4.54 billion in the previous year. The general market environment in which SCI
operates is a favorable one. End market product demand is healthy. The trend to
increased and broadened outsourcing of manufacturing services continues to be a
strong one to the Company's benefit.
Income and Returns. Net income in fiscal 1997 of $112.7 million was 39.2%
above the $81.0 million of the prior year. Earnings per share for the year were
$1.85 on a primary basis and $1.67 fully diluted, compared with fiscal 1996's
$1.35 on a primary basis and $1.33 fully diluted. EPS growth was 37.0% on a
primary basis and 25.6% fully diluted. Operating margin again increased by
approximately ten basis points during the year in spite of an adverse product
mix shift. Return on average shareholders' equity increased to 21.1% in fiscal
1997 from 19.7% a year earlier, sustaining the 20% plus level which has been an
important Company profitability objective.
Orders and Backlog. New customer orders received during fiscal year 1997
were $6.11 billion compared to $5.25 billion in the prior year. Year end order
backlog was $3.19 billion compared to $2.84 billion a year earlier. Backlog
levels reflected the effects of lower average selling prices and continued
customer pressures for shortened product cycle times. The backlog period of 6.6
months is considered a healthy one.
Customers. During fiscal year 1997, the Company added approximately thirty
significant new customers to its client base. The additions were well
diversified as to product type and geography. At year end new business activity
was at a high level. Of note was the selection during the year of SCI by
Ericsson Telecom AB of Sweden as a primary manufacturing partner. Agreements
have been executed under which the Company will purchase certain Ericsson assets
and in turn provide manufacturing services to them. Initial revenues from those
agreements will come in fiscal 1998 with substantial growth projected to follow.
Balance Sheet. The Company's balance sheet remained strong throughout
fiscal year 1997 with all balance sheet ratios well within their target ranges.
The final component of a multielement financing program begun in the second half
of fiscal 1996 was completed in early fiscal 1997 with the closing of a $100
million senior note issue. By midyear positive cash flow brought available
liquidity to approximately a billion dollars, including $340 million in cash.
During the year days of sales employed in inventories were significantly
reduced. Total asset turnover ratios inevitably declined somewhat, largely as a
consequence of sizeable cash balances. During the first quarter stockholders'
equity crossed the $500 million dollar threshold; $600 million was approached by
year end. During the year working capital grew from $550 million to $754
million, a 37% increase. The Company believes that adequate liquidity is
available to fund working capital and capital expenditure requirements in
support of planned revenue growth.
Securities. In April 1997, the Company's common stock began trading on the
New York Stock Exchange under the ticker symbol "SCI". Over recent quarters the
market price of the Company's shares has appreciated substantially as a result
of SCI's financial progress, favorable market conditions, and increased market
multiples in the Company's industry sector. The outstanding convertible bond
price has similarly appreciated. Subsequent to fiscal year end, a two-for-one
common stock split was declared in the form of a 100% stock dividend which was
paid in August 1997.
Product Mix. The Company's electronic hardware products are typically of
two types: printed wiring board assemblies (often called "cards"), which are the
subsystems from which complete products are integrated, and finished products
(often called "boxes"). Commonly, when manufactur-
[PAGE 3 OF ANNUAL REPORT TO SHAREHOLDERS]
ing outsourcing is involved, "OEM's" (original equipment manufacturers) purchase
subsystems and perform final assembly integration in their own operations. This
arrangement typically places much of the inventory, capital investment, and
technology burden upon the subassembly provider. In recent years SCI has focused
considerable effort upon growing the percentage of its business in which it
performs product final assembly ("box build") with direct shipment to
distribution channels. This arrangement provides major advantages to the OEM
(greatly reduced capital requirements, shortened cycle times, improved quality)
but also is favorable to SCI (broadened customer relationships, competitive
advantages, improved asset turnover). In particular, higher asset turnovers
generally enable the Company to achieve higher return on equity results (at the
expense of return on sales). High asset turnovers also substantially reduce
capital requirements and thus reduce shareholder dilution from financing
required to support rapid growth. While others have aspired to adopt SCI's
model, most have met with limited success. In SCI's case the approach has been
very successful; 58% of revenues in fiscal 1997 were generated by finished
product assembly. Excellent cash flow and return on equity results speak for
themselves. Later sections of this report illustrate examples of the card and
box product mix in each of seven selected application areas.
Organization and Personnel. In support of the Company's continued growth
initiatives, a realignment of SCI's operational organization was implemented
during the year. The Company's twenty-four current plants are now organized into
eight divisions. (See the inside front cover of this report.) Several new
international plants being planned will "fill out" the broadened structure. A
series of senior personnel changes were implemented to support the new
organization and deepen the Company's management pool. LeRoy H. Mackedanz,
George J. King, and Charles N. Parks were promoted to Senior Vice President and
head Divisions. Michael H. Missios was promoted to First Vice President with
multiple location responsibilities. James M. Ferguson, Steven T. Korn, David L.
Marler and Yvonne Sanchez-Navarro were promoted to Vice President and Sampath R.
Kumar joined the Company as a Vice President; the five of them serve as Plant
Managers. W. David Rees was promoted to Vice President of Business Development
in Europe. During the year employment grew 19% to 18,470 with much of the growth
occurring late in the year. The 20,000 employee threshold is expected to be
exceeded during the first quarter of fiscal 1998.
Information Systems. The Company continues to invest resources in evolving
its internal information systems at plant and headquarters levels. Baseline
communication and processing infrastructure is in place with many excellent
applications fully mature. However, new software and hardware standards continue
to emerge and customer requirements have proven very dynamic. As the Company
grows and new applications, such as electronic commerce, are defined,
transaction volumes are growing rapidly. System development is an unending
process. The Company has much benefited from its system capabilities and is
committed to maintaining its leading role.
Outlook. Industry trends remain favorable to the Company's business model.
Outsourcing in general continues to gain momentum, with increased levels of
supplier involvement in engineering and distribution evident. Finished product
outsourcing is gaining increased acceptance. End market unit volume growth
persists in key product segments, driven by technology change and continued
price declines. Cost pressures and competition will be intense in coming
periods. The Company will react with accelerated capital investments in
productivity enhancement, additional capacity in low-cost geographies, improved
internal systems, and focused management activism. While SCI's markets will be
most dynamic, aggressive plans are in place to sustain the Company's leadership
position. Management continues to look forward with enthusiasm to the challenges
and opportunities which lie directly ahead.
/s/ Olin B. King /s/ A. Eugene Sapp, Jr.
Olin B. King A. Eugene Sapp, Jr.
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
<PAGE>
[PAGE 4 OF ANNUAL REPORT TO SHAREHOLDERS]
Computers
The computer industry has been a long-standing leader in manufacturing
outsourcing and continues to be highly innovative in new product introduction
and order fulfillment through the use of third party services. SCI has been, and
continues to be, a major supplier of computer circuit board assemblies to a
number of customers around the world. In recent years the Company has
experienced major growth in product development, production of finished products
on a build-to-order basis, and provision of a range of support services
including distribution directly to end customers.
SCI provides printed circuit board assemblies, finished products, and
support services for a wide range of computers from notebooks to enterprise
servers. Board assemblies are produced for most of the leading computer
companies with activity in virtually all of SCI's manufacturing plants. These
printed circuit board assemblies vary widely in complexity and size and employ a
broad range of interconnect, component, and process technology innovations to
achieve functionality, reliability, and cost objectives in required form
factors. Growth in de-
- --------------------------------------------------------------------------------
Two pictures on the page, one with the caption:
Finished computers are built, software loaded, and shipped directly to SCI's
customers' distribution channels.
The second picture, with no caption, is computer boards.
- --------------------------------------------------------------------------------
[PAGE 5 OF THE ANNUAL REPORT TO SHAREHOLDERS]
mand for PC motherboards and other computer board assemblies is contributing to
rapid additions to SMT production capacity at several locations. The Company
shipped over five million computer motherboards in fiscal year 1997. SCI's
larger customers for computer circuit board assemblies are among the fastest
growing in the industry.
The Company has significantly expanded its design and engineering resources
in support of customers' new product developments; a growing portion of computer
assembly activities involve boards that have been custom designed by SCI to meet
specific customer requirements. These engineering resources are expected to
continue to grow in magnitude and breadth of services to support anticipated
increases in design and engineering offerings to existing and future customers.
In recent years production and distribution of finished computer products
has become a major growth area for SCI. In fiscal 1997 the Company shipped 2.3
million machines and volumes continue to grow. Products are manufactured on four
continents as customers benefit from SCI's design services, build-to-order
capabilities, advanced manufacturing systems, direct distribution, and worldwide
production capacities. During the year the Company formed a Computer Products
Division to focus upon finished product activities.
The acquisition of Apple Computer's Fountain, Colorado, plant in late
fiscal 1996 added significantly to the Company's final assembly business and
provided important capabilities in notebook computer production. During the year
new high-end notebooks were produced in Fountain for the plant's largest
customer and a new notebook customer awarded a contract to produce several
configurations of its family of machines.
The Company's largest computer customer continues to leverage on its
strategic relationship with SCI through volume growth of PCs for the office and
home and addition of new products optimized for the small office market. SCI's
support of this customer is multiplant and multinational in scope. In varying
degrees by product, activities include design, product validation, subassembly
manufacturing, final system assembly, distribution, and after sales support.
A growing number of volume marketers of finished computers are taking
advantage of SCI's strengths; desktop, portable, server, and workstation
customers are now being supplied from multiple international locations.
- --------------------------------------------------------------------------------
One picture, with no caption, of computer finished products.
- --------------------------------------------------------------------------------
[PAGE 6 OF ANNUAL REPORT TO SHAREHOLDERS]
Datacom and Telecom Products
Datacom and Telecom products are proliferating at an unprecedented rate as
the need to transmit ever increasing amounts of data, voice, and video signals
through high-performance switching and networking devices increases. Local area
networks (LANs), wide area networks (WANs), wireless communications, the
Internet, video conferencing, multiple online services, and telephone switching
are all growing in sophistication, utility, volumes and bandwidth of traffic.
The number of users is multiplying. Equipment companies are rapidly expanding
their product offerings. Demand for products is at an all time high and is
expected to continue to grow rapidly for the foreseeable future.
SCI is manufacturing a wide range of Datacom and Telecom products for a
steadily growing number of customers. A mix of printed circuit board assemblies
and finished products is experiencing significant growth as telecommunications
and networking companies are increasingly outsourcing product manufacturing on a
multinational basis.
A number of established telecommunications companies are rationalizing
their manufacturing strat-
- --------------------------------------------------------------------------------
Two pictures on the page, one with the caption:
A major customer's ultrafast backbone network ATM/FDDI switch is manufactured at
SCI's Augusta, Maine, plant.
The second picture, with no caption, is of boards for datacom and telecom
products.
- --------------------------------------------------------------------------------
[PAGE 7 OF ANNUAL REPORT TO SHAREHOLDERS]
egies with the result being less internal manufacturing. The Company provides
printed circuit board assemblies to five of the top six telecommunications
companies that are in the public switching equipment business. During the year
SCI was selected by Ericsson Telecom AB as one of its primary manufacturing
partners. SCI will produce printed circuit board assemblies on a multinational
basis for their family of large switches used in public telecom networks.
Product will be provided from several international SCI plants.
SCI is the major supplier of printed circuit board assemblies to the
network products business of a major computer company. The majority of both
board assemblies and finished products sold by another large computer company's
Network Products Division are provided by the Company. These include routers,
hubs, switches, and multiplexers.
A broad range of computer and computer peripheral interconnect cards for
networking are produced by several domestic and foreign SCI plants as are a
number of modem boards and products. The Company produces large volumes of
PCMCIA format plug-in modems for one customer's highly successful line of
notebook computers.
SCI has been selected as the manufacturing partner of the leader in
fiber-to-the-curb (FTTC) broadband switched digital access products. The
customer was recently awarded a mass deployment contract by a Regional Bell
operating company for a broadband access network that will provide a full range
of advanced services including voice, data, and switched digital video. Initial
deployment will be a million lines in Boston, New York City, Long Island, and
Westchester County, New York, with provisions for five million lines. Successful
deployment at these locations is expected to significantly broaden the
customer's market for FTTC products and SCI's manufacturing participation at
multiple locations.
Production units of a cable modem are being delivered that allow cable
television companies to provide PC owners access to the Internet and other data
sources over TV cable at much higher speeds than through conventional telephone
modems. The Company is also producing an Asynchronous Transfer Mode (ATM) System
for a European customer on a finished product basis.
Datacom and Telecom products represent an increasing portion of SCI's
production activities with numerous opportunities for expanding this product
area being pursued.
- --------------------------------------------------------------------------------
One picture, with no caption, of datacom and telecom finished products.
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[PAGE 8 OF ANNUAL REPORT TO SHAREHOLDERS]
Computer Peripherals
SCI provides a wide variety of computer peripheral subassemblies and
finished products. Several such products employ mechanisms which make mechanical
assembly a growing element of the Company's manufacturing capabilities.
The Company has provided tens of millions of printed circuit board
assemblies for disk drives. Industry consolidations, unacceptable pricing
pressures, and other factors have led to replacing much of this business with
higher complexity and more diversified products, resulting in reduced dependency
on the disk drive industry in geographies of disk drive concentration.
A leading supplier of ink jet printers has selected SCI to produce large
quantities of printer electronics. Demand has grown rapidly and significant
capacity has been added to satisfy customer requirements. During the year work
commenced on a number of ink jet printer mechanical assemblies for the same
company in anticipation of higher level assembly of printers up to and including
final assembly of the product.
A high-performance color ink jet printer for the
- --------------------------------------------------------------------------------
Two pictures on the page, one with the caption:
This color printer for applications in the graphics arts industry is produced in
SCI's Lacey's Spring, Alabama, facility.
The second picture, with no caption, is boards for computer peripheral products.
- --------------------------------------------------------------------------------
[PAGE 9 OF ANNUAL REPORT TO SHAREHOLDERS]
graphics arts industry is being fully produced by SCI. This product uses hot
melt inks and sets new standards in terms of print quality and resolution for
preproofing and other graphic arts applications. It resulted from a joint
development effort with the customer with SCI contributing not only electronics
design but full design of the printer mechanism, chassis, and housing as well.
Color scanners are being produced in volume on a finished product basis for
a major computer company. These units offer 1200 dot per inch enhanced
resolution and require assembly in a clean room environment. The manufacturing
process requires precision mechanical assembly and alignment which is further
adding to SCI's base of programs requiring mechanical expertise.
Electronic printed circuit board assemblies for mass storage tape drives
and optical storage devices represent a significant portion of SCI's computer
peripheral business. A number of customers are supported that provide a range of
product size and storage capacity offerings.
The Company is a major supplier of personal computer 3-D graphics adapter
cards for several companies in that business, including the volume leader.
Quantities have expanded so as to require four plant locations to be involved
and this application area continues to grow on a multinational basis.
SCI is a leading supplier of electronic assemblies for a customer's line of
color plotters. Multinational manufacturing is provided as well as considerable
new product introduction engineering services to broaden customer support.
A leading supplier of point of sale systems to fast food establishments and
the hospitality industry has selected SCI to produce its family of products with
distribution directly to the users.
The Company has entered into a strategic relationship with a customer that
has developed a proprietary semiconductor chip stacking technology.
Three-dimensional memory modules and assemblies will be produced in volume for
government and commercial applications that are required to pack large amounts
of memory into small spaces.
The Company produces a number of other peripheral products including video
monitors, ATM control boxes, X-Terminals, lottery terminals, notebook computer
docking stations, and a number of add-in circuit boards that enhance or expand
computers' functionality.
- --------------------------------------------------------------------------------
One picture, with no caption, of finished computer peripherals.
- --------------------------------------------------------------------------------
[PAGE 10 OF ANNUAL REPORT TO SHAREHOLDERS]
Medical Products
A growing number of SCI's plants are engaged in medical product
manufacturing with the attendant demands for FDA approved manufacturing
practices, processes, and documentation. Modern diagnostic, monitoring,
treatment, and patient care equipment employs growing electronic content and
complexity which is resulting in increasing opportunities for the Company to
provide manufacturing and support services to the medical products industry.
The Company manufactures a family of vital signs monitoring equipment for a
major medical company. These products are manufactured complete and shipped in
multiple language configurations to the customer's domestic and foreign markets.
Table top and pole mounted configurations are employed to provide noninvasive
determination of physiological parameters such as blood pressure, mean arterial
pressure, and pulse rate. These monitoring machines are widely distributed
throughout hospital acute care settings such as Emergency, Progressive Care, Day
Surgery, Labor and Delivery, GI/Endoscopy, and Medical/Surgery Units. SCI also
supports this long-standing customer's world-
- --------------------------------------------------------------------------------
Two pictures on the page, one with the caption:
The latest technology is used in production of complex printed circuit boards
for new generation medical products.
The second picture, with no caption, is boards for medical products.
- --------------------------------------------------------------------------------
[PAGE 11 OF ANNUAL REPORT TO SHAREHOLDERS]
wide field service network through the manufacture of approximately 250
different subassemblies. Enhancements to existing products, and introduction of
new ones, are expected to sustain these activities well into the future.
SCI enjoys a strategic partnership with a European based multinational
medical products company in designing and manufacturing the customer's line of
blood glucose monitors. The Company provides design, development, and
manufacturing support in the U.S. and Europe with growth occurring in both
locations. The primary product is an individual hand-held monitor that lets the
user measure his or her blood glucose level with a quick and simple procedure.
These units are shipped complete; over three million have been manufactured by
SCI and production rates continue to grow. A version of this monitor has been
developed for the blind diabetic. Through the use of voice output and bar coding
of the insulin options, the user can determine the reading of the monitor as
well as which insulin to administer. A clinical version of the monitor with
expanded capabilities has also been developed. This relationship is strategic
for both parties and should expand to include other technologies introduced by
the customer.
A leading company in medical imaging products and other medical instruments
has outsourced a number of circuit board assemblies to SCI and is in the process
of broadening the relationship to include multiple SCI plants in several
geographies. Image Generator printed circuit board assemblies are provided for
the customer's Computed Tomography (CT) Scanners. Front End Control and Timing
boards are provided for ultrasound machines. Digital and high frequency analog
assemblies are produced for Magnetic Resource Imaging (MRI) machines. SCI is
also assembling the MRI machine's Receiver and Exciter and Spot Film Device
electronics for X-Ray applications. SCI has contributed engineering design and
development support for several of these products.
Other medical activities and customers include printed circuit board
assemblies for controlling sleep apnea constant pressure pumps, hospital
ventilator systems, and ultrasound imaging machines.
The Company's base of medical product capabilities and experience is well
established and numerous opportunities exist for growth in both number of
customers and product types.
- --------------------------------------------------------------------------------
One picture, with no caption, of finished medical products.
- --------------------------------------------------------------------------------
[PAGE 12 OF ANNUAL REPORT TO SHAREHOLDERS]
Industrial Products
Industrial products manufactured by SCI often benefit from the Company's
long-standing capabilities in producing high reliability equipment exposed to
rugged use in harsh environments. The Company is expert in designing and
producing such equipment for military and aerospace applications and applies
this experience in providing a range of industrial grade printed circuit board
assemblies and finished products. Industrial requirements have wide variation in
product mix and lower volumes than with many other electronic product
categories. SCI's supply chain management systems and flexible manufacturing
processes are particularly attractive to customers requiring rapid response in
high mix manufacturing.
The Company provides ruggedized high-reliability printed circuit boards and
module assemblies to a leading producer of locomotive engines. These critical
electronic products satisfy the rigorous performance and safety requirements of
this transportation segment. Over 500 different items are delivered in varying
quantities to this large customer.
- --------------------------------------------------------------------------------
Two pictures on the page, one with the caption:
Gas cabinets used in the production of semiconductor devices are produced for
both domestic and international customers.
The second picture, with no caption, is boards produced for industrial products.
- --------------------------------------------------------------------------------
[PAGE 13 OF ANNUAL REPORT TO SHAREHOLDERS]
Printed circuit board assemblies are currently supplied to factory
automation customers in the U.S. and Europe. The trend in the factory automation
and process control industries is toward outsourcing their board assemblies and
SCI is well postured to benefit from resulting manufacturing opportunities.
Other printed circuit board activities include electronic assemblies for a
gas pump system that features automatic fueling and customer billing without the
driver having to vacate the vehicle. Four variations of a circuit board are
being supplied for installation in home utility meters to provide for remote
collection of meter readings.
The Company has received a contract from a large international customer to
provide a product for installation in cargo containers that will allow the owner
of the container to monitor its location by satellite using the Global
Positioning System. SCI also manufactures a hand held tracking device for a
major small package shipping company. This product permits shipments to be
scanned and tracked as they pass through the customer's courier and
transportation system.
Leveraging the Company's power management experience in military and
aerospace applications, SCI has developed a family of devices to control and
monitor the delivery of energy to a battery charger onboard an Electric Vehicle
(EV). This technology has been selected by two of the big three automobile
companies in the United States. Environmental concerns are expected to stimulate
the development and production of EVs and SCI's EVSE family of charge supply and
control products will support the market as it develops.
The Company has developed a number of semiconductor processing equipments
which are sold to the microelectronics industry. A family of chemical/gas
cabinets are offered to distribute and mix pure gases and chemicals used in
semiconductor processing. Automated wet benches supplied by SCI robotically
handle semiconductor wafers under computer control as they pass through various
liquid washes in series of individual tanks.
SCI also supplies a complete hand held engine analyzer for a major computer
company that developed the product for one of the world's largest automobile
companies. These units are used by dealer service technicians to perform
computerized analysis of engine performance.
- --------------------------------------------------------------------------------
One picture, with no caption, of finished industrial products.
- --------------------------------------------------------------------------------
[PAGE 14 OF ANNUAL REPORT TO SHAREHOLDERS]
Consumer Products
Consumer electronic products have historically not represented a
significant market to SCI. However, this has changed, and continues to change,
with the introduction of such consumer services as the Internet, digital direct
broadcast satellite TV, and wireless communications. Considerable growth in
product demand is resulting from these services and new requirements will result
from "electronic home appliances" to handle the growth in voice, data, and video
to be offered from multiple sources, many on an interactive basis.
SCI is currently supplying the satellite direct broadcast TV receivers for
a leading communications company. These receivers provide reception of a wide
range of digital TV programs, provide pay per view capabilities, and accommodate
a number of high quality music channels. The customer currently serves the U.S.
market from two self-owned satellites with a third satellite scheduled for
launch in the near future. New lower cost receiver models with advanced features
are being introduced to support, among other things, reception of local pro-
- --------------------------------------------------------------------------------
Two pictures on the page, one with the caption:
SCI is producing very large quantities of satellite direct broadcast television
receivers for the consumer market.
The second picture, with no caption, is boards for various consumer products.
- --------------------------------------------------------------------------------
[PAGE 15 OF ANNUAL REPORT TO SHAREHOLDERS]
gramming along with the large number of programming options received from the
satellites. Transmission power from the satellites is such that only a small,
unobtrusive dish antenna is required for excellent reception. Receivers are
being delivered at a million a year plus rate to support a rapidly growing
subscriber base.
The Company has received a contract to produce large volumes of a
high-performance digital TV satellite receiver in Europe that will accept both
cable and satellite signals. The customer is a large Scandinavian communications
company with which SCI has a range of growth opportunities.
The Company recently began production of an Internet "TV set top" product.
The product uses an infrared (IR) TV remote control for simple Internet browsing
and a remote IR keyboard for text interface such as E-mail. This is an important
product for a Southeast Asian country that has launched its multimedia Super
Corridor Project as one of that nation's high priority communications
initiatives. SCI made significant contributions to the design of the product's
electronics. The customer is optimistic that this product will experience high
demand and sustained growth.
SCI's microelectronics operations have recently begun production of an
electronic assembly for a major battery company's "smart battery" to be used in
products such as notebook computers. The assembly uses chip on flex (COF)
assembly technology where semiconductor chips are attached directly to flexible
substrate with interconnections being accomplished by wire bonding. This
assembly represents one of several innovations in interconnect technology
developed by a Company microelectronic assembly operation.
SCI's line of Conductive Supply Equipment for Electric Vehicles includes a
Level I portable device that allows an Electric Vehicle to be connected to a
standard 120VAC outlet by the driver. The device offers the vehicle owner the
ability to deliver charging current to a vehicle's batteries while away from the
customary home charging station. The portable device controls and monitors the
charging process with a full set of built-in controls which provide both vehicle
and user safety features.
SCI's consumer product growth is expected to be heavily weighted toward
finished products as the Company continues to expand its final assembly and
distribution operations.
- --------------------------------------------------------------------------------
One picture, with no caption, of various consumer products.
- --------------------------------------------------------------------------------
[PAGE 16 OF ANNUAL SHAREHOLDERS]
Military and Aerospace Products
SCI designs and manufactures military and aerospace products that are sold
to the U.S. and foreign governments and their prime contractors, as well as
domestic and foreign aerospace companies. These activities are the
responsibility of the Company's Government Division which has broad capabilities
in electronic and electromechanical design and manufacturing. Experience with
harsh environments imposed on military and aerospace equipment has led to
capabilities that have attracted a number of industrial customers whose products
are exposed to similar environments.
The Company's military and aerospace products and systems are provided for
aircraft, launch vehicle, satellite, and surface applications. Primary
technology focus is upon computer, instrumentation, and communication
disciplines.
The Company continues to provide voice and communications control systems
for the F-15, F-16, F/A-18, C-130J, and AV-8B aircraft. It also supplies the
NAVSTAR Global Positioning System (GPS) User Equipment in multiple
configurations for use on fixed-wing aircraft, helicopters and ships.
- --------------------------------------------------------------------------------
Two pictures on the page, one with the caption:
High density electronic assemblies for military applications have been produced
by SCI for several decades.
The second picture, with no caption, is boards for military and aerospace
products.
- --------------------------------------------------------------------------------
[PAGE 17 OF ANNUAL REPORT TO SHAREHOLDERS]
SCI also produces the digital audio intercommunications unit for the V-22 Osprey
tilt rotor aircraft and is developing a variant of that equipment to support the
Special Operations Forces V-22.
Multiyear production has commenced on the systems computers, weapons
computers, and digital intercommunications systems for the Longbow Apache
helicopter. These will upgrade the Apache aircraft's avionics, weapons control,
and voice communications capabilities, all of which will play a significant role
on contemporary "digital" battlefields. Initial sales of Apache equipment will
include units for the U.S. fleet as well as aircraft ordered by the United
Kingdom and the Netherlands.
During the year design and development continued on the U.S. Army's Patriot
Missile's Integrated Digital Operator Control System and the Enhanced Fiber
Optic Guided Missile's gunner's console and fiber optic dispenser systems.
The Company has been a leading provider of a wide range of data bus
products for military and aerospace applications. SCI was selected by the Boeing
Company to develop a Current Mode Coupler and Standard Interface Module as
critical elements of the first commercial aircraft fly-by-wire system employed
on the 777 aircraft. Fly-by-wire provides for movement of the aircraft's flight
control surfaces as commanded by electronic signals transmitted over wire,
rather than by traditional mechanical linkages. Long-term production of these
products is expected to satisfy 777 aircraft orders from airlines around the
world.
SCI provides a family of versatile flight test instrumentation products in
modular form; these are designed for joint service applications on a full range
of aircraft. The latest miniaturized version of this equipment is supporting the
Joint Strike Fighter development program.
Other Government Division products include nonvolatile memories for
aircraft and satellite applications, interference blanker units (processors) for
the F-16 and Japanese F-2 aircraft, Digital Data Acquisition Systems for the Air
Force's Titan Launch Vehicle, and a family of standard VME bus computer
subassemblies.
Several military customers outsource a variety of printed circuit board
assemblies to SCI. A broader market is expected to develop for these services
for many of the same reasons commercial outsourcing is experiencing dynamic
growth.
- --------------------------------------------------------------------------------
One picture, with no caption, of military and aerospace products.
- --------------------------------------------------------------------------------
[PAGE 18 OF ANNUAL REPORT TO SHAREHOLDERS]
Facilities and Equipment
Asia. During the year the Company opened a new 110,000 square foot first
phase production plant in Penang, Malaysia, to serve a growing local market and
supplement the capacity of its existing Asian plants in Singapore and Thailand.
Europe. During the year the Company constructed the third phase of its
Irvine, Scotland, facility. The 50,000 square foot addition is designed for
efficient production of finished products.
The Company has purchased land and begun construction of a new 100,000
square foot first phase plant in Tatabanya, Hungary, near Budapest. The Central
European operation will serve regional markets as well as provide cost
competitive manufacturing for Western European customers.
The Company has signed agreements with Ericsson Telecom AB under which SCI
intends to take over Ericsson's printed wiring board assembly operation in
Leganis, Spain, near Madrid.
The Company has purchased expansion land and awarded initial contracts to
more than double the size and capacity of its existing facility in Fermoy,
County Cork, Ireland, to accommodate growing Irish demand.
North America. To appropriately serve the Canadian market, land has been
purchased and construction begun of a 100,000 square foot first phase plant in
Pointe Claire, Quebec, a suburb of Montreal, to soon replace currently leased
facilities.
During the year the Company completed the fourth phase of its El Salto,
Jalisco, Mexico plant in the suburbs of Guadalajara. Construction is well
progressed on the fifth phase of that plant, to bring the facility to a total of
210,000 square feet.
The Company acquired at year end an existing
- --------------------------------------------------------------------------------
Four pictures on the page with the captions:
1.) The Guadalajara, Mexico, facility of the Company had a 45,000 square foot
addition completed during the year.
2.) An Irvine, Scotland, facility addition of 50,000 square feet was completed
and placed in operation in the third quarter.
3.) The 110,000 square foot first phase of a new Penang, Malaysia, facility was
completed during the third quarter.
4.) This automated SMT line is in production in SCI's newly constructed Plant 21
in Penang, Malaysia.
- --------------------------------------------------------------------------------
[PAGE 19 OF ANNUAL REPORT TO SHAREHOLDERS]
90,000 square foot operation in Mexico City, D.F., Mexico. This leased plant is
providing immediate capacity for both new and existing customers.
Land has been purchased and initial contracts awarded for a new 100,000
square foot first phase plant in Apodaca, Nuevo Leon, Mexico, a suburb of
Monterrey. The facility will provide an additional source of production for the
U.S. market.
The Company has acquired land upon which to construct a new 110,000 square
foot first phase building, SCI's second plant in El Salto, Jalisco, Mexico. This
facility will be specifically designed for efficient production and distribution
of completed products.
South America. At year end the Company acquired leased facilities in
Campinas and Hortolandia, Sao Paulo, Brazil. Planning is in progress to acquire
permanent Brazilian facilities to serve that rapidly emerging market.
Additional Projects. The Company has formulated plans and begun land
acquisition to support new buildings in Alabama and Texas and the fourth phase
of SCI's Scottish plant. In the interim space has been rented in Scotland,
Ireland, Canada, Mexico, and Alabama and Texas in the U.S.
Equipment. Twenty-six surface mount technology, and five pin-in-hole,
automated assembly lines were installed during the fiscal year, bringing line
totals to 181 and 48 respectively. A substantial quantity of new equipment was
back-ordered by vendors for fiscal 1998 delivery. New generation equipment
operates at substantially higher speeds and provides much increased
productivity. It also provides major improvements in accuracy to support
advanced assembly technology.
- --------------------------------------------------------------------------------
Four pictures on the page with the captions:
1.) This SMT assembly line is in operation in SCI's Plant 18 in Fermoy, County
Cork, Ireland.
2.) The fifth phase of construction is nearing completion at the existing
Guadalajara, Mexico, manufacturing facility.
3.) Construction of a new 100,000 square foot first phase facility in Tatabanya,
Hungary, is proceeding on schedule.
4) Site work is in progress for a new 100,000 square foot facility in Monterrey,
Mexico, scheduled for completion in early 1998.
- --------------------------------------------------------------------------------
[PAGE 20 OF ANNUAL REPORT TO SHAREHOLDERS]
Assembly Technology
The manufacturing of electronic products is characterized by dynamic
changes driven by unparalleled product functionality and performance, combined
with increasingly smaller packaging and interconnect structures. The
manufacturing processes are increasingly complex and new technologies are
required to satisfy market demands.
SCI maintains worldwide electronic manufacturing excellence and provides
the latest technological innovations to its customers. Manufacturing processes
are developed and continuously optimized by a high level of engineering skill.
To insure quality control and product traceability, the performance of critical
assembly and test processes is continuously monitored and documented. Up to the
minute process performance data is made readily available to customers upon
request. This is accomplished by using a high degree of technological innovation
in the manufacturing data systems used throughout the Company.
In the area of surface mount technology (SMT), SCI has developed
capabilities to successfully assemble as small as 0.012" pitch leaded
semiconductor devices and "0201" (.020" X .010") package size components,
utilizing highly automated solder paste application, precision device placement,
and sophisticated soldering equipment. When ball grid array (BGA) technology
became a preferred option for area array packages, SCI embarked on extensive BGA
assembly process development and has successfully integrated the resulting
technology into its existing SMT capabilities. Today, as high as 1089 pin count
Ceramic Column Grid Arrays are assembled routinely in fully integrated advanced
technology lines.
Systematically combining traditional microelectronics technology with SMT,
the Company successfully integrates COB (chip on board), COF (chip on flex), TCP
(tape carrier package), MCM-L (multi chip module on laminate) and CSP (chip
scale package) into mixed technology assemblies.
SCI is committed to preserving the environment and works continuously to
identify environmentally friendly materials for electronic manufacturing
processes. Organic solderability preservatives, no-clean fluxes and solder
paste, no-lead solders, and fluxless soldering are examples of technologies SCI
has successfully demonstrated and uses where appropriate.
The Company is active in providing critical design feedback to its
customers. SCI accommodates its customers' requirements and has built millions
of products utilizing modern assembly techniques combined with the latest
manufacturing technologies.
- --------------------------------------------------------------------------------
Three pictures on the page with the captions:
1.) An automated wire bonder interconnects a semiconductor chip to a flexible
substrate before cutting and folding.
2.) Microelectronic assembly processes are routinely performed in Class 1000
clean rooms to rigorous specifications.
3.) Ball grid array packages require precision inspection and rework equipment
compatible with very small structures.
- --------------------------------------------------------------------------------
<PAGE>
[BEGINNING OF EXCERPTS FROM FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997]
Excerpts From
Form 10-K
SCI SYSTEMS, INC.
Fiscal 1997
Annual Report
to the
United States
Securities and Exchange
Commission
<PAGE>
[PAGE 1 OF EXCERPTS FROM FORM 10-K]
EXCERPTS FROM FORM 10-K
FOR FISCAL 1997
(Except for the parts of SCI Systems, Inc. Annual Report to Shareholders
expressly incorporated in the Form 10-K by reference, the Annual Report to
Shareholders is not to be deemed filed with the Securities and Exchange
Commission)
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[...X...] ANNUAL REPORT TO SHAREHOLDERS PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission File No. 0-2251
SCI SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
PART I
Item 1. Business.
See inside front cover and pages 4 to 20 of the 1997 Annual Report to
Shareholders ("Annual Report to Shareholders"), incorporated herein by
reference.
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Act of 1995 including, without limitation,
statements regarding future business, backlog, seasonality, government programs,
Latin American operations' growth, and the sufficiency of the Company's
liquidity and capital resources, including projected capital expenditures. These
statements are subject to certain risks, uncertainties, and other factors which
could cause actual results to differ materially from those anticipated,
including, without limitation, the risks described under the captions
"Marketing, Customer Concentration, and Dependence on the Electronics Industry,"
"Growth Management," "Seasonality," "Global Business Considerations," "Patents
and Licenses," "Competition and Other Factors," "Component Availability," and
"Possible Termination of Government Programs."
Order Backlog
At June 30, 1997, order backlog believed firm was approximately $3.2 billion,
compared with $2.8 billion a year earlier. As a portion of the backlog is
subject to customer releases, there is some variability as to actual shipment
date. Current indications are that approximately $3.1 billion of this backlog
will be shipped during fiscal 1998.
Marketing, Customer Concentration, and Dependence on the Electronics Industry
A majority of the Company's revenues are derived from direct sales to original
equipment manufacturers. Marketing is conducted primarily by factory-based
personnel in Brazil, Canada, France, Ireland, Malaysia, Mexico, Singapore,
Thailand, the United Kingdom, and the United States. The Company advertises on a
small scale and participates in a modest number of industry trade shows.
Although the Company has several hundred customer accounts, a significant
percentage of sales is derived from a limited group of customers in any
particular period. Sales to individual customers that exceeded 10% of annual
sales in any of the last three fiscal years were: Hewlett-Packard, $2,054
million in 1997, $2,152 million in 1996, and $1,049 million in 1995; and Apple
Computer, $1,134 million in 1997. In fiscal year 1997 the Company's ten largest
customers contributed more than 75% of revenues. Significant reductions in sales
to any of these customers could have a material adverse effect on the Company's
results of operations. Customer contracts can be canceled and volume levels
changed or delayed at any time without notice. Timely replacement of canceled,
delayed, or reduced contracts with new business cannot be assured. These risks
are exacerbated as a majority of the Company's sales are to customers in the
electronics industry, which is subject to rapid technological change and product
obsolescence. Factors affecting the electronics industry in general, or any of
the Company's major customers in particular, could have a material adverse
effect on the Company's results of operations.
The majority of the Company's contracts are with customers in the high
technology industry. Credit terms relating to both accounts receivable and
contract inventories are extended to customers after performing credit
evaluations. When significant credit risk exists letters of credit or other
appropriate security are generally requested. However, credit
[PAGE 2 OF EXCERPTS FROM FORM 10-K]
losses on customer contracts have occurred in the past, and no assurances can be
given that credit losses, which could be material, will not reoccur.
Growth Management
The Company has experienced rapid growth in recent years. It has acquired
facilities in several locations and may acquire or build additional facilities
from time to time in the future. There can be no assurance that historical
revenue growth will continue or that the Company will successfully manage
existing operations or future plants it may acquire or build. As the Company
manages existing operations and expands geographically, it may experience
certain inefficiencies as it integrates new operations and manages
geographically dispersed operations. The Company could also be adversely
affected if its new facilities do not achieve growth sufficient to offset
increased expenditures associated with geographic expansion. In addition should
the Company increase expenditures in anticipation of future sales levels which
do not materialize, profitability could be adversely affected. Moreover,
occasionally customers may require rapid production increases which can stress
the Company's resources.
Seasonality
The Company has historically not considered its business to be consistently
seasonal, although seasonal demands for its customers' products sold to
consumers may impact quarterly revenues. In recent periods the proportion of the
Company's products ultimately sold at retail has expanded, which has increased
seasonality in the Company's sales. The Company believes this trend may
continue.
Global Business Considerations
The Company operates internationally with the majority of revenue generated in
the United States, but with significant foreign activities. The Company's U.S.
export and foreign sales were $1.514 billion in 1997, $1.611 billion in 1996,
and $1.187 billion in 1995, representing 26% of total sales in 1997, 35% in
1996, and 44% in 1995.
Much of the Company's manufacturing material is sourced from international
suppliers; accordingly, the Company is subject to the risks of currency
fluctuations, possible fund transfer restrictions, and the burden of compliance
with a variety of laws. To date these factors have not had a material adverse
impact on the Company, but could in the future.
The Company, when advisable, may enter into hedge contracts to reduce its
currency risks on known expenditures. Additionally, when deemed advantageous,
the Company may enter into interest rate swap agreements to adjust the interest
rate on existing debt. The Company has not entered into speculative currency or
interest agreements, nor does it expect to do so. Where significant currency
exposures exist, the Company endeavors to balance exposed assets with offsetting
liabilities.
(See Note H to the 1997 Consolidated Financial Statements, incorporated
herein by reference.)
Patents and Licenses
Patents are not significant to the Company's business. The Company believes
that its success depends more upon the creativity of its personnel than upon
patent ownership. Because of rapid technological change and rate of new patent
issuance, certain of the Company's products may inadvertently infringe others'
patents. If patent infringements inadvertently occur, the Company believes that,
based upon industry practice, necessary licenses could be obtained without
material adverse impact; however, there can be no assurance given to that
effect.
Competition and Other Factors
The Company competes against numerous domestic and foreign companies. It also
faces competition from current and prospective customers which evaluate the
Company's capabilities against the merits of internal manufacturing. Competition
varies depending on the type of service sought and the geographic area of
competition. Competition is intense and is expected to continue to be so. A
number of competitors are larger than the Company and have significantly greater
resources, while a number of competitors are smaller with fewer resources. The
Company could be adversely affected if its competitors introduce superior or
lower priced services or products. During the last three fiscal years
electronics manufacturing services accounted for approximately 90% of total
revenues.
The Company devotes considerable resources to designing and developing new
products, internal information systems, and advanced manufacturing processes.
Computer aided design centers are employed at strategic regional plants. New
product development is usually undertaken in support of customer contractual
requirements. (See Note A to the 1997 Consolidated Financial Statements,
incorporated herein by reference.)
[PAGE 3 OF EXCERPTS FROM FORM 10-K]
The Company has developed internal systems to support manufacturing of
customized finished products for delivery to distribution channels, or directly
to end users. The Company believes these systems to be important to obtaining
future, and maintaining existing, finished product assembly contracts.
To remain competitive the Company must continue to develop and provide
technologically advanced engineering and manufacturing services, maintain high
quality, offer flexible delivery schedules, deliver finished products on a
timely basis, and continue to price its products and services competitively.
Additionally, maintaining and updating internal systems are believed important
to obtaining future, and maintaining existing, contracts. Failure to satisfy any
of the foregoing requirements could adversely affect the Company.
Component Availability
Components are sourced on a global basis. Component availability is
periodically subject to constraints, shortages, and abundances. Although no
assurances can be given, the Company has generally been able to obtain adequate
supply to maintain production when shortages occur. However, shipment delays
have occurred and may reoccur. Significant component constraints could adversely
affect the Company. When shortages and excess supply have occurred on occasion,
the Company has generally been able to pass on related price adjustments to its
customers.
Possible Termination of Government Programs
The Company's contracts with the U.S. Government and its prime contractors are
subject to audit and termination at the election of the Government. The
Government in January 1991, terminated the U.S. NAVY A-12 Aircraft prime
contracts. Litigation continues over seven canceled subcontracts from McDonnell
Douglas Corporation. The Company seeks to recover the full amount of its claims;
however, no assurance can be given to that result. The carrying value of A-12
program residuals was less than 5% of June 30, 1997's inventories. The Company
believes that its ongoing principal government programs will continue to be
funded, but there can be no assurance given to that effect. No current
government program accounts for more than 1% of consolidated revenue.
Employees
At June 30, 1997, the Company employed 18,470 persons, of which 10,195 were
based in the United States. Except for three foreign plants, employees are not
subject to collective bargaining agreements. There have been no work stoppages
caused by employee activities. The Company believes that in general its employee
relations are good.
The Company's success depends largely upon the efforts and abilities of key
managerial and technical employees. The loss of services of certain key
personnel could adversely affect the Company. The Company's business depends
upon its ability to recruit, train and retain senior managers, skilled
professional and technical salaried personnel, and skilled and semiskilled
hourly employees at competitive costs, for which there is intense competition.
Failure to do so could adversely affect the Company.
Item 2. Properties.
Domestically the Company owns, or finances with Industrial Revenue Bonds and
treats as purchases for financial statement purposes, facilities in Alabama,
California, Colorado, Maine, New Hampshire, New York, North Carolina, and South
Dakota, with total area of 2,805,300 square feet. Internationally, the Company
owns facilities in France, Ireland, Malaysia, Mexico, Singapore, Thailand, and
the United Kingdom, with total area of 839,500 square feet, and leases space in
Brazil, Canada, and Mexico, with total area of 179,000 square feet.
Miscellaneous space amounting to 61,050 square feet is also leased in various
locations. The Company believes its facilities are modern, in good repair, and
suitable for services offered to customers.
At June 30, 1997, the Company had under construction or in the planning
stage, manufacturing plants in Tatabanya, Hungary; Apodaca, Nuevo Leon, Mexico;
Pointe Claire, Quebec, Canada; in addition to expansions of existing facilities
in Fermoy, County Cork, Ireland; and a second plant in El Salto, Mexico. In June
1997 manufacturing operations in Mexico City, D.F., Mexico, and Campinas and
Hortolandia, Sao Paulo, Brazil, were purchased; these operations are housed in
leased facilities. During fiscal year 1998 the Company intends to additionally
take over Ericsson Telecom AB's printed board assembly operation in Leganis,
Spain, while adding floor space in Alabama, Texas, and Scotland.
Item 3. Legal Proceedings.
The Company is a party to several lawsuits incidental to its various
activities and incurred in the ordinary course of business. The Company believes
that it has meritorious claims and defenses in each case. After consultation
with counsel it is the opinion of management that, although there can be no
assurance
[PAGE 4 OF EXCERPTS FROM FORM 10-K]
given, none of the associated claims when resolved will have a material adverse
effect upon the Company's financial position.
The Company is subject to a variety of environmental regulations relating to
the use, storage, discharge, and disposal of hazardous materials used in its
manufacturing processes. Failure by the Company to comply with present and
future regulations could subject it to future liabilities or the suspension of
production. In addition such regulations could restrict the Company's ability to
expand its facilities or could require the Company to acquire costly equipment
or to incur other significant expenses to comply with environmental regulations.
The Company is not involved in any material environmental proceedings.
Item 4. Submission of Matters to a Vote of Security Holders. --None
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
On April 2, 1997, the Company's common stock commenced trading on the New York
Stock Exchange ("NYSE") under the ticker symbol "SCI". At August 25, 1997, there
were 1,975 shareholders of record. See Note J to the Company's 1997 Consolidated
Financial Statements, incorporated herein by reference, for fiscal year 1997 and
1996 quarterly high and low bid stock prices.
The Company has not paid cash dividends on its Common Stock to date. Payment
of dividends is restricted as described in Note B to the Company's 1997
Consolidated Financial Statements, incorporated herein by reference. Subsequent
to fiscal year end, the Company declared a two-for-one common stock split in the
form of a 100% stock dividend. The dividend was paid August 22, 1997, to
shareholders of record as of August 8, 1997.
Item 6. Selected Financial Data.
See page 1 of the Company's 1997 Annual Report to Shareholders, incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
1997 Results Compared With 1996
Sales in 1997 increased 26.8% to $5.76 billion from $4.54 billion in 1996. Net
income increased 39.2% to $112.7 million compared with $81.0 million in the
prior fiscal year. Earnings per share for 1997 were $1.85 on a primary basis and
$1.67 fully diluted, compared with 1996's earnings per share of $1.35 on a
primary basis and $1.33 fully diluted.
Increased revenues resulted from increased unit volume, especially in finished
product assembly. Finished product assembly increased to approximately 58% of
1997 sales from 44% in 1996. The average selling prices of many of the Company's
products declined during 1997 as electronic components experienced substantial
price reductions, which were passed through to customers.
Consolidated operating margins increased to 3.6% of sales in 1997 from 3.5% in
1996, mainly as a result of improvements in the Company's foreign operations.
Domestic operating margins decreased in 1997 from that experienced in 1996, due
to the higher finished product mix with characteristically lower margins.
The Company operates principally in the Electronics Manufacturing Services
(EMS) industry servicing the same and similar customers in its domestic and
foreign businesses. The Company's management views geographic areas not only as
individual operating entities, but as elements of strategic global
relationships. Thus, the presented geographic data in Note H to the Company's
1997 Consolidated Financial Statements, incorporated herein by reference, is not
considered equitable as to the effect each geographic area has on consolidated
operating results.
Domestic 1997's sales increase of 42% resulted principally from increased
finished product assembly. 1997 was the first full year of operations for the
Fountain, Colorado, plant purchased from Apple Computer on May 31, 1996. The
small decline in foreign operations' sales in 1997 from 1996 resulted mainly
from reduced disk drive participation in Asia. European revenue remained
relatively constant, with Latin American sales increasing sufficiently to offset
Asia's lower sales. Latin American volume increases are being forecast by
customers for both external and intercompany domestic operations sales.
During 1997 improved operating margins were experienced in Europe, as a result
of cost containment, and in Latin America, as volumes grew. These improvements
were partially offset by the effects in Asia of customer discontinuance of
certain disk drive programs resulting in lower production volumes.
Currency exchange rate fluctuations have had minor impact on the Company's
past consolidated operating
[PAGE 5 OF EXCERPTS FROM FORM 10-K]
results, as the majority of its foreign operations use the U.S. Dollar as their
functional currency.
Net interest expense declined to .31% of sales in 1997 from .53% in 1996.
Ending debt and amounts outstanding under asset securitization agreements, net
of cash, declined to 3.5% of sales in 1997 from 10.7% in 1996, as a result of
improved cash flows. Higher finished product assembly revenues, which inherently
yield higher asset turnovers to offset lower operating margins, contributed to
the improved 1997 cash flow.
Return on average shareholders' equity increased to 21.1% in 1997 from 19.7%
in 1996, as the Company's consolidated operating margins improved.
See pages 2 and 3 of the 1997 Annual Report to Shareholders, incorporated
herein by reference, for further management discussion and analysis.
Capital Resources and Liquidity
June 30, 1997's working capital was $754 million, compared with $550 million
at June 30, 1996. June 30, 1997's current ratio was 2.0, as compared with 2.2 a
year earlier. Higher working capital resulted from larger current assets to
support increased revenues.
June 30, 1997's available liquidity was $951 million, comprised of $660
million in unused credit facilities and $291 million in cash. Lower available
liquidity is anticipated during fiscal year 1998, as cash is used to fund
working capital and capital expenditures in support of planned revenue growth.
The Company believes that its existing liquidity is sufficient to support near
term growth, especially near term capital expenditures. Fiscal year 1998's
capital expenditures are currently estimated at $130 million, $50 million more
than estimated depreciation.
Inflationary trends are not expected to have a material impact on operations
as relatively high asset turnover and sizable fixed rate long-term financing
minimize the effects of inflationary conditions.
1996 Results Compared With 1995
Sales in 1996 increased 70% to $4.54 billion from $2.67 billion in 1995 as
demand for the Company's services increased, especially in finished product
assembly. The Company purchased plants from Apple Computer in May 1996 and from
Digital Equipment Corporation in April 1995. While these acquisitions added to
1996 revenue, the bulk of the sales gain came from the Company's other
facilities.
Operating income increased 75% to $159.5 million in 1996 from $91.0 million a
year earlier. Operating margins improved during the year to 3.5% from 3.4% in
1995. Operating margins improved in spite of larger finished product assembly
revenues, as absorption of fixed costs and manufacturing efficiencies improved.
Operating margins were lower in foreign areas than in domestic ones as intense
competition and local economic conditions affected individual plants. Operating
results in international areas increased from the prior year as the result of
higher demand for Mexican services and improved cost performance by the
Singaporean plant. Europe continued to be intensely competitive for the Company.
Net interest expense for the year declined to .53% of sales from .63% in 1995.
This decline resulted from an improved asset turnover ratio, which increased to
4.0 from 2.8 a year earlier. The higher gross interest expense amount resulted
from higher levels of borrowings to support revenue growth.
June 30, 1996, debt balance as a ratio of sales was higher than earlier
periods due to issuance of Convertible Subordinated Notes in May 1996. The
$287.5 million of the Notes financing funded acquisition of Apple Computer's
Fountain, Colorado, facility and increased liquidity.
Return on equity increased to 19.7% in 1996 from 13.8% in the previous year.
The improvement resulted primarily from improved asset turnover.
<PAGE>
[PAGE 6 OF EXCERPTS FROM FORM 10-K]
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<S> <C> <C> <C>
Consolidated Balance Sheets
(In thousands of dollars except share data) June 30,
----------------------------------------------
Assets 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 290,809 $ 46,493 $ 10,277
Accounts receivable, less allowances of $11,200 in 1997,
$6,000 in 1996, and $4,267 in 1995 630,867 372,058 259,308
Inventories 569,846 554,090 456,107
Refundable and deferred federal and foreign income taxes 43,950 16,480 7,869
Other current assets 12,582 15,244 11,491
- --------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,548,054 1,004,365 745,052
- --------------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment - Note B
Land 23,613 19,830 16,731
Buildings and leasehold improvements,
including construction in process 126,145 109,847 92,402
Equipment 499,182 419,122 347,845
Less accumulated depreciation and amortization (347,943) (284,745) (242,953)
- --------------------------------------------------------------------------------------------------------------------------------
Net Property, Plant, and Equipment 300,997 264,054 214,025
- --------------------------------------------------------------------------------------------------------------------------------
Other Noncurrent Assets 20,801 14,776 22,215
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $1,869,852 $1,283,195 $ 981,292
================================================================================================================================
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 713,377 $ 400,682 $ 417,495
Accrued payroll and related expenses 28,084 26,845 22,634
Federal, foreign, and state income taxes 47,977 22,223 19,079
Current maturities of long-term debt 4,394 4,965 5,720
- --------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 793,832 454,715 464,928
- --------------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes 9,901 5,313 509
Noncurrent Pension Liability 5,133 4,533 4,669
Deferred Compensation 12,015 7,600 5,040
Long-term Debt - Note B
Industrial revenue bonds 21,310 21,310 21,306
Long-term notes 150,801 35,846 96,138
Convertible subordinated notes 282,197 281,617 38,926
- --------------------------------------------------------------------------------------------------------------------------------
Total Long-term Debt 454,308 338,773 156,370
- --------------------------------------------------------------------------------------------------------------------------------
Commitments - Note B
Shareholders' Equity
Preferred Stock, 500,000 shares authorized but unissued -0- -0- -0-
Common Stock, $.10 par value: authorized 100,000,000 shares;
issued 59,774,790 in 1997, 59,243,790 shares in 1996, and
54,931,350 shares in 1995 5,978 5,924 5,493
Capital in excess of par value 172,910 165,177 123,377
Retained earnings 420,863 308,150 227,195
Currency translation adjustment (4,747) (6,649) (5,948)
Treasury stock - 59,366 shares at cost (341) (341) (341)
- --------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 594,663 472,261 349,776
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,869,852 $1,283,195 $ 981,292
================================================================================================================================
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
[PAGE 7 OF EXCERPTS FROM FORM 10-K]
<TABLE>
<S> <C> <C> <C>
Consolidated Statements of Income
(In thousands of dollars except per share data) Years ended June 30,
----------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $5,762,656 $4,544,759 $2,673,783
Costs and expenses 5,556,480 4,385,284 2,582,739
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income 206,176 159,475 91,044
- --------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (net of interest income of $12,581 in 1997, $1,742 in
1996, and $1,455 in 1995) (17,993) (24,165) (16,945)
Other income, net 1,251 748 1,562
- --------------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 189,434 136,058 75,661
Income taxes - Note G 76,721 55,103 30,418
- --------------------------------------------------------------------------------------------------------------------------------
Net Income $ 112,713 $ 80,955 $ 45,243
================================================================================================================================
Earnings per share - Note C (Restated for stock split - Note A):
- --------------------------------------------------------------------------------------------------------------------------------
Primary $1.85 $1.35 $.82
Fully diluted 1.67 1.33 .78
================================================================================================================================
See notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders' Equity
(In thousands of dollars) Years ended June 30,
----------------------------------------------
(Restated for stock split - Note A) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock
Balance at July 1
$ 5,924 $ 5,493 $ 5,467
Conversion of debt - Note B -0- 368 -0-
Stock options exercised 54 63 26
- --------------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $ 5,978 $ 5,924 $ 5,493
================================================================================================================================
Capital in excess of par value
Balance at July 1 $ 165,177 $ 123,377 $ 122,193
Conversion of debt - Note B -0- 38,456 -0-
Stock options exercised 7,733 3,344 1,184
- --------------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $ 172,910 $ 165,177 $ 123,377
================================================================================================================================
Retained earnings
Balance at July 1 $ 308,150 $ 227,195 $ 181,952
Net income for the year 112,713 80,955 45,243
- --------------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $ 420,863 $ 308,150 $ 227,195
================================================================================================================================
Currency translation adjustment
Balance at July 1 $ (6,649) $ (5,948) $ (4,637)
Translation gain (loss) 1,902 (701) (1,311)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $ (4,747) $ (6,694) $ (5,948)
================================================================================================================================
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
[PAGE 8 OF EXCERPTS FROM FORM 10-K]
<TABLE>
<S> <C> <C> <C>
Consolidated Statements of Cash Flows
(In thousands of dollars) Years ended June 30,
----------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 112,713 $ 80,955 $ 45,243
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization 76,848 60,972 49,839
Deferred income taxes (22,599) (4,587) (1,228)
Changes in current assets and liabilities:
Accounts receivable (255,961) (113,093) (10,982)
Inventories (14,591) (99,032) (54,637)
Refundable income taxes (271) 763 607
Other current assets 2,896 (5,004) 19,124
Accounts payable and accrued expenses 310,502 (11,788) 125,992
Income taxes 29,589 3,145 12,380
Other noncash items - net 1,099 (958) (5,925)
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used for) Operating Activities 240,225 (88,627) 180,413
- --------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Purchase of property, plant, and equipment (109,739) (109,912) (80,316)
Proceeds from sale of property, plant, and equipment 195 826 647
Change in noncurrent assets (3,390) 9,956 (3,451)
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities (112,934) (99,130) (83,120)
- --------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in commercial paper and short-term financing -0- (34,790) (84,273)
Payments on long-term debt (66,010) (10,739,220) (6,901,801)
Proceeds from long-term debt 178,942 10,994,667 6,863,287
Issuance of common stock 3,935 3,407 1,210
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used for) Financing Activities 116,867 224,064 (121,577)
- --------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 158 (91) (1,261)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 244,316 36,216 (25,545)
Cash and cash equivalents at beginning of year 46,493 10,277 35,822
- --------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 290,809 $ 46,493 $ 10,277
================================================================================================================================
Cash equivalents are primarily short-term interest bearing deposits.
Interest paid was $28,179 in 1997, $22,564 in 1996, and $18,131 in 1995.
Income taxes paid were $68,298 in 1997, $53,763 in 1996, and $17,512 in 1995.
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
[PAGE 9 OF EXCERPTS FROM FORM 10-K]
Notes to Consolidated Financial Statements
Note A - Accounting Policies
Consolidated Financial Statements include accounts of the Company and its
subsidiaries after elimination of material intercompany accounts and
transactions, and are based on management estimates. The functional currency of
the majority of the Company's foreign operations is the U.S. Dollar.
Revenues primarily represent production services which are recognized
normally as units are shipped, and include adjustments for contractual price
issues.
Inventories primarily consist of costs incurred in support of customer
contracts stated at the lower of cost (principally first-in, first-out method)
or market, adjusted for potential contract valuation issues.
Property, Plant, and Equipment are recorded at cost, and depreciated on the
straight-line method over the estimated useful lives of individual assets.
Leasehold improvements are amortized over the shorter of the lease term or
useful lives.
Goodwill and noncompete agreement, included in other noncurrent assets, are
the unamortized excess of cost over underlying net tangible assets of companies
acquired. Such assets are amortized on a straight-line basis over the shorter of
ten years or agreement term. Goodwill and noncompete agreement, net of
amortization, at year end amounted to $6,251,000 in 1997, $2,084,000 in 1996,
and $2,995,000 in 1995.
Deferred income taxes are provided on temporary differences as certain
contract related revenues and expenses are reported in periods which differ from
those in which they are taxed. U.S. income taxes have not been provided on
certain undistributed earnings of foreign subsidiaries aggregating $42 million
at June 30, 1997, which are considered to be permanently invested. Otherwise,
$11 million of additional deferred taxes would have been provided. U.S. income
taxes have been provided on $100 million of undistributed earnings of foreign
subsidiaries.
Costs and expenses principally represent engineering, manufacturing, and
other costs incurred in support of customer contracts. Research and Development
is conducted by the Company under both customer sponsored and company sponsored
programs. Company sponsored programs include research and development related to
government products and services, which are allocable and recoverable in the
same manner as general and administrative expense under U.S. Government
regulations. Customer sponsored research and development costs are accounted for
as any other program cost. Total research and development costs incurred by the
Company were $36,569,000 in 1997, $33,556,000 in 1996, and $30,888,000 in 1995.
General and administrative expense included in costs and expenses
approximated $22,854,000 in 1997, $18,965,000 in 1996, and $16,508,000 in 1995.
Stock Split. Subsequent to June 30, 1997, the Company declared a two-for-one
stock split in the form of a 100% dividend. The dividend was paid August 22,
1997, to shareholders of record on August 8, 1997. All share and per share data
in the financial statements have been retroactively restated for this stock
split.
Note B - Long-term Debt
Industrial Revenue Bonds. The Company is obligated by lease or guarantee for
$21,707,000 at June 30, 1997, ($21,738,000 at June 30, 1996, and $21,815,000 at
June 30, 1995) of industrial revenue bonds maturing through the year 2015. The
majority of such borrowings currently bear variable interest ranging between
4.13% and 7.63%, and are secured by related properties or irrevocable letters of
credit.
Long-term Notes. The Company is obligated under mortgages and notes maturing
through the year 2004 amounting to $56,535,000 at June 30, 1997, ($41,791,000 at
June 30, 1996, and $47,658,000 at June 30, 1995). Substantially all of the notes
bear variable interest rates ranging between 5.6% and 6.5% at June 30, 1997.
$21,445,000 of the June 30, 1997's balance is collateralized by the related
properties.
In July 1996 the Company borrowed $100,000,000 under a Senior Note agreement
with a group of institutional lenders. The Notes bear interest at 7.59%, and are
payable in six annual installments of $16,667,000 beginning in July 2001. The
interest rate may be adjusted upwards by .75% if the Company fails to meet
certain financial ratios.
The Company has a credit facility with a group of domestic and international
banks, consisting of a $260 million revolving credit line and a $150 million
commercial paper agreement. The initial renewal date for this facility is
December 8, 2000. Borrowings under the revolving credit line, at the Company's
option, bear interest at a rate based upon either a defined Base Rate or the
London Interbank Offered Rate (LIBOR) plus or minus applicable margins. The
agreement allows the Company to enhance the marketability of its commercial
paper with an irrevocable letter of credit in order to borrow at rates generally
below revolving credit rates. Conversion privileges are provided in the event of
nonsalability of commercial paper. At June 30, 1997 and 1996, no amounts were
outstanding under the facility, compared to totals of $54,690,000 at June 30,
1995. Under the credit agreement, the Company must maintain certain financial
ratios and meet certain balance sheet tests. Under the most restrictive
provision of the credit agreement, $81,658,000 of June 30, 1997's retained
earnings are available for the payment of cash dividends. A commitment fee of
0.25% is paid on the unused revolving
[PAGE 10 OF EXCERPTS FROM FORM 10-K]
credit amount. No compensating balances are required under the facility.
Short-term borrowings may be drawn under the credit agreement. Because of the
Company's ability and intent to refinance such borrowings, total borrowings
under the agreement and other short-term borrowings expected to be refinanced,
including commercial paper, are classified as long-term.
The Company has asset securitization agreements under which up to
$250,000,000 of certain accounts receivable can be sold with limited recourse.
As funds are collected, additional eligible receivables may be sold to bring the
outstanding balance to the desired level. At June 30, 1997, outstanding
receivables sold totaled $35,988,000 ($190,000,000 at June 30, 1996, and
$50,000,000 at June 30, 1995). A commitment fee of 0.25% was paid in 1997 on the
unused portion.
The Company had a $15,000,000 notional value interest rate swap outstanding
at June 30, 1997, which expires on May 26, 1998. A 6.19% fixed rate of interest
is paid monthly on the notional amount, offset by variable interest received at
the monthly LIBOR rate.
Unused credit facilities and commitments at June 30, 1997, approximated $660
million.
Convertible Subordinated Notes. In May 1996 the Company issued $287,500,000
of 5% Convertible Subordinated Notes due May 1, 2006. The Notes are convertible
into Common Stock at $24.38 per share and are redeemable beginning in May 1999.
June 30, 1995's $39,474,000 of 5 5/8% Convertible Subordinated Debentures
were substantially converted into Common Stock in September 1995.
Deferred charges netted against total year end long-term debt were $7,040,000
in 1997, $7,291,000 in 1996, and $1,547,000 in 1995.
Debt, Lease, and Rental Payments. Long-term debt maturities for the next five
fiscal years are: $5,387,000 in 1998; $2,725,000 in 1999; $4,659,000 in 2000;
$17,721,000 in 2001; and $19,126,000 in 2002. The Company's only substantial
lease commitment is for land in Singapore. $339,420 of rental payments were made
in 1997. This rental commitment is through March 2020, with an annual 7.6%
escalation.
Note C - Earnings Per Share
Primary earnings per share are based on the weighted average number of common
shares and dilutive common stock equivalents outstanding during each period.
Common stock equivalents consist of stock options whose exercise price is less
than the stipulated market price using the treasury stock method for both
primary and fully diluted earnings per share. The fully diluted computations
assume dilutive conversion of the Company's outstanding convertible notes, after
adding back their after-tax interest expense. The number of shares (after
restatement for August 1997's two-for-one stock split) used in computation were:
primary earnings per share -- 60,873,188 in 1997, 60,280,944 in 1996, and
55,641,596 in 1995; and fully diluted earnings per share -- 72,783,566 in 1997,
62,531,766 in 1996, and 59,649,142 in 1995.
Note D - Fair Value of Financial Instruments
June 30, 1997's estimated fair values of the financial instruments
represented by cash and cash equivalents, interest rate swaps, and currency
forward purchase contracts approximated their recorded values. Convertible
Subordinated Notes had a year end trading price of 145.25 in 1997 and 105 in
1996 on the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") Market. All other debt instruments' fair value is estimated to
approximate their recorded value, as their applicable interest rates approximate
current market rates.
Note E - Plant Acquisitions
On May 31, 1996, the Company purchased from Apple Computer, Inc. (Apple) its
360,000 square foot Fountain, Colorado, manufacturing plant, related equipment,
and certain inventories for approximately $195,000,000. In conjunction with this
asset purchase, the Company entered into a related multiyear manufacturing
agreement with Apple for agreed upon levels of designated Apple products.
On June 30, 1997, the Company acquired the Mexico City, Mexico, and Campinas,
Brazil, operations of Group Technologies Corporation. This acquisition has been
accounted for as a purchase in the accompanying financial statements. The
purchase cost did not represent a significant amount, nor are the acquired
operations significant to consolidated operating results; therefore, pro forma
results are not presented.
Note F - Employee Benefit Plans
The Company provides retirement benefits to its domestic employees who meet
certain age and service requirements through three plans: a defined benefit
supplemental pension plan; a qualified savings plan (401(k) Plan); and a
deferred compensation plan. Pension plan benefits are computed based upon
compensation earned during the member's career at the Company, or its
subsidiaries, and years of credited service. The Company funds its retirement
benefits obligations annually at an amount that approximates the maximum
deductible for income taxes. Company contributions to savings and deferred
compensation plans are equal to a percentage of employees' contributions and are
fully funded when the liability is incurred. The Company's and employees'
contributions to the deferred compensation plan are held in an irrevocable
"rabbi trust". Nonemployee Directors also participate in an irrevocable "rabbi
trust" deferred compensation plan. The Company also has defined contribution
pension plans for its European employees who
[PAGE 11 OF EXCERPTS FROM FORM 10-K]
meet certain requirements, and a savings plan for its Thai employees. Company
contributions to these various plans amounted to $6,686,000 in 1997, $6,255,000
in 1996, and $5,339,000 in 1995. June 30, 1997's domestic pension plan's
accumulated benefit obligation (including $1,087,000 nonvested) amounted to
$17,991,000, compared with the fair value of its assets of $19,058,000. The
plan's projected benefit obligation at June 30, 1997, was $24,930,000. June 30,
1997's unrecognized transition liability and prior service costs were $619,000,
before offsetting unrecognized gains of $3,002,000. At June 30, 1997, domestic
pension plan assets were invested 74% in equity based mutual funds, 19% in
corporate bond mutual funds, and 7% in money market funds.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Note G - Income taxes
The provision for income taxes is summarized as follows:
(In thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes:
Domestic $126,173 $105,103 $ 72,811
Foreign 63,261 30,955 2,850
- --------------------------------------------------------------------------------------------------------------------------------
Total $189,434 $136,058 $ 75,661
================================================================================================================================
Taxes currently payable:
Domestic $ 89,931 $ 68,215 $ 32,750
Foreign 9,302 2,857 2,045
Deferred taxes:
Domestic (22,212) (16,772) (2,636)
Foreign (300) 803 (1,741)
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 76,721 $ 55,103 $ 30,418
================================================================================================================================
The reconciliation of the provision for income taxes and that based on the U.S. statutory rate is:
(In thousands of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Income taxes at U.S. statutory rate $ 66,302 $ 47,620 $ 26,481
Effects of U.S. state income taxes, net of federal benefits 5,406 2,925 3,575
Effects of loss carryforwards 1,166 1,685 351
Effects of foreign operations (519) 802 (657)
Permanent differences 4,366 2,071 668
- --------------------------------------------------------------------------------------------------------------------------------
Income taxes $ 76,721 $ 55,103 $ 30,418
================================================================================================================================
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
At June 30, 1997 and 1996, the net deferred tax asset was:
1997 1996
----------------------------------------------------------
Deferred Deferred
(In thousands of dollars) Asset Asset
Temporary Difference Amount (Liability) Amount (Liability)
- --------------------------------------------------------------------------------------------------------------------------------
Difference between book and tax
recognized contract profits $100,808 $ 35,027 $ 35,310 $ 12,230
Accrued expenses not currently deductible 56,368 19,427 29,470 10,315
Excess of tax depreciation over book (2,193) (669) (3,220) (966)
Undistributed foreign earnings
not currently taxable in U.S. (79,126) (20,657) (33,500) (10,765)
Other 28 10 (756) (274)
Net operating loss carryforwards 7,190 2,462 6,781 304
Valuation allowance:
Beginning of year (6,265) (226) (5,742) (814)
Net change for year (925) (2,147) (523) 588
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 75,885 $ 33,227 $ 27,820 $ 10,618
================================================================================================================================
In accordance with SFAS No. 123, the U.S. income tax benefit associated with exercised stock options of $3,851,000 in 1997 is
classified as an addition to Capital in excess of par value.
</TABLE>
<PAGE>
[PAGE 12 OF EXCERPTS FROM FORM 10-K]
Note H - Geographic Data
The Company operates principally in the Electronics Manufacturing Services
(EMS) industry, servicing the same and similar customers in its domestic and
foreign businesses. The Company's management views geographic areas not only as
individual operating entities, but as elements of strategic global
relationships. Thus, the following geographic data is not equitable as to the
effect each geographic area has on consolidated operating results.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands of dollars)
Identifiable Assets Sales Operating Income
------------------------------------- -------------------------------------- ------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------------------------------------- -------------------------------------- ------------------------------------
Domestic $1,010,751 $ 820,044 $ 558,227 $4,350,482 $3,063,460 $1,581,671 $136,097 $125,303 $ 85,609
Foreign 571,234 397,410 388,516 1,412,174 1,481,299 1,092,112 70,079 34,172 5,435
Corporate 287,867 65,741 34,549 N/A N/A N/A
------------------------------------- -------------------------------------- ------------------------------------
Consolidated $1,869,852 $1,283,195 $ 981,292 $5,762,656 $4,544,759 $2,673,783 206,176 159,475 91,044
===================================== ======================================
Corporate net other expense (16,742) (23,417) (15,383)
------------------------------------
Consolidated income
before income taxes $189,434 $136,058 $ 75,661
====================================
</TABLE>
Intergeographic transfers are not significant. Corporate assets include
domestic cash and cash equivalents, refundable and deferred income taxes, "rabbi
trust" assets, and notes receivable. Major customer data, including credit risk
concentration, is incorporated by reference from Part I, Marketing and
Customers, of the Company's Form 10-K for the year ended June 30, 1997. U.S.
export sales approximated $102,000,000, $130,000,000, and $95,000,000 for the
years ended June 30, 1997, 1996, and 1995, respectively.
Note I - Stock Option Plans
The Company's stock option plan grants options to key employees. Under the
Plan, the Board of Directors may award options at less than market price, but to
date have granted options at not less than 100% of market value on grant date.
Vesting is 20% upon granting, with 20% per annum thereafter. Options expire ten
years after granting. Stock options are accounted for in accordance with APB
Opinion 25 and related Interpretations. Accordingly, no nonmonetary fair value
compensation costs associated with options have been recorded. The amount of
fair value compensation computed under SFAS No. 123 for options granted during
1997 and 1996 is not material to the Company's consolidated net income. Such
costs may in the future become material as the initial phase-in period of SFAS
No.123 expires. Information relating to the changes in the Company's stock
options follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(Shares in thousands) 1997 1996 1995
--------------------------------- ------------------------------- --------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at beginning of year 2,366.0 $ 8.91 2,450.2 $ 6.10 2,290.0 $5.28
Granted 694.0 $24.65 588.0 $17.40 503.4 $9.46
Exercised (530.8) $ 7.41 (618.2) $ 5.51 (259.6) $4.66
Canceled (67.5) $14.27 (54.0) $10.59 (83.6) $8.31
--------------------------------- ------------------------------- --------------------------------
Outstanding at end of year 2,461.7 $13.52 2,366.0 $ 8.91 2,450.2 $6.10
================================= =============================== ================================
Exercisable at June 30 1,364.9 $ 8.97 1,398.8 $ 6.19 1,603.8 $4.85
================================= =============================== ================================
Shares available for additional granting at June 30 were 1,019.8 in 1997, 1,646.2 in 1996, and 2,180.2 in 1995.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
The following table summarizes June 30, 1997's outstanding stock option information:
(Shares in thousands)
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
$ 3.00 - $ 6.31 703.7 3.78 years $ 4.16 703.7 $ 4.16
$ 7.50 - $ 9.44 618.4 6.86 $ 9.24 375.2 $ 9.20
$10.13 - $18.75 472.4 8.30 $17.07 153.6 $16.80
$20.50 - $24.88 617.2 9.31 $24.72 122.4 $24.60
$25.06 - $28.56 50.0 9.60 $26.34 10.0 $26.34
================ ================ ====================== ===================== ================== =====================
$ 3.00 - $28.56 2,461.7 6.92 years $13.52 1,364.9 $ 8.97
================ ================ ====================== ===================== ================== =====================
</TABLE>
[PAGE 13 OF EXCERPTS FROM FORM 10-K]
Note J - Selected Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarterly financial results and stock prices for the last two fiscal years were:
1997 1996
------------------------------------------------- ---------------------------------------------------
(In thousands of dollars Fourth Third Second First Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Net sales $1,541,504 $1,319,310 $1,481,837 $1,420,005 $1,351,886 $1,112,744 $1,203,506 $876,623
Operating profit 57,083 48,186 53,418 47,489 47,995 39,284 42,385 29,811
Net income 31,940 26,117 29,631 25,025 24,565 19,110 22,158 15,122
Fully diluted earnings $.47 $.39 $.44 $.38 $.39 $.32 $.37 $.26
per share
Market stock price range:
High $34 5/16 $29 7/16 $31 1/2 $29 1/4 $24 1/2 $21 11/16 $18 7/8 $19
Low 24 1/8 21 5/8 22 3/4 15 17 9/16 12 1/2 11 9/16 14 5/16
(The above earnings per share and stock prices have been restated for the August 1997 stock dividend.)
</TABLE>
Quarterly and annual earnings per share are independently computed using the
estimated effective income tax rate and Common Stock market prices applicable
for that period. Consequently, the sum of individual quarterly fully diluted
earnings per share does not equal the total for the years presented. Fiscal year
1997 was the first full year of dilution by the Convertible Subordinated Notes
issued in May 1996.
================================================================================
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
SCI Systems, Inc.
We have audited the accompanying consolidated balance sheets of SCI
Systems, Inc. as of June 30, 1997, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SCI Systems,
Inc. at June 30, 1997, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
July 29, 1997
[END OF EXCERPTS FROM FORM 10-K]
[INSIDE BACK COVER OF ANNUAL REPORT TO SHAREHOLDERS]
Corporate Directory
[LEFT COLUMN]
Board of Directors
Olin B. King (1)
Chairman of the Board of the
Company
Huntsville, Alabama
Howard H. Callaway (2)(4)
CEO, Crested Butte Mountain
Resort, Inc.
Crested Butte, Colorado
CEO and President
Callaway Gardens Resort, Inc.
Pine Mountain, Georgia
William E. Fruhan (2)(3)
Professor of Business Administration
Harvard University
Cambridge, Massachusetts
A. Eugene Sapp, Jr. (1)(3)
President of the Company
Huntsville, Alabama
Wayne Shortridge (2)(3)
Partner
Paul, Hastings, Janofsky & Walker
Atlanta, Georgia
G. Robert Tod (2)(4)
President, CML Group, Inc.
Acton, Massachusetts
Jackie M. Ward (3)(4)
Chief Executive Officer
Computer Generation Incorporated
Atlanta, Georgia
Director Emeritus
Joseph C. Moquin (4)
Retired CEO
Teledyne Brown Engineering
Madison, Alabama
Committees of the Board
(1) Executive Committee
(2) Audit Committee
(3) Investment Committee
(4) Compensation Committee
[MIDDLE COLUMN]
Officers
Chairman of the Board and
Chief Executive Officer
Olin B. King
President and Chief Operating
Officer
A. Eugene Sapp, Jr.
Senior Vice Presidents
Richard A. Holloway
David F. Jenkins
George J. King
Jeffrey L. Nesbitt
Charles N. Parks
Peter M. Scheffler
Jerry F. Thomas
LeRoy H. Mackedanz
Vice Presidents
Charles Barnhart
Patrick R. Barry
James P. Bilodeau
C.T. Chua
Warren F. Cline, Jr.
Joseph J. Cosgrove
Robert P. Eisenberg
James M. Ferguson
James H. Ferry
Francis X. Henry
Steven T. Korn
Sampath R. Kumar
David L. Lengel
David L. Marler
Michael P. McCaughey
James H. McElroy
Raymond E. Minter
Michael H. Missios
P. William Quinn
W. David Rees
Yvonne Sanchez-Navarro
Francois M. Thionet
Joseph A. Tilmant
Christopher J. White
John R. Wilkins, Jr.
F. M. Wong
Secretary and Corporate Counsel
Michael M. Sullivan
Treasurer
Ronald G. Sibold
[LEFT COLUMN]
General Counsel
Powell, Goldstein, Frazer & Murphy
Atlanta, Georgia
Auditors
Ernst & Young LLP
Birmingham, Alabama
Transfer Agent and Registrar
Mellon Securities Trust Company
1-800-756-3353
Security Trading Markets
Common Stock
New York Stock Exchange
Symbol SCI
Common Stock Options
Chicago Board Options Exchange
Symbol SSQ
1-800-OPTIONS
Agent Banks
Revolving Credit
Citibank, N.A.
Commercial Paper ABN AMRO Bank, N.V.
Asset Securitization
Bank of America, N.T. & S.A.
Annual Shareholders' Meeting
Fourth Friday in October
Shareholder Relations
2000 Ringwood Avenue
San Jose, California 95131
(408) 943-9000
Annual Report to the S.E.C.
The annual report to the Securities and Exchange Commission on Form 10-K
provides complete exhibits and schedules. Copies will be furnished upon written
request to Shareholder Relations at the address above.
SCI SYSTEMS, INC.
Printed by free enterprise in the USA
[END OF ANNUAL REPORT TO SHAREHOLDERS]
[END OF EXHIBIT 13]
EXHIBIT 21--SUBSIDIARIES OF REGISTRANT
Listed below are the principal subsidiaries of the Company and the
percentage of voting securities owned by the Company. The Company's other
subsidiaries, taken in the aggregate, would not constitute a significant
subsidiary.
Jurisdiction in which Percentage
Incorporated or Organized of Voting
Securities Owned
SCI Systems (Alabama), Inc. Alabama 100%
SCI Technology, Inc. Alabama 100%
SCI Systems Colorado, Inc. Colorado 100%
SCI Foreign Sales, Inc. U.S. Virgin Islands 100%
SCIMEX, Inc. Alabama 100%
SCI Systems de Mexico S.A. Mexico 100%
SCI Holdings, Inc. Delaware 100%
SCI Manufacturing Singapore Pte. Ltd. Singapore 100%
SCI Systems (Thailand) Limited Thailand 100%
SCI Irish Holdings Republic of Ireland 100%
SCI Ireland Limited Republic of Ireland 100%
SCI Alpha Limited Republic of Ireland 100%
SCI Systems (Canada), Inc. Canada 100%
Newport, Inc. Georgia 100%
SCI Holding France, S.A. France 100%
SCI France, S.A. France 100%
SCI Manufacturing (Malaysia) SDN BHD Malaysia 100%
SCI Funding, Inc. Alabama 100%
SCI del Centro, S.A. de C.V. Mexico 100%
SCI del Sud, S.A. Mexico 100%
SCI del Norte, S.A. Mexico 100%
SCI Hungary Ltd. Hungary 100%
Advanced Electronic Technology, LTDA. Brazil 100%
Advanced Electronic Integration, LTDA. Brazil 100%
Exhibit 23 - Consent of Independent Auditor
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of SCI Systems, Inc. of our report dated July 29, 1997, included in the 1997
Annual Report to Shareholders of SCI Systems, Inc.
We also consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 2-86230) and related Prospectus pertaining to the
Savings Plan of the SCI Systems, Inc. Employee Financial Security Program; (ii)
the Registration Statement (Form S-8 No. 2-91587) and related Prospectus
pertaining to the Incentive Stock Option Plan of SCI Systems, Inc.; and, (iii)
the Registration Statement (Form S-8 No. 33-11894) and related Prospectus
pertaining to the Non-Qualified Stock Option Plan of SCI Systems, Inc., of our
report dated July 29, 1997, with respect to the consolidated financial
statements of SCI Systems, Inc. incorporated by reference in this Annual Report
for the year ended June 30, 1997.
/s/ Ernst & Young LLP
Birmingham, Alabama
September 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 1997'S BALANCE SHEET AND THE INCOME STATEMENT FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 290,809
<SECURITIES> 0
<RECEIVABLES> 642,067
<ALLOWANCES> 11,200
<INVENTORY> 569,846
<CURRENT-ASSETS> 1,548,054
<PP&E> 648,940
<DEPRECIATION> 347,943
<TOTAL-ASSETS> 1,869,852
<CURRENT-LIABILITIES> 793,832
<BONDS> 454,308
0
0
<COMMON> 5,978
<OTHER-SE> 588,685
<TOTAL-LIABILITY-AND-EQUITY> 1,869,852
<SALES> 5,762,656
<TOTAL-REVENUES> 5,762,656
<CGS> 5,556,480
<TOTAL-COSTS> 5,556,480
<OTHER-EXPENSES> (13,832)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,574
<INCOME-PRETAX> 189,434
<INCOME-TAX> 76,721
<INCOME-CONTINUING> 112,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,713
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.67
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