<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 1998
REGISTRATION NO. 333-56173
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALLIED DIGITAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 11-2574949
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
------------------------
140 FELL COURT
HAUPPAUGE, NEW YORK 11788
(516) 232-2323
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHARLES A. MANTIONE
VICE PRESIDENT OF FINANCE
ALLIED DIGITAL TECHNOLOGIES CORP.
140 FELL COURT
HAUPPAUGE, NEW YORK 11788
(516) 232-2323
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW
Copies to:
STANLEY SCHLESINGER PHILIP WERNER DANIEL ZUBKOFF
WARSHAW BURSTEIN COHEN MORGAN, LEWIS & BOCKIUS LLP CAHILL GORDON & REINDEL
SCHLESINGER & KUH, LLP 101 PARK AVENUE 80 PINE STREET
555 FIFTH AVENUE NEW YORK, NEW YORK 10178 NEW YORK, NEW YORK 10005
NEW YORK, NEW YORK 10017 (212) 309-6000 (212) 701-3000
(212) 984-7700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER,
EXACT NAME OF GUARANTOR STATE OR OTHER I.R.S. EMPLOYER INCLUDING AREA CODE, OF
REGISTRANT AS SPECIFIED JURISDICTION OF IDENTIFICATION REGISTRANT'S PRINCIPAL
IN ITS CHARTER INCORPORATION NUMBER EXECUTIVE OFFICE
- --------------------------------- --------------- --------------- ----------------------------
<S> <C> <C> <C>
Allied Digital Technologies Corp. Delaware 38-3191597 140 Fell Court
Hauppauge, New York 11788
(516) 232-2323
HMG Digital Technologies Corp. Delaware 13-3643843 140 Fell Court
Hauppauge, New York 11788
(516) 232-2323
HRM Holdings Corp. Delaware 11-3040949 140 Fell Court
Hauppauge, New York 11788
(516) 232-2323
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion
Dated July 27, 1998
PRELIMINARY PROSPECTUS
ALLIED DIGITAL, INC.
$100,000,000
% Senior Subordinated Notes Due 2008
Fully and Unconditionally Guaranteed, Jointly and Severally, by Allied Digital
Technologies Corp. and each of the other Guarantors named herein
Interest Payable and
Issue Price: %
The % Senior Subordinated Notes due 2008 (the 'Notes') are being offered
(the 'Offering') by Allied Digital, Inc., a New York corporation (the 'Issuer').
The Notes will mature on , 2008. Interest on the Notes will accrue
at the rate of % per annum and will be payable semiannually in arrears on
and of each year commencing , 1999.
The Notes will be redeemable at the option of the Issuer, in whole or in part,
at any time on or after , 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon to the redemption date. In
addition, on or prior to , 2001, the Issuer may redeem up to 35%
of the principal amount of the Notes at a redemption price of % of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the redemption date, with the net cash proceeds of one or more Public Equity
Offerings (as defined); provided, however, that at least $65 million in
aggregate principal amount of the Notes remains outstanding immediately after
the occurrence of each such redemption. Upon the occurrence of a Change of
Control (as defined), (i) the Issuer will have the option, at any time on or
prior to 2003, to redeem the Notes at a redemption price equal to
100% of the principal amount of the Notes, plus the Applicable Premium (as
defined) and (ii) if the Issuer does not so redeem the Notes, or if a Change of
Control occurs after 2003, the Issuer will be required to make an
offer to purchase all outstanding Notes at an offer price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any,
thereon to the date of purchase. There can be no assurance that the Issuer or
any Guarantor will have sufficient funds available at the time of any Change of
Control to make any required repayment of indebtedness (including repurchase of
the Notes). See 'Description of Notes.'
The Notes will be unsecured obligations of the Issuer subordinated in right of
payment to all existing and future Senior Debt (as defined) of the Issuer and
senior in right of payment to all existing and future Subordinated Indebtedness
(as defined) of the Issuer. The Notes will be fully and unconditionally
guaranteed, jointly and severally (the 'Guarantees') by Allied Digital
Technologies Corp. ('ADT'), HMG Digital Technologies Corp. and HRM Holdings
Corp. (collectively, the 'Guarantors'). The Guarantees will be general unsecured
obligations of each of the Guarantors subordinated in right of payment to all
existing and future Senior Debt of each such Guarantor and will rank senior in
right of payment to all existing and future Subordinated Indebtedness of each
such Guarantor. At April 30, 1998, after giving pro forma effect to the
Transactions (as defined) and the application of the net proceeds thereof, the
aggregate amount of outstanding Senior Debt of the Issuer would have been $1.2
million.
SEE 'RISK FACTORS' BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE
NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO UNDERWRITERS' PROCEEDS TO
PUBLIC(1) DISCOUNT(2) ISSUER(3)
--------- ------------- -----------
Per Note...... % % %
Total......... $ $ $
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(1) Plus accrued interest, if any, from the date of issuance.
(2) The Issuer and the Guarantors have agreed to indemnify the Underwriters (as
defined) against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the 'Securities Act'). See
'Underwriting.'
(3) Before deducting expenses of the Offering payable by the Issuer estimated at
$ .
The Notes are being offered by J.P. Morgan Securities Inc. and Bear, Stearns &
Co. Inc., as underwriters (the 'Underwriters'), subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by Cahill Gordon & Reindel, counsel for the Underwriters.
The Underwriters reserve the right to withdraw, cancel or modify the offer and
reject orders in whole or in part. It is expected that delivery of the Notes
will be made against payment therefor, on or about , 1998 at the
offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York in
book-entry form through the facilities of The Depository Trust Company.
J.P. MORGAN & CO. BEAR, STEARNS & CO. INC.
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
Prospectus Summary............................................... 3
Risk Factors..................................................... 11
Use of Proceeds.................................................. 16
Capitalization................................................... 16
Selected Historical Consolidated Financial Data.................. 17
Pro Forma Unaudited Condensed Financial Data..................... 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 26
Business......................................................... 31
Management....................................................... 41
Security Ownership............................................... 42
Certain Transactions............................................. 43
Description of Credit Agreement.................................. 46
Description of Notes............................................. 47
Underwriting..................................................... 72
Legal Matters.................................................... 72
Experts.......................................................... 72
Available Information............................................ 73
Incorporation by Reference....................................... 73
Table of Contents to Consolidated Financial Statements........... F-1
------------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES 'FORWARD-LOOKING STATEMENTS.' ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING
WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE 'PROSPECTUS SUMMARY,' 'THE
COMPANY,' 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS' AND 'BUSINESS' AND LOCATED ELSEWHERE HEREIN REGARDING THE
COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE ISSUER BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ('CAUTIONARY STATEMENTS') ARE DISCLOSED IN THIS PROSPECTUS,
INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS AND UNDER 'RISK FACTORS.' ALL SUBSEQUENT WRITTEN AND
ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, references
in this Prospectus to the 'Company' refer collectively to Allied Digital
Technologies Corp. and its consolidated subsidiaries. All references in this
Prospectus to 'fiscal year' refer to the Company's fiscal year which ends on
July 31 of the specified calendar year.
THE COMPANY
The Company is a leading independent multimedia manufacturer in the United
States. The Company replicates/duplicates audio cassettes, video cassettes, and
CD and CD-ROM products for the entertainment, publishing and special interest
markets. In addition, the Company provides value-added supply chain management
services such as distribution, telephone order fulfillment, packaging design and
outsourcing, electronic order-taking and all direct-mail services. Since its
founding in 1947, the Company (including its predecessors) has consistently and
successfully managed the transition from one media to another by adapting its
product line to match changing market trends. As the market has moved from vinyl
records and audio cassettes to CDs and CD-ROMs and from film to video, the
Company has successfully aligned its production and selling strategy around such
trends. The Company's strategy is to provide its customers with a wide variety
of turnkey solutions and options for delivering multimedia products to market.
The Company targets the fastest growing niche markets, including CD-ROM, spoken
word audio cassette, and special interest and premium/promotional use video. The
sell-through video market, which includes special interest and
premium/promotional use video, has grown at a compound annual growth rate in
excess of 10% for each of the past five years and the market for interactive
digital media, such as CD-ROM, has grown at a compound annual growth rate in
excess of 20% for each of the past five years.
The Company sells its products to approximately 3,000 customers in a wide
range of industries including entertainment/publishing, special interest and
promotional video, and CD-ROM software. The Company's entertainment/ publishing
customers include: BMG Music Group, Inc. ('BMG'), PolyGram Group Distribution,
Inc. ('PGD'), Simon & Schuster, Sony Music Entertainment and Columbia House. The
Company's special interest and promotional customers include Anchor Bay
Entertainment ('Anchor Bay'), RJR Nabisco and Glaxo Wellcome. The Company's
CD-ROM software customers include Sofsource, Inc. ('Sofsource') and Video
Professor. The Company also sells to a large, and increasing, number of
medium-sized customers.
The Company has manufacturing and service facilities across the United
States and has a national distribution facility based in Tennessee. This
hub-and-spoke system allows it to provide personalized local service as well as
high volume mass production capabilities throughout the continental United
States. The Company markets its products and services nationally through its
internal sales force of approximately 55 sales and marketing professionals. As
the market for multimedia applications continues to grow and the industry
continues to undergo significant consolidation, the Company believes it is well
positioned to take advantage of such opportunities. For the twelve months ended
April 30, 1998, the Company had total revenues of $166.9 million and EBITDA of
$20.3 million.
COMPETITIVE STRENGTHS
The combination of the Company's products, customers, proven track record,
and focused strategy distinguishes it as a leading manufacturer and distributor
of packaged media. The Company attributes this success, and its continued
opportunities for growth and profitability, to the following competitive
strengths:
o Leading independent multimedia duplicator/replicator. The Company is the
leading independent multimedia duplicator/replicator in the United States
with both national distribution and manufacturing capabilities in all
audio cassette, video cassette and CD/CD-ROM configurations. The
Company's hub-and-spoke manufacturing and distribution structure has
allowed it to provide personalized local service as well as high volume
mass production capabilities. The Company believes that its flexible
manufacturing and distribution capabilities give it a cost advantage over
local and regional competitors.
3
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o Strong position in growing, niche markets. The Company is well
positioned in the growing, niche markets of special interest video,
CD-ROM, and spoken word audio cassette. The Company is the largest
independent duplicator of special interest videos and audio cassettes in
the United States, and is a major independent replicator of CD-ROM
products. By targeting such niche markets, the Company has reduced the
number of large competitors against whom it competes.
o Multimedia product offerings. The Company offers its services across all
three of the major multimedia product formats (i.e., audio cassettes,
video cassettes and CD/CD-ROM). The Company believes that offering a
complete line of multimedia products gives the Company a competitive
advantage by providing its customers with 'one-stop shopping' and
affording the Company the opportunity to cross-sell its other product
offerings to customers of a particular format. Approximately 25% of the
Company's customers currently use more than one of its multimedia product
formats.
o Value-added supply chain services. The Company's value-added supply
chain management services give it a competitive advantage by providing
service solutions that differentiate the Company from its competitors. By
fulfilling key customer needs such as national distribution, packaging
services and design, inventory management, telephone order fulfillment,
electronic order taking, and direct mail services, the Company is able to
enhance the profitability of its customers and generate higher profit
margins for itself.
o High quality products and customer service. Success in the
replication/duplication business is dependent on repeat business. The
majority of the Company's customers are very sensitive to time pressures
and demand a supplier capable of providing large quantity orders in a
short period of time and at a consistent level of quality. The Company
believes that it has retained customer loyalty and achieved growth in new
markets due to its superior quality, distribution and reliability and its
strict adherence to protection of proprietary content.
o Experienced management team. The key members of the management team, led
by John K. Mangini, have extensive experience in all aspects of the
packaged media industry with an average of 25 years each in the industry.
The collective efforts of the management team have generated significant
innovations and efficiency improvements. The benefit of these changes has
been in the creation of a more cost effective and competitive company.
Since 1996, the current management team has achieved cost savings by
integrating manufacturing and distribution operations, cross-training the
salesforce and realigning its division structure.
BUSINESS STRATEGY
o Focus on growing market segments. The Company intends to continue to
penetrate the growing segments of the packaged media market--CD-ROM,
spoken word audio cassette, and special interest and premium/promotional
video. Demand for CD-ROMs grew by over 56% in 1996 and by over 37% in
1997. Demand for spoken word audio cassettes increased by over 9% in 1996
and by over 8% in 1997. Demand for video cassettes of all categories
increased by 11.7% from 1994 to 1995, with the largest increases in the
premium/promotional category (25%).
o Expand supply chain management service offerings. Positioning the
Company as a world-class provider of value-added supply chain management
services specializing in the replication/duplication, assembly,
fulfillment, package design and procurement and distribution of software
products will allow the Company to provide 'one-stop' solutions for the
multimedia delivery of intellectual property. These offerings are
intended to enhance the Company's competitive position and provide
additional revenue streams and profit opportunities, through improved
response times and inventory turns, for both the Company and its
customers.
o Expansion of customer base. The Company intends to further penetrate its
existing customer base by cross-selling its supply chain management
services to its current customers and by offering customers a 'one stop
shop' for packaged multimedia products and services. As part of this
strategy, the Company has targeted medium-sized, high growth companies
that are not served by large competitors. The Company's competitors
typically only manufacture and do not provide the breadth of value-added
services that are critical for medium-sized companies. In addition, the
Company seeks to attract larger
4
<PAGE>
customers with the value-added supply chain management services it
offers, as well as with its capabilities to handle customers' needs on a
national level.
o Transition to DVD Format. The Company believes that the Digital
Versatile Disc ('DVD') will represent the fastest growing new product
offering; however, the Company believes that widespread DVD acceptance is
several years away. In anticipation of a migration to the DVD format, the
Company plans to begin production of DVD products in the coming year with
the view of reaching a considerable volume level by the year 2000. The
Company's modern CD manufacturing equipment will enable it to efficiently
accommodate DVD replication providing it cost advantages over competitors
that are not currently in the CD replication business or that have
earlier-generation CD manufacturing equipment. In addition, the Company's
broad customer base will provide it with a bridge to the transition to
the DVD format.
o Growth through acquisitions. The Company actively evaluates acquisition
candidates. Future strategic acquisitions may be undertaken to broaden
the Company's product and services offerings, expand its manufacturing
capacity and enhance the vertical integration of its supply chain.
THE TRANSACTIONS
THE MERGER
Pursuant to a merger agreement (the 'Merger Agreement') dated as of May 5,
1998 between the Company and Analog Acquisition Corp. ('AAC'), an entity
organized solely to effect the Merger (as defined) at the direction of 399
Venture Partners, Inc. ('399'), an indirect wholly owned subsidiary of Citicorp
Holdings, Inc., and certain members of the Company's management (the 'Management
Shareholders'), and subject to shareholder approval, AAC will merge with and
into the Company, with the Company as the surviving corporation (the 'Merger').
Each issued and outstanding share (or fraction thereof) of Common Stock (the
'Common Stock') of the Company immediately prior to the effective date of the
Merger (the 'Effective Date') will be canceled and converted into the right to
receive $5.00 in cash other than (i) 74,998 shares of Common Stock held by
certain members of the Company's management (the 'Management Shares'), which
will remain outstanding and be converted into one share of Class A Common Stock
of the Company (the 'Class A Common Stock'), representing, in the aggregate,
approximately 51% of the Class A Common Stock; (ii) 1,100,110 shares of Common
Stock owned by 399, which will be converted into 73,999 shares of Class A Common
Stock, 351,000 shares of Class B Common Stock of the Company (the 'Class B
Common Stock') and 33,375.55 shares of Series A Preferred Stock of the Company
(the 'Series A Preferred Stock'); and (iii) shares of stockholders who are
entitled to, and who have perfected, their appraisal rights. In addition, 399
will purchase 131,244.45 shares of preferred stock, par value $.01 per share, of
AAC for $13,124,445 in cash. Further, (i) each share of common stock of AAC
outstanding immediately prior to the Effective Date will be canceled and
converted into one share of Class A Common Stock and (ii) each share of
preferred stock of AAC outstanding prior to the Effective Date will be canceled
and converted into one share of Series A Preferred Stock. The Series A Preferred
Stock will have a stated value of $100 per share and will be entitled to
semi-annual dividends when, as and if declared, which dividends will be
cumulative, whether or not earned or declared, and will accrue at a rate of 12%,
compounding daily. The Series A Preferred Stock will not be mandatorily
redeemable prior to the earlier of the eleventh anniversary of the Closing and
the date upon which a Sale of the Company or a Qualifying Offering (as such
terms are defined in the Amended and Restated Certificate of Incorporation)
occurs.
As a result of the cancellation and conversion of the shares of AAC and the
conversion of 1,100,110 shares of Common Stock owned by 399 described above, 399
will own 165,000 shares of Series A Preferred Stock, 74,000 shares of Class A
Common Stock and 351,000 shares of Class B Common Stock. Members of management
will own 75,000 shares of Class A Common Stock. The Merger, the Offering, the
Credit Agreement (as defined), the Equity Contribution (as defined) and the
application of the proceeds therefrom are hereinafter collectively referred to
as the 'Transactions.' See 'Certain Transactions.'
The Transactions will be accounted for as a recapitalization, and therefore
the assets and liabilities of the Company will be carried over at cost.
5
<PAGE>
FUNDING OF THE TRANSACTIONS
The Transactions will be funded by (i) approximately $1.2 million of
borrowings under a new $25.0 million senior revolving credit facility (the
'Credit Agreement'), (ii) $100.0 million from the Offering and (iii)
approximately $13.3 million from the issuance of capital stock (the 'Equity
Contribution').
The estimated sources and uses of cash in connection with the Transactions
assuming that the Transactions occurred on April 30, 1998 are set forth below
(dollars in thousands):
<TABLE>
<S> <C>
SOURCES OF CASH:
Credit Agreement(1)............................................ $ 1,196
Proceeds from sale of Notes.................................... 100,000
Proceeds from the sale of capital stock........................ 13,292
Cash........................................................... 596
--------
Total sources............................................... $115,084
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--------
USES OF CASH:
Purchase of equity and redemption of options(2)................ $ 64,125
Repayment of the Existing Debt(3).............................. 43,159
Estimated transaction fees and expenses........................ 7,800
--------
Total uses.................................................. $115,084
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</TABLE>
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(1) Consists of funds drawn from a new $25 million senior revolving credit
facility.
(2) Represents $62.6 million to be used toward the purchase of 12,519,804 shares
of Common Stock from the public and management at a price of $5.00 per share
and $1.5 million to settle unexercised stock options.
(3) 'Existing Debt' means the long term debt of the Company (except for
capitalized lease obligations) aggregating $42.5 million, including
subordinated notes payable to the stockholders aggregating $10.1 million (of
which $9.5 million is payable to the Company's Co-Chairmen) and a
termination charge of approximately $0.7 million.
6
<PAGE>
THE OFFERING
Issuer................... Allied Digital, Inc.
Securities Offered....... $100,000,000 of % Senior Subordinated Notes due
2008.
Maturity Date............ , 2008.
Interest Payment Dates... and , commencing , 1999.
Optional Redemption...... The Notes will be redeemable at the option of the
Issuer, in whole or in part, at any time on or after
, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon to
the redemption date. In addition, on or prior to
, 2001, the Issuer may redeem up to 35% of
the principal amount of the Notes at a redemption
price of % of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the
redemption date, with the net cash proceeds of one or
more Public Equity Offerings; provided, however, that
at least $65 million in aggregate principal amount of
the Notes remains outstanding immediately after the
occurrence of each such redemption.
Ranking.................. The Notes will be unsecured obligations of the Issuer
subordinated in right of payment to all existing and
future Senior Debt of the Issuer and will rank senior
in right of payment to all existing and future
Subordinated Indebtedness of the Issuer. At April 30,
1998, after giving pro forma effect to the
Transactions and the application of the net proceeds
thereof, the aggregate amount of outstanding Senior
Debt would have been $2.1 million.
Guarantees............... The Notes will be fully and unconditionally
guaranteed, jointly and severally, by ADT, HMG Digital
Technologies Corp. and HRM Holdings Corp. The
Guarantees will be general unsecured obligations of
each of the Guarantors subordinated in right of
payment to all existing and future Senior Debt of each
such Guarantor and will rank senior in right of
payment to all existing and future Subordinated
Indebtedness of each such Guarantor.
Change of Control........ Upon the occurrence of a Change of Control, (i) the
Issuer will have the option, at any time on or prior
to , 2003, to redeem the Notes at a
redemption price equal to 100% of the principal amount
of the Notes, plus the Applicable Premium and (ii) if
the Issuer does not so redeem the Notes, or if a
Change of Control occurs after 2003,
the Issuer will be required to make an offer to
purchase all outstanding Notes, in whole or in part,
at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. There can
be no assurance that the Issuer or any Guarantor will
have sufficient funds available at the time of any
Change of Control to make any required repayment of
indebtedness (including repurchase of the Notes). See
'Description of Notes.'
Certain Covenants........ The Indenture (as defined) under which the Notes will
be issued will contain certain covenants that, among
other things, limit the ability of the Company and its
Restricted Subsidiaries (as defined) to incur
additional Indebtedness (as defined), pay dividends or
make certain other restricted payments, engage in
transactions with affiliates, incur liens and engage
in certain asset sales. The Indenture will also
7
<PAGE>
restrict the ability of the Company and its Restricted
Subsidiaries to consolidate or merge with, or transfer
all or substantially all of their assets to, another
person. However, these limitations are subject to a
number of important qualifications and exceptions. See
'Description of Notes--Certain Covenants.'
Use of Proceeds.......... The net proceeds from the Offering will be used to
fund the purchase of the Company's outstanding shares
in connection with the Merger, repay indebtedness, if
any, of the Company under the Existing Debt and
certain other liabilities of the Company and pay
related transaction fees and expenses. Any remaining
proceeds will be used for working capital and other
purposes. See 'Use of Proceeds.'
RISK FACTORS
Prospective investors should carefully consider the specific matters set
forth under 'Risk Factors' as well as the other information and data included in
this Prospectus prior to making an investment in the Notes.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data for the three years
ended July 31, 1997 have been derived from, and should be read in conjunction
with, the audited historical Consolidated Financial Statements, and related
notes thereto, of the Company. The summary historical and pro forma adjusted
unaudited consolidated financial data for the nine months ended April 30, 1997
and the nine months and twelve months ended April 30, 1998 have been derived
from the unaudited consolidated financial statements of the Company and include,
in the opinion of the Company's management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the data for such
periods. The financial data for the nine months and twelve months ended April
30, 1998 are not necessarily indicative of the results to be expected for the
year ending July 31, 1998. The following table should be read in conjunction
with the 'Pro Forma Unaudited Condensed Financial Data' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTED
UNAUDITED (UNAUDITED)
TWELVE NINE MONTHS ENDED YEAR YEAR YEAR
MONTHS ENDED APRIL 30, ENDED ENDED ENDED
APRIL 30, ------------------- JULY 31, JULY 31, JULY 31,
1998(a) 1998 1997 1997 1996 1995(b)
------------ -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net Sales.................. $166,890 $127,110 $119,367 $159,147 $160,942 $116,564
Cost of Sales.............. 131,402 99,868 95,500 127,034 132,262 89,442
Nonrecurring Charge........ -- -- -- -- 1,250(c) --
------------ -------- -------- -------- -------- --------
Gross Profit............... 35,488 27,242 23,867 32,113 27,430 27,122
Operating Expenses......... 25,208(a) 19,539 18,460 24,829 30,029(c) 23,815
------------ -------- -------- -------- -------- --------
Income (loss) from
operations............... $ 10,280(a) $ 7,703 $ 5,407 $ 7,284 $ (2,599) $ 3,307
OTHER DATA:
EBITDA(d).................. $ 20,983(d) $ 15,934 $ 13,548 $ 17,897 $ 10,613 $ 12,501
Net cash provided by
operating activities..... 15,648 8,771 1,582 8,459 14,317 9,067
Net cash used in investing
activities............... (7,614) (5,505) (507) (2,616) (9,262) (9,147)
Net cash used in financing
activities............... (7,949) (3,863) (1,394) (5,480) (4,784) (173)
Depreciation and
amortization............. 10,535 8,069 7,979 10,445 11,297 8,432
Capital expenditures(e).... 6,511 5,705 1,613 2,419 9,410 7,888
Ratio of earnings to fixed
charges(f)............... -- 1.99x 1.41x 1.36x -- 1.05x
PRO FORMA DATA:
Cash interest expense(g)... $ 11,278 -- -- -- -- --
Ratio of EBITDA to cash
interest expense......... 1.86x -- -- -- -- --
BALANCE SHEET DATA:
Total assets............... $109,662 $105,285 $110,482 $107,880 $113,878 $125,867
Total debt................. 102,106 43,392 50,550 46,609 50,382 54,587
Redeemable preferred
stock.................... 16,500 -- -- -- -- --
Total stockholders' equity
(deficit)................ (29,323) 40,679 38,606 38,644 37,977 43,562
Ratio of total debt to
EBITDA................... 4.87x -- -- -- -- --
</TABLE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) The pro forma adjusted unaudited financial data for the twelve month period
ended April 30, 1998 were derived by adding the statement of earnings data
for the three months ended July 31, 1997 to the statement of earnings data
for the nine months ended April 30, 1998, adjusted to reflect the effects of
the Transactions including an estimated $0.7 million reduction in operating
expenses to reflect the expected cost savings for changes contemplated in
conjunction with consummating the Transactions consisting of (i) the
resignations of the Co-Chairmen and related support personnel, (ii) the
elimination of compensatory directorships and (iii) the reduction in
investor relations and public filing expenses. In June 1996, the Company
adopted a plan to streamline and reduce resources utilized in the business.
The plan encompassed: (i) the merger and
9
<PAGE>
integration of the Company's two operating subsidiaries, (ii) the closure of
the Company's Detroit manufacturing facility and (iii) the consolidation of
the Company's corporate and administrative offices from Detroit to New York.
Although the restructuring plan was adopted in June 1996, the benefits from
the adoption of this plan materialized during fiscal 1997 and later.
Accordingly, the pro forma adjusted unaudited financial information for the
twelve months ended April 30, 1998 is considered by the Company to be more
representative of normal operations than the most recent fiscal year ended
July 31, 1997 and the subsequent interim period.
(b) On January 12, 1995, the Company acquired all of the outstanding capital
stock of Allied Film Laboratory, Inc. ('AFL') and HMG Digital Technologies
Corp. ('HMG') in exchange for approximately 55% and 45% of the outstanding
common shares of the Company, respectively (the 'reorganization').
Consequently, the results of operations (i) for the year ended July 31, 1996
(and thereafter) include the consolidated operations of AFL and HMG for such
period and (ii) for the year ended July 31, 1995 include the operations of
AFL for the twelve months ended July 31, 1995 and the operations of HMG for
the period January 12, 1995 through July 31, 1995.
(c) For the year ended July 31, 1996, the results of operations were adversely
impacted by a $1.3 million nonrecurring charge associated with a customer
allowance and a restructuring charge of $3.1 million included in operating
expenses.
(d) EBITDA represents operating income and other income (expense), before
depreciation and amortization and excludes nonrecurring charges. While
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles or as a measure of liquidity, it is
included herein to provide additional information with respect to the
ability of the Company to meet future debt service, capital expenditures and
working capital requirements. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.' For the year ended July 31,
1996, EBITDA reflects, and accordingly is net of, a restructuring charge of
$3.1 million. For the Pro Forma Adjusted Unaudited Twelve Months Ended April
30, 1998, EBITDA reflects the estimated $0.7 million reduction in operating
expenses referred to in (a) above.
(e) Capital expenditures include the acquisition of property and equipment and
capitalized leased equipment.
(f) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes and fixed charges. Fixed
charges consist of the total of (i) interest, whether expensed or
capitalized, (ii) amortization of debt expense, whether expensed or
capitalized and (iii) that portion of rental expense considered to represent
interest cost. On a pro forma basis for the twelve months ended April 30,
1998, giving effect to the Transactions without reflecting the estimated
$0.7 million reduction in operating expenses referred to in (a) above, as if
it occurred on May 1, 1997, earnings were insufficient to cover fixed
charges by $2.07 million. For the year ended July 31, 1996, earnings were
insufficient to cover fixed charges by $8.1 million.
(g) Pro forma cash interest expense is comprised of interest expense excluding
non-cash amortization of deferred financing costs.
10
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
factors as well as the other information and data included and incorporated by
reference in this Prospectus prior to making an investment in the Notes.
SUBSTANTIAL LEVERAGE
The Company will incur significant debt in connection with the
Transactions. As of April 30, 1998, after giving pro forma effect to the
Transactions, the Company would have had outstanding debt of $102.1 million. In
addition, the Company could have borrowed up to approximately $23.8 million
(subject to borrowing base limitations) under the anticipated terms of the
Credit Agreement, all of which would have constituted Senior Debt. On a pro
forma basis for the year ended July 31, 1997, giving effect to the Transactions
as if they occurred at the beginning of such annual period, earnings were
insufficient to cover fixed charges by $4.2 million. In addition, the ratio of
EBITDA to cash interest expense was 1.59 to 1 on a pro forma basis for the same
period. For the nine months ended April 30, 1998, after giving pro forma effect
to the Transactions, the Company's ratio of earnings to fixed charges were
insufficient to cover fixed charges by $0.5 million and the ratio of EBITDA to
cash interest expense was 1.95 to 1. The Company's leveraged financial position
poses substantial consequences to holders of the Notes, including the risks
that: (i) a substantial portion of the Company's cash flow from operations will
be dedicated to the payment of interest on the Notes and the payment of
principal and interest on other indebtedness; (ii) the Company's leveraged
position may impede its ability to obtain financing in the future for working
capital, capital expenditures and general corporate purposes, including
acquisitions; and (iii) the Company's leveraged position may make it more
vulnerable to economic downturns and may limit its ability to withstand
competitive pressures. The Company believes that, based on its current level of
operations, it will have sufficient capital to carry on its business and will be
able to meet its scheduled debt service requirements. However, there can be no
assurance that the future cash flow of the Company will be sufficient to meet
the Company's obligations and commitments. If the Company is unable to generate
sufficient cash flow from operations in the future to service its indebtedness
and to meet its other commitments, the Company will be required to adopt one or
more alternatives, such as refinancing or restructuring its indebtedness,
selling material assets or operations or seeking to raise additional debt or
equity capital. There can be no assurance that any of these actions could be
effected on a timely basis or on satisfactory terms or that these actions would
enable the Company to continue to satisfy its capital requirements. In addition,
the terms of existing or future debt agreements, including the Indenture and the
Credit Agreement, may prohibit the Company from adopting any of these
alternatives. See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources,' 'Description of
Credit Agreement' and 'Description of Notes.'
SUBORDINATION OF NOTES AND THE GUARANTEES
The Notes will be contractually subordinated to all Senior Debt of the
Issuer including all obligations under the Credit Agreement. In certain
circumstances, holders of the Notes will not be entitled to receive payments,
and will have an obligation to pay over to holders of Senior Debt of the Issuer,
any payments they may receive in respect of the Notes. At April 30, 1998, after
giving pro forma effect to the Transactions, the aggregate amount of
consolidated indebtedness and other liabilities to which the Notes would have
been subordinated would have been approximately $2.1 million. The Guarantees
will be general unsecured obligations of each of the Guarantors subordinated in
right of payment to all existing and future Senior Debt of each such Guarantor,
including the Guarantors' obligations under their guarantees of the Credit
Agreement. Subject to certain limitations, the Indenture will permit the Issuer
and the Guarantors to incur additional indebtedness. See 'Summary--The
Transactions' and 'Description of Notes--Covenants--Limitation on Indebtedness.'
Substantially all of the assets of the Company will or may in the future be
pledged to secure other indebtedness of the Company. See 'Description of Credit
Agreement' and 'Description of Notes.'
RESTRICTIONS IMPOSED BY THE CREDIT AGREEMENT AND THE INDENTURE
The Credit Agreement will require the Company to maintain specified
financial ratios and tests, among other obligations, including a minimum
interest coverage ratio, a minimum fixed charge coverage ratio, a maximum
leverage ratio, a minimum EBITDA requirement and maximum amounts of capital
expenditures. In
11
<PAGE>
addition, the Credit Agreement will restrict, among other things, the Company's
ability to incur additional indebtedness and make acquisitions and capital
expenditures beyond a certain level. A failure to comply with the restrictions
contained in the Credit Agreement could lead to an event of default thereunder
which could result in an acceleration of such indebtedness. Such an acceleration
would constitute an event of default under the Indenture relating to the Notes.
In addition, the Indenture restricts, among other things, the Company's ability
to incur additional indebtedness, sell assets, make certain payments and
dividends or merge or consolidate. A failure to comply with the restrictions in
the Indenture could result in an event of default under the Indenture. See
'Description of Credit Agreement' and 'Description of Notes.'
DECLINING UNIT PRICES
In recent years, prices paid to packaged media manufacturers have declined
due to increased competition. The Company has been able to maintain
profitability by offsetting these declining prices through increases in sales
volume and improvements in manufacturing efficiencies, but may not be able to do
so in the future. It is expected that the entry of new manufacturers into the
market will continue, and there can be no assurance that the market for packaged
media will continue to grow at all or at the same rate. As a result, the prices
paid to packaged media manufacturers may continue to decline. Further, there can
be no assurance that the Company will be able to continue to reduce its costs or
increase its volume to offset this continued decline in prices. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
COMPETITION
The replication/duplication business is highly competitive. The
replication/duplication business has low barriers to entry, with virtually all
raw materials, machinery and equipment readily available on the open market. The
Company believes that the principal competitive factors in the
replication/duplication business are: price, terms of sale, quality of service,
range of pre- and post-production services, scope of graphics and packaging
capabilities, order turnaround time, large order capability, order fulfillment
capability, ability to customize small orders to customer specifications, and
certain other value-added service offerings.
In its budget planning process, the Company takes into account expected
price erosion, which occurs as competition for market share increases and
competitors lower prices to gain market share. The Company attempts to limit
margin erosion by lowering its material costs and by achieving unit volume sales
increases. While there can be no assurance that such a margin protection
strategy will be successful in the future, the Company's efforts to reduce
operating costs and its new series of marketing and sales initiatives are
intended to forestall and curtail such erosion of margins. See
'Business--Competition.'
DEPENDENCE ON KEY CUSTOMERS
For the nine-month period ending April 30, 1998, the top four customers of
the Company accounted for 38% of total sales. During the nine months ending
April 30, 1998, PGD and BMG each accounted for more than 10% of the Company's
net sales. The Company's revenues could be materially adversely affected if it
were to lose all or a significant portion of its major customers' business and
if such business were not replaced. In 1997, a competitor of the Company
acquired the European manufacturing facilities of PolyGram Entertainment. As a
result of such acquisition, the Company has experienced, and expects to continue
to experience, a reduction in the business it receives from PGD. While the
Company believes that it will be able to develop new business to replace any
such loss, there can be no assurance that it will be able to do so, or that the
Company will not incur significant costs associated with such business
development. See 'Business--Sales and Marketing--Significant Customers.'
DEPENDENCE ON THE ENTERTAINMENT INDUSTRY
Customers in the entertainment industry represent a large portion of the
Company's sales with respect to both audio and video products. Thus, the
Company's performance to a large degree is dependent on the financial conditions
existing from time to time in that industry and the factors that influence such
conditions. For example, sales by entertainment companies are influenced by,
among other things, the ability of record companies to identify, attract and
retain successful new talent, the ability to attract and retain established
recording artists, changing audience tastes, loss of sales from piracy and home
taping and general economic conditions, which
12
<PAGE>
affect levels of consumer disposable income. The Company's sales and operating
results may fluctuate significantly as a result of these and other similar
factors, all of which are beyond its control.
FLUCTUATING RESULTS; SEASONALITY
The Company's operating results have varied in the past, and may vary in
the future, depending on factors such as seasonal buying patterns, the timing of
new product and service introductions, increased competition, general economic
factors, and other factors. As a result, the Company believes that period to
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as an indication of future performance. For
example, the Company's operating results have historically been significantly
influenced by variations in order size due to special orders, holiday seasons
and the varied performance inherent in the entertainment industry. See
'--Dependence on the Entertainment Industry.'
DEPENDENCE ON SUPPLIERS
The Company is dependent on suppliers for delivery of components. Although
the Company's practice is to seek competitive pricing and enhanced quality by
purchasing from a limited number of suppliers, all raw materials and components
necessary to manufacture packaged media are readily available from several
sources of supply at competitive prices. Blank audio cassettes, video cassettes,
magnetic tape and other component parts utilized by the Company in the
duplication/replication process generally are readily available in the
marketplace at prices that are generally stable. The Company purchases its
components from a variety of manufacturers, most of which are located in China,
South Korea, Mexico and the United States. The Company does not believe the loss
of any one of its current suppliers would have a material adverse effect on its
business because alternative sources of supply are generally readily available
at competitive prices. However, a significant change in the Company's ability to
obtain components at comparable prices from suppliers located in China, South
Korea, Mexico and the United States, whether through the imposition of tariffs
or other trade barriers or from any foreign or U.S. supplier for any other
reason, could have a material adverse effect on the Company. The Company does
not have long-term contracts with any such suppliers. See
'Business--Manufacturing--Raw Materials; Supplies.'
TECHNOLOGICAL CHANGE
Although the Company has historically been able to adapt its business to
changes in packaged media as a form of content distribution, there can be no
assurance that it will be able to do so in the future. Further, there can be no
assurance that, over time, packaged media will not be replaced by another form
of content distribution technology, such as on-line distribution services.
Failure by the Company to adapt to such technological changes in a timely manner
could have a material adverse effect on its operations and profitability. See
'Business-- Competition.'
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team. Although the Company believes it could replace key employees in an orderly
fashion should the need arise, the loss of such key personnel could have a
material adverse effect on the Company. See 'Management--Directors and Executive
Officers.'
YEAR 2000 COMPLIANCE
The Company has commenced a review of its computer systems and products in
order to assess its exposure to Year 2000 issues. The Company is currently in
the process of determining the full scope, related costs and action plan to
ensure that the Company's systems continue to meet its internal needs and those
of its customers. The Company expects to make the necessary modifications or
changes to its computer information systems to enable proper processing of
transactions relating to the Year 2000 and beyond. However, there can be no
assurance that Year 2000 costs and expenses will not have a material adverse
effect on the Company. In addition, the Company does not currently have any
information concerning the Year 2000 compliance status of its suppliers and
customers. In the event that any of the Company's significant suppliers or
customers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be materially adversely affected.
13
<PAGE>
CONTROLLING SHAREHOLDERS
Upon the consummation of the Transactions, it is expected that the
Management Shareholders and 399 will beneficially own substantially all of the
outstanding common stock of the Company and collectively will control the
affairs and policies of the Company. Circumstances may occur in which the
interests of these shareholders could be in conflict with the interests of the
holders of the Notes. In addition, these shareholders may have an interest in
pursuing acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve risks to the holders of the Notes. See 'Security Ownership.'
LIMITATIONS ON CHANGE OF CONTROL
In the event of a Change of Control, the Issuer will be required to make an
offer for cash to purchase the Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the repurchase date. A
Change of Control will result in an event of default under the Credit Agreement
and may result in a default under other indebtedness of the Issuer that may be
incurred in the future. The Credit Agreement will prohibit the purchase of
outstanding Notes prior to repayment of the borrowings under the Credit
Agreement, and any requirement that the Issuer make an offer to purchase all
outstanding Notes will cause an event of default under the Credit Agreement.
Finally, there can be no assurance that the Issuer will have the financial
resources necessary to purchase the Notes upon a Change of Control. See
'Description of Notes--Covenants--Change of Control.'
RISK OF FRAUDULENT TRANSFER
Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if the Company, at
the time it issued the Notes, (i) incurred such indebtedness with intent to
hinder, delay or defraud creditors, or (ii)(a) received less than reasonably
equivalent value or fair consideration for incurring such indebtedness and
(b)(1) was insolvent at the time of incurrence, (2) was rendered insolvent by
reason of such incurrence (and the application of the proceeds thereof), (3) was
engaged or was about to engage in a business or transaction for which the assets
remaining with the Company constituted unreasonably small capital to carry on
its businesses, or (4) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature, then, in each case, a court
of competent jurisdiction could void, in whole or in part, the Notes, or, in the
alternative, subordinate the Notes to existing and future indebtedness of the
Company. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, the Company
would be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets was less than the amount that would be
required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured. Management believes
that, for purposes of all such insolvency, bankruptcy and fraudulent transfer or
conveyance laws, the Notes are being issued without the intent to hinder, delay
or defraud creditors and for proper purposes and in good faith and that the
Company, after the issuance of the Notes and the application of the proceeds
thereof, will be solvent, will have sufficient capital for carrying on its
business and will be able to pay its debts as they mature. In addition, as a
condition to the Company's obligation to close the Merger, the Company will
receive an opinion of Houlihan, Lokey, Howard & Zubin to the effect that
consummation of the Transactions contemplated hereby will not render the Company
(i) insolvent, (ii) unable to pay its debts as they mature or (iii) left with an
unreasonably small capital. There can be no assurance, however, that a court
passing on such questions would agree with management's view.
Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if any Guarantor, at
the time it issued a Guarantee, (i) issued such Guarantee with intent to hinder,
delay or defraud creditors, or (ii)(a) received less than reasonably equivalent
value or fair consideration for issuing such Guarantee and (b)(1) was insolvent
at the time of issuance, (2) was rendered insolvent by reason of such issuance,
(3) was engaged or was about to engage in a business or transaction for which
the assets remaining with such Guarantor constituted unreasonably small capital
to carry on its business, or (4) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature, then, in each
case, a court of competent jurisdiction could void, in whole or in part, such
Guarantee, or, in the alternative, subordinate such Guarantee to existing and
future indebtedness of such Guarantor. The measure of
14
<PAGE>
insolvency for purposes of the foregoing will vary depending upon the law
applied in such case. Generally, however, such Guarantor would be considered
insolvent if the sum of its debts, including contingent liabilities, was greater
than all of its assets at fair valuation or if the present fair saleable value
of its assets was less than the amount that would be required to pay the
probable liability on its existing debts, including contingent liabilities, as
they become absolute and matured. Management beleives that, for purposes of all
such insolvency, bankruptcy and fraudulent transfer or conveyance laws, the
Guarantees are being issued without the intent to hinder, delay or defraud
creditors and for proper purposes and in good faith and that each of the
Guarantors, after the issuance of its Guarantee, will be solvent, will have
sufficient capital for carrying on its business and will be able to pay its
debts as they mature. There can be no assurance, however, that a court passing
on such questions would agree with management's view.
LACK OF PUBLIC MARKET
There is currently no public market for the Notes and the Company has no
present plan to list any of the Notes on a national securities exchange or to
include any of the Notes for quotation through an interdealer quotation system.
There can be no assurance that such a market will develop or, if such a market
develops, as to the liquidity of such market. The Company has been advised by
the Underwriters that the Underwriters intend to make a market in the Notes
after consummation of the offering, as permitted by applicable laws and
regulations; however, the Underwriters are not obligated to do so and any such
market making activities may be discontinued at any time without notice. See
'Underwriting.'
15
<PAGE>
USE OF PROCEEDS
The net proceeds of the Offering, together with other sources of funds in
connection with the Transactions will be used to (i) finance the cash
consideration to be paid to the holders of the Common Stock and holders of
options to purchase shares of the Common Stock, (ii) repay the Existing Debt,
(iii) pay fees and expenses incurred in connection with the Transactions and
(iv) provide for working capital. See 'Summary--The Transactions.'
CAPITALIZATION
The following table sets forth the unaudited consolidated cash and the
capitalization of the Company (i) at April 30, 1998 and (ii) giving pro forma
effect to the Transactions as if they had occurred on April 30, 1998. This table
should be read in conjunction with the 'Selected Historical Consolidated
Financial Data,' 'Pro Forma Unaudited Condensed Financial Data,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT APRIL 30, 1998
--------------------
ACTUAL PRO FORMA
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt (including current maturities):
Existing debt......................... $43,392 $ 910
Merger financing
Credit agreement(1)................ -- 1,196
Notes.............................. -- 100,000
------- ---------
Total debt............................ 43,392 102,106
Redeemable preferred stock.............. -- 16,500
Total stockholders' equity (deficit).... 40,679 (29,323)
------- ---------
Total capitalization.................. $84,071 $ 89,283
------- ---------
------- ---------
</TABLE>
- ------------------
(1) $25 million revolving credit facility.
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial and other data for the three
fiscal years ended July 31, 1997, the seven months ended July 31, 1994, and the
two years ended December 31, 1993 have been derived from, and should be read in
conjunction with, the audited historical Consolidated Financial Statements and
related notes thereto, of the Company. The selected historical consolidated
financial and other data for the nine month periods ended April 30, 1998 and
1997, and the seven months ended July 31, 1993 have been derived from the
unaudited consolidated financial statements of the Company and include, in the
opinion of the Company's management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly such data for such periods.
The financial and other data for the nine months ended April 30, 1998 are not
necessarily indicative of the results to be expected for the fiscal year ending
July 31, 1998. The following table should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEVEN MONTHS ENDED YEAR ENDED
APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED JULY 31, DECEMBER 31,
-------------------- JULY 31, JULY 31, JULY 31, ----------------------- --------------------
1998 1997 1997 1996 1995(A) 1994 1993 1993 1992
-------- -------- ---------- ---------- ---------- -------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net Sales....... $127,110 $119,367 $159,147 $160,942 $116,564 $ 40,939 $ 54,898 $ 93,191 $ 69,134
Cost of Sales... 99,868 95,500 127,034 132,262 89,442 28,998 38,329 63,862 46,553
Nonrecurring
Charge........ -- -- -- 1,250(b) -- -- -- -- --
-------- -------- ---------- ---------- ---------- -------- ----------- -------- --------
Gross Profit.... 27,242 23,867 32,113 27,430 27,122 11,941 16,569 29,329 22,581
Operating
Expenses...... 19,539 18,460 24,829 30,029(b) 23,815 11,075(c) 11,986 20,873 16,376
-------- -------- ---------- ---------- ---------- -------- ----------- -------- --------
Income (loss)
from
operations.... 7,703 5,407 7,284 (2,599) 3,307 866 4,583 8,456 6,205
Interest
Expense....... (3,359) (3,573) (5,025) (6,186) (3,816) (1,137) (565) (984) (284)
Other Income,
Net........... 162 162 168 665 761 238 124 230 537
-------- -------- ---------- ---------- ---------- -------- ----------- -------- --------
Income (loss)
before Income
Taxes......... 4,506 1,996 2,427 (8,120) 252 (33) 4,142 7,702 6,458
Income Tax
Provision
(Benefit)..... 2,630 1,367 1,760 (2,535) (2,576) 85 160 375 323
-------- -------- ---------- ---------- ---------- -------- ----------- -------- --------
Net Income
(loss)........ $ 1,876 $ 629 $ 667 $ (5,585) $ 2,828 $ (118) $ 3,982 $ 7,327 $ 6,135
-------- -------- ---------- ---------- ---------- -------- ----------- -------- --------
-------- -------- ---------- ---------- ---------- -------- ----------- -------- --------
BALANCE SHEET
DATA:
Total Assets.... $105,285 $110,482 $107,880 $113,878 $125,867 $ 38,604 $ 49,849 $ 41,096 $ 31,810
Working Capital
(deficiency).. (2,392) 4,470 3,944 (491) 9,691 13,999 9,344 10,673 9,493
Long-Term Debt
and Capital-
ized Lease
Obligations... 33,260 40,635 36,548 39,386 46,170 16,898 12,547 12,154 3,641
Subordinated
Notes Payable
to Stock-
holders....... 10,132 9,915 10,060 10,996 8,417 14,000 -- -- --
Total
Liabilities... 64,606 71,876 69,237 75,901 82,305 38,136 32,827 23,468 17,291
Total
Stockholders'
Equity........ 40,679 38,606 38,644 37,977 43,562 467 17,022 17,628 14,519
OTHER DATA:
EBITDA (d)...... $ 15,934 $ 13,548 $ 17,897 $ 10,613 $ 12,501 $ 4,389 $ 7,192 $ 13,208 $ 10,059
Net cash
provided by
(used in)
operating
activities.... 8,771 1,582 8,459 14,317 9,067 (447) 2,232 7,768 8,712
Net cash used in
investing
activities.... (5,505) (507) (2,616) (9,262) (9,147) (380) (6,708) (7,658) (3,093)
Net cash
provided by
(used in)
financing
activities.... (3,863) (1,394) (5,480) (4,784) (173) 1,200 4,395 (1,200) (4,938)
Depreciation and
amortization.. 8,069 7,979 10,445 11,297 8,432 2,785 2,485 4,522 3,317
Capital expendi-
tures(e)...... 5,705 1,613 2,419 9,410 7,888 432 6,177 7,191 2,708
Ratio of
earnings to
fixed
charges(f).... 1.99x 1.41x 1.36x -- 1.05x -- 4.87x 5.11x 8.72x
</TABLE>
- ------------------
(a) On January 12, 1995, the Company acquired all of the outstanding common
stock of AFL and HMG in exchange for approximately 55% and 45% of the
outstanding common shares of the Company, respectively. Subsequently, on
March 10, 1995, the Company changed its fiscal year end from December 31, to
July 31. Consequently, the results of operation (i) for the year ended July
31, 1996 (and thereafter) include the consolidated operations of AFL and HMG
for such period, (ii) for the year ended July 31, 1995 include the
operations of AFL for the twelve months ended July 31, 1995 and the
operations of HMG for the period January 12, 1995 through July 31, 1995, and
(iii) for the seven months ended July 31, 1994 (and prior thereto) represent
the operations of AFL.
(Footnotes continued on next page)
17
<PAGE>
(Footnotes continued from previous page)
(b) For the year ended July 31, 1996, the results of operations were adversely
impacted by a $1.3 million nonrecurring charge associated with a customer
allowance and a restructuring charge of $3.1 million included in operating
expenses.
(c) For the seven months ended July 31, 1994, the results of operations were
adversely impacted by a $0.5 million non-cash, nonrecurring charge included
in operating expenses for compensation associated with the issuance of AFL
common stock to certain employees in contemplation of the reorganization.
(d) EBITDA represents operating income and other income (expense), before
depreciation and amortization and excludes nonrecurring charges of $1.3
million and $0.5 million for the year ended July 31, 1996 and for the seven
months ended July 31, 1994, respectively. While EBITDA is not intended to
represent cash flow from operations as defined by generally accepted
accounting principles or as a measure of liquidity, it is included herein to
provide additional information with respect to the ability of the Company to
meet future debt service, capital expenditures and working capital
requirements. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.' For the year ended July 31, 1996,
EBITDA reflects, and accordingly is net of, a restructuring charge of $3.1
million.
(e) Capital expenditures include the acquisition of property and equipment and
capitalized leased equipment.
(f) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes and fixed charges. Fixed
charges consist of the total of (i) interest, whether expensed or
capitalized, (ii) amortization of debt expense, whether expensed or
capitalized and (iii) that portion of rental expense considered to represent
interest cost. For the year ended July 31, 1996 and for the seven months
ended July 31, 1994, earnings were insufficient to cover fixed charges by
$8.1 million and $33 thousand, respectively.
18
<PAGE>
PRO FORMA UNAUDITED CONDENSED FINANCIAL DATA
Pursuant to the Merger Agreement between the Company and AAC, AAC will
merge with and into the Company, with the Company as the surviving corporation.
Each issued and outstanding share (or fraction thereof) of Common Stock of the
Company immediately prior to the effective date of the Merger will be canceled
and converted into the right to receive $5.00 in cash other than (i) 74,998
shares of Common Stock held by certain members of the Company's management,
which will remain outstanding and be converted into one share of Class A Common
Stock of the Company, representing, in the aggregate, approximately 51% of the
Class A Common Stock; (ii) 1,100,110 shares of Common Stock owned by 399, which
will be converted into 73,999 shares of Class A Common Stock, 351,000 shares
Class B Common Stock of the Company and 33,375.55 shares of Series A Preferred
Stock; and (iii) shares of stockholders who are entitled to, and who have
perfected, their appraisal rights. In addition, (i) each share of common stock
of AAC outstanding immediately prior to the effective date of the Merger will be
canceled and converted into one share of Class A Common Stock and (ii) each
share of preferred stock, par value $.01 share, of AAC outstanding prior to the
Effective Date will be canceled and converted into one share of Series A
Preferred Stock of the Company. As a result of the cancellation and conversion
of the shares of AAC and the conversion of 1,100,110 shares of Common Stock
owned by 399 described above, 399 will own 165,000 shares of Series A Preferred
Stock, 74,000 shares of Class A Common Stock and 351,000 shares of Class B
Common Stock. Members of management will own 75,000 shares of Class A Common
Stock (representing 69,998 shares acquired through the exercise of stock
options, 1,522 shares purchased at a price of $5.00 per share and 3,480 shares
to be rolled over).
The following Pro Forma Unaudited Condensed Financial Data is based upon
the historical audited consolidated financial statements of Allied for the year
ended July 31, 1997 and unaudited condensed consolidated financial statements as
of and for the nine months ended April 30, 1998 included elsewhere in this
Prospectus, adjusted to give effect to (i) the issuance of $100 million
aggregate principal amount of Notes, (ii) borrowings of $1.196 million from the
$25 million senior revolving credit facility, (iii) the issuance of $16.5
million aggregate stated value of redeemable preferred stock, (iv) the receipt
of $167,000 from exercise of stock options and purchase of common stock by
certain members of management, (v) the payment of (a) $62.599 million for the
purchase of Company common stock from the public and management and (b) $1.526
million for the settlement of unexercised stock options, (vi) the repayment of
existing debt aggregating $42.482 million, plus the payment of a related
termination charge and the write-off of deferred financing costs, (vii) the
payment of expenses relating to the Transactions and (viii) the tax effects of
certain of the Transactions. In addition, the information entitled 'Additional
Adjustments' gives pro forma effect to the estimated cost savings in operating
expenses for changes, subject to execution, contemplated in conjunction with
consummating the Transactions consisting of (i) the resignations of the
Co-Chairmen and related support personnel, (ii) the elimination of compensatory
directorships and (iii) the reduction in investor relations and public filing
expenses. The Pro Forma Unaudited Condensed Consolidated Statements of Earnings
gives effect to such Transactions as if they had occurred as of August 1, 1996
exclusive of non-recurring charges directly attributable thereto, and the Pro
Forma Unaudited Condensed Consolidated Balance Sheet gives effect to such
Transactions as if they had occurred as of April 30, 1998.
The Transactions and the related adjustments are described in the
accompanying notes. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable. The
Pro Forma Unaudited Condensed Financial Data does not purport to represent what
Allied's results of operations or financial position would actually have been
had such Transactions in fact occurred on such dates or to project Allied's
results of operations or financial position for any future period or date. The
Pro Forma Unaudited Condensed Financial Data should be read in conjunction with
the historical audited Consolidated Financial Statements, the Unaudited
Condensed Interim Consolidated Financial Statements and 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' included
elsewhere in this Prospectus.
19
<PAGE>
The Pro Forma Unaudited Condensed Consolidated Statements of Earnings
exclude the following non-recurring charges which will be reflected in Allied's
statements of earnings in connection with the Transactions in the period in
which the Transactions close: (i) $1.026 million relating to the cash settlement
of unexercised stock options granted to employees, (ii) an extraordinary charge
of $1.132 million relating to a termination charge and write-off of deferred
financing costs relating to the repayment of borrowings under Allied's existing
credit agreement and (iii) related tax effects.
The Merger will be accounted for as a leveraged recapitalization as there
will be a significant continuation of stockholder ownership. Further, AAC,
formed solely for the purpose of effectuating the Transactions, will merge with
and into the Company. Accordingly, the Transactions will have no impact on the
historical basis of Allied's assets and liabilities.
20
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP.
AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1997
---------------------------------------------------------------------
ADDITIONAL PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
-------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales.................................. $159,148 $ 159,148 $ 159,148
Cost of Sales.............................. 127,034 127,034 127,034
-------- --------- ---------
Gross Profit.......................... 32,114 32,114 32,114
-------- --------- ---------
Operating Expenses
Selling, general and administrative...... 22,246 22,246 $ 683(e) 21,563
Amortization of excess of cost over fair
value of net assets acquired.......... 2,584 2,584 2,584
-------- --------- ----------- ---------
Total operating expenses.............. 24,830 24,830 683 24,147
-------- --------- ----------- ---------
Income from operations................... 7,284 7,284 683 7,967
Other income (expense)
Interest expense......................... (5,025) $ 4,918(a) (12,195) (12,195)
(12,088)(b)
Other, net............................... 168 168 168
-------- ----------- --------- ----------- ---------
Income (loss) before income taxes.......... 2,427 (7,170) (4,743) 683 (4,060)
Provision (benefit) for income taxes....... 1,760 (2,868)(c) (1,108) 273(f) (835)
-------- ----------- --------- ----------- ---------
Net Income (Loss).......................... 667 (4,302) (3,635) 410 (3,225)
Preferred stock dividends.................. (1,980)(d) (1,980) (1,980)
-------- ----------- --------- ----------- ---------
Net income (loss) available to common
stockholders............................. $ 667 ($ 6,282) ($ 5,615) $ 410 ($ 5,205)
-------- ----------- --------- ----------- ---------
-------- ----------- --------- ----------- ---------
Ratio of earnings to fixed charges(g)...... 1.36x -- --
-------- --------- ---------
-------- --------- ---------
<CAPTION>
NINE-MONTH PERIOD ENDED APRIL 30, 1998
---------------------------------------------------------------------
ADDITIONAL PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
-------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales.................................. $127,110 $ 127,110 $ 127,110
Cost of Sales.............................. 99,868 99,868 99,868
-------- --------- ---------
Gross profit.......................... 27,242 27,242 27,242
-------- --------- ---------
Operating Expenses
Selling, general and administrative...... 17,584 17,584 $ 531(e) 17,053
Amortization of excess of cost over fair
value of net assets acquired.......... 1,955 1,955 1,955
-------- --------- ----------- ---------
Total operating expenses.............. 19,539 19,539 531 19,008
-------- --------- ----------- ---------
Income from operations................... 7,703 7,703 531 8,234
Other income (expense)
Interest expense......................... (3,359) $ 3,284(a) (8,820) (8,820)
(8,745)(b)
Other, net............................... 162 162 162
-------- ----------- --------- ----------- ---------
Income (loss) before income taxes.......... 4,506 (5,461) (955) 531 (424)
Provision (benefit) for income taxes....... 2,630 (2,184)(c) 446 212(f) 658
-------- ----------- --------- ----------- ---------
Net Income (Loss).......................... 1,876 (3,277) (1,401) 319 (1,082)
Preferred stock dividends.................. (1,485)(d) (1,485) (1,485)
-------- ----------- --------- ----------- ---------
Net income (loss) available to common
stockholders............................. $ 1,876 ($ 4,762) ($ 2,886) $ 319 ($ 2,567)
-------- ----------- --------- ----------- ---------
-------- ----------- --------- ----------- ---------
Ratio of earnings to fixed charges(g)...... 1.99x -- --
-------- --------- ---------
-------- --------- ---------
</TABLE>
See Notes to Pro Forma Unaudited Condensed Consolidated Statements of Earnings.
21
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP.
AND SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
(a) To reflect the elimination of historical interest expense for amounts of
existing debt being retired as a result of the Transactions. The repayment
of the Company's existing long-term debt is indirectly attributable to the
Transactions as the existing debt precludes the Company from incurring
additional indebtedness. Accordingly, the new debt will in part be used to
repay the existing debt holders. The debt being retired as a result of the
Transactions and the associated interest rates are as follows:
<TABLE>
<CAPTION>
BALANCE AS
INTEREST OF APRIL 30,
DESCRIPTION OF EXISTING DEBT RATE 1998
--------------------------------------------- ----------------- ------------
<S> <C> <C>
Loan and Security Agreement
Term loan.................................. 1.5% over the $ 11,850
bank's base rate
Revolving loan............................. 1.25% over the 18,214
bank's base rate
Capital expenditure loan................... 1.5% over the 1,280
bank's base rate
Subordinated notes payable to stockholders... 10% 7,251
Additional subordinated notes payable to
stockholders............................... 10% 2,000
Subordinated Series B notes
payable to stockholders.................... 11% 881
Notes payable to VCA......................... 12% 926
Other........................................ Various 80
------------
$ 42,482
------------
------------
</TABLE>
(b) To reflect the pro forma adjustments to interest expense for new borrowings
contemplated in conjunction with consummating the Transactions as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JULY 31, 1997 APRIL 30, 1998
------------- -----------------
<S> <C> <C>
Interest expense resulting from borrowings
under the $25 million senior revolving
credit facility at an assumed rate of prime
plus 0.5% per annum (9.0%)................. $ 798 $ 277
Interest expense on the Senior Subordinated
Notes, at an assumed rate of 10.75% per
annum...................................... 10,750 8,063
Amortization of the estimated deferred
financing costs related to the Offering.... 540 405
------------- -------
$12,088 $ 8,745
------------- -------
------------- -------
</TABLE>
A 0.125% change in the interest rate payable on borrowings under the new $25
million senior revolving credit facility and the $100 million senior
subordinated notes would change pro forma interest expense and pro forma net
loss as follows:
22
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP.
AND SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JULY 31, 1997 APRIL 30, 1998
------------- -----------------
<S> <C> <C>
$25 million senior revolving credit
facility............................... $ 10 $ 3
$100 million Senior Subordinated Notes... 125 94
----- -----
Effect on interest expense............... 135 97
Income tax effect (40%).................. (54) (39)
----- -----
Effect on net loss....................... $ 81 $ 58
----- -----
----- -----
</TABLE>
Further, the estimated deferred financing costs related to the Offering will
be amortized over the 10 year term of the notes on a straight-line basis.
(c) To reflect the estimated income tax benefit of the pro forma adjustments to
interest expense at an effective rate of 40%.
(d) Represents dividends on the Redeemable Preferred Stock at 12% per annum.
(e) To reflect the estimated cost savings in operating expenses for changes,
subject to execution, contemplated in conjunction with consummating the
Transactions consisting of (i) the resignations of the Co-Chairmen and
related support personnel, (ii) the elimination of compensatory
directorships and (iii) the reduction in investor relations and public
filing expenses.
(f) To reflect the estimated income tax effect on the pro forma additional
adjustments at an effective rate of 40%.
(g) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes and fixed charges. Fixed
charges consist of the total of (i) interest, whether expensed or
capitalized, (ii) amortization of debt expense, whether expensed or
capitalized and (iii) that portion of rental expense considered to represent
interest cost. On a pro forma basis, for the nine months ended April 30,
1998 and for the twelve months ended July 31, 1997, giving effect to the
Recapitalization as if it occurred on August 1, 1997 and August 1, 1996,
respectively, earnings were insufficient to cover fixed charges by $955 and
$4,743, respectively. On a pro forma adjusted basis, for the nine months
ended April 30, 1998 and for the twelve months ended July 31, 1997, giving
effect to the Recapitalization as if it occured on August 1, 1997 and August
1, 1996, respectively, earnings were insufficient to cover fixed charges by
$424 and $4,060, respectively.
23
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP.
AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, 1998
--------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash..................................................................... $ 596 $ 94,600(a) $ 0
1,196(b)
13,125(c)
167(d)
(64,999)(e)
(1,526)(f)
(43,159)(g)
Accounts receivable...................................................... 25,078 25,078
Inventories.............................................................. 4,714 4,714
Prepaid expenses......................................................... 872 28(h) 900
Deferred income taxes.................................................... 2,068 2,068
-------- ----------- ---------
Total current assets.................................................. 33,328 (568) 32,760
Property and equipment, net................................................ 26,940 26,940
Other Assets
Excess of cost over fair value of net assets acquired.................... 42,053 42,053
Deferred charges and other............................................... 2,964 5,400(a) 7,909
(455)(g)
-------- ----------- ---------
Total Assets............................................................... $105,285 $ 4,377 $109,662
-------- ----------- ---------
-------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt and capitalized lease obligations... $ 12,737 $ 1,196(b) $ 1,529
(12,404)(g)
Current maturities of subordinated notes payable to stockholders......... 2,881 (2,881)(g) 0
Accounts payable......................................................... 13,558 13,558
Accrued liabilities...................................................... 5,709 5,709
Income taxes payable..................................................... 835 (835)(h) 0
-------- ----------- ---------
Total current liabilities............................................. 35,720 (14,924) 20,796
Long-Term Debt and Capitalized Lease Obligations, less current
maturities............................................................... 20,523 100,000(a) 100,577
(19,946)(g)
Subordinated Notes Payable to stockholders, less current maturities........ 7,251 (7,251)(g) 0
Deferred Income Taxes...................................................... 1,112 1,112
Redeemable 12% Cumulative Preferred Stock.................................. 0 16,500(c) 16,500
Stockholders' Equity (Deficit)
Preferred Stock.......................................................... 0 0
Common Stock............................................................. 136 (7)(c) 5
1(d)
(125)(e)
Additional paid-in capital................................................. 44,901 (3,368)(c) 0
166(d)
(41,699)(e)
Accumulated deficit........................................................ (4,358) (23,175)(e) (29,328)
(1,526)(f)
(1,132)(g)
863(h)
-------- ----------- ---------
Total stockholders' equity (deficit).................................. 40,679 (70,002) (29,323)
-------- ----------- ---------
Total Liabilities and Stockholders' Equity (Deficit)....................... $105,285 $ 4,377 $109,662
-------- ----------- ---------
-------- ----------- ---------
</TABLE>
See Notes to Pro Forma Unaudited Condensed Consolidated Balance Sheet.
24
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP.
AND SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
(a) Reflects the issuance of $100,000 aggregate principal amount of Notes and
payment of estimated debt issuance costs of $5,400.
(b) Reflects borrowings of $1,196 under a new $25,000 senior revolving credit
facility. Such borrowings under this facility were used as a source of funds
in connection with satisfying the cash outlays of the Transactions.
(c) Reflects the issuance of 165,000 shares of redeemable preferred stock ($100
stated value per-share) consisting of 131,244.45 shares issued for cash and
33,755.55 shares issued in exchange for 675,111 shares (from a total of
1,100,110 shares) of Company Common Stock owned by 399 having a value of
$5.00 per-share.
(d) Reflects the exercise of stock options and the purchase of common stock by
certain members of management representing the Management Shares. Certain
members of management exercised a total of 69,998 stock options at exercise
prices ranging from $2.00 to $2.4375 per share and acquired 1,522 shares of
common stock at a price of $5.00 per share; in total aggregating $167 in
proceeds.
(e) Reflects the purchase of 12,519,804 shares of Company Common Stock from the
public and management at a price of $5.00 per share aggregating
approximately $62,599 and the payment of related transaction costs of
$2,400.
(f) Reflects the cash payment made to settle unexercised stock options of which
$1,026 pertain to options granted to employees which will be charged to
expense in Allied's statement of earnings. The $500 cash payment made to a
non-employee option holder will be treated as an equity transaction. The
cash payment has been determined based on the difference between the
exercise price of the stock options and the cash price of $5.00 per share to
be paid in the merger to the holders of Allied's Common Stock.
(g) Reflects the payment of existing long term debt (except for capitalized
lease obligations) and subordinated notes payable to stockholders and
termination charge of $677 and the write-off of related deferred charges of
$455. An extraordinary pre-tax charge of $1,132 to Allied's statement of
earnings will be recognized relating to the termination charge and write-off
of the deferred charges resulting from the early extinguishment of debt.
(h) Reflects the income tax benefit resulting from charges referred to in items
(f) and (g) above at an effective rate of 40%.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Effective January 12, 1995, the Company acquired all of the outstanding
common stock of AFL and HMG in exchange for approximately 55% and 45% of the
outstanding common shares of the Company, respectively. Subsequently, on March
10, 1995, the Company changed its fiscal year end from December 31 to July 31.
Consequently, the results of operations (i) for the twelve months ended July 31,
1996 (and thereafter) include the consolidated operations of AFL and HMG for
such period, and (ii) for the twelve month period ended July 31, 1995 include
the earnings of AFL for the twelve months ended July 31, 1995 and the earnings
of HMG for the period January 12, 1995 through July 31, 1995. Therefore, the
results of operations for the twelve month period ended July 31, 1995 are not
necessarily indicative of the performance of AFL and HMG expected for a full
(twelve month) year.
RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1998, COMPARED TO NINE MONTHS ENDED APRIL 30, 1997
Net sales for the nine month period ended April 30, 1998 were $127.1
million, an increase of $7.7 million or 6.5% as compared to the nine month
period ended April 30, 1997. The sales increase attributable to volume was $21.6
million. Several factors contributed to this increase. As the Company continues
to penetrate its existing market, there also continues to be additions of new
customers to its expanding customer base. The Company has entered into an
exclusive CD manufacturing agreement with a new customer, and continues to
experience favorable growth trends in sales to the Company's CD Audio and CD ROM
customers. Partially offsetting this volume sales increase was the decline in
unit pricing of approximately $13.9 million due to price declines and a change
in the sales mix.
Gross profit for the nine month period ended April 30, 1998 increased $3.4
million to $27.2 million, or 21.4% of net sales, from $23.9 million or 20.0% of
net sales, for the nine month period ended April 30, 1997. Although the gross
profit dollar increase was primarily due to increased sales, the unpredictably
strong demand for audiocassettes and the demand for CDs exceeded Allied's
internal capacity in the first quarter of fiscal 1998, which caused Allied to
source additional capacity to outside contractors at lower margins. Despite the
negative impact of this outsourcing, the gross profit percentage increased
slightly primarily due to improvements in the manufacturing efficiencies as well
as fixed costs being spread over higher production volumes.
Operating expenses for the nine months ended April 30, 1998 were $19.5
million or 15.4% of net sales compared to $18.5 million or 15.5% of net sales
for the nine months ended April 30, 1997. The $1.0 million increase was
primarily the result of additional costs incurred for bad debt and sales
commissions and salaries.
Income from operations of $7.7 million for the nine months ended April 30,
1998 compares to $5.4 million for the nine months ended April 30, 1997. This
increase of $2.3 million resulted from an increase in gross profit partially
offset by increased operating expenses described above.
Non-operating expenses decreased to $3.2 million for the nine months ended
April 30, 1998 from $3.4 million for the nine months ended April 30, 1997. This
decrease was primarily a result of a reduction in interest expense, attributable
to a reduction in the principal amount of interest bearing debt.
For the nine months ended April 30, 1998, Allied realized income before
income taxes of $4.5 million compared to income before income taxes of $2.0
million for the nine months ended April 30, 1997 for the reasons noted above.
A provision for Federal, state and local income taxes of $2.6 million was
recognized for the nine months ended April 30, 1998, compared to a tax provision
of $1.4 million for the nine months ended April 30, 1997.
After recognition of applicable income taxes, Allied recognized net income
for the nine months ended April 30, 1998 of $1.9 million, compared to income of
$0.6 million for the nine months ended April 30, 1997.
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YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996
Net sales for the twelve month period ended July 31, 1997 (Fiscal 1997)
were $159.1 million, a decrease of $1.8 million or 1% as compared to the twelve
month period ended July 31, 1996 (Fiscal 1996). The sales decrease attributable
to volume was $8.8 million which was partially offset by increases in unit
pricing of approximately $7.0 million. The decrease in sales due to volume and
the increase in sales due to unit price in Fiscal 1997 as compared to Fiscal
1996 were primarily the result of a large promotional video sale to one customer
which was recognized during Fiscal 1996.
Gross profit for Fiscal 1997 increased $4.7 million to $32.1 million or 20%
of net sales, from $27.4 million, or 17% of net sales for Fiscal 1996. The
increase in gross margin dollars and percentage, despite decreased sales, was
primarily attributable to the favorable (declining) trend in material costs, a
reduction in the direct labor force, and a $1.3 million non-recurring charge in
Fiscal 1996 resulting from a sales contract signing allowance with a large
customer and increased costs in Fiscal 1996 associated with the start-up efforts
in preparing to process orders for a large customer in the Company's Tennessee
manufacturing plant.
Operating expenses for Fiscal 1997 were $24.8 million, or 16% of net sales,
compared to $30.0 million, or 19% of net sales for Fiscal 1996. The $5.2 million
decrease was primarily a result of a $3.1 million restructuring charge recorded
in Fiscal 1996 in connection with the Company's June 1996 plan to streamline and
reduce resources utilized in the business, $1.3 million decrease in
administrative costs realized in Fiscal 1997 as a result of this restructuring
and $0.5 million of capitalized employee work force expenditures associated with
the implementation phase of a computer software system developed for internal
use.
The Company's interest expense decreased to $5.0 million for Fiscal 1997
from $6.2 million for Fiscal 1996. This decrease was primarily a result of a
reduction in interest expense attributable to a rate reduction and a reduction
in the principal amount of interest bearing debt.
Other income net of other expenses for Fiscal 1997 was $0.2 million
compared to $0.7 million in Fiscal 1996. The decrease of $0.5 million was
primarily attributable to a reduction in finance charges collected from the
Company's customers on past due invoices and a reduction in scrap material
sales.
For Fiscal 1997, the Company reported a pre-tax profit of $2.4 million,
compared to a pre-tax loss of $8.1 million for Fiscal 1996. The increase in
income of $10.5 million occurred for the reasons noted above.
A provision for income taxes of $1.8 million was recognized for Fiscal 1997
compared to a net tax credit of $2.5 million for Fiscal 1996. The Company's
effective tax rate of 72.5% for Fiscal 1997 is attributable to the
non-deductibility for tax purposes of a significant portion of the amortization
of excess of costs over fair value of net assets acquired. Allied's effective
tax rate will vary from year to year, in part, given the relationship the annual
recurring amortization of the excess of cost over fair value of assets acquired
($2.6 million) has to reported pre-tax income.
Allied had state investment tax credit carryforwards at July 31, 1997 and
1996 of $2,035,000 and $1,590,000, respectively. The valuation allowances at
July 31, 1997 and 1996 of $890,000 and $732,000, respectively, are attributable
to Allied's ability to utilize investment tax credit carryovers prior to their
expiration. Changes in the deferred tax asset valuation are based on projections
of future taxable income.
After recognition of applicable income taxes, the Company reported net
income in Fiscal 1997 of $0.7 million as compared to a net loss of $5.6 million
in Fiscal 1996 for the reasons noted above.
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995
Net sales for Fiscal 1996 were $160.9 million, an increase of $44.3 million
compared to the twelve-month period ended July 31, 1995 ('Fiscal 1995'). Such
increase was attributable primarily to the full year inclusion of HMG's
operations in the Fiscal 1996 results ($36.2 million) and increased sales volume
in Fiscal 1996 resulting primarily from the commencement of videocassette
duplication and order fulfillment services under a five-year sales contract
entered into with a customer in June 1995 partially offset by unit price
reductions and sales mix changes. Net sales for fiscal 1996 of $160.9 as
compared to pro forma net sales for fiscal 1995 of $158.1 million (as though HMG
had been acquired at the beginning of fiscal 1995) increased by $2.8 million.
The $2.8 million
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pro forma sales increase in fiscal 1996 is attributable to approximately $19.6
million in volume increases and offset in part by approximately $16.6 million in
unit price reductions and a change in sales mix.
Gross profit for Fiscal 1996 increased $0.3 million to $27.4 million, or
17% of net sales, from $27.1 million, or 23% of net sales for Fiscal 1995. The
increase in gross margin dollars was primarily due to the full year inclusion of
HMG margin of $12.0 million in the Fiscal 1996 results as compared to a margin
contribution in Fiscal 1995 by HMG of $8.7 million for the period January 12,
1995 through July 31, 1995. This net $3.3 million gross margin increase was
partially offset by a $1.3 million non-recurring charge in Fiscal 1996 resulting
from a sales contract signing allowance with a large customer. The sales
contract signing allowance was issued to the customer in June 1995 in connection
with consummating a five year production and fulfillment contract. The amount
was to be amortized over the term of the contract. Based on the fiscal 1996
financial results relating to the sales contract and an assessment made in the
fiscal 1996 fourth quarter of anticipated future results of performing
thereunder, Allied determined that the unamortized balance of the deferred
charge was not recoverable. The gross margin was further reduced by the start-up
efforts commencing in June 1995 in preparing to process orders for this large
customer in the Company's Tennessee manufacturing plant. Moreover, declining
unit prices to customers due to continuing price pressures and a change in the
Company's sales mix which includes the adverse impact on average margins caused
by a production and fulfillment sales contract with a large customer further
contributed to the 6% gross margin decline in Fiscal 1996.
Operating expenses for Fiscal 1996 were $30.0 million, or 18% of net sales,
compared to $23.8 million, or 20% of net sales for Fiscal 1995. Of the $6.2
million increase, $3.1 million resulted from a current year restructuring charge
in connection with Allied's June 1996 plan to streamline and reduce resources
utilized in the business. The restructuring charge comprised of work force
related expenses of $1,126,385, idle plant lease costs of $863,000, abandoned
asset write-off of $837,935 and other related costs of $250,000. The plan
encompassed (i) the merger and integration of the Company's two operating
subsidiaries, (ii) the closure of the Company's Detroit manufacturing facility
and (iii) the consolidation of the Company's corporate and administrative
offices from Detroit to New York. Further, the full year inclusion of HMG
operations in Fiscal 1996 resulted in an incremental increase of approximately
$2.3 million in operating expenses over Fiscal 1995 of which $1.0 million
resulted from the full year inclusion of the amortization of the excess cost
over fair value of the net assets acquired associated with the Reorganization.
Operating expenses for Fiscal 1996 also included a $0.4 million increase in bad
debt expense over the prior year.
The Company's non-operating expenses increased to $5.5 million for Fiscal
1996 from $3.1 million for Fiscal 1995. This $2.4 million increase was due to
increased interest expense primarily associated with the full year inclusion of
HMG in Fiscal 1996 results together with increased average borrowings for the
Company related to the additional debt required to finance capital expenditures.
For Fiscal 1996, the Company reported a pre-tax loss of $8.1 million,
compared to pre-tax earnings of $0.3 million for Fiscal 1995. The decrease in
income of $8.4 million occurred for the reasons noted above.
A net credit for federal, state and local income taxes of $2.5 million was
recognized for Fiscal 1996 compared to a net credit for federal, state and local
income taxes of $2.6 million for Fiscal 1995. This $2.5 million net credit
relates primarily to a net operating loss, restructuring costs and a
non-recurring charge which will be deductible in future periods, as well as
state investment tax credits realized during this period. The effective tax rate
was approximately 31%. Non deductible expenses related to the amortization of
excess of cost over fair value of net assets acquired arising from the
Reorganization were offset in part during the period by state income tax
benefits and investment tax credits resulting from purchase of equipment in the
State of New York. The effective tax rate is expected to be higher in future
periods due to the non-deductible amortization of costs in excess of net assets
acquired, net of non-recurring benefits from investment tax credits. Allied's
effective tax rate will vary from year to year, in part, given the relationship
the annual recurring amortization of the excess of cost over fair value of
assets acquired ($2.6 million) has to reported pre-tax income.
Allied had state investment tax credit carryforwards at July 31, 1996 and
1995 of $1,590,000 and $937,000, respectively. The valuation allowances at July
31, 1996 and 1995 of $732,000 and $519,000, respectively, are attributable to
Allied's ability to utilize investment tax credit carryovers prior to their
expiration. Changes in the deferred tax asset valuation are based on projections
of future taxable income.
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After recognition of applicable income taxes, the Company reported a net
loss in Fiscal 1996 of $5.6 million as compared to net income of $2.8 million in
Fiscal 1995 for the reasons noted above.
LIQUIDITY AND CAPITAL RESOURCES
The Company will incur a significant amount of indebtedness in connection
with the Transactions. As of April 30, 1998, after giving pro forma effect to
the Transactions, the Company would have had approximately $102.1 million of
consolidated debt, including $100.0 million of indebtedness pursuant to the
Notes. The Credit Agreement will provide for a $25.0 million senior revolving
credit facility. The Company expects to draw approximately $1.2 million under
the Credit Agreement on the Effective Date.
The Company historically has met its working capital needs and capital
expenditure requirements primarily through a combination of operating cash flow
and availability under the Existing Debt. Following the Transactions, the
Company anticipates satisfying its debt service requirements and meeting its
working capital and capital expenditure needs through a combination of operating
cash flow and availability under the Credit Agreement. See 'Summary--The
Transactions.'
The Company's ability to make scheduled payments of principal of, or to pay
the interest, if any, on, or to refinance, its indebtedness (including the
Notes), or to fund planned capital expenditures and finance acquisitions will
depend on its future performance, which to a certain extent is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based on the current and anticipated level
of operations, management believes that cash flow from operations and available
cash, together will available borrowings under the Credit Agreement, will be
adequate to meet the Company's anticipated future requirements for working
capital, budgeted capital expenditures, acquisition financing and scheduled
payments of principal and interest on its indebtedness, including the Notes, for
the foreseeable future. The Company, however, may need to refinance all or a
portion of the principal of the Notes on or prior to maturity. There can be no
assurance that the Company's business will generate sufficient cash flow from
operations or that future borrowings will be available under the Credit
Agreement in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or make anticipated capital expenditures and
fund future acquisitions. In addition, there can be no assurance that the
Company will be able to effect any refinancing on commercially reasonable terms
or at all.
Net cash provided by operating activities for the nine months ended April
30, 1998 was $8.8 million as compared to $1.6 million for the nine months ended
April 30, 1997. The increase was primarily attributable to a $1.2 million
increase in the net income and a $4.4 million decrease in working capital.
Net cash provided by operating activities for the year ended July 31, 1997
was $8.5 million as compared to $14.3 million for the year ended July 31, 1996.
The decrease was primarily attributable to a $14.6 million increase in working
capital offset by a $6.3 million increase in net income and a $4.2 million
increase from income taxes.
Net cash provided by operating activities for the year ended July 31, 1996
was $14.3 million as compared to $9.1 million for the year ended July 31, 1995.
The increase was primarily attributable to reductions in accounts receivable of
$5.1 million and reductions in inventories of $4.0 million. In addition, the
1996 period reflects a higher depreciation and amortization expense as compared
with the 1995 period, which was principally a result of the HMG merger.
Cash used in investing activities for the nine months ended April 30, 1998
and 1997 and for the years ended July 31, 1997, 1996 and 1995 was $5.5 million,
$0.5 million, $2.6 million, $9.3 million and $9.1 million, respectively. The use
of cash for all periods was primarily for the purchase of property and
equipment.
Cash used for financing activities for the nine months ended April 1998 and
1997 and for the years ended July 31, 1997, 1996 and 1995 was $3.9 million, $1.4
million, $5.5 million, $4.8 million and $.2 million, respectively, and consisted
primarily of repayment of long term debt offset principally, in part, by
borrowings from a bank under long term credit facilities and from stockholders
of the Company under subordinated note agreements.
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Cash Requirements. The Company currently expects that capital expenditures
will be divided primarily between maintenance capital expenditures and capital
projects. Maintenance capital expenditures include those required to maintain
production performance, while capital projects relate primarily to extending the
life of existing equipment, increasing capacity, and decreasing production
costs. The Company incurs approximately $1.5 million per year in cost of sales
for maintenance and repairs.
The Company has not paid any dividends on the Company's Common Stock since
its inception. The payment of dividends, if any, will be contingent upon the
Company's revenues and earnings, if any, capital requirements and general
financial condition. It is the current policy of the Board of the Company, in
view of the Company's contemplated financial requirements, to retain all
earnings, if any, for use in the Company's business operation.
IMPACT OF INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the three years ended July 31, 1997 or for the
nine-month period ending April 30, 1998.
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BUSINESS
GENERAL
The Company is a leading independent multimedia manufacturer in the United
States. The Company replicates/duplicates audio cassettes, video cassettes, and
CD and CD-ROM products for the entertainment, publishing and special interest
markets. In addition, the Company provides value-added supply chain management
services such as distribution, telephone order fulfillment, packaging design and
outsourcing, electronic order-taking and all direct-mail services. Since its
founding in 1947, the Company (including its predecessors) has consistently and
successfully managed the transition from one media to another by adapting its
product line to match changing market trends. As the market has moved from vinyl
records and audio cassettes to CDs and CD-ROMs and from film to video, the
Company has successfully aligned its production and selling strategy around such
trends. The Company's strategy is to provide its customers with a wide variety
of turnkey solutions and options for delivering multimedia products to market.
The Company targets the fastest growing niche markets, including CD-ROM, spoken
word audio cassette, and special interest and premium/promotional use video. The
sell-through video market, which includes special interest and
premium/promotional use video, has grown at a rate in excess of 10% for each of
the past six years and the market for interactive digital media, such as CD-ROM,
has grown at a rate in excess of 20% for each of the past five years.
The Company sells its products to approximately 3,000 customers in a wide
range of industries including entertainment/publishing, special interest and
promotional video, and CD-ROM software. The Company's entertainment/publishing
customers include: BMG, PGD, Simon & Schuster, Sony Music Entertainment and
Columbia House. The Company's special interest and promotional customers include
Anchor Bay, RJR Nabisco and Glaxo Wellcome. The Company's CD-ROM software
customers include Sofsource and Video Professor. The Company also sells to a
large, and increasing, number of medium-sized customers.
The Company has manufacturing and service facilities across the United
States and has a national distribution facility based in Tennessee. This
hub-and-spoke system allows it to provide personalized local service as well as
high volume mass production capabilities throughout the continental United
States. The Company markets its products and services nationally through its
internal sales force of approximately 55 sales and marketing professionals. As
the market for multimedia applications continues to grow and the industry
continues to undergo significant consolidation, the Company believes it is well
positioned to take advantage of such opportunities. For the twelve months ended
April 30, 1998, the Company had total revenues of $166.9 million and EBITDA of
$20.3 million.
COMPETITIVE STRENGTHS
The combination of the Company's products, customers, proven track record,
and focused strategy distinguishes it as a leading manufacturer and distributor
of packaged media. The Company attributes this success, and its continued
opportunities for growth and profitability, to the following competitive
strengths:
o Leading independent multimedia duplicator/replicator. The Company is the
leading independent multimedia duplicator/replicator in the United States
with both national distribution and manufacturing capabilities in all
audio cassette, video cassette and CD/CD-ROM configurations. The
Company's hub-and-spoke manufacturing and distribution structure has
allowed it to provide personalized local service as well as high volume
mass production capabilities. The Company believes that its flexible
manufacturing and distribution capabilities give it a cost advantage over
local and regional competitors.
o Strong position in growing, niche markets. The Company is well positioned
in the growing, niche markets of special interest video, CD-ROM, and
spoken word audio cassette. The Company is the largest independent
duplicator of special interest videos and audio cassettes in the United
States, and is a major independent replicator of CD-ROM products. By
targeting such niche markets, the Company has reduced the number of large
competitors against whom it competes.
o Multimedia product offerings. The Company offers its services across all
three of the major multimedia product formats (i.e., audio cassettes,
video cassettes and CD/CD-ROM). The Company believes that offering a
complete line of multimedia products gives the Company a competitive
advantage by providing
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its customers with 'one-stop shopping' and affording the Company the
opportunity to cross-sell its product offerings to customers of a
particular format. Approximately 25% of the Company's customers currently
use more than one of its multimedia product formats.
o Value-added supply chain services. The Company's value-added supply
chain management services give it a competitive advantage by providing
service solutions that differentiate the Company from its competitors. By
fulfilling key customer needs such as national distribution, packaging
services and design, inventory management, telephone order fulfillment,
electronic order taking, and direct mail services, the Company is able to
enhance the profitability of its customers and generate higher profit
margins for itself.
o High quality products and customer service. Success in the
replication/duplication business is dependent on repeat business. The
majority of the Company's customers are very sensitive to time pressures
and demand a supplier capable of providing large quantity orders in a
short period of time and at a consistent level of quality. The Company
believes that it has retained customer loyalty and achieved growth in new
markets due to its superior quality, distribution and reliability and its
strict adherence to protection of proprietary content.
o Experienced management team. The key members of the management team, led
by John K. Mangini, have extensive experience in all aspects of the
packaged media industry with an average of 25 years each in the industry.
The collective efforts of the management team have generated significant
innovations and efficiency improvements. The benefit of these changes has
been in the creation of a more cost effective and competitive company.
Since 1996, the current management team has achieved cost savings by
integrating manufacturing and distribution operations, cross-training the
salesforce and realigning its division structure.
BUSINESS STRATEGY
o Focus on growing market segments. The Company intends to continue to
penetrate the growing segments of the packaged media market--CD-ROM,
spoken word audio cassette, and special interest and premium/promotional
video. Demand for CD-ROMs grew by over 56% in 1996 and by over 37% in
1997. Demand for spoken word audio cassettes increased by over 9% in 1996
and by over 8%. Demand for video cassettes of all categories increased by
11.7% from 1994 to 1995, with the largest increases in the
premium/promotional category (25%).
o Expand supply chain management service offerings. Positioning the
Company as a world-class provider of value-added supply chain management
services specializing in the replication/duplication, assembly,
fulfillment, package design and procurement and distribution of software
products will allow the Company to provide 'one-stop' solutions for the
multimedia delivery of intellectual property. These offerings are
intended to enhance the Company's competitive position and provide
additional revenue streams and profit opportunities, through improved
response times and inventory turns, for both the Company and its
customers.
o Expansion of customer base. The Company intends to further penetrate its
existing customer base by cross-selling its supply chain management
services to its current customers and by offering customers a 'one stop
shop' for packaged multimedia products and services. As part of this
strategy, the Company has targeted medium-sized, high growth companies
that are not served by large competitors. The Company's competitors
typically only manufacture and do not provide the breadth of value-added
services that are critical for medium-sized companies. In addition, the
Company seeks to attract larger customers with the value-added supply
chain management services it offers, as well as with its capabilities to
handle customers' needs on a national level.
o Transition to DVD Format. The Company believes that the Digital
Versatile Disc ('DVD') will represent the fastest growing new product
offering; however, the Company believes that widespread DVD acceptance is
several years away. In anticipation of a migration to the DVD format, the
Company plans to begin production of DVD products in the coming year with
the view of reaching a considerable volume level by the year 2000. The
Company's modern CD manufacturing equipment will enable it to efficiently
accommodate DVD replication providing it cost advantages over competitors
that are not currently in the
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CD replication business or that have earlier generation CD manufacturing
equipment. In addition, the Company's broad customer base will provide it
with a bridge to the transition to the DVD format.
o Growth through acquisitions. The Company actively evaluates acquisition
candidates. Future strategic acquisitions may be undertaken to broaden
the Company's product and services offerings, expand its manufacturing
capacity and enhance the vertical integration of its supply chain.
CORPORATE ORGANIZATION
The corporate structure of ADT consists of its wholly-owned subsidiary, HMG
Digital Technologies Corp. ('HMG'), HMG's wholly-owned subsidiary, HRM Holdings
Corp. ('Holdings') and Holdings' wholly-owned subsidiary, the Issuer (formerly
known as Hauppauge Record Manufacturing, Ltd.). ADT is a holding company; all
assets, liabilities and operating activities are related to its wholly-owned
subsidiaries.
MULTIMEDIA SOFTWARE INDUSTRY
General. The multimedia software industry is fragmented and seasonal.
Although the types and sizes of the businesses in the industry vary greatly, the
industry is generally categorized into specific sub-markets, including
theatrical (i.e., primarily movies), prerecorded music, spoken word, foreign
language, corporate communications, premium promotional, religious, educational,
instructional 'How To' and special interest.
Demand for Primary Products and Services.
Compact Discs--Audio. Consumer demand for audio compact discs ('CDs') has
been increasing steadily since their introduction to the marketplace in the
mid-1980's. Industry analysts estimate that the U.S. installed CD-audio player
base was approximately 75% in 1997, up from approximately 71% in 1996. Based on
information supplied by the Recording Industry Association of America (the
'RIAA'), total shipments in the United States net of returns ('Shipments') of
CDs remained flat from 1996 to 1997 at approximately 821 million units.
CD-ROM. CD-ROM drives were introduced to the marketplace in 1991. Industry
analysts estimate that in 1993, the year that CDs surpassed audio cassettes in
unit volume, household penetration of CD-ROM drives was approximately 2.5
million, or 8% of the 29 million home computers in the United States. By the end
of 1998, industry experts expect the number of CD-ROM drives to grow to 71
million. Industry sources have also indicated that beginning in 1999, CD-ROM
drive growth may gradually slow due to increased acceptance of DVD-ROM drives.
Various industry sources estimate that Shipments of CD-ROM software
products were approximately 461 million units in 1997, up from approximately 390
million units in 1996. These products were concentrated in three major
categories: educational, entertainment and games.
Audio cassettes. Audio cassettes were the music market's most popular
audio medium until 1993 when they were surpassed in unit volume by CDs. Industry
analysts predict that because of the high existing penetration of the audio
cassette player in U.S. households and automobiles, Shipments of audio cassettes
in 1998 will remain stable as compared with 1997 with only a mild decline over
the next several years, despite the increasing demand for CDs. According to the
RIAA, aggregate Shipments of pre-recorded music cassettes declined by 23% in
1997 versus 1996. This decline was due in large part to the transition to the
CD-audio configuration as well as an overall slowing of growth in the
pre-recorded music industry. The Company believes this decline has been offset
in part by the dramatic growth in the spoken word audio cassette business.
Video cassettes. Veronis, Suhler and Associates, a market analyst firm
specializing in media ('VS&A'), estimates that over 83% of television households
in the U.S. own at least one videocassette recorder ('VCR'), with many
households owning multiple VCRs. According to VS&A and the RIAA, although
theatrical video software represents over 40% of video software sales, there is
significant growth being demonstrated in the corporate communications,
premium/promotional and special interest sub-markets.
There are two primary videocassette formats: standard play and extended
play. Standard play is used for virtually all movies, music videos and certain
other specialty applications. Extended play is used for many
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applications in non-theatrical and non-music sub-markets where the superior
playback quality of standard play is not required. In these non-critical
applications, the extended play format is desirable because it uses one third of
the tape required for standard play and can utilize high speed duplication
technology. These characteristics make extended play less costly to produce than
standard play.
SALES AND MARKETING
The Company markets its products and services nationally through the use of
its own internal staff of approximately 55 sales and marketing employees located
throughout the United States in key markets. In March 1997, the Company opened a
national sales office in Los Angeles, California to coordinate national sales
efforts in the western region of the United States. The Company coordinates its
national sales and marketing efforts from its office in New York and also
operates sales facilities in Landover (MD), Orlando, Elk Grove (IL), Detroit,
Dallas, Houston, Nashville, San Francisco, Los Angeles, Indianapolis and Denver.
Remote sales coverage exists in Philadelphia, Atlanta, Miami, Austin, Seattle,
Boston, Charlotte, Cooley (OH) and Tampa.
The Company's manufacturing facilities are geographically distributed
throughout the United States. See '--Manufacturing.' The Company believes that
this geographic distribution of manufacturing facilities enhances its sales and
marketing efforts by giving the Company a regional and local presence, which
facilitates direct contact with customers.
Due to the highly competitive nature of the Company's core
duplication/replication business, the Company has developed additional
'value-added' services in an effort to gain a competitive advantage over its
competitors. These services include graphic design and special packaging,
component security and inventory management, retail order distribution and
direct-to-customer fulfillment.
In addition to the core duplication/replication and value-added services
described above, the Company also offers motion picture film processing,
film-to-tape transfer, video post-production services and recordable laser video
disc services.
The following sets forth the Company's market share and sales performance
for each of its primary product categories:
CD and CD-ROM. The Company replicates CDs and CD-ROMs (collectively, 'CD
Products') for which its most significant customers are the domestic music
recording companies. For Fiscal 1997, the Company produced approximately
41,800,000 units of CD Products which generated revenues of approximately
$31,905,000, or approximately 20.0% of the Company's sales revenues. These units
consisted of approximately 10,500,000 CD-ROM units and approximately 31,300,000
CD units, which generated revenues of approximately $7,240,000 and $24,665,000,
respectively. The Company believes that there is significant growth opportunity
in CD Products, especially as CD-ROM drive penetration into U.S. households
increases and new applications such as DVD, a new high-density compact disc
format which allows for significantly greater data storage than existing disc
formats, are introduced to the marketplace.
Audio cassettes. The Company duplicates audio cassettes, for which its
most significant customers are the domestic music recording companies. In Fiscal
1997, the Company produced approximately 56,000,000 audio cassette units
(consisting of approximately 43,000,000 music audio cassette units and
13,000,000 spoken word audio cassette units), which generated revenues of
approximately $27,520,000, or approximately 17.3% of the Company's aggregate
revenues. The Company believes that despite the long-term trend toward replacing
audio cassettes with CDs, there remain opportunities for growth in this market,
especially in the non-music and special interest sectors.
In Fiscal 1997, the Company's spoken word audio cassette production
included books-on-tape and corporate communications, as well as products for the
foreign language and religious submarkets. The Company's most significant spoken
word audio cassette customers in Fiscal 1997 were domestic publishing companies.
The Company believes there is significant growth opportunity in spoken word
audio cassettes because of the deep penetration of the audio cassette player and
the relatively low cost of duplicating audio cassettes.
Video cassettes. The Company believes it is one of the two largest
duplicators of music videos in the United States. In Fiscal 1997, the Company
had total sales of video cassettes of approximately $97,080,000,
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which represented approximately 61.0% of the Company's total revenues. The
Company believes that there is significant growth opportunity in video cassettes
because of the deep penetration of the VCR into U.S. households and the
extensive use of video cassettes for entertainment and information software.
Other Services. Motion picture film processing, film-to-tape transfer,
video pre- and post-production and recordable laser disc services represented
approximately 1.7% of the Company's sales revenues during Fiscal 1997.
Marketing Strategy. The Company has allocated sufficient monies in the
coming year to support an aggressive and diversified series of marketing
initiatives designed to broaden and add depth to the Company's customer base.
The Company's sales and marketing plan consists of targeting the counter
seasonal consumption patterns typical of premium/promotional videos and spoken
word audio cassettes as well as increasing its penetration into the special
interest video and CD-ROM markets.
The Company has installed new sophisticated sales lead management software,
which has significantly improved tracking and management of sales leads and has
made possible the distribution of such leads for prompt review and follow-up to
the appropriate sales facility.
Significant Customers. For the nine-month period ending April 30, 1998,
the top four customers accounted for 38% of total sales. The Company has more
than 3,000 accounts in its current customer base. During the nine months ending
April 30, 1998, PGD and BMG each accounted for more than 10% of the Company's
net sales. See 'Risk Factors--Dependence on Key Customers.'
Most of the Company's customers operate without contractual obligations
except for commitments to purchase a certain percentage of their needs from the
Company. The commitments typically last one year or less. However, there are no
adverse consequences to customers with this type of commitment who do not
ultimately place orders with the Company or whose orders do not reach the
committed percentage.
In June 1995, the Company entered into a five-year agreement with Anchor
Bay to provide videocassette duplication and order fulfillment services. Under
this agreement, as modified in September 1997, the Company is Anchor Bay's
exclusive videocassette duplicator.
In September 1997, the Company entered into a three-year agreement with
Sofsource to provide CD replication and order fulfillment services. Under this
agreement, the Company is Sofsource's exclusive duplicator.
Seasonality. Although demand for the Company's products exists throughout
the year, there is an increase in demand from August through November due to the
extra requirements of customers for the holiday selling season, particularly
sales of theatrical video cassettes and pre-recorded musical CDs and audio
cassettes. See 'Risk Factors--Fluctuating Results; Seasonality.'
Backlog. As of July 31, 1997 and 1996, the Company had open orders on a
consolidated basis of approximately $3.3 million and $1.9 million, respectively.
As of April 30, 1998, the Company had open orders on a consolidated basis of
approximately $4.1 million. The Company expects that the open orders as of April
30, 1998 will be filled within a 60-day period.
Typically, the Company's customers demand turnaround times (the time from
which a duplicating/replicating order is received until that order is shipped)
of seven days or less. Because of this characteristic of the industry, the
Company does not believe that the size of the backlog at any given time in and
of itself is an effective indication of its ongoing revenues going forward.
MANUFACTURING
General. The Company's manufacturing facilities are geographically
distributed throughout the United States so that high volume manufacturing can
be accomplished in four facilities: Hauppauge (NY) (video cassettes, audio
cassettes and CDs), Clinton (TN) (video cassettes), Elk Grove (IL) (video
cassettes) and Denver (video cassettes). The Company has seven other facilities
for smaller volume video manufacturing: Landover (MD), Orlando, Detroit, Los
Angeles and San Francisco, as well as Dallas and Houston where film, in addition
to video, is duplicated.
35
<PAGE>
CD Products. The Company's production of CD Products begins with
pre-mastering and mastering in controlled 'clean room' environments that are
designed to eliminate airborne particles from the manufacturing process. Using
lasers and computer-based photo resist technology, the Company creates exact
digital replicas of the customer's original disc. These glass replicas, or
'masters,' are used in the replication process to manufacture duplicates through
an injection molding process using high grade, optical quality polycarbonate.
The polycarbonate is pressed against a metal stamper to create a replica of the
CD master at a rate of approximately one every four seconds. The clear
polycarbonate disc containing all of the data is then covered with a metallic
coating to provide for reflection of the reading laser beam in the CD player. A
thin layer of lacquer is applied over the metal to protect it and to serve as a
base for printing on the disc. The finished CD Products are then checked to
ensure they conform to strict standards established by the Company and the
industry. The finished CD Products are then released to the packaging department
where they are inserted into sleeves or boxes and processed through high speed
shrink-wrapping machines for distribution to the Company's customers.
As a result of the recent expansion of the Company's Hauppauge, New York
facility and the installation at such facility of production and multi-media
packaging equipment, the Company has increased its maximum annual capacity of CD
Products to approximately 85 million units per year.
Audio cassettes. The manufacturing process for audio cassettes utilizes
machines that duplicate a tape 80 times faster than normal listening speed.
Master transports are used to download master recordings through the use of
electronic signals to duplicating machines, which allow multiple copies of the
same recording to be duplicated simultaneously. At various points in the
manufacturing process, the tape goes through both a statistical quality control
procedure, to ensure that it meets the technical standards established by RIAA,
and the Company's quality control procedure, which includes a random sampling of
audio levels, physical characteristics, program content, signals and other
characteristics of the tape. The finished audio cassette products are then
released to the packaging department where they are inserted into sleeves or
boxes and processed through high speed shrink-wrapping machines for distribution
to the Company's customers.
The Company's audio cassette plant production capacity is between 250,000
and 275,000 audio tapes per 24-hour day, depending upon the length of the tapes.
The expansion of the Company's Hauppauge, New York manufacturing facility in
1995 provided the Company with the capability for multimedia packaging for audio
book and other spoken word audio cassettes. When necessary, the Company is able
to deliver finished product to its customers approximately 48 to 72 hours after
receipt of the sales order.
Video cassettes. The manufacturing process for video cassettes generally
utilizes duplicating machines that copy from a master in 'real time' speed,
i.e., the regular speed of the videocassette being duplicated. In this process,
high speed tape winders are used to wind blank tape loaded to specific program
lengths into video shells. The video shells are then loaded into the duplicating
machines which receive the program being copied from a master transport. In
addition, the Company utilizes high speed machines, which allow it to duplicate
a master 150 times faster than in 'real time' speed. Real time duplicating
machines are used to duplicate video cassettes in standard play mode. High speed
duplicating machines are capable of duplicating video cassettes in either the
extended play mode or the standard play mode. The extended play format utilizes
less tape than regular speed machines require for the same program content.
The entire video duplicating and winding process takes place in an
environment that is designed to eliminate airborne particles from the
duplicating process. These areas are air conditioned and pressurized to filter
out such particles. The Company believes that its use of these areas prolongs
the head life on videocassette recorders and results in a higher quality
product.
Once a videocassette is loaded with tape and duplicated, the finished
product is checked to ensure that it conforms to strict audio and visual
standards established by the Company and the industry. The video cassettes are
then released to the packaging department where they are labeled, inserted into
sleeves or boxes and processed through high speed shrink-wrapping machines for
distribution to the Company's customers.
In Fiscal 1997, the Company increased the production capacity of its
facilities in Clinton, Tennessee and Hauppauge, New York by a combined nine
million annual videocassette unit capacity. The Company's total videocassette
capacity is the equivalent of approximately 100 million 60-minute programs
annually. When
36
<PAGE>
necessary, the Company is able to deliver finished product to its customers
approximately 24 to 48 hours after receipt of the sales order.
Raw Materials; Supplies. Although the Company's practice is to seek
competitive pricing and enhanced quality by purchasing from a limited number of
suppliers, all raw materials and components necessary to manufacture CD Products
are readily available from several sources of supply at competitive prices.
Blank audio cassettes, video cassettes, magnetic tape and other component
parts utilized by the Company in the duplication/replication process generally
are readily available in the marketplace at prices that are generally stable.
The Company purchases its components from a variety of manufacturers, most of
which are located in China, South Korea, Mexico and the United States. The
Company does not believe the loss of any one of its current suppliers would have
a material adverse effect on its business because alternative sources of supply
are generally readily available at competitive prices. However, a significant
change in the Company's ability to obtain components at comparable prices from
suppliers located in China, South Korea, Mexico and the United States, whether
through the imposition of tariffs or other trade barriers or from any foreign or
U.S. supplier for any other reason, could have a material adverse effect on the
Company. The Company does not have long-term contracts with any such suppliers.
See 'Risk Factors--Dependence on Suppliers.'
LICENSES
CD Products. The Company, like most other CD Product manufacturers, uses
patented technology primarily under nonexclusive licenses from the holders of
patents which generally provide for the payment of royalties based upon the
number of CD Products sold. For Fiscal 1997, fees for these licenses of
approximately $2,261,000 were charged against earnings, related primarily to the
licenses with U.S. Philips Corporation and Discovision Associates.
Audio cassettes. The Company does not require any licenses for the
duplication of audio cassettes.
Video cassettes. The industry does not have established quality standards
for the duplication of video cassettes, although the Victor Company of Japan,
Ltd. ('JVC'), which owns the 'VHS' logo, has established standards for the
physical characteristics of the videocassette. Compliance with the JVC standards
ensures that the videocassette will be compatible with any VHS machine.
Duplicators whose product conforms to the JVC standards are permitted to apply
the 'VHS' logo to such product and pay JVC a license fee for such privilege. The
Company ensures that all of its video product conforms to the JVC standards and
pays JVC a license fee for the privilege of applying the 'VHS' logo to its video
product. For Fiscal 1997, fees for this license of approximately $523,000 were
charged against earnings.
Since 1986, the Company has had a license with Macrovision Corporation to
encode video cassettes with anti-piracy protection. The license is for a
one-year term, renewable annually by agreement of both parties. The Company pays
a license fee to Macrovision Corporation equal to a portion of the sublicense
fees received by the Company from its customers. For Fiscal 1997, the license
fees paid by the Company to Macrovision under this arrangement were
approximately $240,000, all of which was billed to the Company's customers.
COMPETITION
The Company's core business of replication/duplication is highly
competitive. Although the Company believes that it is the largest independent
manufacturer of pre-recorded multi-media products--audio cassettes, video
cassettes, audio CDs and CD-ROMs--it is in competition with approximately 50
audio cassette duplicators, approximately 100 videocassette duplicators and
approximately seven compact disc replicators.
The Company believes that the principal competitive factors in the
replication/duplication business are: price, terms of sale, quality of service,
range of pre- and post-production services, scope of graphics and packaging
capabilities, order turnaround time, large order capability, order fulfillment
capability, ability to customize small orders to customer specifications, and
certain other value-added service offerings.
Virtually all raw materials, machinery and equipment are readily available
on the open market, and no industry competitor holds proprietary rights or
positions with respect to these factors. Although this fact results in low
barriers to entry, the Company believes that the relatively low margins offered
by the core business and the
37
<PAGE>
number of competitors (including the Company) who offer an array of value-added
services, serve as deterrents to entry by most potential competitors.
The Company believes its ability to offer a full range of multimedia
products and value-added services with national manufacturing, sales and
distribution coverage provides a distinct competitive advantage. The Company
also believes that its flexible manufacturing and distribution capabilities give
it a cost advantage over local and regional competitors. In addition, the
Company's value-added services such as packaging, inventory management, and
fulfillment further differentiate the Company from its competitors. Given these
competitive advantages, the Company believes it is well positioned to take
advantage of the growing, niche markets of special interest video, CD-ROM, and
spoken word audio cassette.
In its budget planning process, the Company takes into account expected
price erosion, which occurs as competition for market share increases and
competitors lower prices to gain market share. The Company attempts to limit
margin erosion by lowering its material costs and by achieving unit volume sales
increases. While there can be no assurance that such a margin protection
strategy will be successful in the future, the Company's efforts to reduce
operating costs and its new series of marketing and sales initiatives are
intended to forestall and curtail such erosion of margins. See 'Risk
Factors--Competition.'
The Company believes that its principal competitors in each of its product
offerings are as follows:
CD Products. In music CD replication, the Company's competitors are major
independent replicators such as Cinram, Ltd., a publicly-traded Canadian-based
company with operations in the United States, and Denon, and the in-house
capacity of five of the six major domestic pre-recorded music companies: Sony
Music Entertainment, PGD, Warner-Elektra-Atlantic, BMG, and EMI, each of which
has CD manufacturing capacity to meet all its production needs except in times
of high demand. Additionally, there are approximately 70 small to medium-sized
(i.e., having an annual capacity of approximately five million to 75 million
units, as compared to an average annual capacity of 100-200 million units for
the major domestic pre-recorded music companies) CD Products manufacturers in
the marketplace. The Company believes it is among the largest of the
medium-sized companies in the CD Products replication industry segment. Among
the Company's competitors in the CD-ROM sector are Nimbus and Zomax.
Audio cassettes. In audio cassettes, the Company believes that it is the
largest independent duplicator of pre-recorded audio cassette products in the
United States. The Company's principal competitors are Cinram, Ltd. and
Sonopress Audio, a division of BMG.
Video cassettes. The Company believes it is the largest independent
duplicator of video cassettes for the non-theatrical market, which includes
corporate communications, premium/promotional, educational, instructional
'How-To,' and other special interest applications. The Company's principal
competitors in this market are Premier Video and Vaughan Communication.
EMPLOYEES
At January 31, 1998, the Company had approximately 1,271 full-time
employees of whom approximately 391 (representing those employees employed at
the Hauppauge location) are covered by a collective bargaining agreement between
the Company and Local 810, Steel, Metals, Alloys and Hardware Fabricators and
Warehousemen affiliated with the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen and Helpers of America. This agreement was renewed in
January 1997 and expires in January 2000. Management, supervisors and clerical
workers are not covered by the collective bargaining agreement. The Company has
never experienced a strike and believes its relationship with its employees is
satisfactory. The Company provides paid vacations, sick leave, group life,
disability, hospitalization and medical insurance for its employees. During
Fiscal 1997, eligible employees were able to participate in the Company's 401(k)
profit-sharing plan.
38
<PAGE>
PROPERTIES
The Company believes its manufacturing, warehouse and office facilities are
adequate for its current requirements. The Company's principal facilities, all
of which are leased, consist of the following:
<TABLE>
<CAPTION>
APPROX.
LEASE SQUARE
LOCATION PRINCIPAL USE EXPIRATION FOOTAGE
- --------------------------------------------------- -------------------------------- ---------- ---------
<S> <C> <C> <C>
370 JD Yarnell Industrial Parkway, Clinton,
Tennessee(1)..................................... Office, Manufacturing, Warehouse 12/09 164,000
15 Gilpin Avenue, Hauppauge, New York(2)........... Office, Manufacturing, Warehouse 11/15 144,000
Elk Grove Industrial Park #33, Elk Grove Village,
DePage, Illinois................................. Office, Manufacturing, Warehouse 05/99 97,888
30 Gilpin Avenue, Hauppauge, New York(2)........... Office, Manufacturing, Warehouse 01/08 78,000
7375 Woodward Avenue, Detroit, Michigan............ Office, Manufacturing, 09/98 70,000
Warehouse, Parking Lots
108 Centre Stage Business Park, Clinton
Tennessee........................................ Warehouse 07/00 51,000
65 Inverness Drive, Englewood, Colorado............ Office, Manufacturing, Warehouse 12/02 39,700
4364 35th Street, Orlando, Florida(1).............. Office, Manufacturing, Warehouse 02/99 54,512
Highway 25 West, Clinton, Tennessee................ Warehouse monthly 25,000
480 Brisbane Drive, Brisbane, California........... Office, Manufacturing, Warehouse 06/08 22,160
6305 O'Connor Road, Irving, Texas.................. Office, Manufacturing 12/99 18,900
6301 O'Connor Road, Irving, Texas.................. Office, Manufacturing 12/99 18,712
819 Brightside Road, Landover, Maryland............ Office, Manufacturing 10/01 17,614
6305 O'Connor Road, Irving, Texas.................. Warehouse 01/00 11,936
101 Charles Seivers Boulevard, Clinton,
Tennessee........................................ Warehouse monthly 10,000
140 Fell Court, Hauppauge, New York................ Office 10/01 7,165
1301 Avenue of the Americas, New York,
New York......................................... Office 12/00 4,832
11835 West Olympic Boulevard,
West Los Angeles, California..................... Office 01/03 4,637
4140B Directors Row, Houston, Texas................ Office, Manufacturing, Warehouse 12/99 3,600
1207 17th Avenue, Nashville, Tennessee............. Office 07/99 950
310 Alabama Street, Indianapolis, Indiana.......... Office 06/00 590
</TABLE>
- ------------------
(1) The Company leases various facilities from Greenfield Land Company, a
Michigan co-partnership ('Greenfield Land') of which William H. Smith
(Co-chairman of the Board and a principal stockholder of Allied), members
of his family and Werner H. Jean (a Director of Allied) are partners. The
office and warehouse space for all locations leased from Greenfield Land
aggregates approximately 218,500 square feet. The 1997 annual rental
payments from Allied to Greenfield Land were approximately $1,548,000.
Future cumulative rentals due under existing leases with Greenfield Land
for 1998 and thereafter are approximately $8,871,000. The existing leases
are for properties located at: 4364 35th Street (office, warehouse and
manufacturing facility), Orlando, Florida and 370 JD Yarnell Industrial
Parkway (office, warehouse, and manufacturing facility), Clinton, Tennessee
. In addition, Allied's leases with Greenfield Land of 7375 Woodward Avenue
(formerly an office, warehouse and manufacturing facility), Detroit,
Michigan; 7411 and 7371 Woodward Avenue (formerly parking lots), Detroit,
Michigan; and 35 W. Bethune (formerly a parking lot), Detroit, Michigan
were terminated without penalty by mutual agreement on March 31, 1998.
(2) Leased from Keelson Associates, a general partnership of which George N.
Fishman, Co-Chairman of the Company is a partner, at an annual rental rate
of approximately $1,058,000.
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<PAGE>
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings which are incidental
to the conduct of its business. The Company does not believe that the outcome of
these matters, even if unfavorable to the Company, will have a material adverse
effect on its financial condition or results of operations.
On May 12, 1998, a complaint purporting to state a class action was filed
in the Delaware Court of Chancery by Crandon Capital Partners, alleged to be a
stockholder of the Company, on behalf of itself and all others similarly
situated, against the Company and its directors. The plaintiffs allege that the
Merger is wrongful, unfair and harmful to holders of Common Stock and that it
has been effected with unfair dealing, that the proposed consideration of $5.00
a share is unfair to the Company's Shareholders and that the directors of the
Company have violated their fiduciary obligation owed to the plaintiffs and
other members of the class. The complaint seeks to enjoin the Merger and an
unspecified amount of damages, in addition to payment of attorney's fees and
reimbursement of expenses. The proceedings are currently in the discovery stage.
Management believes that this claim is without merit and does not believe such
claim will have a material adverse effect on the Company or on the Company's
Financial condition, results of operations or liquidity of such claim.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of April 30, 1998, and a
brief account of the business experience of each person who will be a director
or executive officer of the Company following the consummation of the
Transactions.
NAME(1) AGE POSITION WITH THE COMPANY
- ------------------------ --- ---------------------------------------
John K. Mangini......... 56 Chief Operating Officer
Donald L. Olesen........ 55 President--National Sales and Marketing
Division and director
Charles A. Mantione..... 57 Vice President--Finance
Emily Hill.............. 38 Vice President--Planning and Analysis
- ------------------
(1) Upon consummation of the Merger, the Company expects to enter into an
Investors Agreement with 399 and certain other parties named therein (the
'Investors Agreement'), pursuant to which it is anticipated that the Board
of Directors of the Company will comprise five directors with 399 having the
right to nominate two directors, the Management Shareholders having the
right to nominate one director and the nominating committee having the right
to nominate the remaining two independent directors.
Mr. Olesen has been President--National Sales and Marketing Division and a
director of the Company since January 1995. Mr. Olesen also has been the
President of HMG since 1993 and President of Allied since July 1991. He also was
a director of HMG and Allied until January 1995. Mr. Olesen has been Allied's
primary sales executive since 1981. Mr. Olesen has 32 years of pre-recorded
music experience beginning in 1965 with RCA Records as a management trainee. In
1968, Mr. Olesen joined CBS Records where he spent 13 years in a variety of
positions. From 1971 to 1981, Mr. Olesen served as the East Coast Regional Sales
Manager of CBS Records.
Mr. Mangini has been Chief Operating Officer of the Company since January
15, 1996. Prior to his joining the Company, he spent five years with PolyGram
Group Distribution, Inc. as Senior Vice President of Operations. Mr. Mangini's
experience in the entertainment field includes 14 years with RCA Corporation
(1973-87) beginning as Director of Strategic Planning for the Entertainment
Companies (NBC, Random House and RCA Records) and then becoming Worldwide Chief
Financial Officer of RCA Records, then Vice President--General Manager of the
International Subsidiaries and Senior Vice President--Operations-- Worldwide. In
the non-entertainment area, Mr. Mangini was Executive Vice President--U.S.
Operations for Adidas USA (1988-89), Project Manager for Grace Corporation
(1969-73), specializing in acquisitions and mergers. He had similar experience
with Olin Chemical Corporation (1966-69). In 1995, Mr. Mangini plead guilty to
an information alleging tax evasion, paid a $7,500 fine and was placed on
probation for a period of five years. Mr. Mangini has 34 years of business
experience and for the past 16 years has concentrated on various turnaround
situations.
Mr. Mantione has been Vice President--Finance of the Company since June
1997. Mr. Mantione had been a financial consultant to the Company from June 1996
to June 1997. Mr. Mantione, who is a certified public accountant, was founder
and partner in Mantione and Rogan, CPAs from July 1969 until November 1983, and
a partner in Arthur Yorkes & Co., CPAs from January 1988 to October 1989.
Ms. Hill has been Vice President of Planning and Analysis since January
1998. Prior to that she was Director of Planning and Analysis and Financial
Operations Manager of the former Allied Film Group beginning her career with the
Company in June 1990 as Detroit Division Controller. From June 1987 to June
1990, Ms. Hill worked for Hoover Group, Inc., an OEM manufacturer, beginning as
a Sr. Financial Analyst and then becoming a Plant Controller. From September
1985 through June 1987, she worked as an independent consultant while obtaining
her Masters in Accountancy.
41
<PAGE>
SECURITY OWNERSHIP
The following table sets forth certain information with respect to the
beneficial ownership of the Preferred Stock, Class A Common Stock and non-voting
Class B Common Stock following consummation of the Transactions by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of either the Preferred Stock, Class A Common Stock or Class B Common
Stock, (ii) each director and Named Executive Officer of the Company who owns
shares of any class of the Company's capital stock and (iii) the directors and
executive officers as a group. Each of the shareholders identified in the table
has sole voting and investment power over the shares beneficially owned by such
person.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF CLASS A OF CLASS B BENEFICIAL OWNERSHIP
COMMON STOCK(1) COMMON STOCK(2) OF PREFERRED STOCK
-------------------- -------------------- --------------------
NUMBER OF NUMBER OF NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT SHARES PERCENT SHARES PERCENT
- -------------------------------------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
399 Venture Partners, Inc.(3)......... 74,000 49.66% 351,000 100% 165,000 100%
John K. Mangini(4)(5)................. 26,250 17.62 -- -- -- --
Donald Olesen(5)...................... 26,250 17.62 -- -- -- --
Steven Granat(5)...................... 2,500 1.68 -- -- -- --
Brian Wilson(5)....................... 5,000 3.35 -- -- -- --
Emily M. Hill(5)...................... 3,750 2.52 -- -- -- --
David R. Conrad(5).................... 3,750 2.52 -- -- -- --
Charles Mantione(5)................... 2,500 1.68 -- -- -- --
John J. Mangini(5).................... 2,500 1.68 -- -- -- --
Edward Simek(5)....................... 2,500 1.68 -- -- -- --
All executive officers and directors
as a group (9 persons).............. 149,000 50.34 -- -- -- --
</TABLE>
- ------------------
(1) Does not include shares of Class A Common Stock issuable upon conversion of
shares of Class B Common Stock. Shares of Class B Common Stock are
convertible at any time into shares of Class A Common Stock on a
share-for-share basis.
(2) Does not include shares of Class B Common Stock issuable upon conversion of
shares of Class A Common Stock. Shares of Class A Common Stock are
convertible at any time into shares of Class B Common Stock on a
share-for-share basis.
(3) The business address of 399 is 399 Park Avenue, New York, New York 10043.
(4) Consists of 26,248 Common Shares plus conversion of two shares of AAC Common
Stock.
(5) The business address of each of the indicated holders of the Company's
securities is 140 Fell Court, Hauppauge, New York 11788.
42
<PAGE>
CERTAIN TRANSACTIONS
CERTAIN AGREEMENTS IN CONNECTION WITH THE MERGER
Stockholders' Voting Agreements. In connection with the Merger, each of
George Fishman, William H. Smith (and related entities) and Donald L. Olesen
(and related entities) (collectively, the 'Reporting Persons') entered into a
stockholder voting agreement (collectively, the 'Shareholder Voting Agreements')
with AAC dated as of May 5, 1998 representing in the aggregate 8,233,641 shares
of Common Stock, which together with the shares of Common Stock currently owned
by 399 represent approximately 66.58% of the shares of Common Stock issued and
outstanding.
Each Reporting Person has agreed that, until the date of termination
specified in the Stockholder Voting Agreements, such Reporting Person shall vote
(or cause to be voted) the shares of Common Stock held of record or beneficially
by such Reporting Person (i) in favor of the Merger, the execution and delivery
by the Company of the Merger Agreement and the approval of the terms thereof and
each of the other actions contemplated by the Merger Agreement and the
Stockholder Voting Agreement and any actions required in furtherance hereof and
thereof; (ii) against any action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement or the Stockholder Voting Agreement; and
(iii) against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement or any such actions identified in writing
by AAC in advance): (A) any extraordinary corporate transaction, including,
without limitation, a merger, consolidation or other business combination
involving the Company or its Subsidiaries; (B) a sale, lease or transfer of a
material amount of assets of the Company or its Subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its Subsidiaries; (C) any change in the majority of the board of directors of
the Company; (D) any material change in the present capitalization of the
Company or any amendment of the Company's Certificate of Incorporation or
By-Laws; (E) any other material change in the Company's corporate structure or
business; or (F) any other action which is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, discourage or materially
adversely affect the Merger or the transactions contemplated by the Merger
Agreement or the Stockholder Voting Agreement.
Rollover Agreements. Subject to the terms and provisions of the Merger
Agreement, in connection with the Merger, each of Charles A. Mantione, John K.
Mangini, John J. Mangini, Emily M. Hill, Steven Granat, Edward Simek, David R.
Conrad, Brian Wilson and Donald L. Olesen (and various parties related to Donald
L. Olesen) (the 'Management Shareholders') has entered into a Rollover Agreement
with AAC dated as of May 5, 1998 whereby the Management Shareholders agreed to
elect to retain an aggregate of 74,998 shares of Common Stock upon conversion
of, and with respect to, 74,998 shares owned by the Management Shareholder
immediately prior to the Effective Date (the 'Management Shares') unless
otherwise agreed with AAC.
Unless the shares of Common Stock held by any trust which are presently
subject to the terms of the Rollover Agreement are transferred to one or more
Management Shareholders (and remain subject in all respects to the terms of the
Rollover Agreement) or other transferee permitted by the Rollover Agreement who
upon receipt of such shares of Common Stock become signatories to the Rollover
Agreement, the Management Shareholders who are trustees shall not take any
action to terminate, close or liquidate any such trust and shall take all steps
necessary to maintain the existence thereof.
Each Management Shareholder has waived any rights of appraisal or rights to
dissent from the Merger that such Shareholder may have. The Management
Shareholders have represented that no beneficiary who is a beneficial owner of
shares of Common Stock under any trust has any right of appraisal or right to
dissent from the Merger which has not been so waived.
Investors Agreement. Upon consummation of the Merger, the Company, 399 and
certain other parties named therein expect to enter into the Investors
Agreement. It is anticipated that the Investors Agreement will provide for,
among other things, (i) transfer restrictions with respect to the shares subject
to the Investors Agreement and (ii) corporate governance issues.
43
<PAGE>
LOANS FROM CERTAIN SHAREHOLDERS
On April 1, 1994, AFL distributed to its shareholders approximately
$18,000,000 consisting of its accumulated previously-taxed earnings through
December 31, 1993. Mr. Smith, Mrs. Smith and certain members of their family and
Mr. Merkle, a former executive officer of the Company, loaned to AFL an
aggregate of approximately $14,000,000 received by them, pursuant to unsecured
promissory notes (the 'AFL Shareholder Notes'). The proceeds of these loans were
used to repay a portion of certain bank indebtedness incurred to fund the
distribution. The AFL Shareholder Notes had an original maturity date of January
1, 2000, bore interest at an annual rate of ten percent (10%), and were
subordinated to the payment of certain bank indebtedness of AFL. On January 24,
1995, the AFL Shareholder Notes were repaid by AFL with proceeds of new
financing provided by a lender, except for $4,000,000 of such AFL Shareholder
Notes issued to Mr. Smith (the 'Smith Note'). On November 8, 1995, Mr. Smith
made an additional $2,000,000 subordinated loan to AFL (the 'Additional Smith
Note') for working capital purposes. In connection with the Allied Merger and
the restructuring of the AFL and the Company's credit facilities into one credit
facility, each of the Smith Note and the Additional Smith Note (the 'Smith
Notes') was amended and restated. The Smith Notes are each due January 1, 2001,
are subordinated to the payment of the indebtedness to the senior lender, and
bear interest at 10% per annum. The payment of interest on the Smith Notes is
conditional upon the Company achieving certain financial benchmarks. To the
extent that interest is not paid when due, it is due and payable on the maturity
date of the Smith Notes. During Fiscal 1997, no interest was paid in respect of
the Smith Notes.
In connection with the Allied Merger and the restructuring of the credit
facilities of AFL and the Company, HMG prepaid certain indebtedness owed to 399,
then the Company's principal shareholder, in the aggregate principal amount of
$3,500,000. In order to help finance such prepayment, Mr. Smith, Mr. Fishman and
Mr. Olesen loaned HMG $1,600,000, $200,000 and $200,000, respectively, (the 'HMG
Loans'). The HMG Loans are evidenced by identical promissory notes, except for
the name of the payee and the principal amount (the 'HMG Notes'). The HMG Notes
are subordinated to the payment of the Company's indebtedness to its senior
lender, bear interest at the rate of 10% per annum, and are due December 31,
1998. The payment of interest and principal on the HMG Notes is conditional upon
the Company achieving certain financial benchmarks. To the extent that interest
is not paid when due, it is due and payable upon maturity of the HMG Notes. In
all events, principal and accrued but unpaid interest on the HMG Notes is due
and payable January 1, 2001. During Fiscal 1997, interest payments made to
Messrs. Smith, Fishman and Olesen in respect of the HMG Notes aggregated
$107,555, $13,445 and $13,445, respectively. No principal payments were made in
respect of the HMG Notes during Fiscal 1997.
HMG is indebted to certain shareholders of the Company, including Mr.
Fishman, Mr. Olesen, Mr. Kavanagh and 399 in the aggregate principal amount of
$880,640 (the 'Series B Debt'). The Series B Debt is evidenced by a series of
identical promissory notes, except for the name of the payee and the principal
amount (the 'Series B Notes'). The Series B Notes are subordinated to the
payment of the Company's indebtedness to its senior lender, bear interest at the
rate of 11% per annum, and are due January 1, 1999. The payment of interest and
principal on the HMG Notes is conditional upon the Company achieving certain
financial benchmarks. During Fiscal 1997, interest payments made to the holders
of the Series B Notes aggregated $86,870. No principal payments were made during
Fiscal 1997 in respect of the Series B Notes other than $36,020 which was paid
to a holder as a final payment in respect of his note upon his termination as an
employee of the Company.
The Company believes that the terms of each of the loans referred to above
are at least as favorable to the Company as those it would have received from an
unaffiliated third party under similar circumstances.
GUARANTEE OF CERTAIN OBLIGATIONS OF GREENFIELD LAND
The Company has unconditionally guaranteed certain obligations of
Greenfield Land Company ('Greenfield Land') under certain bank financing that
was originally incurred by Greenfield Land in connection with its acquisition
and development of the facilities in Illinois, Michigan and Tennessee that are
leased to the Company. As of July 31, 1997, the aggregate amount of debt of
Greenfield Land which the Company has guaranteed under the bank financing for
Greenfield Land was $527,050 and the largest amount which the Company had
guaranteed since the beginning of Fiscal 1997 was $1,513,437. Greenfield Land
has unconditionally guaranteed certain obligations of the Company as part of
such bank financing.
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LEASES
The Company leases certain of its manufacturing, warehouse and office space
from affiliates. See 'Business--Properties.' The Company believes that the terms
of such leases are at least as favorable to the Company as those it would
receive from an unaffiliated third party.
INDEMNIFICATION FOR ENVIRONMENTAL LIABILITIES
Pursuant to a Global Indemnification Agreement dated June 17, 1994, among
Greenfield Land, Mr. Smith, Mr. Smith's revocable living trust (collectively,
the 'beneficiaries'), the Company as the successor to AFL), has agreed to
indemnify the beneficiaries against all liabilities, losses, costs and expenses
(including, without limitation, fines, penalties, judgments, and legal fees)
arising out of, or in anyway related to, (i) the presence, manufacturing or
processing of 'hazardous substances' in, on or about the properties leased or
subleased to the Company by the beneficiaries (where caused by the Company or a
predecessor occupier of the premises), or (ii) the violation of any
'environmental law' by the Company. For purposes of the foregoing: 'hazardous
substances' are materials or substances regulated under any environmental law
(including, without limitation, chemical wastes, radioactive materials, and
petroleum products and byproducts); and 'environmental laws' are any laws, rules
and regulations relating to the protection of human health, safety, or the
environment (including, without limitation, the Toxic Substances Control Act,
the Comprehensive Environment Response, Compensation and Liability Act, and the
Resource Conservation and Recovery Act of 1976). The beneficiaries paid $25,000
to AFL for this indemnification.
OTHER TRANSACTIONS
H. Sean Mathis, a director of the Company, provides strategic advisory
services to the Company pursuant to a five-year consulting agreement expiring in
January 2000. Pursuant to such agreement, Mr. Mathis received a fee of $96,000
payable in 24 monthly installments which ended in December 1996.
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DESCRIPTION OF CREDIT AGREEMENT
In connection with the Transactions, the Company expects to enter into the
$25.0 million revolving credit facility (the 'Credit Agreement') with Fleet
National Bank (the 'Lender'). The definitive Credit Agreement has not yet been
fully negotiated and may contain more or less restrictive provisions than those
set forth below. The information relating to the Credit Agreement is qualified
in its entirety by reference to the complete text of the documents entered into
or to be entered into in connection therewith. Borrowings under the Credit
Agreement will be available to partially fund the Transactions, refinance
existing indebtedness and for working capital and general corporate purposes,
including letters of credit. The Credit Agreement will be secured by first
priority liens on substantially all of the Company's assets. The Company expects
to draw approximately $1.2 million under the Credit Agreement in connection with
the consummation of the Transactions. The availability of the Credit Agreement
will be subject to various conditions precedent.
The Credit Agreement will expire five years from the date of closing,
unless extended. The interest rate per annum applicable to the Credit Agreement
will be the prime rate, as announced by the Lender plus an applicable margin or,
at the Company's option, the London Interbank Offered Rate quoted by the Lender
plus an applicable margin. The Credit Agreement will permit the Company to
prepay loans and to permanently reduce credit commitments or letters of credit,
in whole or in part, at any time in certain minimum amounts. The Company will be
required to pay certain fees in connection with the Credit Agreement, including
a commitment fee of 0.5% on the undrawn portion of the credit commitment.
The Credit Agreement will contain customary representations and warranties
and events of default and will require compliance with certain covenants by the
Company, including, among other things: (i) maintenance of certain financial
ratios and compliance with certain financial tests and limitations, (ii)
limitations on the payment of capital expenditures, dividends, incurrence of
additional indebtedness and granting of certain liens and (iii) restrictions on
mergers, acquisitions, asset sales and investments.
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DESCRIPTION OF NOTES
As used below in this 'Description of Notes' section, the 'Company' means
Allied Digital Technologies Corp. but not any of its subsidiaries and the
'Issuer' means Allied Digital, Inc., the issuer of the Notes. The Notes are to
be issued under an Indenture, to be dated as of , 1998 (the
'Indenture'), among the Issuer, the Guarantors and IBJ Schroder Bank & Trust
Company, as Trustee (the 'Trustee'). The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the 'Trust Indenture Act'). The Notes are
subject to all such terms, and holders of the Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. A copy of the
proposed form of the Indenture will be made available to prospective investors
upon request. The statements under this caption relating to the Notes and the
Indenture are summaries and do not purport to be complete, and where reference
is made to particular provisions of the Indenture, such provisions, including
the definitions of certain terms, are qualified in their entirety by such
reference.
The Notes will be senior subordinated obligations of the Issuer,
subordinated in right of payment to all Senior Debt of the Issuer. The Notes
will be issued only in fully registered form, without coupons, in denominations
of $1,000 and any integral multiple thereof. No service charge will be made for
any registration of transfer or exchange of Notes, but the Issuer may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Initially, the Trustee will act as paying agent
and registrar for the Notes.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be general unsecured obligations of the Issuer, limited to
$200,000,000 aggregate principal amount of which $100,000,000 aggregate
principal amount will be issued in the offering of the Notes. Additional amounts
may be issued in one or more series from time to time subject to the limitations
set forth under '--Covenants--Limitation on Indebtedness' and the restrictions
contained in the Credit Agreement. The Notes will mature on , 2008
and will bear interest at the rate per annum shown on the cover page hereof from
the Issue Date or from the most recent interest payment date to which interest
has been paid or provided for. Interest will be payable semiannually on
and of each year, commencing , 1999,
to the Person in whose name a Note is registered (a 'Holder') at the close of
business on the preceding or (each, a 'Record
Date'), as the case may be. Interest on the Notes will be computed on the basis
of a 360-day year of twelve 30- day months. Holders must surrender the Notes to
the paying agent for the Notes to collect principal payments.
OPTIONAL REDEMPTION
The Notes will be subject to redemption, at the option of the Issuer, in
whole or in part, at any time on or after , 2003, upon not less
than 30 nor more than 60 days' notice mailed to each Holder of Notes to be
redeemed at his or her registered address, in amounts of $1,000 or an integral
multiple of $1,000, at the following redemption prices (expressed as percentages
of principal amount) plus accrued interest to but excluding the date fixed for
redemption (subject to the right of Holders of record on the relevant Record
Date to receive interest due on an interest payment date that is on or prior to
the date fixed for redemption), if redeemed during the 12-month period beginning
of the years indicated:
YEAR PERCENTAGE
- ---------------------- ----------
2003.................. %
2004..................
2005..................
2006 and thereafter... 100.000%
Prior to , 2001, the Issuer may redeem up to 35% of the
principal amount of the Notes with the net cash proceeds received by the Company
from one or more Public Equity Offerings at a redemption price (expressed as a
percentage of the principal amount) of % of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date fixed for redemption;
provided, however, that at least $65 million in aggregate principal amount of
the Notes remains outstanding immediately after any such redemption (excluding
any Notes owned by the Issuer or any of its Affiliates). Notice of redemption
pursuant to this paragraph must be mailed to Holders of Notes not later than 60
days following the consummation of the relevant Public Equity Offering.
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In addition, notwithstanding the optional redemption provisions described
above, at any time on or prior to , 2003, the Notes may also be
redeemed as a whole at the option of the Issuer upon the occurrence of a Change
of Control (but in no event more than 60 days after the occurrence of such
Change of Control) at a redemption price equal to 100% of the principal amount,
plus the Applicable Premium as of, and accrued but unpaid interest, if any, to
the date fixed for redemption (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date. Notice of redemption pursuant to this paragraph must be mailed to Holders
of Notes at least 30 days and not more than 60 days prior to the date fixed for
redemption.
Selection of Notes for any partial redemption shall be made by the Trustee,
in accordance with the rules of any national securities exchange on which the
Notes may be listed or, if the Notes are not so listed, pro rata or by lot or in
such other manner as the Trustee shall deem appropriate and fair. Notes in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000. Notice of redemption will be mailed before the date fixed
for redemption to each Holder of Notes to be redeemed at his or her registered
address. On and after the date fixed for redemption, interest will cease to
accrue on Notes or portions thereof called for redemption.
The Notes will not have the benefit of any sinking fund.
RANKING
The Issuer's obligations with respect to the payment of the principal of,
premium, if any, and interest on, and all other obligations in respect of each
and all of the Notes shall be subordinated in right of payment, to the extent
and in the manner provided in the Indenture, to the prior payment in full in
cash of all Senior Debt of the Issuer.
Upon any payment or distribution of assets or securities of the Issuer of
any kind or character, whether in cash, property or securities, upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Issuer, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due with respect
to Senior Debt of the Issuer (including any interest accruing subsequent to an
event of bankruptcy to the extent that such interest is an allowed claim
enforceable against the debtor under the Bankruptcy Code) shall first be paid in
full, or payment provided for, in either case in cash or cash equivalents or
otherwise in a form satisfactory to the holders of Senior Debt of the Issuer,
before the Holders or the Trustee on their behalf shall be entitled to receive
any Note Payment (as defined below). Before any Note Payment may be made by, or
on behalf of, the Issuer of the principal of, premium, if any, or interest on,
or any other obligation in respect of, the Notes upon any such dissolution or
winding up or liquidation or reorganization, any payment or distribution of
assets or securities of the Issuer of any kind or character, whether in cash,
property or securities, to which the Holders or the Trustee on their behalf
would be entitled, but for the subordination provisions of the Indenture, shall
be made by the Issuer or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, directly to
the holders of Senior Debt of the Issuer (pro rata to such holders on the basis
of the respective amounts of Senior Debt held by such holders) or their
representatives or to the trustee or trustees under any indenture pursuant to
which any such Senior Debt may have been issued as their respective interests
may appear, to the extent necessary to pay all such Senior Debt in full, in
cash, after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of such Senior Debt.
No direct or indirect payment, deposit or distribution of any kind or
character, whether in cash, property or securities (including any payment made
to Holders of the Notes under the terms of Indebtedness subordinated to the
Notes, but excluding any payment or distribution of Permitted Junior Securities)
by or on behalf of the Issuer of principal of, premium, if any, or interest on,
or any other obligation in respect of, the Notes (other than payments to Holders
from funds held in trust for the benefit of Holders), whether pursuant to the
terms of the Notes or upon acceleration, by way of repurchase, redemption,
defeasance or otherwise (all such payments, deposits or distributions being
referred to herein, individually and collectively, as a 'Note Payment'), shall
be made if, at the time of such Note Payment, there exists a default in the
payment when due of all or any portion of the obligations under or in respect of
any Designated Senior Debt, whether at maturity, on account of mandatory
redemption or prepayment, acceleration or otherwise (and the Trustee has
received written notice thereof), and such default shall not have been cured or
waived or the benefits of this sentence waived by or on behalf of the
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holders of such Designated Senior Debt. In addition, during the continuance of
any non-payment default or non-payment event of default with respect to any
Designated Senior Debt pursuant to which the maturity thereof may be accelerated
immediately without the giving of any notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, and upon receipt by the Trustee of notice (a 'Payment Blockage Notice')
from a holder or holders of such Designated Senior Debt or the trustee or agent
acting on behalf of such Designated Senior Debt, then, unless and until such
default or event of default has been cured or waived or has ceased to exist or
such Designated Senior Debt has been discharged or repaid in full, in cash, no
Note Payment may be made by or on behalf of the Issuer on account of or with
respect to the Notes, except payments to Holders from funds held in trust for
the benefit of Holders, during a period (a 'Payment Blockage Period') commencing
on the date of receipt of such Payment Blockage Notice by the Trustee and ending
179 days thereafter. Notwithstanding anything herein to the contrary, (x) in no
event will a Payment Blockage Period extend beyond 179 days from the date of the
Payment Blockage Notice in respect thereof was given and (y) there must be 180
days in any 365 day period during which no Payment Blockage Period is in effect.
Not more than one Payment Blockage Period may be commenced with respect to the
Notes during any period of 365 consecutive days. No default or event of default
that existed or was continuing on the date of commencement of any Payment
Blockage Period with respect to the Designated Senior Debt initiating such
Payment Blockage Period may be, or be made, the basis for the commencement of
any other Payment Blockage Period by the holder or holders of such Designated
Senior Debt or the trustee or agent acting on behalf of such Designated Senior
Debt, whether or not within a period of 365 consecutive days, unless such
default or event of default has been cured or waived for a period of not less
than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this section
will not be construed as preventing the occurrence of an Event of Default
described in clause (a), (b) or (c) of the first paragraph under '--Events of
Default.'
By reason of the subordination provisions described above, in the event of
insolvency of the Issuer, funds which would otherwise be payable to Holders will
be paid to holders of Senior Debt of the Issuer to the extent necessary to repay
such Senior Debt in full, and the Issuer may be unable to fully meet its
obligations with respect to the Notes. Subject to the restrictions set forth in
the Indenture, in the future the Issuer may Incur additional Senior Debt.
At April 30, 1998, on a pro forma basis after giving effect to the
Transactions and the application of the net proceeds therefrom, there would have
been approximately $2.1 million of Senior Debt of the Issuer outstanding.
THE GUARANTEES
The Indenture will provide that the Guarantors will fully and
unconditionally guarantee, jointly and severally, on a senior subordinated basis
all of the obligations of the Issuer under the Indenture, including its
obligation to pay principal, premium, if any, and interest with respect to the
Notes.
The Indenture will provide that if the Notes are defeased in accordance
with the terms of the Indenture, or if all or substantially all of the assets of
a Guarantor or all of the Capital Stock of a Guarantor is sold (including by
issuance or otherwise) by the Company or any of its Restricted Subsidiaries in a
transaction constituting an Asset Disposition, and if (x) the Net Available
Proceeds from such Asset Dispositions are used in accordance with the covenant
described under '--Covenants--Limitation on Certain Asset Dispositions' or (y)
the Issuer delivers to the Trustee an Officers' Certificate to the effect that
the Net Available Proceeds from such Asset Disposition shall be used in
accordance with the covenant described under '--Covenants--Limitation on Certain
Asset Dispositions' and within the time limits specified by such covenant, then
such Guarantor (in the event of a sale or other disposition of all or
substantially all of its assets) shall be released and discharged from its
Guarantee obligations.
The obligations of each Guarantor under the Guarantee are subordinated to
the prior payment in full of all Senior Debt of such Guarantor on the same basis
as the obligations of the Issuer on the Notes are subordinated to Senior Debt of
the Issuer. The Guarantees will be pari passu in right of payment with any other
senior subordinated indebtedness of each Guarantor and senior to all existing
and future Subordinated Indebtedness of each Guarantor.
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COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness), except:
(i) Indebtedness of the Company or any of its Restricted Subsidiaries,
if immediately after giving effect to the Incurrence of such Indebtedness
and the receipt and application of the net proceeds thereof, the
Consolidated Coverage Ratio of the Company for the four full fiscal
quarters for which quarterly or annual financial statements are available
next preceding the Incurrence of such Indebtedness, calculated on a pro
forma basis in accordance with Article 11 of Regulation S-X under the
Securities Act of 1933 or any successor provision as if such Indebtedness
had been Incurred on the first day of such four full fiscal quarters, would
be greater than 1.75 to 1.00 if such proposed Incurrence is on or prior to
, 1999 and greater than 2.00 to 1.00 if such proposed
Incurrence is thereafter;
(ii) Indebtedness of the Company and its Restricted Subsidiaries,
Incurred under the Credit Agreement in an aggregate amount not to exceed
the greater of (a) $25.0 million and (b) an amount equal to the sum of (x)
85% of the total book value of the accounts receivable of the Company and
its Restricted Subsidiaries and (y) 50% of the total book value of
inventory of the Company and its Restricted Subsidiaries, in each case as
reflected on the Company's most recent consolidated financial statements
prepared in accordance with GAAP (it being understood that the amount
Incurred under the Credit Agreement may be increased as a result of the
operation of clause (xi) below);
(iii) Indebtedness owed by the Company to any direct or indirect
Wholly Owned Subsidiary of the Company or Indebtedness owed by a direct or
indirect Restricted Subsidiary of the Company to the Company or any direct
or indirect Wholly Owned Subsidiary of the Company; provided, however, upon
either (I) the transfer or other disposition by such direct or indirect
Wholly Owned Subsidiary or the Company of any Indebtedness so permitted
under this clause (iii) to a Person other than the Company or another
direct or indirect Wholly Owned Subsidiary of the Company or (II) the
issuance (other than directors' qualifying shares), sale, transfer or other
disposition of shares of Capital Stock or other ownership interests
(including by consolidation or merger) of such direct or indirect Wholly
Owned Subsidiary to a Person other than the Company or another such Wholly
Owned Subsidiary of the Company the provisions of this clause (iii) shall
no longer be applicable to such Indebtedness and such Indebtedness shall be
deemed to have been Incurred at the time of any such issuance, sale,
transfer or other disposition, as the case may be;
(iv) Indebtedness of the Company or any Restricted Subsidiary under
any interest rate or other similar agreement to the extent entered into to
hedge any other Indebtedness permitted to be Incurred under the Indenture
(including the Notes);
(v) Indebtedness of the Issuer under the Notes issued on the Issue
Date and Indebtedness outstanding on the Issue Date;
(vi) Indebtedness Incurred to Refinance any Indebtedness outstanding
on the Issue Date, any Indebtedness Incurred under the prior clause (i)
above or the Notes and the Guarantees; provided, however, that (I) such
Indebtedness does not exceed the principal amount (or accreted value, if
less) of the Indebtedness so Refinanced plus the amount of any premium
required to be paid in connection with such Refinancing pursuant to the
terms of the Indebtedness being Refinanced or the amount of any premium
reasonably determined by the issuer of such Indebtedness as necessary to
accomplish such Refinancing by means of a tender offer, exchange offer, or
privately negotiated repurchase, plus the expenses of such issuer
reasonably Incurred in connection therewith and (II)(A) in the case of any
Refinancing of Indebtedness that is pari passu with the Notes, such
Refinancing Indebtedness is made pari passu with or subordinate in right of
payment to the Notes, and, in the case of any Refinancing of Indebtedness
that is subordinate in right of payment to the Notes, such Refinancing
Indebtedness is subordinate in right of payment to the Notes on terms no
less favorable to the Holders than those contained in the Indebtedness
being Refinanced, (B) in either case, the Refinancing Indebtedness by its
terms, or by the terms of any agreement or instrument pursuant to which
such Indebtedness is issued, does not have an Average Life that is less
than the remaining
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Average Life of the Indebtedness being Refinanced and does not require
redemption or other retirement (including pursuant to any required offer to
purchase to be made by the Company or a Restricted Subsidiary) of such
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being Refinanced, other than a redemption or
other retirement at the option of the holder of such Indebtedness
(including pursuant to a required offer to purchase made by the Company or
a Restricted Subsidiary) which is conditioned upon a change of control of
the Company or any Restricted Subsidiary pursuant to provisions
substantially similar to those contained in the Indenture described under
'--Change of Control' below and (C) any Indebtedness Incurred to Refinance
any Indebtedness is Incurred by the obligor on the Indebtedness being
Refinanced or by a Guarantor; provided, further, that clause (II) of the
immediately preceding proviso shall not apply to any Indebtedness Incurred
to Refinance term loans under the Credit Agreement outstanding on the
Issuer Date or to subsequent Refinancings of any such refinancing
Indebtedness;
(vii) Indebtedness of the Guarantors, under the Guarantees Incurred in
accordance with the Indenture;
(viii) Indebtedness (including Capitalized Lease Obligations and
obligations with respect to industrial revenue bonds) Incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount outstanding not to
exceed 10% of the total amount of assets of the Company and the Restricted
Subsidiaries (as set forth on the most recent consolidated balance sheet of
the Company and computed in accordance with GAAP) at any time (which amount
may, but need not, be Incurred in whole or in part under the Credit
Agreement) provided that the principal amount of such Indebtedness does not
exceed the fair market value of such property or equipment;
(ix) Indebtedness Incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims or self-insurance, and
obligations in respect of performance and surety bonds and completion
guarantees provided by the Company or any Restricted Subsidiary of the
Company in the ordinary course of business;
(x) guarantees by the Company or its Restricted Subsidiaries of
Indebtedness otherwise permitted to be Incurred hereunder; and
(xi) Indebtedness of the Company or its Restricted Subsidiaries not
otherwise permitted to be Incurred pursuant to clauses (i) through (x)
above which, together with any other outstanding Indebtedness Incurred
pursuant to this clause (xi), has an aggregate principal amount (or
accreted value, as applicable) not in excess of $5.0 million at any time
outstanding, which Indebtedness may be Incurred under the Credit Agreement,
the Indenture or otherwise.
Limitation on Senior Subordinated Indebtedness
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness that by its terms would expressly rank senior in right of payment
to the Notes or the Guarantees, as the case may be, and expressly rank
subordinate in right of payment to any other Indebtedness of the Company or such
Restricted Subsidiary.
Limitation on Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend, or make any distribution of any kind
or character (whether in cash, property or securities), on or in respect of
any class of the Capital Stock of the Company or any of its Restricted
Subsidiaries or to the holders thereof, excluding any (x) dividends or
distributions payable solely in shares of Qualified Stock of the Company or
any of its Restricted Subsidiaries or in options, warrants or
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other rights to acquire Qualified Stock of the Company or any of its
Restricted Subsidiaries, (y) in the case of any Restricted Subsidiary of
the Company, dividends or distributions payable to the Company or a
Restricted Subsidiary of the Company, or (z) in the case of any Guarantor,
dividends or distributions payable to the Issuer or another Guarantor,
(ii) purchase, redeem, or otherwise acquire or retire for value shares
of Capital Stock of the Company or any of its Restricted Subsidiaries, any
options, warrants or rights to purchase or acquire shares of Capital Stock
of the Company or any of its Restricted Subsidiaries or any securities
convertible or exchangeable into shares of Capital Stock of the Company or
any of its Restricted Subsidiaries, excluding any such shares of Capital
Stock, options, warrants, rights or securities which are owned by the
Company or a Restricted Subsidiary of the Company,
(iii) make any Investment (other than a Permitted Investment) in, or
make any payment on a guarantee of any obligation of, any Person, other
than the Company or a direct or indirect Wholly Owned Subsidiary of the
Company, or
(iv) redeem, defease, repurchase, retire or otherwise acquire or
retire for value, prior to any scheduled maturity, repayment or sinking
fund payment, Subordinated Indebtedness (each of the transactions described
in clauses (i) through (iv) (other than any exception to any such clause)
being a 'Restricted Payment')
if at the time thereof:
(1) a Default or an Event of Default shall have occurred and be
continuing, or
(2) upon giving effect to such Restricted Payment, the Company
could not Incur at least $1.00 of additional Indebtedness pursuant to
the terms of the Indenture described in clause (i) of '--Limitation on
Indebtedness' above, or
(3) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments made on or after the Issue Date exceeds the sum
of: (a) 50% of cumulative Consolidated Net Income of the Company (or, in
the case cumulative Consolidated Net Income of the Company shall be
negative, less 100% of such deficit) since the end of the fiscal quarter
in which the Issue Date occurs through the last day of the fiscal
quarter ending on or prior to the date of such proposed Rendered Payment
for which financial statements are available; plus (b) 100% of the
aggregate net proceeds received after the Issue Date, including the fair
market value of property other than cash (determined in good faith by
the Board of Directors of the Company as evidenced by a resolution of
such Board of Directors filed with the Trustee), from the issuance of,
or equity contribution with respect to, Qualified Stock of the Company
and warrants, rights or options on Qualified Stock of the Company (other
than in respect of any such issuance to a Restricted Subsidiary of the
Company) and the principal amount of Indebtedness of the Company or any
of its Restricted Subsidiaries that has been converted into or exchanged
for Qualified Stock of the Company which Indebtedness was Incurred after
the Issue Date; plus (c) 100% of the aggregate after-tax net proceeds,
including the fair market value of property other than cash (determined
in good faith by the Board of Directors of the Company as evidenced by a
resolution of such Board of Directors filed with the Trustee) from the
sale or other disposition of any Investment constituting a Restricted
Payment made after the Issue Date; provided, however, that any gain on
the sale or disposition included in such after tax net proceeds shall
not be included in determining Consolidated Net Income for purposes of
clause (a) above; and provided, further, that amounts included in this
clause (c) shall not exceed the Net Investment by the Company and its
Restricted Subsidiaries in the asset so sold or disposed.
The foregoing provision will not prohibit (i) any dividend on any class of
Capital Stock of the Company or any of its Restricted Subsidiaries paid within
60 days after the declaration thereof if, on the date when the dividend was
declared, the Company or such Restricted Subsidiary, as the case may be, could
have paid such dividend in accordance with the provisions of the Indenture, (ii)
the Refinancing of any Indebtedness otherwise permitted pursuant to the terms of
the Indenture described in clause (vi) of '--Limitation on Indebtedness' above,
(iii) the exchange or conversion of any Indebtedness of the Company or any of
its Restricted Subsidiaries for or into Qualified Stock of the Company, (iv) so
long as no Default or Event of Default has occurred and is
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continuing, any Investment made with the proceeds of a substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of Qualified Stock
of the Company; provided, however, that the proceeds of such sale of Qualified
Stock shall not be (and have not been) included in subclause (b) of clause (3)
of the preceding paragraph, (v) the redemption, repurchase, retirement or other
acquisition of any Capital Stock of the Company in exchange for or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of Qualified Stock of the Company;
provided, however, that the proceeds of such sale of Capital Stock shall not be
(and have not been) included in subclause (b) of clause (3) of the preceding
paragraph, (vi) so long as no Default or Event of Default has occurred and is
continuing, other Restricted Payments of up to $5.0 million in the aggregate,
(vii) payments in lieu of fractional shares in an amount not in excess of
$100,000 in the aggregate and (viii) payments to holders of Capital Stock of the
Company made in connection with the application of the net proceeds from the
offering of the Notes as contemplated by this Prospectus. Each Restricted
Payment described in clauses (i) (to the extent not already taken into account
for purposes of computing the aggregate amount of all Restricted Payments
pursuant to clause (3) of the preceding paragraph), (vi) and (vii) of the
previous sentence shall be taken into account for purposes of computing the
aggregate amount of all Restricted Payments pursuant to clause (3) of the
preceding paragraph.
The Indenture will provide that for purposes of this covenant, (i) an
'Investment' shall be deemed to have been made at the time any Restricted
Subsidiary is designated as an Unrestricted Subsidiary in an amount
(proportionate to the Company's equity interest in such Subsidiary) equal to the
net worth of such Restricted Subsidiary at the time that such Restricted
Subsidiary is designated as an Unrestricted Subsidiary; (ii) at any date the
aggregate of all Restricted Payments made as Investments since the Issue Date
shall exclude and be reduced by an amount (proportionate to the Company's equity
interest in such Subsidiary) equal to the net worth of an Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary, not to exceed, in the case of any such redesignation of
an Unrestricted Subsidiary as a Restricted Subsidiary, the amount of Investments
previously made by the Company and the Restricted Subsidiaries in such
Unrestricted Subsidiary (in each case (i) and (ii) 'net worth' to be calculated
based upon the fair market value of the assets of such Subsidiary as of any such
date of designation which shall, in no event, be less than zero); and (iii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer.
Limitations Concerning Distributions and Transfers by Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company (other than the Issuer)
to (i) pay, directly or indirectly, dividends or make any other distributions in
respect of its Capital Stock or pay any Indebtedness or other obligation owed to
the Company or any other Restricted Subsidiary of the Company, (ii) make loans
or advances to the Company or any other Restricted Subsidiary of the Company or
(iii) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (a) any agreement in effect on the
Issue Date as any such agreement is in effect on such date, (b) the Credit
Agreement, (c) any agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted Subsidiary was
acquired by the Company and outstanding on such date and not Incurred in
anticipation or contemplation of becoming a Restricted Subsidiary and provided
such encumbrance or restriction shall not apply to any assets of the Company or
its Restricted Subsidiaries other than such Restricted Subsidiary, (d) customary
provisions contained in an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of a
Restricted Subsidiary; provided, however, that such encumbrance or restriction
is applicable only to such Restricted Subsidiary or assets, (e) an agreement
effecting a Refinancing or amendment of Indebtedness Incurred pursuant to an
agreement referred to in clause (a) above; provided, however, that the
provisions contained in such Refinancing or amendment agreement relating to such
encumbrance or restriction are no more restrictive in any material respect than
the provisions contained in the agreement that is the subject thereof in the
reasonable judgment of the Board of Directors of the Company as evidenced by a
resolution of such Board of Directors filed with the Trustee, (f) the Indenture,
(g) applicable law, (h) customary provisions restricting subletting or
assignment of any lease governing any leasehold interest of any Restricted
Subsidiary of the Company, (i) restrictions contained in
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Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant to
the provisions of the covenant described under '--Limitation on Indebtedness';
provided, however that any such restrictions are ordinary and customary with
respect to the type of Indebtedness Incurred, (j) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the type referred to in clause (iii) of this covenant or (k) restrictions of the
type referred to in clause (iii) of this covenant contained in security
agreements securing Indebtedness of a Restricted Subsidiary of the Company to
the extent that such Liens were otherwise Incurred in accordance with
'--Limitation on Liens' below and restrict the transfer of property subject to
such agreements.
Limitation on Liens
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Lien on or with respect to any
property or assets of the Company or such Restricted Subsidiary owned on the
Issue Date or thereafter acquired or on the income or profits thereof, which
Lien secures Indebtedness, without making, or causing any such Restricted
Subsidiary to make, effective provision for securing the Notes and all other
amounts due under the Indenture (and, if the Company shall so determine, any
other Indebtedness of the Company or such Restricted Subsidiary, including
Subordinated Indebtedness; provided, however, that Liens securing the Notes and
any Indebtedness pari passu with the Notes are senior to such Liens securing
such Subordinated Indebtedness) equally and ratably with such Indebtedness or,
in the event such Indebtedness is subordinate in right of payment to the Notes
or the Guarantees prior to such Indebtedness, as to such property or assets for
so long as such Indebtedness shall be so secured.
The foregoing restrictions shall not apply to (i) Liens existing on the
Issue Date securing Indebtedness existing on the Issue Date; (ii) Liens securing
Senior Debt (including Liens securing Indebtedness outstanding under the Credit
Agreement) and any guarantees thereof to the extent that the Indebtedness
secured thereby is permitted to be Incurred under the covenant described under
'--Limitation on Indebtedness' above; (iii) Liens securing the Notes and the
Guarantees; (iv) Liens in favor of the Company or a Guarantor; (v) Liens to
secure Indebtedness (including obligations with respect to industrial revenue
bonds) Incurred by the Company or any Restricted Subsidiary for the purpose of
financing all or any part of the purchase price or the cost of construction or
improvement of the property (or any other capital expenditure financing) subject
to such Liens; provided, however, that (a) the aggregate principal amount of any
Indebtedness secured by such a Lien does not exceed 100% of such purchase price
or cost, (b) such Lien does not extend to or cover any other property other than
such item of property and any improvements on such item, (c) the Indebtedness
secured by such Lien is Incurred by the Company or such Restricted Subsidiary
within 180 days of the acquisition, construction or improvement of such property
and (d) the Incurrence of such Indebtedness is permitted by the provisions of
the Indenture described under '--Limitation on Indebtedness' above; (vi) Liens
on property existing immediately prior to the time of acquisition thereof (and
not created in anticipation or contemplation of the financing of such
acquisition); (vii) Liens on property of a Person existing at the time such
Person is acquired or merged with or into or consolidated with the Company or
any such Restricted Subsidiary (and not created in anticipation or contemplation
thereof); (viii) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to GAAP;
(ix) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof; (x) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, including any Lien securing letters of credit issued in the ordinary
course of business consistent with past practice in connection therewith, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money); (xi) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceedings may be
initiated shall not have expried; (xii) Liens to secure Indebtedness Incurred to
Refinance, in whole or in part, any Indebtedness secured by Liens referred to in
the foregoing clauses
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(i)-(xi) so long as such Liens do not extend to any other property and the
principal amount of Indebtedness so secured is not increased except for the
amount of any premium required to be paid in connection with such Refinancing
pursuant to the terms of the Indebtedness Refinanced or the amount of any
premium reasonably determined by the Company as necessary to accomplish such
Refinancing by means of a tender offer, exchange offer or privately negotiated
repurchase, plus the expenses of the issuer of such Indebtedness reasonably
Incurred in connection with such Refinancing; (xiii) Liens in favor of the
Trustee as provided for in the Indenture on money or property held or collected
by the Trustee in its capacity as Trustee; and (xiv) Liens Incurred in the
ordinary course of business securing assets not having a fair market value in
excess of $5.0 million.
Limitation on Certain Asset Dispositions
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, make one or more
Asset Dispositions unless: (i) the Company or such Restricted Subsidiary, as the
case may be, receives consideration for such Asset Disposition at least equal to
the fair market value of the assets sold or disposed of as determined by the
Board of Directors of the Company in good faith and evidenced by a resolution of
such Board of Directors filed with the Trustee; (ii) not less than 75% of the
consideration for the disposition consists of cash or readily marketable cash
equivalents or the assumption of Indebtedness (other than non-recourse
Indebtedness or any Subordinated Indebtedness) of the Company or such Restricted
Subsidiary or other obligations relating to such assets (and release of the
Company or such Restricted Subsidiary from all liability on the Indebtedness or
other obligations assumed); and (iii) all Net Available Proceeds, less any
amounts invested within 360 days of such Asset Disposition in assets related to
the business of the Company (including the Capital Stock of another Person
(other than any Person that is a Restricted Subsidiary of the Company
immediately prior to such investment); provided, however, that immediately after
giving effect to any such investment (and not prior thereto) such Person shall
be a Restricted Subsidiary of the Company), are applied, on or prior to the
360th day after such Asset Disposition, unless and to the extent that the Issuer
shall determine to make an Offer to Purchase, to the permanent reduction and
prepayment of any Senior Debt of the Issuer then outstanding (including a
permanent reduction of commitments in respect thereof). Any Net Available
Proceeds from any Asset Disposition which is subject to the immediately
preceding sentence that are not applied as provided in the immediately preceding
sentence shall be used promptly after the expiration of the 360th day after such
Asset Disposition, or promptly after the Issuer shall have earlier determined to
not apply any Net Available Proceeds therefrom as provided in clause (iii) of
the immediately preceding sentence, to make an Offer to Purchase outstanding
Notes and other Senior Subordinated Indebtedness, pro rata, at a purchase price
in cash equal to 100% of their principal amount (or the accreted value of such
other Senior Subordinated Indebtedness, if such other Senior Subordinated
Indebtedness is issued at a discount) plus accrued interest to the Purchase
Date. Notwithstanding the foregoing, the Issuer may defer making any Offer to
Purchase outstanding Notes until there are aggregate unutilized Net Available
Proceeds from Asset Dispositions otherwise subject to the two immediately
preceding sentences equal to or in excess of $10.0 million (at which time, the
entire unutilized Net Available Proceeds from Asset Dispositions otherwise
subject to the two immediately preceding sentences, and not just the amount in
excess of $10.0 million, shall be applied as required pursuant to this
paragraph). Any remaining Net Available Proceeds following the completion of the
required Offer to Purchase may be used by the Issuer for any other purpose
(subject to the other provisions of the Indenture) and the amount of Net
Available Proceeds then required to be otherwise applied in accordance with this
covenant shall be reset to zero, subject to any subsequent Asset Disposition.
These provisions will not apply to a transaction consummated in compliance with
the provisions of the Indenture described under '--Mergers, Consolidations and
Certain Sales of Assets' below.
In the event that the Issuer makes an Offer to Purchase the Notes and other
Senior Subordinated Indebtedness, the Company shall comply with any applicable
securities laws and regulations, including any applicable requirements of
Section 14(e) of, and Rule 14e-1 under, the Exchange Act, and any violation of
the provisions of the Indenture relating to such Offer to Purchase occurring as
a result of such compliance shall not be deemed an Event of Default or any event
that with the passing of time or giving of notice, or both, would constitute an
Event of Default.
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Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Indenture will provide that the Company shall not sell any Capital
Stock of a Restricted Subsidiary, and shall not cause or permit any Restricted
Subsidiary, directly or indirectly, to issue or sell any of its Capital Stock or
any Capital Stock of another Restricted Subsidiary, except: (i) to the Company
or a Wholly Owned Subsidiary; or (ii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary. Notwithstanding the foregoing, the Company or any
Restricted Subsidiary shall be permitted to sell all the Capital Stock of a
Restricted Subsidiary as long as the Company is in compliance with the terms of
the covenent described under '--Limitation on Certain Asset Dispositions' and,
if applicable, '--Change of Control' and '--Merger, Consolidations and Certain
Sales of Assets' below.
Limitation on Transactions with Affiliates and Related Persons
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into directly or indirectly any
transaction with any of their respective Affiliates or Related Persons (other
than the Company or a Restricted Subsidiary of the Company), including, without
limitation, the purchase, sale, lease or exchange of property, the rendering of
any service, or the making of any guarantee, loan, advance or Investment, either
directly or indirectly, involving aggregate consideration in excess of $5.0
million unless a majority of the disinterested directors of the Board of
Directors of the Company determines, in its good faith judgment evidenced by a
resolution of such Board of Directors filed with the Trustee, that the terms of
such transaction are at least as favorable as the terms that could be obtained
by the Company or such Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arms-length basis between unaffiliated
parties; provided, however, that if the aggregate consideration is in excess of
$10.0 million the Company shall also obtain, prior to the consummation of the
transaction, the favorable opinion as to the fairness of the transaction to the
Company or such Restricted Subsidiary, from a financial point of view from an
independent financial advisor. The provisions of this covenant shall not apply
to (i) transactions permitted by the provisions of the Indenture described above
under the caption '--Limitation on Restricted Payments' above, (ii) reasonable
fees and compensation paid to, and indemnity provided on behalf of, officers,
directors and employees of the Company and its Restricted Subsidiaries as
determined in good faith by the Board of Directors of the Company, (iii) loans
to employees in the ordinary course of business which are approved in good faith
by the Board of Directors of the Company, (iv) transactions exclusively between
or among the Issuer and the Guarantors or exclusively between or among such
Guarantors, provided such transactions are not otherwise prohibited by the
Indenture and (v) any transactions undertaken pursuant to contractual
obligations or rights in existence on the Issue Date (as in effect on the Issue
Date).
Change of Control
Within 30 days following the date of the consummation of a transaction
resulting in a Change of Control, the Issuer will commence an Offer to Purchase
all outstanding Notes at a purchase price in cash equal to 101% of their
principal amount plus accrued interest, if any, to the Purchase Date. Such Offer
to Purchase will be consummated not earlier than 30 days and not later than 60
days after the commencement thereof. Each Holder shall be entitled to tender all
or any portion of the Notes owned by such Holder pursuant to the Offer to
Purchase, subject to the requirement that any portion of a Note tendered must be
an integral multiple of $1,000 principal amount. A 'Change of Control' will be
deemed to have occurred in the event that (whether or not otherwise permitted by
the Indenture), after the Issue Date (a) any Person or any Persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto) (a 'Group'), together with any
Affiliates or Related Persons thereof, other than Permitted Holders, shall,
directly or indirectly, 'beneficially own' (as defined in Rule 13d-3 under the
Exchange Act, or any successor provision thereto) at least 40% of the voting
power of the outstanding Voting Stock of the Company or the Issuer; (b) any
sale, lease or other transfer (in one transaction or a series of related
transactions) is made by the Company or any of its Restricted Subsidiaries of
all or substantially all of the consolidated assets of the Company and its
Restricted Subsidiaries to any Person; (c) the Company consolidates with or
merges with or into another Person or any Person consolidates with, or merges
with or into, the Company, in any such event pursuant to a transaction in which
immediately after the consummation thereof Persons owning a majority of the
Voting Stock of the Company immediately prior to such consummation shall cease
to own a majority of the Voting Stock of the
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Company or the surviving entity if other than the Company; (d) Continuing
Directors cease to constitute at least a majority of the Board of Directors of
the Company; or (e) the stockholders of the Company or the Issuer approve any
plan or proposal for the liquidation or dissolution of the Company or the
Issuer.
In the event that the Issuer makes an Offer to Purchase the Notes and other
Senior Subordinated Indebtedness, the Issuer shall comply with any applicable
securities laws and regulations, including any applicable requirements of
Section 14(e) of, and Rule 14e-1 under, the Exchange Act, and any violation of
the provisions of the Indenture relating to such Offer to Purchase occurring as
a result of such compliance shall not be deemed an Event of Default or any event
that with the passing of time or giving of notice, or both, would constitute an
Event of Default.
With respect to the sale of assets referred to in the definition of 'Change
of Control,' the phrase 'all or substantially all' of the assets of the Company
will likely be interpreted under applicable law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of 'all or substantially
all' of the assets of the Company has occurred. In addition, no assurances can
be given that the Issuer will be able to acquire Notes tendered upon the
occurrence of a Change of Control. The ability of the Issuer to pay cash to the
Holders of Notes upon a Change of Control may be limited by its then existing
financial resources. The Credit Agreement will contain certain covenants
prohibiting, or requiring waiver or consent of the lenders thereunder prior to,
the repurchase of the Notes upon a Change of Control and future debt agreements
of the Company and its Restricted Subsidiaries may provide the same. If such
waivers or consents are not obtained or such Indebtedness is not repaid, the
Issuer will remain prohibited from repurchasing the Notes. In such event, the
Issuer's failure to purchase tendered Notes would constitute an Event of Default
under the Indenture which would in turn constitute a default under the Credit
Agreement and possibly other Indebtedness.
The foregoing provisions will not prevent the Company or its Restricted
Subsidiaries from entering into transactions of the types described above with
management or their affiliates. In addition, such provisions may not necessarily
afford the Holders of the Notes protection in the event of a highly leveraged
transaction, including a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect the Holders because
such transactions may not involve a shift in voting power or beneficial
ownership, or even if they do, may not involve a shift of the magnitude required
under the definition of Change of Control to trigger the provisions.
Additional Guarantors
The Indenture will provide that the Company will not create or acquire, nor
permit any of its Restricted Subsidiaries to create or acquire, any Restricted
Subsidiary after the Issue Date unless, at the time such Restricted Subsidiary
has either assets or stockholder's equity in excess of $25,000, such Restricted
Subsidiary (a) executes and delivers to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Issuer's obligations under
the Notes and the Indenture on the terms set forth in the Indenture and (b)
delivers to the Trustee an opinion of counsel that such supplemental indenture
has been duly authorized, executed and delivered by such Restated Subsidiary and
continues a legal, valid, binding and enforceable obligation of such Restricted
Subsidiary.
Provision of Financial Information
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the Commission the annual reports, quarterly reports and other documents which
the Company would have been required to file with the Commission pursuant to
such Section 13(a) or 15(d) or any successor provision thereto if the Company
were so required, such documents to be filed with the Commission on or prior to
the respective dates (the 'Required Filing Dates') by which the Company would
have been required so to file such documents if the Company were so required.
Regardless of whether the Company files such reports or other documents with the
Commission, the Company shall (a) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders of Notes, as their names and addresses
appear in the Note Register, without cost to such Holders, and (ii) file with
the Trustee, copies of such annual reports, quarterly reports and other
documents, and (b) if filing such documents by the Company with the
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Commission is not permitted under the Exchange Act, promptly upon written
request supply copies of such documents to any prospective Holder of Notes.
Mergers, Consolidations and Certain Sales of Assets
The Company will not consolidate or merge with or into any Person, or sell,
assign, lease, convey or otherwise dispose of (or cause or permit any Restricted
Subsidiary of the Company to consolidate or merge with or into any Person or
sell, assign, lease, convey or otherwise dispose of) all or substantially all of
the Company's assets (determined on a consolidated basis for the Company and its
Restricted Subsidiaries), whether as an entirety or substantially an entirety in
one transaction or a series of related transactions, including by way of
liquidation or dissolution, to any Person unless, in each such case: (i) the
entity formed by or surviving any such consolidation or merger (if other than
the Company or such Restricted Subsidiary, as the case may be), or to which such
sale, assignment, lease, conveyance or other disposition shall have been made
(the 'Surviving Entity'), is a corporation organized and existing under the laws
of the United States, any state thereof or the District of Columbia; (ii) the
Surviving Entity assumes by supplemental indenture all of the obligations of the
applicable Guarantor under its Guarantee and the Indenture or the Issuer on the
Notes and under the Indenture, as the case may be; (iii) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on a
pro forma basis, the Company or the Surviving Entity, as the case may be, could
Incur at least $1.00 of Indebtedness pursuant to clause (i) of the provisions of
the Indenture described under '--Limitation on Indebtedness' above; (iv)
immediately before and after giving effect to such transaction and treating any
Indebtedness which becomes an obligation of the Company or any of its such
Restricted Subsidiaries as a result of such transaction as having been Incurred
by the Company or such Restricted Subsidiary, as the case may be, at the time of
the transaction, no Default or Event of Default shall have occurred and be
continuing; and (v) if, as a result of any such transaction, property or assets
of the Company or a Restricted Subsidiary would become subject to a Lien not
excepted from the provisions of the Indenture described under '--Limitation on
Liens' above, the Company, the Restricted Subsidiary or the Surviving Entity, as
the case may be, shall have secured the Notes as required by said covenant. The
provisions of this paragraph shall not apply to (a) the Recapitalization and (b)
any merger of a Restricted Subsidiary of the Company (other than the Issuer)
with or into the Company or a Wholly Owned Subsidiary of the Company.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal of (or premium, if any, on) any Note when due (whether or not
prohibited by the provisions of the Indenture described under '--Ranking'
above); (b) failure to pay any interest on any Note when due and payable, and
the default continues for 30 days (whether or not prohibited by the provisions
of the Indenture described under '--Ranking' above); (c) default in the payment
of principal of and interest on Notes required to be purchased pursuant to an
Offer to Purchase as described under '--Covenants--Change of Control' and
'--Covenants-- Limitation on Certain Asset Dispositions' above when due and
payable (whether or not prohibited by the provisions of the Indenture described
under '--Ranking' above); (d) failure to perform or comply with any of the
provisions described under '--Covenants--Mergers, Consolidations and Certain
Sales of Assets' above; (e) failure to perform any other covenant or agreement
of the Company or its Restricted Subsidiaries under the Indenture or the Notes
and the default continues for 45 days after written notice to the Company by the
Trustee or Holders of at least 25% in aggregate principal amount of outstanding
Notes; (f) default under the terms of one or more instruments evidencing or
securing Indebtedness of the Company or any of its Restricted Subsidiaries
having an outstanding principal amount of $5.0 million or more individually or
in the aggregate that has resulted in the acceleration of the payment of such
Indebtedness or failure to pay principal when due at the stated maturity of any
such Indebtedness; (g) the rendering of a final judgment or judgments (not
subject to appeal) against the Company or any of its Subsidiaries in an amount
of $5.0 million or more which remains undischarged or unstayed for a period of
60 days after the date on which the right to appeal has expired; (h) certain
events of bankruptcy, insolvency or reorganization affecting the Company or any
of its Subsidiaries; and (i) a Guarantee ceases to be in full force and effect
or is declared null and void and unenforceable or is found to be invalid or a
Guarantor denies its liability under the Guarantee (other than by reason of a
release of such Guarantor from the Guarantee in accordance with the terms of the
Indenture and the Guarantee).
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If an Event of Default (other than an Event of Default with respect to the
Company or the Issuer described in clause (h) of the preceding paragraph) shall
occur and be continuing, either the Trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding Notes may accelerate the maturity
of all Notes; provided, however, that after such acceleration, but before a
judgment or decree based on acceleration, the Holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the non-payment
of accelerated principal, have been cured or waived as provided in the
Indenture. If an Event of Default specified in clause (h) of the preceding
paragraph with respect to the Company or the Issuer occurs, the outstanding
Notes will ipso facto become immediately due and payable without any declaration
or other act on the part of the Trustee or any Holder information as to waiver
of defaults, see '--Modification and Waiver.'
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes, give
the Holders thereof notice of all uncured Defaults or Events of Default known to
it; provided, however, that, except in the case of an Event of Default or a
Default in payment with respect to the Notes or a Default or Event of Default in
complying with '--Covenants--Mergers, Consolidations and Certain Sales of
Assets,' the Trustee shall be protected in withholding such notice if and so
long as the Board of Directors or responsible officers of the Trustee in good
faith determine that the withholding of such notice is in the interest of the
Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the Holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a Holder of a
Note for enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
The Issuer will be required to furnish to the Trustee annually a statement
as to its performance of certain of its obligations under the Indenture and as
to any default in such performance.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Issuer may terminate its substantive obligations in respect of the
Notes and the substantive obligations of the Guarantors in respect of the
Guarantees by delivering all outstanding Notes to the Trustee for cancellation
and paying all sums payable by the Issuer on account of principal of, premium,
if any, and interest on all Notes or otherwise. In addition to the foregoing,
the Issuer may, provided that no Default or Event of Default has occurred and is
continuing or would arise therefrom (or, with respect to a Default or Event of
Default specified in clause (h) of '--Events of Default' above, any time on or
prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) and provided that no default under any Senior Debt would result
therefrom, terminate its substantive obligations in respect of the Notes and the
substantive obligations of the Guarantors in respect of the Guarantees (except
for the Issuer's obligation to pay the principal of (and premium, if any, on)
and the interest on the Notes and such Guarantors' guarantee thereof) by (i)
depositing with the Trustee, under the terms of an irrevocable trust agreement,
money or United States Government Obligations sufficient (without reinvestment)
to pay all remaining indebtedness on the Notes, (ii) delivering to the Trustee
either an Opinion of Counsel or a ruling directed to the Trustee from the
Internal Revenue Service to the effect that the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination of obligations, (iii) delivering to the Trustee an
Opinion of Counsel to the effect that the Issuer's exercise of its option under
this paragraph will not result in the Issuer, the Trustee or the trust created
by the Issuer's deposit of funds pursuant to this provision becoming or being
deemed to be an 'investment company' under the Investment Company Act of 1940,
as amended, and (iv) complying with certain other requirements set forth in the
Indenture. In addition, the Issuer may, provided that no Default or Event of
Default has occurred, and is continuing or would arise therefrom (or, with
respect to a Default or Event of Default specified in clause (h) of '--Events of
Default' above, any time on or prior to the 91st calendar day after the date of
such deposit (it being understood that this condition shall not be
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deemed satisfied until after such 91st day)) and provided that no default under
any Senior Debt would result therefrom, terminate all of its substantive
obligations in respect of the Notes and all of the substantive obligations of
the Guarantors in respect of the Guarantees (including the Issuer's obligation
to pay the principal of (and premium, if any, on) and interest on the Notes and
such Guarantors' guarantee thereof by (i) depositing with the Trustee, under the
terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining indebtedness
on the Notes to maturity or redemption, (ii) delivering to the Trustee either a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and termination of
obligations or an Opinion of Counsel based upon such a ruling addressed to the
Trustee or a change in the applicable Federal tax law since the date of the
Indenture, to such effect, (iii) delivering to the Trustee an Opinion of Counsel
to the effect that the Issuer's exercise of its option under this paragraph will
not result in the Company, the Trustee or the trust created by the Issuer's
deposit of funds pursuant to this provision becoming or being deemed to be an
'investment company' under the Investment Company Act of 1940, as amended, and
(iv) complying with certain other requirements set forth in the Indenture.
The Issuer may make an irrevocable deposit pursuant to this provision only
if at such time it is not prohibited from doing so under the subordination
provisions of the Indenture or certain covenants in the instruments governing
Senior Debt and the Issuer has delivered to the Trustee and any Paying Agent an
Officers' Certificate to that effect.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
GOVERNING LAW
The Indenture, the Notes and the Guarantee will be governed by the laws of
the State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Issuer and
the Trustee with the consent of the Holders of a majority in aggregate principal
amount of the outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Note affected thereby,
(a) change the Stated Maturity of the principal of or any installment of
interest on any Note or alter the optional redemption or repurchase provisions
of any Note or the Indenture in a manner adverse to the Holders of the Notes,
(b) reduce the principal amount of (or the premium on) any Note, (c) reduce the
rate of or extend the time for payment of interest on any Note, (d) change the
place or currency of payment of principal of (or premium) or interest on any
Note, (e) modify any provisions of the Indenture relating to the waiver of past
defaults (other than to add sections of the Indenture subject thereto) or the
right of the Holders to institute suit for the enforcement of any payment on or
with respect to any Note or the Guarantee or the modification and amendment of
the Indenture and the Notes (other than to add sections of the Indenture or the
Notes which may not be amended, supplemented or waived without the consent of
each Holder affected), (f) reduce the percentage of the principal amount of
outstanding Notes necessary for amendment to or waiver of compliance with any
provision of the Indenture or the Notes or for waiver of any Default, (g) waive
a default in the payment of principal of, interest on, or redemption payment
with respect to, any Note (except a recision of acceleration of the Notes by the
Holders as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration), (h) modify the ranking or priority of the
Notes or the Guarantee or modify the definition of Senior Debt or Designated
Senior Debt or amend or modify the subordination provisions of the Indenture in
any manner adverse to the Holders, (i) release the Guarantors from any of their
respective obligations under the Guarantee or the Indenture otherwise than in
accordance with the Indenture, or (j) modify the provisions relating to any
Offer to Purchase required under the covenants described under
'--Covenants--Limitation on Certain Asset Dispositions' or
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'--Covenants--Change of Control' in a manner materially adverse to the Holders
of Notes with respect to any Asset Disposition that has been consummated or
Change of Control that has occurred.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
and its Restricted Subsidiaries with certain restrictive provisions of the
Indenture. Subject to certain rights of the Trustee, as provided in the
Indenture, the Holders of a majority in aggregate principal amount of the
outstanding Notes, on behalf of all Holders of Notes, may waive any past default
under the Indenture, except a default in the payment of principal, premium or
interest or a default arising from failure to purchase any Note tendered
pursuant to an Offer to Purchase, or a default in respect of a provision that
under the Indenture cannot be modified or amended without the consent of the
Holder of each outstanding Note affected.
THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will perform only such duties as are specifically set forth in the
Indenture. During the existence of a Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. The Indenture and
provisions of the Trust Indenture Act incorporated by reference therein contain
limitations on the rights of the Trustee, should it become a creditor of the
Company, the Guarantors, or any other obligor upon the Notes, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claim as security or otherwise. The Trustee is permitted to
engage in other transactions with the Company or an Affiliate of the Company;
provided, however, that if it acquires any conflicting interest (as defined in
the Indenture or in the Trust Indenture Act), it must eliminate such conflict or
resign.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Notes will be issued in fully registered
form without interest coupons.
The Notes will be issued in the form of one or more fully registered Global
Notes (the 'Global Notes') that will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York, as Depositary (the 'Depositary'),
and registered in the name of Cede & Co., the Depositary's nominee. Except as
set forth below, the Global Notes may be transferred, in whole and not in part,
only to another nominee of the Depositary or to a successor of the Depositary or
its nominee.
The Depositary has advised as follows: It is a limited-purpose trust
company which holds securities for its participating organizations (the
'Participants') and facilitates the settlement among Participants of securities
transactions in such securities through electronic book-entry changes in its
Participants' accounts. Participants include securities brokers and dealers
(including the Underwriters), banks and trust companies, clearing corporations
and certain other organizations. Access to the Depositary's system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ('indirect participants'). Persons who are not
Participants may beneficially own securities held by the Depositary only through
Participants or indirect participants.
The Depositary advises that its established procedures provide that (i)
upon issuance of the Notes by the Issuer, the Depositary will credit the
accounts of Participants designated by the Underwriters with the principal
amounts of the Notes purchased by the Underwriters and (ii) ownership of
interests in the Global Notes will be shown on, and the transfer of the
ownership will be effected only through, records maintained by the Depositary,
the Participants and the indirect participants. The laws of some states require
that certain persons take physical delivery in definitive form of securities
which they own. Consequently, the ability to transfer beneficial interests in
the Global Notes is limited to that extent.
So long as a nominee of the Depositary is the registered owner of the
Global Notes, that nominee for all purposes will be considered the sole owner or
Holder of such Global Notes under the Indenture. Except as provided below,
owners of beneficial interests in the Global Notes will not be entitled to have
Notes registered in their names, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owners or Holders thereof under the Indenture. Accordingly, each person owning a
beneficial
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interest in the Global Notes must rely on the procedures of the Depositary and,
if the beneficial owner is not a Participant, on the procedures of the
Participant through which the beneficial owner owns its interest, to exercise
any rights of a Holder under the Indenture. The Issuer understands that under
existing practice, if the Issuer requests any action of the Holders, or a
beneficial owner desires to take any action a Holder is entitled to take, the
Depositary would act upon the instructions of, or authorize, the Participant to
take such action.
None of the Issuer, the Trustee, any Paying Agent or the Security Registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Notes, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Principal and interest payments on the Notes registered in the name of the
Depositary's nominee will be made by the Trustee to the Depositary. Under the
terms of the Indenture, the Issuer and the Trustee will treat the persons in
whose names the Notes are registered as the owners of the Notes for the purpose
of receiving payment of principal of and interest on the Notes and for all other
purposes whatsoever. Therefore, none of the Issuer, the Trustee or any Paying
Agent has any direct responsibility or liability for the payment of principal of
or interest on the Notes to owners of beneficial interests in the Global Notes.
The Depositary has advised the Issuer and the Trustee that its present practice
is to credit the accounts of the Participants on the appropriate payment date in
accordance with their respective holdings in principal amount of beneficial
interests in the Global Notes as shown on the records of the Depositary, unless
the Depositary has reason to believe that it will not receive payment on the
payment date. Payments by Participants and indirect participants to owners of
beneficial interests in the Global Notes will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in 'street name,' and
will be the responsibility of the Participants or indirect participants.
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Issuer within 90
days, the Issuer will issue Notes in definitive form in exchange for the Global
Notes. In addition, the Issuer may at any time determine not to have the Notes
represented by Global Notes and, in such event, will issue Notes in definitive
form in exchange for the Global Notes. In either instance, an owner of a
beneficial interest in the Global Notes will be entitled to have Notes equal in
principal amount to such beneficial interest registered in its name and will be
entitled to physical delivery of such Notes in definitive form. Notes so issued
in definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest to the Depositary will
be made by the Issuer in immediately available funds. The Notes will trade in
the Depository Trust Company's Same-Day Funds Settlement System until maturity,
and secondary market trading activity in the Notes will therefore settle in
immediately available funds. No assurance can be given as to the effect, if any,
of settlements in immediately available funds on trading activity in the Notes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
'399' means 399 Venture Partners, Inc.
'Acquired Indebtedness' means, with respect to any Person, Indebtedness of
such Person (i) existing at the time such Person becomes a Restricted Subsidiary
or (ii) assumed in connection with the acquisition of assets from another
Person, including Indebtedness Incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary or such acquisition, as the
case may be.
'Acquisition' means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or such Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary
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of the Company, or (b) the acquisition by the Company or any Restricted
Subsidiary of the Company of the assets of any Person (other than a Restricted
Subsidiary of the Company) which constitute all or substantially all of the
assets of such Person or comprise any division or line of business of such
Person or any other properties or assets of such Person other than in the
ordinary course of business.
'Affiliate' of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with any specified Person. For purposes of this definition, 'control'
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
'controlling' and 'controlled' have meanings correlative to the foregoing.
'Applicable Premium' means with respect to a Note at any date fixed for
redemption, the greater of (i) 1.0% of the principal amount of such Note and
(ii) the excess of (A) the present value at such time of (1) the redemption
price of such Note at , 2003 (such redemption price being described
under '--Optional Redemption' above), plus (2) all remaining required interest
payments due on such Note through , 2003, computed using a discount
rate equal to the Treasury Rate plus 50 basis points, over (B) the then
outstanding principal amount of such Note.
'Asset Disposition' means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or sale-and-leaseback
transaction) of (i) shares of Capital Stock of a Restricted Subsidiary of the
Company (other than directors' qualifying shares) or (ii) property or assets of
the Company or any Restricted Subsidiary of the Company other than in the
ordinary course of business; provided, however, that an Asset Disposition shall
not include (a) any sale, transfer or other disposition of shares of Capital
Stock, property or assets by a Restricted Subsidiary of the Company (other than
the Issuer) to the Issuer or to any Guarantor, (b) any sale, transfer or other
disposition of defaulted receivables for collection or any sale, transfer or
other disposition of property or assets in the ordinary course of business, (c)
any isolated sale, transfer or other disposition that does not involve aggregate
consideration in excess of $1.0 million individually, (d) the grant in the
ordinary course of business of any non-exclusive license of patents, trademarks,
registrations therefor and other similar intellectual property, (e) any Lien (or
foreclosure thereon) securing Indebtedness to the extent that such Lien is
granted in compliance with '--Covenants--Limitation on Liens' above, (f) any
Restricted Payment permitted by '--Covenants--Limitation on Restricted Payments'
above, (g) any disposition of assets or property in the ordinary course of
business to the extent such property or assets are obsolete, worn-out or no
longer useful in the Company's or its Restricted Subsidiaries' business, (h) the
sale, lease, conveyance or disposition or other transfer of all or substantially
all of the assets of the Company as permitted under '--Covenants--Mergers,
Consolidations and Certain Sales of Assets' above; provided, however, that the
assets not so sold, leased, conveyed, disposed of or otherwise transferred shall
be deemed an Asset Disposition or (i) any disposition that constitutes a Change
of Control.
'Average Life' means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or liquidation
value payments of such Indebtedness or Preferred Stock, respectively, and the
amount of such principal or liquidation value payments, by (ii) the sum of all
such principal or liquidation value payments.
'Bankruptcy Code' means Title 11, United States Code.
'Capital Lease Obligations' of any Person means the obligations to pay rent
or other amounts under a lease of (or other Indebtedness arrangements conveying
the right to use) real or personal property of such Person which are required to
be classified and accounted for as a capital lease or liability on the face of a
balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount thereof in accordance with GAAP and
the stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
'Capital Stock' of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person (including any Preferred Stock outstanding on the Issue Date).
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'Citicorp' means Citicorp, a Delaware corporation.
'Common Stock' of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
'Consolidated Coverage Ratio' of any Person means for any period the ratio
of (i) EBITDA of such Person for such period to (ii) the sum of (A) Consolidated
Interest Expense of such Person for such period, plus (B) the annual interest
expense with respect to any Indebtedness proposed to be Incurred by such Person
or its Restricted Subsidiaries, minus (C) Consolidated Interest Expense of such
Person to the extent included in clause (ii)(A) with respect to any Indebtedness
that will no longer be outstanding as a result of the Incurrence of the
Indebtedness proposed to be Incurred, plus (D) the annual interest expense with
respect to any other Indebtedness Incurred by such Person or its Restricted
Subsidiaries since the end of such period to the extent not included in clause
(ii)(A), minus (E) Consolidated Interest Expense of such Person to the extent
included in clause (ii)(A) with respect to any Indebtedness that no longer is
outstanding as a result of the Incurrence of the Indebtedness referred to in
clause (ii)(D); provided, however, that in making such computation, the
Consolidated Interest Expense of such Person attributable to interest on any
Indebtedness bearing a floating interest rate shall be computed on a pro forma
basis as if the rate in effect on the date of computation (after giving effect
to any hedge in respect of such Indebtedness that will, by its terms, remain in
effect until the earlier of the maturity of such Indebtedness or the date one
year after the date of such determination) had been the applicable rate for the
entire period; provided, further, however, that, in the event such Person or any
of its Restricted Subsidiaries has made any Asset Dispositions or Acquisitions
during or after such period and on or prior to the date of measurement, such
computation shall be made on a pro forma basis as if the Asset Dispositions or
Acquisitions had taken place on the first day of such period. Calculations of
pro forma amounts in accordance with this definition shall be done in accordance
with Article 11 of Regulation S-X under the Securities Act of 1933 or any
successor provision and may include reasonably ascertainable cost savings.
'Consolidated Income Tax Expense' of any Person means for any period the
consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
'Consolidated Interest Expense' for any Person means for any period,
without duplication, (a) the consolidated interest expense included in a
consolidated income statement (without deduction of interest or finance charge
income) of such Person and its Restricted Subsidiaries for such period
calculated on a consolidated basis in accordance with GAAP and (b) dividend
requirements of such Person and its Restricted Subsidiaries with respect to
Disqualified Stock and with respect to all other Preferred Stock of Restricted
Subsidiaries of such Person (in each case whether in cash or otherwise (except
dividends payable solely in shares of Capital Stock of such Person or such
Restricted Subsidiary)) paid, declared, accrued or accumulated during such
period times a fraction the numerator of which is one and the denominator of
which is one minus the then effective consolidated Federal, state and local tax
rate of such Person, expressed as a decimal.
'Consolidated Net Income' of any Person means for any period the
consolidated net income (or loss) of such Person and its Restricted Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP;
provided, however, that there shall be excluded therefrom (a) the net income (or
loss) of any Person acquired by such Person or a Restricted Subsidiary of such
Person in a pooling-of-interests transaction for any period prior to the date of
such transaction, (b) the net income (but not net loss) of any Restricted
Subsidiary of such Person which is subject to restrictions which prevent or
limit the payment of dividends or the making of distributions to such Person to
the extent of such restrictions (regardless of any waiver thereof), (c) non-cash
gains and losses due solely to fluctuations in currency values, (d) the net
income of any Person that is not a Restricted Subsidiary of such Person, except
to the extent of the amount of dividends or other distributions representing
such Person's proportionate share of such other Person's net income for such
period actually paid in cash to such Person by such other Person during such
period, (e) gains but not losses on Asset Dispositions by such Person or its
Restricted Subsidiaries, (f) all gains and losses classified as extraordinary,
unusual or nonrecurring in accordance with GAAP and (g) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings (or losses) of the successor
corporation prior to such consolidation, merger or transfer of assets.
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'Continuing Director' means a director who either was a member of the Board
of Directors of the Company on the Issue Date or who became a director of the
Company subsequent to the Issue Date and whose election, or nomination for
election by the Company's stockholders, was duly approved by a majority of the
Continuing Directors then on the Board of Directors of the Company, either by a
specific vote or by approval of the proxy statement issued by the Company on
behalf of the entire Board of Directors of the Company in which such individual
is named as nominee for director.
'Credit Agreement' means, collectively, (i) that certain Credit Agreement,
dated as of [ ], between the Company and Fleet National Bank and (ii) any
Refinancings thereof or any amendments, modifications or supplements thereto
(including, without limitation, any amendment increasing the amount borrowed or
reimbursement obligation thereunder) whether by or with the same or any other
lender, creditor, or group of creditors and including related notes, guarantee
agreements and other instruments and agreements executed in connection
therewith.
'Default' means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
'Designated Senior Debt' means (i) so long as the Credit Agreement is in
effect, the Senior Debt Incurred thereunder and (ii) thereafter, any other
Senior Debt which has at the time of initial issuance an aggregate outstanding
principal amount in excess of $25 million which has been so designated as
Designated Senior Debt by the Board of Directors of the Company at the time of
initial issuance in a resolution delivered to the Trustee.
'Disqualified Stock' of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final maturity of the Notes other than
pursuant to change of control provisions similar to those applicable to the
Notes, provided, however, that such provisions expressly provided that no
payment can be made on such Capital Stock until any Offer to Purchase the Notes
required pursuant to the provisions described under '--Change of Control' above
shall have been consummated and paid in full).
'EBITDA' of any Person means for any period the Consolidated Net Income of
such Person for such period increased (to the extent Consolidated Net Income for
such period has been reduced thereby) by the sum of (without duplication) (i)
Consolidated Interest Expense of such Person for such period, plus (ii)
Consolidated Income Tax Expense of such Person for such period, plus (iii) the
consolidated depreciation and amortization expense included in the income
statement of such Person prepared in accordance with GAAP for such period, plus
(iv) any other non-cash charges to the extent deducted from or reflected in
Consolidated Net Income except for any non-cash charges that represent accruals
of, or reserves for, cash disbursements to be made in any future accounting
period.
'Exchange Act' means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated by the Commission thereunder.
'GAAP' means generally accepted accounting principles, consistently
applied, as in effect on the Issue Date in the United States of America, as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as is approved by a significant segment of the
accounting profession in the United States. All ratios and computations based on
GAAP contained in the Indenture shall be computed in conformity with GAAP
applied on a consistent basis.
'Guarantee' means the guarantee of the Notes by each Guarantor under the
Indenture.
'Guarantor' means the Company, each of its existing Restricted Subsidiaries
(other than the Issuer) and each Restricted Subsidiary of the Company formed or
acquired after the Issue Date, which pursuant to the terms of the Indenture
executes a supplement to the Indenture as a Guarantor.
'Incur' means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and 'Incurrence,' 'Incurred' and
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'Incurring' shall have meanings correlative to the foregoing). Indebtedness of
any Person or any of its Restricted Subsidiaries existing at the time such
Person becomes a Restricted Subsidiary of such Person (or is merged into or
consolidates with such Person or any of its Restricted Subsidiaries), whether or
not such Indebtedness was incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary of such Person (or being merged
into or consolidated with such Person or any of its Restricted Subsidiaries),
shall be deemed Incurred at the time any such Person becomes a Restricted
Subsidiary of such Person or merges into or consolidates with such Person or any
of its Restricted Subsidiaries.
'Indebtedness' means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations Incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not overdue or
which are being contested in good faith), (v) every Capital Lease Obligation of
such Person, (vi) every net obligation under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements of such
Person and (vii) every obligation of the type referred to in clauses (i) through
(vi) of another Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise. Indebtedness shall
include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Stock of the Company, and any
Preferred Stock of a Subsidiary of the Company (other than Preferred Stock of a
Subsidiary of the Company issued to and held by the Company or a Restricted
Subsidiary of the Company). Indebtedness shall never be calculated taking into
account any cash and cash equivalents held by such Person. Indebtedness shall
not include obligations arising from agreements of the Company or a Restricted
Subsidiary of the Company to provide for indemnification, adjustment of purchase
price, earn-out, or other similar obligations, in each case, incurred or assumed
in connection with the disposition of any business or assets of a Restricted
Subsidiary of the Company.
'Investment' by any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by any other Person. If the Company or any
Restricted Subsidiary sells or otherwise disposes of any Voting Stock of any
direct or indirect Restricted Subsidiary such that, after giving effect to any
such sale or disposition, the Company no longer owns, directly or indirectly,
greater than 50% of the outstanding Voting Stock of such Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition in an amount equal to the fair market value of the Capital
Stock not so sold or otherwise disposed of.
'Issue Date' means the original issue date of the Notes.
'Lien' means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
'Management Investors' means any of [ ] and other full-time
members of management of the Company who acquire stock of the Company through
management stock purchase or option plans.
'Net Available Proceeds' from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom by such Person,
including any cash received by way of deferred payment or upon the monetization
or other disposition of any non-cash consideration (including notes or other
securities) received in connection with such Asset Disposition, net of (i) all
legal, title and recording tax expenses, commissions and other fees and
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expenses incurred and all federal, state, foreign and local taxes required to be
accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Restricted Subsidiaries on any Indebtedness
which is secured by such assets in accordance with the terms of any Lien upon or
with respect to such assets or which must by the terms of such Lien, or in order
to obtain a necessary consent to such Asset Disposition or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all payments made
with respect to liabilities associated with the assets which are the subject of
the Asset Disposition, including, without limitation, trade payables and other
accrued liabilities, (iv) appropriate amounts to be provided by such Person or
any Restricted Subsidiary thereof, as the case may be, as a reserve in
accordance with GAAP against any liabilities associated with such assets and
retained by such Person or any Restricted Subsidiary thereof, as the case may
be, after such Asset Disposition, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, until such time as
such amounts are no longer reserved or such reserve is no longer necessary (at
which time any remaining amounts will become Net Available Proceeds to be
allocated in accordance with the provisions of clause (iii) of the covenant of
the Indenture described under '--Covenants--Limitation on Certain Asset
Dispositions') and (v) all distributions and other payments made to minority
interest holders in Restricted Subsidiaries of such Person or joint ventures as
a result of such Asset Disposition.
'Net Investment' means the excess of (i) the aggregate amount of all
Investments in Unrestricted Subsidiaries or joint ventures made by the Company
or any Restricted Subsidiary on or after the Issue Date (in the case of an
Investment made other than in cash, the amount shall be the fair market value of
such Investment as determined in good faith by the Board of Directors of the
Company or such Restricted Subsidiary) over (ii) the aggregate amount returned
in cash on or with respect to such Investments whether through interest
payments, principal payments, dividends or other distributions or payments,
provided, however, that such payments or distributions shall not be (and have
not been) included in subclause (b) of clause (3) of the first paragraph
described under '-- Covenants--Limitation on Restricted Payments,' provided,
further that with respect to all Investments made in any Unrestricted Subsidiary
or joint venture the amounts referred to in clause (ii) above with respect to
such Investments shall not exceed the aggregate amount of all such Investments
made in such Unrestricted Subsidiary or joint venture.
'Note Payment' has the meaning set forth in '-- Ranking.'
'Offer To Purchase' means a written offer (the 'Offer') sent by the Issuer
by first class mail, postage prepaid, to each Holder at his address appearing in
the register for the Notes on the date of the Offer offering to purchase up to
the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the 'Expiration Date') of the Offer to Purchase which shall be not less than 30
days nor more than 60 days after the date of such Offer and a settlement date
(the 'Purchase Date') for purchase of Notes within five Business Days after the
Expiration Date. The Issuer shall notify the Trustee at least 15 Business Days
(or such shorter period as is acceptable to the Trustee) prior to the mailing of
the Offer of the Issuer's obligation to make an Offer to Purchase, and the Offer
shall be mailed by the Issuer or, at the Issuer's request, by the Trustee in the
name and at the expense of the Issuer. The Offer shall contain all the
information required by applicable law to be included therein. The Offer shall
contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the 'Purchase Amount');
(4) the purchase price to be paid by the Issuer for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the 'Purchase Price');
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
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(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by the Issuer pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Issuer or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Issuer and the Trustee
duly executed by, the Holder thereof or his attorney duly authorized in
writing);
(10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Issuer (or its Paying Agent) receives, not later than
the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note the
Holder tendered, the certificate number of the Note the Holder tendered and
a statement that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes and, in the case of an Offer to Purchase
pursuant to 'Covenants--Limitation on Certain Asset Dispositions,' other
Senior Subordinated Indebtedness in an aggregate principal amount less than
or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Issuer shall purchase all such Notes
and other Senior Subordinated Indebtedness and (b) if Notes and, in the
case of an Offer to Purchase pursuant to 'Covenants--Limitation on Certain
Asset Dispositions,' other Senior Subordinated Indebtedness in an aggregate
principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Issuer shall purchase
Notes and other Senior Subordinated Indebtedness having an aggregate
principal amount (or the accreted value of such other Senior Subordinated
Indebtedness, if such other Senior Subordinated Indebtedness is issued at a
discount) equal to the Purchase Amount on a pro rata basis (with such
adjustments as may be deemed appropriate so that only Notes in
denominations of $1,000 or integral multiples thereof shall be purchased);
and
(12) that in the case of any holder whose Note is purchased only in
part, the Issuer shall execute and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
'Permitted Holder' means any of (i) 399 and its Related Persons,
Affiliates, and Permitted Transferees, (ii) the Management Investors and their
Related Persons, Affiliates and Permitted Transferees, and (iii) with respect to
the Issuer, the Company and its direct and indirect Wholly Owned Subsidiaries.
'Permitted Investments' means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or any
governmental entity or agency or political subdivision thereof (provided, that
the good faith and credit of the United States of America is pledged in support
thereof), maturing within one year of the date of purchase; (ii) Investments in
commercial paper issued by corporations or financial institutions maturing
within 180 days from the date of the original issue thereof, and rated 'P-1' or
better by Moody's Investors Service or 'A-1' or better by Standard & Poor's
Corporation or an equivalent rating or better by any other nationally recognized
securities rating agency; (iii) Investments in certificates of deposit issued or
acceptances accepted by or guaranteed by any bank or trust company organized
under the laws of the United States of America or any state thereof or the
District of Columbia, in each case having capital, surplus and undivided profits
totalling more than $500,000,000, maturing within one year of the date of
purchase; (iv) Investments representing Capital Stock or obligations issued to
the Company or any of its Restricted Subsidiaries in the course of the good
faith settlement of claims against any other Person or by reason of a
composition or readjustment of debt or a reorganization of any debtor of the
Company or any of its Restricted
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Subsidiaries; (v) deposits, including interest-bearing deposits, maintained in
the ordinary course of business in banks; (vi) any Investment in any Person;
provided, however, that after giving effect to any such Investment such Person
shall become a Restricted Subsidiary of the Company or such Restricted
Subsidiary; (vii) trade receivables and prepaid expenses, in each case arising
in the ordinary course of business; provided, however, that such receivables and
prepaid expenses would be recorded as assets of such Person in accordance with
GAAP; (viii) endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable instruments of
such other Person received as payment for ordinary course of business trade
receivables; (ix) any interest swap or hedging obligation with an unaffiliated
Person otherwise permitted by the Indenture; (x) Investments received as
consideration for an Asset Disposition in compliance with the provisions of the
Indenture described under '--Covenants--Limitation on Certain Asset
Dispositions' above; (xi) loans and advances to employees made in the ordinary
course of business; (xii) Investments the sole consideration for which consists
of Capital Stock of the Company and (xiii) Investments in businesses
complementary to the businesses of the Company or any of its Restricted
Subsidiaries in an amount not to exceed $5.0 million outstanding at any one
time.
'Permitted Junior Securities' means (i) Qualified Stock of the Issuer, (ii)
securities of the Issuer or any other corporation authorized by an order or
decree giving effect, and stating in such order or decree that effect is given,
to the subordination of such securities to the Senior Debt of the Issuer, and
made by a court of competent jurisdiction in a reorganization proceeding under
any applicable bankruptcy, insolvency or other similar law, or (iii) any
securities of the Issuer provided for by a plan of reorganization or
readjustment that are subordinated in right of payment to all Senior Debt of the
Issuer that may at the time be outstanding to substantially the same extent as,
or to a greater extent than, the Notes are subordinated as provided in the
Indenture.
'Permitted Transferee' means, (a) with respect to any Management Investor
(i) any spouse or lineal descendant (including by adoption and stepchildren) of
such Management Investor and (ii) any trust, corporation or partnership, the
beneficiaries, stockholders or partners of which consist entirely of one or more
Management Investors or individuals described in clause (a)(i) above and (b)
with respect to 399 (i) Citicorp and any direct or indirect Wholly Owned
Subsidiary of Citicorp and any officer, director or employee of 399, Citicorp or
any Wholly Owned Subsidiary of Citicorp, (ii) any spouse or lineal descendant
(including by adoption and stepchildren) of the officers, directors and
employees referred to in clause (b)(i) above and (iii) any trust, corporation or
partnership 100% in interest of the beneficiaries, stockholders or partners of
which consists of one or more of the persons described in clause (b)(i) or (ii)
above.
'Person' means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
'Preferred Stock', as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
'Public Equity Offering' means an underwritten public offering of Common
Stock of the Issuer or the Company pursuant to an effective registration
statement filed under the Securities Act (excluding any registration statements
filed on Form S-8 or any successor form) provided, however, that in the event of
a Public Equity Offering by the Company, the Company contributes to the capital
of the Issuer the portion of the net cash proceeds of such Public Equity
Offering necessary to pay the aggregate redemption price (plus accrued interest
to the redemption date) of the Notes to be redeemed, if any, pursuant to
'--Optional Redemption' at the option of the Company.
'Purchase Date' has the meaning set forth in the definition of 'Offer to
Purchase' above.
'Qualified Stock' means any Capital Stock of any Person other than
Disqualified Stock.
'Refinance' means refinance, renew, extend, replace or refund; and
'Refinancing' and 'Refinanced' have correlative meanings.
'Related Person' of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more
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of the equity interest in such Person) or (b) 5% or more of the combined voting
power of the Voting Stock of such Person.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing on the Issue Date (including without reservation, the Issuer).
'Senior Debt' means, with respect to any Person at any date, (i) in the
case of the Company or the Guarantors, all Indebtedness under the Credit
Agreement, including principal, premium, if any, and interest on such
Indebtedness and all other amounts due on or in connection with such
Indebtedness including all charges, fees and expenses, (ii) all other
Indebtedness of such Person for borrowed money, including principal, premium, if
any, and interest on such Indebtedness, unless the instrument under which such
Indebtedness for money borrowed is created, incurred, assumed or guaranteed
expressly provides that such Indebtedness for money borrowed is not senior or
superior in right of payment to the Notes, and all renewals, extensions,
modifications, amendments or refinancing thereof and (iii) all interest on any
Indebtedness referred to in clauses (i) and (ii) accruing during the pendency of
any bankruptcy or insolvency proceeding, whether or not allowed thereunder.
Notwithstanding the foregoing, Senior Debt shall not include (a) Indebtedness
which is pursuant to its terms or any agreement relating thereto or by operation
of law subordinated or junior in right of payment or otherwise to any other
Indebtedness of such Person; provided, however, that no Indebtedness shall be
deemed to be subordinate or junior in right of payment or otherwise to any other
Indebtedness of a Person solely by reason of such other Indebtedness being
secured and such Indebtedness not being secured, (b) the Notes, (c) any
Indebtedness of such Person to any of their Subsidiaries, (d) any Indebtedness
which, when Incurred and without respect to any election under Section 1111(b)
of the Bankruptcy Code, is without recourse to the Company and (e) to the extent
that it may constitute Indebtedness, any obligations in respect of any trade
payable Incurred for the purchase of goods or materials, or for services,
obtained, in the ordinary course of business.
'Senior Subordinated Indebtedness' means the Notes and any other
Indebtedness of the Issuer that specifically provides that such Indebtedness is
to rank pari passu in right of payment with the Notes and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Issuer which is not Senior Debt.
'Subordinated Indebtedness' means any Indebtedness (whether outstanding on
the date hereof or hereafter Incurred) which is by its terms expressly
subordinate or junior in right of payment to (i) the Notes, with respect to
Indebtedness of the Issuer, and (ii) the Guarantees with respect to Indebtedness
of a Guarantor.
'Subsidiary' of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more other Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and voting power relating to the
policies, management and affairs thereof.
'Treasury Rate' means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the date fixed
for redemption (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the
period from the date fixed for redemption to , 2003, provided,
however, that if the period from the date fixed for redemption to ,
2003 is not equal to the constant maturity of a United States Treasury security
for which a weekly average yield is given, the Treasury Rate shall be obtained
by linear interpolation calculated to the nearest one-twelfth of a year) from
the weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the date fixed for redemption
to , 2003 is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company (other
than the Issuer) formed or acquired after the Issue Date that at the time of
determination is designated an Unrestricted Subsidiary by the Board of Directors
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. Any such designation by the Board of Directors will be evidenced to
the Trustee by promptly filing with the Trustee a copy
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of the board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions. The Board of Directors of the Company may not designate any
Subsidiary of the Company to be an Unrestricted Subsidiary if, after such
designation, (a) the Company or any other Restricted Subsidiary (i) provides
credit support for, or a guarantee of, any Indebtedness of such Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of
such Subsidiary, (b) a default with respect to any Indebtedness of such
Subsidiary (including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its final scheduled
maturity or (c) such Subsidiary owns any Capital Stock of, or owns or holds any
Lien on any property of, any Restricted Subsidiary which is not a Subsidiary of
the Subsidiary to be so designated.
'Voting Stock' of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
'Wholly Owned Subsidiary' of any Person means a Restricted Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof (the 'Underwriting Agreement'), J.P. Morgan
Securities Inc. and Bear, Stearns & Co. Inc. (collectively, the 'Underwriters')
have severally agreed to purchase from the Issuer, and the Issuer has agreed to
sell to them, severally, the principal amount of Notes set forth opposite their
names below. Under the terms and conditions of the Underwriting Agreement, the
Underwriters are obligated to take and pay for the entire principal amount of
the Notes if any Notes are purchased.
UNDERWRITER PRINCIPAL AMOUNT
- ------------------------------- ----------------
J.P. Morgan Securities Inc..... $
Bear, Stearns & Co. Inc........
----------------
Total........................ $
----------------
----------------
The Underwriters propose initially to offer the Notes directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at that price less a concession not in excess
of % of the principal amount of the Notes. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of % of the principal
amount of the Notes to certain other dealers. After the initial public offering
of the Notes offered hereby, the public offering price and such concession may
be changed.
In the Underwriting Agreement, the Issuer and each of the Guarantors, on a
joint and several basis have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the federal securities laws, or
to contribute to payments that the Underwriters may be required to make in
respect thereof.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may over allot the offering, creating a
syndicate short position. In addition, the Underwriters may bid for, and
purchase, Notes in the open market to cover syndicate shorts or to stabilize the
price of the Notes. Finally, the underwriting syndicate may reclaim selling
concessions allowed for distributing the Notes in the offering of the Notes, if
the syndicate repurchases previously distributed Notes in syndicate covering
transactions, stabilization transactions of otherwise. Any of these activities
may stabilize or maintain the market price of the Notes above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
There is currently no trading market for the Notes. The Issuer does not
intend to list the Notes on any securities exchange. The Company has been
advised by the Underwriters that the Underwriters currently intend to make a
market in the Notes; however, the Underwriters are not obligated to do so and
may discontinue any such market making activities at any time without notice. No
assurance can be given as to the development or liquidity of any trading market
for the Notes.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Morgan,
Lewis & Bockius LLP, New York, New York. Certain matters in connection with the
Offering will be passed upon for the Underwriters by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York.
EXPERTS
The consolidated financial statements and schedule of Allied Digital
Technologies Corp. and subsidiaries as of and for the years ended July 31, 1997
and 1996 have been included in this Registration Statement and Prospectus of
which it forms a part in reliance upon the report of Grant Thornton LLP,
independent certified public accountants, appearing elsewhere in this
Registration Statement and Prospectus, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements and schedule of Allied Digital
Technologies Corp. and subsidiaries as of and for the year ended July 31, 1995
have been included in this Registration Statement and Prospectus of which it
forms a part in reliance upon the report of Arthur Andersen LLP, independent
certified public accountants, appearing elsewhere in this Registration Statement
and Prospectus, and upon the authority of said firm as experts in accounting and
auditing.
72
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-2 (herein, together with all
amendments, exhibits and schedules thereto, referred to as the 'Registration
Statement') under the Securities Act with respect to the Notes offered hereby.
In accordance with the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the schedules and exhibits thereto. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. For further information pertaining to the Company and the
Notes, reference is made to such Registration Statement. The Registration
Statement may be inspected and copied at the public reference facilities
maintained by the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, or at its regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at
Seven World Trade Center, Suite 1300, New York, New York 10048. Any interested
party may obtain copies of all or any portion of the Registration Statement and
the exhibits thereto at prescribed rates from the Public Reference Section of
the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
Room 1024, Washington, D.C. 20549. In addition, registration statements and
other filings made with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ('EDGAR') system are publicly available through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.com.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. Such reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The shares of Common Stock of the Company are listed on the American Stock
Exchange, and such reports, proxy statements and other information concerning
the Company are available for inspection and copying at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006.
INCORPORATION BY REFERENCE
The following documents, heretofore filed with the Commission pursuant to
the Exchange Act, are hereby incorporated by reference:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1997, which includes the report of independent public accountants
on the financial statements included therein;
(ii) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended October 31, 1997;
(iii) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended January 31, 1998;
(iv) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended April 30, 1998; and
(v) The Company's Current Report on Form 8-K, as filed with the
Commission on May 15, 1998.
Any statement contained in a document incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owners, to whom this Prospectus is delivered, on the request of such
person, a copy (without exhibits, other than exhibits specifically incorporated
by reference) of any or all of the documents incorporated by reference in this
Prospectus. Written or oral requests for such copies should be directed to
Secretary, at 140 Fell Court, Hauppauge, New York 11788, telephone number (516)
232-2323.
73
<PAGE>
OTHER MATTERS
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS OF
ALLIED DIGITAL TECHNOLOGIES CORP.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Certified Public Accountants........................................................ F-2
Consolidated Balance Sheets--July 31, 1997 and 1996........................................................ F-4
Consolidated Statements of Earnings for the Years Ended July 31, 1997,
1996 and 1995............................................................................................ F-5
Consolidated Statement of Stockholders' Equity for the Years Ended July 31, 1997,
1996 and 1995............................................................................................ F-6
Consolidated Statements of Cash Flows for the Years Ended July 31, 1997, 1996 and 1995..................... F-7
Notes to Consolidated Financial Statements--Years Ended July 31, 1997, 1996 and 1995....................... F-8
Condensed Consolidated Balance Sheets--April 30, 1998 and July 31, 1997 (unaudited)........................ F-26
Condensed Consolidated Statements of Earnings--Three and Nine Month Periods Ended April 30, 1998 and 1997
(unaudited).............................................................................................. F-27
Condensed Consolidated Statements of Cash Flows--Nine Month Periods Ended April 30, 1998
and 1997 (unaudited)..................................................................................... F-28
Notes to Condensed Consolidated Financial Statements (unaudited)........................................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Allied Digital Technologies Corp.
We have audited the accompanying consolidated balance sheets of Allied
Digital Technologies Corp. and subsidiaries (the 'Company') as of July 31, 1997
and 1996, and the related consolidated statements of earnings, stockholders'
equity and cash flows for the years then ended. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Allied Digital
Technologies Corp. and subsidiaries as of July 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
We have also audited Schedule II of Allied Digital Technologies Corp. and
subsidiaries as of and for the years ended July 31, 1997 and 1996. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Melville, New York
October 24, 1997 (except for
Note 14, as to which the date is
May 12, 1998)
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Allied Digital Technologies Corp.
We have audited the accompanying consolidated statements of earnings,
stockholders' equity and cash flows of Allied Digital Technologies Corp. (a
Delaware corporation) and subsidiaries for the year ended July 31, 1995. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Allied Digital Technologies Corp. and subsidiaries for the year ended July
31, 1995 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule, as of and for the year ended July 31, 1995 has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan
November 9, 1995
F-3
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................... $ 1,192,827 $ 830,723
Accounts receivable, less allowance for doubtful accounts of $1,650,000 and
$1,515,000 at July 31, 1997 and 1996, respectively.......................... 25,516,385 23,906,859
Inventories.................................................................... 4,380,126 5,374,498
Prepaid expenses............................................................... 785,737 756,009
Deferred income taxes.......................................................... 3,422,006 3,312,869
------------ ------------
Total current assets...................................................... 35,297,081 34,180,958
Property and equipment, at cost
Manufacturing equipment........................................................ 63,182,825 62,266,718
Leasehold improvements......................................................... 10,728,648 10,408,703
Furniture and fixtures......................................................... 8,154,766 8,072,625
Capitalized leased equipment................................................... 4,000,922 2,900,312
Automobiles.................................................................... 197,499 197,499
------------ ------------
86,264,660 83,845,857
Less accumulated depreciation and amortization................................. (59,481,974) (51,620,715)
------------ ------------
26,782,686 32,225,142
Other assets:
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $7,203,805 and $4,620,134 at July 31, 1997 and 1996,
respectively................................................................ 43,064,233 45,537,736
Deferred income taxes.......................................................... 708,173
Deferred charges and other..................................................... 2,736,392 1,225,624
------------ ------------
45,800,625 47,471,533
------------ ------------
$107,880,392 $113,877,633
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capitalized lease obligations......... $ 9,836,946 $ 9,153,641
Accounts payable............................................................... 14,780,703 16,805,887
Accrued liabilities............................................................ 6,735,393 8,712,456
------------ ------------
Total current liabilities................................................. 31,353,042 34,671,984
Long-term debt and capitalized lease obligations, less current portion above..... 26,711,260 30,232,409
Subordinated notes payable to stockholders....................................... 10,060,366 10,996,386
Deferred income taxes............................................................ 1,111,946 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000 shares authorized, no shares issued and
outstanding................................................................. -- --
Common stock, $0.01 par value, 25,000,000 shares authorized, 13,619,644 shares
issued and outstanding...................................................... 136,196 136,196
Additional paid-in capital..................................................... 44,742,073 44,742,073
Accumulated deficit............................................................ (6,234,491) (6,901,415)
------------ ------------
38,643,778 37,976,854
------------ ------------
$107,880,392 $113,877,633
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales....................................................... $159,147,638 $160,941,632 $116,564,144
Cost of sales................................................... 127,034,302 132,261,644 89,442,592
Nonrecurring charge............................................. 1,250,000
------------ ------------ ------------
Gross profit............................................. 32,113,336 27,429,988 27,121,552
------------ ------------ ------------
Operating expenses
Selling, general and administrative........................... 22,246,164 24,371,797 22,254,730
Amortization of excess of cost over fair value
of net assets acquired..................................... 2,583,671 2,580,314 1,559,878
Restructuring charge.......................................... 3,077,295
------------ ------------ ------------
Total operating expenses................................. 24,829,835 30,029,406 23,814,608
------------ ------------ ------------
Income (loss) from operations............................ 7,283,501 (2,599,418) 3,306,944
Other income (expense)
Interest expense.............................................. (5,024,905) (6,186,049) (3,816,376)
Other, net.................................................... 168,328 665,160 762,331
------------ ------------ ------------
Total other income (expense)............................. (4,856,577) (5,520,889) (3,054,045)
------------ ------------ ------------
Income (loss) before income taxes........................ 2,426,924 (8,120,307) 252,899
Provision (credit) for income taxes............................. 1,760,000 (2,534,847) (2,575,618)
------------ ------------ ------------
Net income (loss)........................................ 666,924 (5,585,460) 2,828,517
Pro forma data (unaudited) AFL as a C Corporation
subject to Federal income tax (Note 8)
Adjustment to income tax credit............................... 2,529,990
------------ ------------ ------------
Net income (loss)........................................ $ 666,924 $ (5,585,460) $ 298,527
------------ ------------ ------------
------------ ------------ ------------
Earnings (loss) per share reflecting consolidated operations of
AFL and HMG (Notes 2 and 3)
Earnings (loss) per common share--basic and diluted........... $ .05 $ (.41) $ .05
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares outstanding
Basic......................................................... 13,619,644 13,619,644 13,619,644
------------ ------------ ------------
------------ ------------ ------------
Diluted....................................................... 13,619,644 13,619,644 13,621,113
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ALLIED FILM LABORATORY, INC.
-------------------------------------
ALLIED DIGITAL TECHNOLOGIES CORP. RETAINED
------------------------------------- EARNINGS
COMMON PAID-IN (ACCUMULATED COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) STOCK CAPITAL DEFICIT) TOTAL
-------- ----------- ------------ -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of August 1,
1994...................... $ 2 $ 1,998 $ 23,715 $ 1,893,591 $(1,452,254) $ 467,052
Net income (loss)........... $(1,315,955) 4,144,472 2,828,517
Distributions to
stockholders.............. (500,000) (666,878) (666,878)
ADT organization costs...... (500,000)
Recapitalization and pooling
of AFL and ADT............ 74,907 3,867,739 (23,715) (1,893,591) (2,025,340)
Stock issued to purchase
HMG....................... 61,287 41,372,336 41,433,623
-------- ----------- ------------ -------- ----------- ------------ -----------
Balance as of July 31,
1995...................... 136,196 44,742,073 (1,315,955) 43,562,314
Net loss.................... (5,585,460) (5,585,460)
-------- ----------- ------------ -------- ----------- ------------ -----------
Balance as of July 31,
1996...................... 136,196 44,742,073 (6,901,415) 37,976,854
Net income.................. 666,924 666,924
-------- ----------- ------------ -------- ----------- ------------ -----------
Balance as of July 31,
1997...................... $136,196 $44,742,073 $(6,234,491) $ $ $ $38,643,778
-------- ----------- ------------ -------- ----------- ------------ -----------
-------- ----------- ------------ -------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss).................................................. $ 666,924 $(5,585,460) $ 2,828,517
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Noncash accrued interest to stockholder......................... 600,000 579,726
Write-off of capitalized software costs......................... 837,935
Depreciation and amortization of property and equipment......... 7,861,259 8,716,315 6,871,693
Amortization of excess of cost over fair value of net assets
acquired...................................................... 2,583,671 2,580,314 1,559,878
Deferred income taxes........................................... 1,710,982 (2,534,847) (2,575,618)
Gain on sale of property and equipment.......................... (19,662) (35,502)
Provision for doubtful accounts................................. 1,242,860 1,297,294 937,504
Changes in operating assets and liabilities, net of effect of
acquisitions and mergers
Accounts receivable........................................... (2,852,386) 5,048,617 (4,177,330)
Inventories................................................... 994,372 4,037,751 2,595,669
Prepaid expenses.............................................. (29,728) (1,437) 41,009
Other assets.................................................. (317,183) 1,403,582 (1,474,849)
Accounts payable and accrued liabilities...................... (4,002,247) (2,042,770) 2,496,259
----------- ----------- -----------
Net cash provided by operating activities....................... 8,458,524 14,317,358 9,067,230
----------- ----------- -----------
Cash flows from investing activities
Purchases of property and equipment................................ (1,312,361) (9,304,407) (7,887,612)
Costs of HMG acquisition........................................... (1,520,856)
Proceeds from sale of property and equipment....................... 42,443 150,792
Proceeds from cash surrender value of life insurance............... 754,648
Internally developed software...................................... (1,303,753) (643,723)
----------- ----------- -----------
Net cash used in investing activities........................... (2,616,114) (9,261,964) (9,146,751)
----------- ----------- -----------
Cash flows from financing activities
Net borrowings (payments) under revolving loan..................... 3,922,348 (6,764,383) 6,023,372
ADT organization costs............................................. (500,000)
Repayment of long-term debt and subordinated notes payable......... (12,588,107) (7,335,188) (27,472,086)
Borrowing of long-term debt and subordinated notes payable to
stockholders.................................................... 3,500,000 9,470,620 23,174,729
Principal payments under capitalized lease obligations............. (314,547) (155,131)
Payment of deferred financing fees................................. (731,672)
Distributions to stockholders...................................... (666,878)
----------- ----------- -----------
Net cash used in financing activities........................... (5,480,306) (4,784,082) (172,535)
----------- ----------- -----------
Net increase (decrease) in cash................................. 362,104 271,312 (252,056)
Cash at beginning of year............................................ 830,723 559,411 811,467
----------- ----------- -----------
Cash at end of year.................................................. $ 1,192,827 $ 830,723 $ 559,411
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for Interest........................... $ 4,421,026 $ 5,671,786 $ 4,459,248
----------- ----------- -----------
----------- ----------- -----------
Income taxes.................................................... $ 117,836 $ 8,978 $ 1,144,500
----------- ----------- -----------
----------- ----------- -----------
Supplemental schedule of noncash financing and investing activities:
Equipment under capitalized lease............................... $ 1,106,442 $ 105,784
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997 AND 1996
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by Allied Digital
Technologies Corp. ('Allied Digital'), including the accounts of its
wholly-owned subsidiaries, HMG Digital Technologies Corp. ('HMG') and
subsidiary, HRM Holdings Corp. ('Holdings') and its wholly-owned subsidiary,
Allied Digital, Inc. (formerly known as Hauppauge Record Manufacturing, Ltd.)
('Allied'), and Allied Film Laboratories Inc. ('AFL'), hereinafter referred to
collectively as the 'Company.' Allied Digital is a holding company; all assets,
liabilities and operating activities are related to its wholly-owned
subsidiaries. The consolidated statements of earnings include the operations of
Allied Digital and AFL (entities under common control through January 12, 1995)
for all periods presented. The results of operations of HMG, Holdings and Allied
have been included in the consolidated results of operations since the date of
merger (Note 2). In conjunction with the Company's restructuring plan (Note 10),
AFL merged with and into Allied on November 1, 1996 as a condition to the
Company's debt refinancings described in Note 4 below.
The Company (i) provides video cassette duplication and fulfillment
services in addition to processing and duplicating commercial film and offering
post-production services, and (ii) replicates cassette tapes, VHS video tapes
and compact discs under production contracts with companies primarily in the
recorded music industry.
NOTE 2. MERGERS AND ACQUISITIONS
HMG Merger
Effective January 12, 1995, Allied Digital acquired all of the outstanding
common stock of AFL and HMG in exchange for approximately 55% and 45%,
respectively, of the then outstanding common shares of Allied Digital. In
addition, AFL stockholders were issued Class C warrants to purchase an
additional 1,250,000 shares of Allied Digital common stock (Note 7). Upon
consummation of the merger, existing HMG warrants totalling 3,067,500 shares,
were converted into Allied Digital warrants on similar terms. In addition,
options to acquire up to 400,000 shares of common stock were issued in
substitution for outstanding options of HMG. The acquisition of AFL stock was
accounted for as a merger under the pooling of interests method of accounting as
the companies were under common control. The merger of HMG was accounted for
under the purchase method of accounting as a reverse acquisition of HMG by AFL.
Accordingly, the assets acquired and liabilities assumed of HMG were recorded at
their estimated fair values of approximately $88,666,000 and $45,776,000,
respectively. The excess of fair value of HMG over the estimated fair value of
the net assets acquired was approximately $45,611,000. This asset has been
recorded as excess of cost over fair value of net assets acquired and is being
amortized on a straight-line basis over 20 years.
The unaudited consolidated results of operations on a pro forma basis for
the year ended July 31, 1995 as though HMG had been acquired as of August 1,
1994 are presented below. The pro forma information does not purport to be
indicative of what would have occurred had the acquisition been made as of that
date or of results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, 1995
-------------
(UNAUDITED)
<S> <C>
Net sales..................................................................... $ 158,079,000
Income before extraordinary item.............................................. 667,000
Net income.................................................................... 667,000
Earnings per common share before extraordinary item........................... .05
Net earnings per common share--basic and diluted.............................. .05
Weighted average common shares--basic......................................... 13,619,644
Weighted average common shares--diluted....................................... 13,621,113
</TABLE>
In preparing the pro forma data, adjustments have been made for: (i) the
amortization of the excess of cost over fair value of net assets acquired and
stepped-up property and equipment; (ii) the interest expense related to the
borrowings to finance the shareholder distributions of previously taxed income
and the conversion of
F-8
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 2. MERGERS AND ACQUISITIONS--(CONTINUED)
preferred stock into subordinated debt; (iii) the elimination of intercompany
sales; (iv) the elimination of merger related costs and redundant general and
administrative costs; and (v) the related tax impacts including the revocation
of the Subchapter S election.
The following is a reconciliation from reported net income for Allied
Digital to pro forma consolidated operations of HMG and AFL:
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, 1995
-------------
(UNAUDITED)
<S> <C>
Net income as reported.................................................................... $ 2,829,000
HMG net earnings, pre-acquisition......................................................... 768,000
Elimination of merger costs and redundancies.............................................. 1,344,000
Amortization of cost in excess of fair value of net assets acquired....................... (1,013,000)
Interest expense.......................................................................... (231,000)
Reversal of tax credit arising from revoking S election................................... (1,625,000)
Pro forma tax provision................................................................... (1,193,000)
Depreciation of excess of fair value over book for acquired assets........................ (212,000)
-------------
$ 667,000
-------------
-------------
</TABLE>
AFL provided certain video replication services to HMG. For the period from
August 1, 1994 through January 11, 1995, sales to HMG amounted to approximately
$4,000,000.
VCA Acquisition
Effective January 12, 1993, the Company acquired certain assets and assumed
certain liabilities of VCA/Teletronics, Inc. ('VCA') for cash of $1,000,000 and
a long-term note payable of $1,570,315 (Note 4). Also, under the purchase
agreement, the Company is contingently liable to VCA for certain royalty
payments payable for each of the calendar years ending December 31, 1996 through
and including December 31, 2000 in an amount based on the number of videotape
duplication units sold during those years. As the amount of videotape
duplication units to be sold during those open years is not reasonably
estimable, a liability has not been reflected in the accompanying financial
statements. The purchase agreement also contained a covenant not-to-compete for
a period of three years.
The Company accounted for the acquisition as a purchase. The initial excess
of consideration paid over the estimated fair value of the net assets acquired
in the amount of $4,546,842 has been recorded as excess of fair value over the
cost of net assets acquired and is being amortized on a straight-line basis over
15 years. Contingent purchase price consideration paid during fiscal 1997 of
approximately $119,000 pertaining to calendar year ended December 31, 1996 is
being amortized on a straight-line basis over the remaining amortization period.
F-9
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the consolidated financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of Allied
Digital and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
Inventories
Inventories utilized in the manufacturing and loading of videocassettes,
audiocassettes and manufacturing of compact discs are valued at the lower of
cost or market, using the first-in, first-out (FIFO) method. Elements included
in the determination of cost include direct materials, direct labor and certain
other manufacturing labor and overhead costs.
Inventories consist of the following classifications:
<TABLE>
<CAPTION>
JULY 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials..................................................... $3,415,970 $3,882,455
Work-in-process................................................... 674,125 827,142
Finished goods.................................................... 290,031 664,901
---------- ----------
$4,380,126 $5,374,498
---------- ----------
---------- ----------
</TABLE>
Property and Equipment
Property and equipment are stated at historical cost. Depreciation and
amortization are provided for over the estimated service lives of the assets.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter. Straight-line and
accelerated methods are used for reporting purposes. Accelerated methods are
used for income tax purposes. Accumulated amortization on capitalized leased
equipment amounted to $3,006,637 and $2,685,744 as of July 31, 1997 and 1996,
respectively.
Long-Lived Assets
Management reviews and evaluates its long-lived assets (including the
excess of cost over fair value of net assets acquired and property and
equipment) for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. As part of this
review and evaluation, the Company considers the value of anticipated
undiscounted cash flow attributable to such long-lived assets in assessing
potential impairment.
Deferred Charges and Other
Deferred charges and other consist principally of customer allowances under
long-term contracts, internally developed software costs, and loan origination
fees associated with the Company's financing transactions. Customer allowances
are amortized over the term of the contract provided recoverability is assured
(Note 9). Internally developed software is being amortized on a straight-line
basis over a five-year expected useful life; however, internally developed
software costs incurred prior to fiscal 1997 were written off in fiscal 1996 as
an abandoned asset in connection with the Company's restructuring plan (Note
10). Loan origination fees are being amortized over the term of the underlying
credit agreement.
Revenue Recognition
Revenue from substantially all production contracts is generally recognized
upon shipment of the finished goods. In addition, for certain contracts, where
risk and rewards of ownership have passed to the customer, the Company
recognizes revenue when production is complete.
F-10
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Significant Customers
During the year ended July 31, 1997, sales to two customers accounted for
17% and 14% of net sales with corresponding accounts receivable from these
customers totaling 11% and 9% of accounts receivable as of July 31, 1997,
respectively. During the year ended July 31, 1996, sales to two customers
accounted for 16% and 13% of net sales with corresponding accounts receivable
from these customers totaling 13% and 8% of accounts receivable as of July 31,
1996, respectively. During the year ended July 31, 1995, sales to one customer
accounted for 15% of net sales with corresponding accounts receivable from this
customer totaling 12% of accounts receivable as of July 31, 1995.
Other Income
Other income, net includes interest income, recovery of accounts receivable
previously written off as uncollectible and scrap material sales.
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock-based compensation awards. Accordingly,
no compensation cost has been recognized for the awards granted under the Plan.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes by applying statutory tax rates in effect at the balance sheet date to
differences among the book and tax bases of assets and liabilities. The
resulting deferred tax liabilities or assets are adjusted to reflect changes in
tax laws or rates by means of charges or credits to income tax expense. A
valuation allowance is recognized to the extent a portion or all of a deferred
tax asset may not be realizable.
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
('SFAS No. 128'), 'Earnings Per Share,' which supersedes Accounting Principles
Board Opinion No. 15. Under SFAS No. 128, earnings (loss) per common share is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
(loss) per share reflect the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock. Prior period amounts have
been restated, where appropriate, to conform to the requirements of SFAS No.
128.
Financial Instruments
The Company's principal financial instruments consist of accounts
receivable, accounts payable and debt. Because of their short maturity, the
carrying value of accounts receivable, accounts payable and short-term debt
approximates fair value. The fair value of long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
Use of Estimates in the Preparation of Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior years' amounts to
conform with the current year's presentation.
F-11
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 4. LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE AND CAPITALIZED LEASE
OBLIGATIONS
Long-term debt, subordinated notes payable and capitalized lease
obligations consist of the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Loan and Security Agreement
Term loan.............................................................. $18,782,232 $27,112,055
Revolving loan......................................................... 14,480,840 10,558,492
Additional loan........................................................ 1,020,000
Subordinated 10% Notes Payable to Stockholders........................... 7,179,726 6,579,726
Additional Subordinated 10% Notes Payable to Stockholders................ 2,000,000
Subordinated 12% Series A Note Payable to Stockholder.................... 3,500,000
Subordinated 11% Series B Notes Payable to Stockholders.................. 880,640 916,660
Note Payable to VCA...................................................... 1,170,514 1,389,186
Capitalized lease obligations............................................ 995,137 203,252
Other.................................................................... 99,483 123,065
----------- -----------
46,608,572 50,382,436
Less current portion..................................................... (9,836,946) (9,153,641)
----------- -----------
$36,771,626 $41,228,795
----------- -----------
----------- -----------
</TABLE>
Debt Refinancings
In conjunction with the Company's restructuring plan and merger of AFL into
Allied referred to in Note 1 above, (i) the separate senior loan credit
facilities previously maintained by AFL and Allied with a bank were combined
under an amended and restated loan and security agreement between Allied and
such bank dated as of October 30, 1996 and effectuated as of November 1, 1996,
(ii) the Subordinated 12% Series A Note Payable to Stockholder was repaid in
full on November 8, 1996 with funds of (a) $1.5 million available as an
additional loan under the October 30, 1996 amended and restated loan and
security agreement and (b) $2 million advanced by certain other stockholders in
the form of additional subordinated notes dated October 30, 1996 and (iii) the
payment terms of the Subordinated 10% Notes Payable to Stockholders having an
original principal sum of $6,000,000, plus unpaid interest thereon of $1,179,726
through July 31, 1997 ($579,726 as of July 31, 1996) were extended.
Loan and Security Agreement
The October 30, 1996 loan and security agreement provided the Company with
borrowings of up to $48,910,169 under credit facilities consisting of a (i)
$25,410,169 term loan, (ii) $22,000,000 revolving loan facility (combined with a
$1,500,000 letter of credit facility) and (iii) $1,500,000 additional loan. As
of August 19, 1997, Allied entered into an amendment to the October 30, 1996
loan and security agreement with the bank which provides the Company with a
$3,450,000 capital expenditure credit facility.
The loan and security agreement (as amended) is collateralized by
substantially all of the assets of the Company. The agreement contains covenants
which, among other matters, (1) require the Company to (i) maintain increasing
levels of net worth, (ii) maintain a minimum debt service ratio and (iii) limit
its annual capital expenditures, and (2) place limitations on (i) additional
indebtedness, encumbrances and guarantees, (ii) consolidations, mergers or
acquisitions, (iii) investments or loans, (iv) disposal of property, (v)
compensation to officers and others, (vi) dividends and stock redemptions, (vii)
issuance of stock, and (viii) transactions with affiliates, all as defined in
the agreement. As of July 31, 1997, there is no equity available for the payment
of dividends to stockholders. The agreement also contains provisions for fees
payable to the bank upon prepayment and an increased rate of interest during
periods of default. The term of Note 5--Employee Benefit Plans this agreement
extends to November 30, 2000.
F-12
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 4. LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE AND CAPITALIZED LEASE
OBLIGATIONS--(CONTINUED)
a. Term Loan
The $25,410,169 term loan dated October 30, 1996 ($27,112,055 at July 31,
1996) is payable in an initial scheduled installment aggregating $1,695,462 on
October 31, 1996 (of which $1,179,000 was paid on November 8, 1996), 30
consecutive monthly installments of $548,054 thereafter through April 30, 1999
and a final installment on May 30, 1999 of $273,098, together with additional
prepayments of principal of $2,000,000 on October 31, 1997 and $5,000,000 on
October 31, 1998. No prepayment fees result from these scheduled prepayments. In
addition, interest is payable monthly at 1.5% over the bank's base rate (10% at
July 31, 1997). In the event the loan and security agreement has not been
terminated prior to October 31, 1997, a $125,000 fee due on such date to the
bank will not be required to be paid by the Company if on and as of such date no
default or event of default has occurred and is continuing and the Company has
made all principal and interest payments required to be paid on the term loan
when due.
b. Revolving Loan
Under the revolving loan facility combined with a $1,500,000 letter of
credit facility, the Company may borrow up to a maximum of $22,000,000 based
upon a percentage of accounts receivable and inventory, as defined, less the sum
of the undrawn face amount of any letters of credit outstanding. Interest is
payable monthly at 1.25% over the bank's base rate. In addition, the Company is
required to pay, on a monthly basis, an unused facility fee of .5% per annum. At
July 31, 1997, the Company had approximately $7,270,000 unused and available
under the revolving loan facility.
c. Additional Term Loan
The $1,500,000 additional loan dated October 30, 1996 is payable in 25
consecutive monthly installments which commenced December 31, 1996 of $60,000
each plus interest at 1.5% over the bank's base rate (10% at July 31, 1997). In
the event the additional loan is paid in full on or before December 31, 1997 and
the loan and security agreement has not been terminated on or before such date,
the Company will not be required to pay a $100,000 fee to the bank on December
31, 1998.
d. Capital Expenditure Credit Facility
The $3,450,000 capital expenditure credit facility provides the Company
with a credit line through July 31, 1998 to finance up to 80% of the value of
capital equipment purchases (as defined). Such loans under the facility are
payable based on a 36-month amortization schedule with a final payment of the
entire unpaid principal balance on July 31, 2000. These loans bear interest at
1.5% over the bank's base rate. In addition, the Company is required to pay a
$103,500 fee to the bank, payable at a rate of 3% of each advance with a final
payment for any unpaid amount of the fee payable on July 31, 1998. As of October
24, 1997, no amounts were outstanding under this capital expenditure credit
facility.
Subordinated 10% Notes Payable to Stockholders
The subordinated 10% notes payable to stockholders are uncollateralized and
payable in full on January 1, 2001. Interest accrues only on the original
principal sum of $6,000,000 and is payable quarterly at 10% per annum (12% upon
default); however, to date, interest is not permitted to be paid pursuant to the
terms of the amended and restated loan and security agreement with the bank,
and, accordingly, such accrued and unpaid interest becomes payable on January 1,
2001.
Additional 10% Subordinated Notes Payable to Stockholders
The additional 10% subordinated notes payable to stockholders are
uncollateralized and payable in full on December 31, 1998 with interest payable
quarterly; however, payment of principal and interest may be extended
F-13
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 4. LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE AND CAPITALIZED LEASE
OBLIGATIONS--(CONTINUED)
in full or in part to January 1, 2001 to the extent not permitted to be paid
pursuant to the terms of the amended and restated loan and security agreement
with the bank.
Subordinated 11% Series B Notes Payable to Stockholders
These uncollateralized notes mature on January 1, 1999 with interest
payable quarterly.
Note Payable to VCA
This uncollateralized note is payable in annual installments of $385,374
beginning January 1995 through January 2001, including interest at 12%.
Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for as
capital leases. During fiscal 1997, the Company leased approximately $1,100,000
of equipment which were accounted for as capital leases. The obligations for the
equipment require the Company to make monthly payments through December 2002,
with implicit interest rates from 5.27% to 19.48%.
Interest Expense on Related Party Debt
Amounts charged to interest expense on all of the subordinated notes
payable to stockholders amounted to approximately $989,000, $1,101,000 and
$1,182,000 for the years ended July 31, 1997, 1996 and 1995, respectively.
The following is a summary of the aggregate annual maturities of long-term
debt, subordinated notes payable and capitalized lease obligations as of July
31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- --------------------
<S> <C>
1998................ $ 9,836,946
1999................ 13,955,946
2000................ 579,547
2001................ 22,231,494
2002................ 4,639
--------------------
$ 46,608,572
--------------------
--------------------
</TABLE>
NOTE 5. EMPLOYEE BENEFIT PLANS
401(k)/Profit-sharing Plan
The Company has a 401(k)/profit-sharing plan. Contributions to the plan are
discretionary and are determined annually by the Board of Directors. No
contributions were made for the years ended July 31, 1997, 1996 and 1995.
Retirement Plan
Allied participates in a defined benefit multi-employer pension plan
covering union employees. Contributions for the years ended July 31, 1997 and
1996, and for the period from January 12, 1995 to July 31, 1995 totaled
$306,000, $308,000 and $153,000, respectively.
F-14
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 6. COMMITMENTS AND CONTINGENCIES
Related Party and Other Leases
The Company leases certain of its processing and administrative facilities
from affiliated companies under noncancellable operating leases which expire at
various dates between 1997 and 2015. Rent expense under these leases amounted to
approximately $2,594,000, $2,369,000 and $1,706,000 for the years ended July 31,
1997, 1996 and 1995, respectively. The Company has guaranteed certain mortgage
debt on these facilities totalling approximately $527,000 and $1,514,000 for the
years ended July 31, 1997 and 1996, respectively.
The Company also leases other processing facilities from various nonrelated
parties under noncancellable operating leases which expire at various dates
between 1997 and 2008 and provide for renewals at various rates and terms.
Amounts charged to operations for these facilities amounted to approximately
$2,448,000, $2,237,000 and $2,547,000 for the years ended July 31, 1997, 1996
and 1995, respectively.
The minimum annual rental commitments required under all facility leases
are as follows:
<TABLE>
<CAPTION>
RELATED NONRELATED
YEAR ENDING JULY 31, PARTIES PARTIES TOTAL
- -------------------- ----------- ---------- -----------
<S> <C> <C> <C>
1998................ $ 2,522,000 $1,993,000 $ 4,515,000
1999................ 2,422,000 2,007,000 4,429,000
2000................ 2,022,000 1,172,000 3,194,000
2001................ 2,022,000 800,000 2,822,000
2002................ 2,022,000 609,000 2,631,000
Thereafter.......... 20,079,000 3,417,000 23,496,000
----------- ---------- -----------
$31,089,000 $9,998,000 $41,087,000
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
Other Leases
The Company also leases various office equipment and automobiles under
noncancellable operating leases expiring through fiscal 2001. The minimum rent
commitments required under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- --------------------
<S> <C>
1998................ $ 395,000
1999................ 356,000
2000................ 261,000
2001................ 164,000
----------
$1,176,000
----------
----------
</TABLE>
Employment Agreements
The Company maintains employment agreements with certain executive
officers. Salary continuation is provided for any executive who is terminated
without cause, as defined. Effective August 1, 1997, the Company entered into an
employment agreement with an executive officer expiring July 31, 2000.
As of July 31, 1997, the aggregate minimum compensation obligation under
active employment agreements is as follows (taking into effect the August 1,
1997 agreement described above):
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- --------------------
<S> <C>
1998................ $ 614,000
1999................ 275,000
2000................ 275,000
----------
$1,164,000
----------
----------
</TABLE>
F-15
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Global Indemnification Agreement
On June 17, 1994, the Company entered into a Global Indemnification
Agreement with affiliates from whom it rents property. The Agreement indemnifies
the affiliates and holds them harmless for liabilities, if any, related to
environmental law and hazardous substance utilization on the leased properties.
This indemnification excludes any hazardous substance that may be placed on the
leased properties by someone other than the Company, after the Company ceases to
occupy the applicable property. In exchange for indemnifying the affiliates, the
Company received $25,000 from the affiliates.
Consulting Agreement
A director of the Company provides strategic advisory services to the
Company pursuant to a five-year consulting agreement expiring in January 2000.
The director received a fee of $96,000 payable in twenty-four monthly
installments which ended in December 1996.
Litigation Matters
The Company is involved in various routine litigation which arise through
the normal course of business. Management believes that the resolution of these
matters will not have a material adverse effect on the consolidated financial
position or results of operations.
NOTE 7. STOCKHOLDERS' EQUITY
The Company's issued and outstanding common stock warrants and options are
as follows:
Common Stock Warrants
The Company has 1,353,750 Class A redeemable warrants and 1,353,750 Class B
redeemable warrants outstanding as of July 31, 1997. Each Class A and Class B
redeemable warrant entitles the registered holder thereof to purchase one share
of common stock at a price of $6.75 and $7.50 per share, respectively, subject
to certain adjustment, until July 28, 1998 (originally July 28, 1997). The
Company, at its own option, may redeem the Class A redeemable warrants and the
Class B redeemable warrants, in each case as a class and not in part, at a price
of $.05 per warrant provided the reported closing bid price of the common stock
equals or exceeds $8.50 per share for a length of time as specified in the
agreements. The warrant holders have exercise rights until the close of business
on the date fixed for redemption.
The Company had 120,000 units exercisable through July 28, 1997 at an
exercise price of $9.90 per unit. Each unit consisted of one share of common
stock, one Class A redeemable warrant and one Class B redeemable warrant. The
exercise price of the Class A and the Class B redeemable warrants, in accordance
with these units, was $9.79 and $10.88, respectively. All of these units expired
on July 28, 1997.
The Company also has 1,250,000 Class C warrants outstanding as of July 31,
1997. Each Class C warrant entitles the registered holder thereof to purchase
one share of common stock at a price of $9.00 per share, beginning two years
after the date of the HMG merger (January 12, 1997) and expiring three years
after becoming exercisable.
Stock Options
The Company established an Amended and Restated 1994 Long-Term Incentive
Plan (the 'Plan') under which options to purchase shares of the Company's common
stock and other stock incentives may be granted to eligible participants. The
maximum number of shares available for awards under the Plan is 2,400,000
shares, of which no more than half may be newly-issued shares. Shares issued to
holders of HMG common stock or AFL common stock in the merger and subsequently
reacquired by Allied Digital, as well as any other shares acquired by Allied
Digital after the merger, in the public market or otherwise, would not be
considered newly-issued
F-16
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 7. STOCKHOLDERS' EQUITY--(CONTINUED)
shares for this purpose. Options granted under the Plan may be either incentive
stock options or nonqualified stock options. Incentive stock options may be
granted only to employees of the Company. An incentive stock option must expire
within ten years from the date it is granted (five years in the case of such
options granted to a holder of more than 10% of the outstanding common stock).
Incentive stock options are first exercisable not earlier than one year from the
date of grant. The exercise price of an incentive stock option must be at least
equal to the fair market value of the common stock on the date such incentive
stock option is granted (or 110% of the fair market value of the common stock in
the case of such options granted to a holder of more than 10% of the outstanding
common stock). To the extent that the aggregate fair market value of the common
stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year exceeds $100,000, such
options will be treated as nonqualified stock options.
At July 31, 1997, the Company has 522,500 options outstanding (of which
423,750 are exercisable) at prices ranging from $2.875 to $8.63, vesting at
various dates through July 1999 and expiring at various dates between November
1998 and September 2003.
<TABLE>
<CAPTION>
WEIGHTED-
INCENTIVE STOCK OPTIONS NONQUALIFIED STOCK OPTIONS AVERAGE
--------------------------- --------------------------- EXERCISE
EXERCISE PRICE QUANTITY EXERCISE PRICE QUANTITY PRICE
--------------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding as of
August 1, 1995......... $5.5625 - $6.94 349,500 $6.66 - $8.63 275,000 $6.6185
Forfeited................ 5.5625 (77,000 ) -- -- 5.5625
-------- --------
Outstanding as of
July 31, 1996.......... 5.5625 - 6.94 272,500 6.66 - 8.63 275,000 6.7670
Granted.................. 2.875 25,000 -- -- 2.875
Expired.................. 5.5625 (12,500 ) -- -- 5.5625
Forfeited................ 5.5625 (37,500 ) -- -- 5.5625
-------- --------
Outstanding as of
July 31, 1997.......... $2.875 - $6.94 247,500 $6.66 - $8.63 275,000 $6.6140
--------------- -------- --------------- -------- ---------
--------------- -------- --------------- -------- ---------
Amounts exercisable as of
July 31, 1997.......... $5.5625 - $6.94 148,750 $6.66 - $8.63 275,000 $7.5541
--------------- -------- --------------- -------- ---------
--------------- -------- --------------- -------- ---------
</TABLE>
The following table summarizes information regarding stock options at July
31, 1997:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
--------------------------------------- ---------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING WEIGHTED- REMAINING WEIGHTED-
CONTRACTUAL AVERAGE CONTRACTUAL AVERAGE
NUMBER LIFE EXERCISE NUMBER LIFE EXERCISE
RANGE OF EXERCISE PRICES EXERCISABLE (MONTHS) PRICE OUTSTANDING (MONTHS) PRICE
- ------------------------ ----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$5.5625 - $6.94......... 298,750 37 months $6.34 397,500 37 months $6.15
$8.63................... 125,000 74 months $8.63 125,000 74 months $8.63
</TABLE>
The weighted-average option fair value on the grant date was $1.38 for
options issued during the year ended July 31, 1997.
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, 'Accounting for Stock-Based Compensation' ('SFAS
No. 123'); it applies APB Opinion No. 25, 'Accounting for Stock Issued to
Employees,' and related interpretations in accounting for the Plan and does not
recognize compensation expense for such Plan. If the Company had elected to
recognize compensation expense based upon the fair value at the grant dates for
awards under these plans consistent with the methodology
F-17
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 7. STOCKHOLDERS' EQUITY--(CONTINUED)
prescribed by SFAS No. 123, the Company's reported net income and earnings per
share would be reduced to the pro forma amount indicated below for the year
ended July 31, 1997:
<TABLE>
<S> <C>
Net income
As reported................................................. $666,924
Pro forma................................................... 658,299
Earnings per common share -- basic and diluted
As reported................................................. .05
Pro forma................................................... .05
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before fiscal 1996. The fair value of these options was estimated at
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for the fiscal year ended July 31, 1997:
expected volatility of 45%; risk-free interest rate of 6.32% and expected term
of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the use
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
In connection with a June 1995 sales contract (Note 9), the Company granted
to a customer 250,000 options to acquire shares of Company common stock at an
exercise price of $5.5625, equivalent to the quoted market price on such date.
In consideration for modifying certain provisions of the June 1995 sales
contract in September 1997, the Company repriced these options to an exercise
price of $3.00 per share (equivalent to the quoted market price on such date)
for which the Company expects to recognize a noncash pretax charge to earnings
of approximately $150,000 (representing the difference between the fair values
of the modified and original options utilizing the Black-Scholes option
valuation model). These options expire in June 2000.
The following information summarizes the Company's stock options and
warrants at July 31, 1997:
<TABLE>
<CAPTION>
RANGE OF
DESCRIPTION AUTHORIZED ISSUED EXERCISABLE EXERCISE PRICE
- --------------------------------------------------------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Class A warrants......................................... 1,353,750 1,353,750 1,353,750 $6.75
Class B warrants......................................... 1,353,750 1,353,750 1,353,750 7.50
Class C warrants......................................... 1,250,000 1,250,000 1,250,000 9.00
Incentive stock options/nonqualified stock options....... 2,400,000 522,500 423,750 2.875 - 9.00
Options--other........................................... 250,000 250,000 250,000 5.562
---------- --------- ----------- ---------------
Balance as of July 31, 1997.............................. 6,607,500 4,730,000 4,631,250 $2.875 - $9.00
---------- --------- ----------- ---------------
---------- --------- ----------- ---------------
</TABLE>
F-18
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 7. STOCKHOLDERS' EQUITY--(CONTINUED)
In connection with the August 1, 1997 employment agreement described in
Note 6, the Company granted incentive stock options to an executive officer to
acquire 200,000 shares of common stock with an exercise price of $2.00
representing the quoted market price on such date. These options become
exercisable over a four-year period commencing August 1, 2001 at a rate of 25%
each year with possible acceleration based upon the market performance of the
Company's common stock.
On October 21, 1997, the Company: (i) repriced all outstanding incentive
stock options to an exercise price of $2.4375, representing the quoted market
price on such date and (ii) granted 27,500 incentive stock options to employees
which become exercisable equally over five years with an exercise price of
$2.4375.
NOTE 8. INCOME TAXES
Prior to January 12, 1995, the stockholders of AFL had elected, under the
provisions of Subchapter S of the Internal Revenue Code, to have the income and
related tax benefits of AFL included in the taxable income of the individual
stockholders. As a result, no provision for Federal income taxes has been
included in the historical statements of earnings prior to January 12, 1995.
On January 12, 1995, AFL became disqualified, under the provisions of
Subchapter S of the Internal Revenue Code, to have the income of the Company
included in the taxable income of the individual stockholders. In connection
with this disqualification, the Company established net deferred tax assets of
approximately $1,625,000. The effect of establishing the deferred tax assets was
included in income for the year ended July 31, 1995. Subsequent to January 12,
1995, the Company has provided Federal income taxes in the statements of
earnings based on the effective tax rate. The unaudited pro forma adjustment to
income tax provision and net income have been presented in the consolidated
statement of earnings for the year ended July 31, 1995 as if the Subchapter S
election had been terminated prior to August 1, 1994.
The provision (credit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Federal
Current........ $ 40,000 $ -- $ --
Deferred....... 1,578,500 (1,758,663) (1,556,409)
---------- ----------- -----------
1,618,500 (1,758,663) (1,556,409)
---------- ----------- -----------
State
Current........ 710,000
Deferred....... 131,500 (776,184) (1,019,209)
---------- ----------- -----------
141,500 (776,184) (1,019,209)
---------- ----------- -----------
$1,760,000 $(2,534,847) $(2,575,618)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
F-19
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 8. INCOME TAXES--(CONTINUED)
Deferred income tax assets (liabilities) resulting from differences between
accounting for financial statement purposes and tax purposes are as follows:
<TABLE>
<CAPTION>
JULY 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Restructuring costs......................................................... $ 501,000 $1,115,000
Nonrecurring charge......................................................... 293,000 391,000
Accounts receivable......................................................... 637,000 585,000
Inventory................................................................... 121,000 144,000
Accrued salaries............................................................ 304,000 378,000
Net operating loss carryover................................................ 2,500,000 2,365,000
State investment tax credits................................................ 1,572,000 1,239,000
---------- ----------
5,928,000 6,217,000
---------- ----------
Property and equipment...................................................... (2,747,000) (1,332,000)
Other accrued expenses...................................................... 19,000 (133,000)
---------- ----------
(2,728,000) (1,465,000)
---------- ----------
Valuation allowance......................................................... (890,000) (732,000)
---------- ----------
Net deferred tax asset...................................................... $2,310,000 $4,020,000
---------- ----------
---------- ----------
</TABLE>
The deferred tax valuation allowance at July 31, 1997 and 1996 is
attributable to the Company's ability to utilize investment tax credit
carryovers prior to expiration. Changes in the deferred tax asset valuation are
based on projections of future taxable income.
The Company's effective income tax rate was 72.5% in 1997, 31.2% in 1996
and (1,018)% in 1995. The components of the reconciliation of the Company's
effective tax provision (credit) to the tax provision (credit) pursuant to the
U.S. statutory rate of 34% are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Federal tax provision (credit) computed at statutory rate............. $ 825,154 $(2,760,904) $ 85,986
S Corporation earnings................................................ (880,464)
Amortization of costs in excess of net assets acquired................ 637,989 625,949 427,582
Nondeductible entertainment expenses.................................. 45,468 47,775 32,884
State tax expense (benefit) net of Federal tax........................ 425,738 (341,448) (202,370)
Recognition of investment tax credit.................................. (332,349) (319,219) (414,401)
Increase in valuation allowance....................................... 158,000 213,000 --
Reinstatement of deferred taxes....................................... -- -- (1,624,835)
---------- ----------- -----------
Actual tax provision (credit)......................................... $1,760,000 $(2,534,847) $(2,575,618)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
HMG is in the process of undergoing an IRS tax examination. In connection
with this examination, management does not anticipate any material adverse
effect on the Company's consolidated financial position and results of
operations upon its ultimate resolution.
The Company has an NOL carryforward as of July 31, 1997 for Federal
purposes of approximately $6,585,000 which expires during the fiscal years
ending 2010 through 2012.
The Company uses the flow-through method of accounting for investment tax
credits. The Company has state investment tax credit carryforwards at July 31,
1997 approximating $2,035,000 which expire between fiscal 2003 and 2007.
F-20
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 9. NONRECURRING CHARGE
In June 1995, the Company, in connection with consummating a five-year
production and fulfillment sales contract, agreed to, among other things, a
customer signing allowance in the amount of $1,250,000 to be amortized over the
term of the contract. Based on the fiscal 1996 financial results relating
thereto and an assessment made in the fiscal 1996 fourth quarter of anticipated
future results of performing thereunder, the Company determined that the
unamortized balance of the deferred charge was not recoverable and, accordingly,
charged to operations the remaining unamortized balance.
NOTE 10. RESTRUCTURING CHARGE
As a result of certain organizational changes which occurred during
mid-fiscal 1996, management of the Company developed in April 1996 the framework
of a restructuring plan. In June 1996, the Company adopted the plan to
streamline and reduce resources utilized in the business which resulted in
recording a restructuring charge of approximately $3.1 million in the fourth
quarter of fiscal 1996. The restructuring charge comprised of work force related
expenses of $1,126,385, idle plant lease costs of $863,000, abandoned asset
write-off of $837,935 and other related costs of $250,000.
The plan encompassed: (i) the merger and integration of the Company's two
operating subsidiaries, (ii) the closure of the Company's Detroit manufacturing
facility and (iii) the consolidation of the Company's corporate and
administrative offices from Detroit to New York.
The work force related expenses resulted in the termination of 25
corporate, administrative and operational employees receiving severance; all of
which were notified of termination in fiscal 1996 with final payments made in
fiscal 1997 with the exception of one former employee receiving scheduled
payments through December 1998.
The idle plant lease costs associated with the Detroit facility under a
noncancellable lease term expiring in 2010 is an estimate of the cost for a
two-year period such facility is expected to remain idle before the Company is
able to sublease the facility.
The merger and integration of the Company's two operating subsidiaries
encompassed the consolidation of their separate information systems and credit
facilities. In this regard, the Company decided to convert AFL's information
systems which resulted in the abandoned asset write-off representing the
remaining balance of the internally developed software costs which had been
capitalized.
In addition, the Company's bank had to consent to amend the separate credit
facilities into one credit facility which was essential to the execution of the
Company's restructuring plan to allow the merger of AFL into HMG and the
commingling of assets. The bank charged restructuring fees representing the
'other related costs' with scheduled payments thereof throughout fiscal 1998.
The status of the components of the restructuring charge is as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JULY 31, FISCAL 1997 JULY 31,
1996 ACTIVITY 1997
---------- ----------- ----------
<S> <C> <C> <C>
Work force related expenses.................................... $1,126,000 $(1,022,000) $ 104,000
Idle plant lease costs......................................... 863,000 (452,500) 410,500
Other related costs............................................ 250,000 (62,500) 187,500
---------- ----------- ----------
$2,239,000 $(1,537,000) $ 702,000
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
During fiscal 1997, the Company made payments for work force related
expenses, idle plant lease costs and other related costs of approximately
$1,022,000, $108,500 and $62,500, respectively. Idle plant costs were reduced in
fiscal 1997 by $344,000 to reflect a change in estimate of the costs of closing
the plant. The Company also incurred and paid in fiscal 1997 costs of
approximately $344,000 related to the restructure that were not contractually
committed for in fiscal 1996. At July 31, 1997 the Company considers the
remaining accrual by component and in the aggregate to be adequate.
F-21
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 11. QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows (unaudited and in
thousands, except per share data):
<TABLE>
<CAPTION>
EARNINGS
(LOSS) PER
COMMON
GROSS NET INCOME SHARE-BASIC
REVENUE MARGIN (LOSS) AND DILUTED
------- ------ ---------- ------------
<S> <C> <C> <C> <C>
1997
First quarter....... $42,726 $8,599 $ 488 $ .04
Second quarter...... 38,132 7,594 43 --
Third quarter....... 38,509 7,676 98 --
Fourth quarter...... 39,781 8,244 38 --
1996
First quarter....... $46,335 $9,606 $ 851 $ .06
Second quarter...... 39,389 6,048 (1,465) (.11)
Third quarter....... 37,933 6,656 (1,012) (.07)
Fourth quarter...... 37,284 5,120 (3,959)(i) (.29)
</TABLE>
- ------------------
(i) The quarter's net loss reflects the after-tax effects of a nonrecurring
charge (Note 9) and a restructuring charge (Note 10).
NOTE 12. EARNINGS (LOSS) PER COMMON SHARE
The number of shares used in the Company's basic and diluted earnings
(loss) per common share at July 31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted-average common shares outstanding for basic earnings
(loss) per share............................................ 13,619,644 13,619,644 13,619,644
Common stock equivalents for stock options and warrants....... -- -- 1,469
---------- ---------- ----------
Weighted-average common shares outstanding for diluted
earnings (loss) per share................................... 13,619,644 13,619,644 13,621,113
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Options and warrants outstanding to purchase 4,730,000, 5,115,000 and
4,642,500 shares of common stock in fiscal 1997, 1996 and 1995, respectively,
were excluded in the computation of diluted earnings per share as their effects
were antidilutive.
NOTE 13. SHAREHOLDERS AGREEMENT
On January 11, 1995, the Company and certain of its affiliated stockholders
entered into a shareholders agreement, as amended in November 1995 and January
1997, whereby, among other things, such shareholders established parameters for
the number and class of Company directors and agreed to use their best efforts
to secure the election of certain affiliated stockholders and/or other
designated individuals to the Executive Committee of the Board of Directors of
the Company. The agreement also placed limitations on the transfer during
specified periods of any shares of common stock held by certain of the
affiliated shareholders, including the Class C warrants, unless the transferee
becomes a party to such agreement. Until January 11, 1998, certain of these
affiliated shareholders may not transfer shares of common stock which would
cause the transferee to own 30% or more of the Company's common stock
outstanding unless the transferee agrees, for a period of eighteen months from
the closing of such transfer, not to purchase or cause the Company, directly or
indirectly, to purchase stock at a price which is less than the highest price
paid by the transferee for such common stock from such affiliated stockholders.
The agreement also prohibits the affiliated stockholders and the Company from
engaging in a 'going private' transaction, as defined, prior to January 11,
1998, unless such transaction is approved by a majority of the stockholders who
are neither parties to the agreement nor affiliates or associates to those
subject to the conditions of the agreement.
F-22
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 14. SUBSEQUENT EVENTS
The Proposed Recapitalization
Pursuant to a merger agreement (the 'Merger Agreement') dated May 5, 1998
between the Company and Analog Acquisition Corp. ('AAC'), an entity organized
solely to effect the merger (as defined) on behalf of 399 Venture Partners Inc.,
a wholly-owned subsidiary of Citibank, N.A. ('399'), and certain members of the
Company's management, and subject to shareholder approval, AAC will merge with
and into the Company, with the Company as the surviving corporation (the
'Merger'). Each issued and outstanding share (or fraction thereof) of common
stock of the Company immediately prior to the effective date of the Merger will
be canceled and converted into the right to receive $5.00 in cash other than (i)
74,998 shares of common stock held by certain members of the Company's
management, which will remain outstanding and be converted into one share of
Class A Common Stock of the Company, representing, in the aggregate,
approximately 51% of the Class A Common Stock; (ii) 1,100,110 shares of common
stock of the Company owned by 399, which will be converted into 73,999 shares of
Class A Common Stock, 351,000 shares of Class B Common Stock of the Company and
33,375.55 shares of redeemable Series A Preferred Stock; and (iii) shares of
stockholders who are entitled to, and who have perfected, their appraisal
rights. In addition, 399 will purchase 131,244.45 shares of preferred stock, par
value $0.01 per share, of AAC for $13,124,445 in cash. Further, (i) each share
of common stock of AAC outstanding immediately prior to the effective date of
the Merger will be canceled and converted into one share of Class A Common Stock
and (ii) each share of preferred stock of AAC outstanding prior to the effective
date of the Merger will be canceled and converted into one share of redeemable
Series A Preferred Stock of the Company.
As a result of the cancellation and conversion of the shares of ACC and the
conversion of 1,100,110 shares of Common Stock of 399 described above, 399 will
own 165,000 shares of redeemable Series A Preferred Stock, 74,000 shares of
Class A Common Stock and 351,000 shares of Class B Common Stock. Members of
management will own 75,000 shares of Class A Common Stock. As part of the
recapitalization, all of the existing long-term debt of the Company (except for
capitalized lease obligations) aggregating, at April 30, 1998, $42.5 million,
including subordinated notes payable to the stockholders aggregating $10.1
million (of which $9.5 million is payable to the Company's Co-Chairmen) and a
termination charge of approximately $0.7 million, will be repaid with the
proceeds from the funding described below.
The recapitalization will be funded by (i) approximately $1.2 million of
borrowings under a proposed new $25.0 million senior revolving credit facility,
(ii) $100.0 million from the offering of senior subordinated notes (the
'Notes'), (iii) approximately $13.1 million from the purchase of the redeemable
Class A Preferred Stock and (iv) $0.2 million from the exercise of stock options
and purchase of common stock by certain members of management.
The 165,000 shares of redeemable Series A Preferred Stock will have (i) a
stated value of $100 per share, (ii) cumulative dividends payable semianually at
a rate of 12% per annum and (iii) a mandatory redemption in 2009 or earlier upon
either the sale of the Company or any offering (as defined).
The $100 million of Notes will be issued by Allied (the operating entity).
The Notes will be fully, unconditionally, and jointly and severally guaranteed
by all of Allied's direct and indirect parent companies (Allied Digital, HMG and
Holdings) and future subsidiaries (the 'Guarantors'). The guarantees will be
general unsecured obligations of each of the Guarantors subordinated in right of
payment of all existing and future Senior Debt of each such Guarantor and will
rank senior in right of payment of all existing and future Subordinated
Indebtedness of each such Guarantor.
Separate financial statements for Allied and all of its parent company
guarantors have not been presented since each parent company has no operations
or assets separate from its investment in its subsidiaries.
The Merger will be accounted for as a recapitalization for accounting
purposes as there will be a significant continuation of stockholder ownership.
Further, AAC, formed solely for the purpose of effectuating the
F-23
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997 AND 1996
NOTE 14. SUBSEQUENT EVENTS--(CONTINUED)
recapitalization, will merge with and into the Company. Accordingly, the Merger
will have no impact on the historical basis of the Company's assets and
liabilities.
The following non-recurring charges will be reflected in the Company's
statements of earnings in connection with the Transactions in the period in
which the Transactions close: (i) $1.026 million relating to the cash settlement
of unexercised stock options granted to employees, (ii) an extraordinary charge
of $1.132 million relating to a termination charge and write-off of deferred
financing costs relating to the repayment of borrowings under the Company's
existing credit agreement and (iii) related tax effects.
In accordance with the terms of the Merger Agreement, the Company must pay
AAC $3,375,000, and reimburse AAC for its reasonable out-of-pocket expenses up
to a maximum of $1,000,000, if the Merger Agreement is terminated for certain
specified reasons (as defined).
Litigation
On May 12, 1998, a complaint purporting to state a class action was filed
in the Delaware Court of Chancery by Crandon Capital Partners, alleged to be a
stockholder of the Company, on behalf of itself and all others similarly
situated, against the Company and its directors. The plaintiffs allege that the
Merger is wrongful, unfair and harmful to holders of Common Stock and that it
has been effected with unfair dealing, that the proposed consideration of $5.00
a share is unfair to the Company's stockholders and that the directors of the
Company have violated their fiduciary obligations owed to the plantiffs and
other members of the class. The complaint seeks to enjoin the Merger and an
unspecified amount of damages, in addition to payment of attorney's fees and
reimbursement of expenses. Management believes that this claim is without merit
and does not believe such claim will have a material adverse effect on the
Merger or on the Company's financial position, results of operations or
liquidity; however, there can be no assurance as to the outcome of such claim.
F-24
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------- ----------- -------------------------- ------------- ----------
ADDITIONS
--------------------------
(1) (2)
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
Description OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------------------------------------------- ----------- ---------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
For the year ended July 31, 1997............. $ 1,515,000 $1,242,860 $ 1,107,860(a) $1,650,000
----------- ---------- ------------- ----------
----------- ---------- ------------- ----------
For the year ended July 31, 1996............. $ 871,000 $1,297,294 $ 653,294(a) $1,515,000
----------- ---------- ------------- ----------
----------- ---------- ------------- ----------
For the year ended July 31, 1995............. $ 918,000 $ 937,504 $ 395,000(b) $ 1,379,504(a) $ 871,000
----------- ---------- ------------- ------------- ----------
----------- ---------- ------------- ------------- ----------
</TABLE>
- ------------------
(a) Write-off of uncollectible accounts
(b) Attributable to HMG Merger
F-25
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash........................................................................... $ 596,000 $ 1,193,000
Accounts receivable, net....................................................... 25,078,000 25,516,000
Inventories.................................................................... 4,714,000 4,380,000
Prepaid expenses............................................................... 872,000 786,000
Deferred income taxes.......................................................... 2,068,000 3,422,000
------------ ------------
Total current assets........................................................ 33,328,000 35,297,000
Property and equipment, net...................................................... 26,940,000 26,783,000
Other assets
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $9,159,000 and $7,204,000 at April 30, 1998 and
July 31, 1997, respectively................................................. 42,053,000 43,064,000
Deferred charges and other..................................................... 2,964,000 2,737,000
------------ ------------
45,017,000 45,801,000
------------ ------------
$105,285,000 $107,881,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt and capitalized lease obligations......... $ 12,737,000 $ 9,837,000
Current maturities of subordinated notes payable to stockholders............... 2,881,000
Accounts payable............................................................... 13,558,000 14,781,000
Accrued liabilities............................................................ 5,709,000 6,735,000
Income taxes payable........................................................... 835,000
------------ ------------
Total current liabilities................................................... 35,720,000 31,353,000
Long-term debt and capitalized lease obligations, less current maturities........ 20,523,000 26,711,000
Subordinated notes payable to stockholders, less current maturities.............. 7,251,000 10,061,000
Deferred income taxes............................................................ 1,112,000 1,112,000
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value; 1,000 shares authorized; no shares issued and
outstanding................................................................. -- --
Common stock, $0.01 par value; 25,000,000 shares authorized; 13,623,394 and
13,619,644 shares issued and outstanding at April 30, 1998 and July 31,
1997, respectively.......................................................... 136,000 136,000
Additional paid-in capital..................................................... 44,901,000 44,742,000
Accumulated deficit............................................................ (4,358,000) (6,234,000)
------------ ------------
40,679,000 38,644,000
------------ ------------
$105,285,000 $107,881,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED APRIL 30, ENDED APRIL 30,
-------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales......................................... $38,518,000 $38,509,000 $127,110,000 $119,367,000
Cost of sales..................................... 30,048,000 30,833,000 99,868,000 95,500,000
----------- ----------- ------------ ------------
Gross profit................................. 8,470,000 7,676,000 27,242,000 23,867,000
----------- ----------- ------------ ------------
Operating expenses
Selling, general and administrative............. 6,110,000 5,629,000 17,584,000 16,575,000
Amortization of excess of cost over fair value
of net assets acquired....................... 661,000 645,000 1,955,000 1,885,000
----------- ----------- ------------ ------------
Total operating expenses................... 6,771,000 6,274,000 19,539,000 18,460,000
----------- ----------- ------------ ------------
Income from operations..................... 1,699,000 1,402,000 7,703,000 5,407,000
----------- ----------- ------------ ------------
Other income (expense)
Interest expense................................ (798,000) (1,118,000) (3,359,000) (3,573,000)
Other, net...................................... 77,000 83,000 162,000 162,000
----------- ----------- ------------ ------------
Total other expense........................ (721,000) (1,035,000) (3,197,000) (3,411,000)
----------- ----------- ------------ ------------
Income before income taxes................. 978,000 367,000 4,506,000 1,996,000
Provision for income taxes........................ 680,000 269,000 2,630,000 1,367,000
----------- ----------- ------------ ------------
Net income................................. $ 298,000 $ 98,000 $ 1,876,000 $ 629,000
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Earnings per common share--basic and diluted...... $ 0.02 $ -- $ 0.14 $ 0.05
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Average common shares outstanding
Basic........................................... 13,621,394 13,619,644 13,620,227 13,619,644
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Diluted......................................... 13,785,073 13,619,644 13,709,852 13,619,644
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTH PERIODS ENDED APRIL
30,
------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash flows provided by operating activities.................................... $ 8,771,000 $ 1,582,000
Cash flows used in investing activities on property and equipment
Purchases of and deposits.................................................... (5,505,000) (507,000)
Cash flows from financing activities
Net borrowings under revolving loan.......................................... 3,733,000 6,106,000
Borrowings of long-term debt................................................. 1,598,000 3,500,000
Repayment of long-term debt.................................................. (9,194,000) (11,000,000)
----------- ------------
Net cash used in financing activities..................................... (3,863,000) (1,394,000)
----------- ------------
Net decrease in cash...................................................... (597,000) (319,000)
Cash at beginning of period.................................................... 1,193,000 831,000
----------- ------------
Cash at end of period.......................................................... $ 596,000 $ 512,000
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The condensed consolidated balance sheet as of April 30, 1998 and the
related condensed consolidated statements of earnings for the three- and
nine-month periods ended April 30, 1998 and 1997 and the condensed consolidated
statements of cash flows for the nine-month periods ended April 30, 1998 and
1997 have been prepared by Allied Digital Technologies Corp. ('Allied Digital'),
including the accounts of its wholly-owned subsidiaries, HMG Digital
Technologies Corp. ('HMG') and subsidiary, HRM Holdings Corp. ('Holdings'), and
its wholly-owned subsidiary, Allied Digital, Inc. (formerly known as Hauppauge
Record Manufacturing, Ltd.) ('Allied') (hereinafter referred to collectively as
the 'Company') without audit. In the opinion of management, all adjustments
necessary to present fairly the financial position as of April 30, 1998 and for
all periods presented, consisting of normal recurring adjustments, have been
made. Results of operations for the nine-month period ended April 30, 1998 are
not necessarily indicative of the operating results expected for the full year.
The Company (i) provides videocassette duplication and fulfillment services
in addition to processing and duplicating commercial film and offering
post-production services, and (ii) replicates cassette tapes, VHS videotapes and
compact discs under production contracts with companies primarily in the
recorded music industry.
These statements have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. These condensed consolidated financial
statements should be read in conjunction with the annual audited consolidated
financial statements and the accompanying notes included in the Company's Form
10-K for the fiscal year ended July 31, 1997.
NOTE B--INVENTORIES
Inventories consist of the following classifications:
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1998 1997
---------- ----------
<S> <C> <C>
Raw materials..................................................... $3,790,000 $3,416,000
Work-in-process................................................... 618,000 674,000
Finished goods.................................................... 306,000 290,000
---------- ----------
$4,714,000 $4,380,000
---------- ----------
---------- ----------
</TABLE>
F-29
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1998
(UNAUDITED)
NOTE C--LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE AND CAPITALIZED LEASE
OBLIGATIONS
Long-term debt, subordinated notes payable and capitalized lease
obligations consist of the following:
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1998 1997
----------- -----------
<S> <C> <C>
Loan and Security Agreement
Term loan.............................................................. $11,850,000 $18,782,000
Revolving loan......................................................... 18,214,000 14,481,000
Additional term loan................................................... 1,020,000
Capital expenditure loan............................................... 1,280,000
Subordinated 10% Notes Payable to Stockholder............................ 7,251,000 7,180,000
Additional Subordinated 10% Notes Payable to Stockholders................ 2,000,000 2,000,000
Subordinated 11% Series B Notes Payable to Stockholders.................. 881,000 881,000
Note Payable to VCA...................................................... 926,000 1,171,000
Capitalized lease obligations............................................ 910,000 995,000
Other.................................................................... 80,000 99,000
----------- -----------
43,392,000 46,609,000
Less current maturities.................................................. (15,618,000) (9,837,000)
----------- -----------
$27,774,000 $36,772,000
----------- -----------
----------- -----------
</TABLE>
LOAN AND SECURITY AGREEMENT
The October 30, 1996 loan and security agreement provided the Company with
borrowings of up to $48,910,169 under credit facilities consisting of a (i)
$25,410,169 term loan, (ii) $22,000,000 revolving loan facility (combined with a
$1,500,000 letter of credit facility) and (iii) $1,500,000 additional loan. On
August 19, 1997, the Company entered into an amendment to the October 30, 1996
loan and security agreement with the bank which provides the Company with a
$3,450,000 capital expenditure credit facility.
The loan and security agreement (as amended) is collateralized by
substantially all of the assets of the Company. The agreement contains covenants
which, among other matters, (1) require the Company to (i) maintain increasing
levels of net worth, (ii) maintain a minimum debt service ratio and (iii) limit
its annual capital expenditures, and (2) place limitations on (i) additional
indebtedness, encumbrances and guarantees, (ii) consolidations, mergers or
acquisitions, (iii) investments or loans, (iv) disposal of property, (v)
compensation to officers and others, (vi) dividends and stock redemptions, (vii)
issuance of stock, and (viii) transactions with affiliates, all as defined in
the agreement. As of April 30, 1998, there is no equity available for the
payment of dividends to stockholders. The agreement also contains provisions for
fees payable to the bank upon prepayment and an increased rate of interest
during periods of default. The term of this agreement extends to November 30,
2000.
a. Term Loan
The $25,410,169 term loan dated October 30, 1996 is payable in an initial
scheduled installment aggregating $1,695,462 on October 31, 1996 (of which
$1,179,000 was repaid on November 8, 1996), 30 consecutive monthly installments
of $548,054 thereafter through April 30, 1999 and a final installment on May 30,
1999 of $273,098 together with additional prepayments of principal of $2,000,000
on October 31, 1997 and $5,000,000 on October 31, 1998. No prepayment fees
result from these scheduled prepayments. In addition, interest is payable
monthly at 1.5% over the bank's base rate (8.25% at April 30, 1998).
F-30
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1998
(UNAUDITED)
NOTE C--LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE AND CAPITALIZED LEASE
OBLIGATIONS--(CONTINUED)
b. Revolving Loan
Under the revolving loan facility combined with a $1,500,000 letter of
credit facility, the Company may borrow up to a maximum of $22,000,000 based
upon a percentage of accounts receivable and inventory, as defined, less the sum
of the undrawn face amount of any letters of credit outstanding. Interest is
payable monthly at 1.25% over the bank's base rate. In addition, the Company is
required to pay, on a monthly basis, an unused facility fee of 0.5% per annum.
At April 30, 1998, the Company had approximately $3,786,000 unused and available
under the revolving loan facility.
c. Additional Term Loan
The $1,500,000 additional loan dated October 30, 1996 was payable in 25
consecutive monthly installments commencing December 31, 1996 of $60,000 each
plus interest at 1.5% over the bank's base rate. In the event the additional
loan was repaid in full on or before December 31, 1997 and the loan and security
agreement had not been terminated on or before such date, the Company would not
be required to pay a $100,000 fee to the bank on December 31, 1998. On December
31, 1997, the Company repaid in full the remaining outstanding balance of
$720,000 on this additional loan to the bank.
d. Capital Expenditure Credit Facility
The $3,450,000 capital expenditure credit facility provides the Company
with a credit line through July 31, 1998 to finance up to 80% of the value of
capital equipment purchases (as defined). Such loans under the facility are
payable based on a 36-month amortization schedule with a final payment of the
entire unpaid principal balance on July 31, 2000. These loans bear interest at
1.5% over the bank's base rate. In addition, the Company is required to pay a
$103,500 fee to the bank, payable at a rate of 3% of each advance with a final
payment for any unpaid amount of the fee payable on July 31, 1998. Through April
30, 1998, the Company borrowed $1,589,000 from this credit facility. As of April
30, 1998, $1,280,000 was outstanding under this facility.
SUBORDINATED 10% NOTES PAYABLE TO STOCKHOLDER
The subordinated 10% notes payable to stockholder are uncollateralized and
payable in full on January 1, 2001. Interest accrues only on the original
principal sum of $6,000,000 and is payable quarterly at 10% per annum (12% upon
default); however, through April 30, 1998, certain interest payments were
postponed pursuant to the terms of the loan and security agreement with the
bank. Partial payment of such accrued and unpaid interest becomes periodically
payable to the stockholder and is limited to a stipulated percentage as defined
in the loan and security agreement, provided no default or event of default has
occurred. The remaining portion of the unpaid interest subject to this payment
postponement becomes payable on January 1, 2001. In accordance with the periodic
interest payment limitation provisions of the loan and security agreement, the
Company paid in fiscal 1998 approximately $383,000 of the accrued interest
payable on these notes through April 30, 1998.
ADDITIONAL SUBORDINATED 10% NOTES PAYABLE TO STOCKHOLDERS
The additional subordinated 10% notes payable to stockholders are
uncollateralized and payable in full on December 31, 1998 with interest payable
quarterly; however, payment of principal and interest may be extended in full or
in part to January 1, 2001 to the extent not permitted to be paid pursuant to
the terms of the loan and security agreement with the bank.
F-31
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1998
(UNAUDITED)
NOTE C--LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE AND CAPITALIZED LEASE
OBLIGATIONS--(CONTINUED)
SUBORDINATED 11% SERIES B NOTES PAYABLE TO STOCKHOLDERS
These uncollateralized notes mature on January 1, 1999 with interest
payable quarterly.
NOTE PAYABLE TO VCA
This uncollateralized note is payable in annual installments of $385,374
beginning January 1995 through January 2001, including interest at 12%.
CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under agreements accounted for as
capital leases. The obligations for the equipment require the Company to make
monthly payments through December 2001 with implicit interest rates from 5.27%
to 19.48%.
The following is a summary of the aggregate annual maturities of long-term
debt, subordinated notes payable and capitalized lease obligations as of April
30, 1998:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING
APRIL 30,
- --------------------
<S> <C>
1999................ $15,618,000
2000................ 1,422,000
2001................ 26,334,000
2002................ 18,000
-----------
$43,392,000
-----------
-----------
</TABLE>
NOTE D--EARNINGS PER SHARE
In the second quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ('SFAS No. 128'), 'Earnings Per Share,'
which supersedes Accounting Principle Board Opinion No. 15. Under SFAS No. 128,
earnings per common share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock. Prior-period amounts have been restated, where appropriate, to conform to
the requirements of SFAS No. 128.
The number of shares used in the Company's basic and diluted earnings per
share computations are as follows:
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED APRIL 30, ENDED APRIL 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding for
basic earnings per share..................... 13,621,394 13,619,644 13,620,227 13,619,644
Common stock equivalents for stock options and
warrants..................................... 163,679 -- 89,625 --
---------- ---------- ---------- ----------
Weighted average common shares outstanding for
diluted earnings per share................... 13,785,073 13,619,644 13,709,852 13,619,644
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE E--STOCKHOLDERS' EQUITY
In March 1998, options to acquire 3,750 shares of common stock at an
exercise price of $2.4375 per share were exercised.
F-32
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1998
(UNAUDITED)
NOTE F--ACQUISITION
On December 17, 1997, the Company acquired substantially all of the assets
and assumed certain liabilities of Denver Dubbing, Inc., a videocassette
duplicator. The purchase price was $873,000 payable in cash of $170,000 and the
assumption of net liabilities for the balance. The purchase agreement contained
a covenant not-to-compete for a period of three years. Also, under the purchase
agreement, the Company may pay additional consideration of $270,000 in the event
net sales for the acquired company exceed certain predetermined amounts during
1998 and 1999. Such additional consideration will be accounted for as
compensation expense in the periods in which the contingencies are met. The
Company accounted for the acquisition as a purchase and as such, the fair values
of the assets acquired and liabilities assumed have been recorded on the date of
the acquisition and the results of operations are included in the Company's
statement of earnings since the acquisition date. The excess of consideration
paid over the estimated fair value of the net assets acquired in the amount of
$773,000 has been recorded as excess of fair value over the cost of net assets
acquired and is being amortized on a straight-line basis over 15 years. Pro
forma historical results of operations are not presented, as such results would
not be materially different from the historical results of the Company.
In connection with this acquisition, the Company entered into a two year
employment agreement with an officer of the acquired company with an annual base
salary of approximately $150,000.
NOTE G--SUBSEQUENT EVENTS
The Proposed Recapitalization
Pursuant to a merger agreement (the 'Merger Agreement') dated May 5, 1998
between the Company and Analog Acquisition Corp. ('AAC'), an entity organized
solely to effect the merger (as defined) on behalf of 399 Venture Partners Inc.,
a wholly-owned subsidiary of Citibank, N.A. ('399'), and certain members of the
Company's management, and subject to shareholder approval, AAC will merge with
and into the Company, with the Company as the surviving corporation (the
'Merger'). Each issued and outstanding share (or fraction thereof) of common
stock of the Company immediately prior to the effective date of the Merger will
be canceled and converted into the right to receive $5.00 in cash other than (i)
74,998 shares of common stock held by certain members of the Company's
management, which will remain outstanding and be converted into one share of
Class A Common Stock of the Company, representing, in the aggregate,
approximately 51% of the Class A Common Stock; (ii) 1,100,110 shares of common
stock of the Company owned by 399, which will be converted into 73,999 shares of
Class A Common Stock, 351,000 shares of Class B Common Stock of the Company and
33,375.55 shares of redeemable Series A Preferred Stock; and (iii) shares of
stockholders who are entitled to, and who have perfected, their appraisal
rights. In addition, 399 will purchase 131,244.45 shares of preferred stock, par
value $.01 per share, of AAC for $13,124,445 in cash. Further, (i) each share of
common stock of AAC outstanding immediately prior to the effective date of the
Merger will be canceled and converted into one share of Class A Common Stock and
(ii) each share of preferred stock of AAC outstanding prior to the effective
date of the Merger will be canceled and converted into one share of redeemable
Series A Preferred Stock of the Company.
As a result of the cancellation and conversion of the shares of AAC and the
conversion of 1,100,110 shares of Common Stock of 399 described above, 399 will
own 165,000 shares of redeemable Series A Preferred Stock, 74,000 shares of
Class A Common Stock and 351,000 shares of Class B Common Stock. Members of
management will own 75,000 shares of Class A Common Stock. As part of the
recapitalization, all of the existing long-term debt of the Company (except for
capitalized lease obligations) aggregating, at April 30, 1998, $42.5 million,
including subordinated notes payable to the stockholders aggregating $10.1
million (of which $9.5 million is payable to the Company's Co-Chairmen) and a
termination charge of approximately $0.7 million, will be repaid with the
proceeds from the funding described below.
F-33
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1998
(UNAUDITED)
NOTE G--SUBSEQUENT EVENTS--(CONTINUED)
The recapitalization will be funded by (i) approximately $1.2 million of
borrowings under a proposed new $25.0 million senior revolving credit facility,
(ii) $100.0 million from the offering of senior subordinated notes (the
'Notes'), (iii) approximately $13.1 million from the purchase of the redeemable
Series A Preferred Stock and (iv) $0.2 million from the exercise of stock
options and purchase of common stock by certain members of management.
The 165,000 shares of redeemable Series A Preferred Stock will have (i) a
stated value of $100 per share, (ii) cumulative dividends payable semiannually
at a rate of 12% per annum and (iii) a mandatory redemption in 2009 or earlier
upon either the sale of the Company or any offering (as defined).
The $100 million of Notes will be issued by Allied (the operating entity).
The Notes will be fully, unconditionally, and jointly and severally guaranteed
by all of Allied's direct and indirect parent companies (Allied Digital, HMG and
Holdings) and future subsidiaries (the 'Guarantors'). The guarantees will be
general unsecured obligations of each of the Guarantors subordinated in right of
payment of all existing and future Senior Debt of each such Guarantor and will
rank senior in right of payment of all existing and future Subordinated
Indebtedness of each such Guarantor.
Separate financial statements for Allied and all of its parent company
guarantors have not been presented since each parent company has no operations
or assets separate from its investment in its subsidiaries.
The Merger will be accounted for as a recapitalization for accounting
purposes as there will be a significant continuation of stockholder ownership.
Further, AAC, formed solely for the purpose of effectuating the
recapitalization, will merge with and into the Company. Accordingly, the Merger
will have no impact on the historical basis of the Company's assets and
liabilities.
The following non-recurring charges will be reflected in the Company's
statements of earnings in connection with the Transactions in the period in
which the Transactions close: (i) $1.026 million relating to the cash settlement
of unexercised stock options granted to employees, (ii) an extraordinary charge
of $1.132 million relating to a termination charge and write-off of deferred
financing costs relating to the repayment of borrowings under the Company's
existing credit agreement and (iii) related tax effects.
In accordance with the terms of the Merger Agreement, the Company must pay
AAC $3,375,000, and reimburse AAC for its reasonable out-of-pocket expenses up
to a maximum of $1,000,000, if the Merger Agreement is terminated for certain
specified reasons (as defined).
Litigation
On May 12, 1998, a complaint purporting to state a class action was filed
in the Delaware Court of Chancery by Crandon Capital Partners, alleged to be a
stockholder of the Company, on behalf of itself and all others similarly
situated, against the Company and its directors. The plaintiffs allege that the
Merger is wrongful, unfair and harmful to holders of Common Stock and that it
has been effected with unfair dealing, that the proposed consideration of $5.00
a share is unfair to the Company's stockholders and that the directors of the
Company have violated their fiduciary obligations owed to the plaintiffs and
other members of the class. The complaint seeks to enjoin the Merger and an
unspecified amount of damages, in addition to payment of attorney's fees and
reimbursement of expenses. Management believes that this claim is without merit
and does not believe such claim will have a material adverse effect on the
Merger or on the Company's financial position, results of operations or
liquidity; however, there can be no assurance as to the outcome of such claim.
F-34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the Company in
connection with the offering described in this Registration Statement. All of
such amounts are estimated except for the SEC Registration Fee and the NASD fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 29,500
NASD filing fee............................................. 10,500
Printing and Engraving Costs................................ 200,000
Legal Fees and Expenses..................................... 350,000
Accounting Fees and Expenses................................ 225,000
Fees and expenses (filing, legal fees) for qualification
under state securities laws............................... 20,000
Trustee's fees and expenses................................. 5,000
Miscellaneous............................................... 20,000
--------
Total.................................................. $860,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(A) ALLIED DIGITAL, INC.
Allied Digital, Inc. (the 'Issuer') is a New York corporation. The New York
Business Corporation Law (the 'NYBCL') authorizes a New York corporation to
indemnify any person who is, or is threatened to be made, a party in any civil
or criminal proceeding (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another entity, against
judgments, fines, amounts paid in settlement and reasonable expenses (including
attorneys' fees), actually and reasonably incurred by such person as a result of
such action or proceeding or any appeal therein. With respect to actions by or
in the right of the corporation, the NYBCL authorizes indemnification of such
person against reasonable expenses, including attorneys' fees and amounts paid
in settlement. To be entitled to indemnification, a person must have acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Court approval is required as a prerequisite to indemnification of expenses in
respect of any claim as to which a person has been adjudged liable to the
corporation. The NYBCL requires indemnification against expenses actually and
reasonably incurred by any director, officer, employee or agent in connection
with a proceeding against such person for action in such capacity to the extent
that the person has been successful on the merits or otherwise. Advancement of
expenses (i.e., payment prior to a determination on the merits) is permitted,
but not required, by the NYBCL, which further requires that any director or
officer must undertake to repay such expenses if it is ultimately determined
that he is not entitled to indemnification. The disinterested members of the
board of directors (or independent legal counsel or the shareholders) must
determine, in each instance where indemnification is not required by the NYBCL,
that such director, officer, employee or agent is entitled to indemnification.
The NYBCL provides that the indemnification provided by statute is not
exclusive.
The form of the Underwriting Agreement, filed as Exhibit 1 to this
Registration Statement, provides that the Issuer will indemnify and reimburse
the Underwriters and each controlling person of the Underwriters with respect to
certain expenses and liabilities, including liabilities under the Securities Act
of 1933 or other federal or state regulations or under the common law, which
arise out of or are based on certain material misstatements or omissions in the
Registration Statement. In addition, the Underwriting Agreement provides that
the Underwriters will similarly indemnify and reimburse the Issuer and each
director, each officer who signed the Registration Statement and each
controlling person of the Issuer with respect to certain material misstatements
or omissions in
II-1
<PAGE>
the Registration Statement which are based on certain written information
furnished by the Underwriters for use in connection with the preparation of the
Registration Statement.
The Issuer has also entered into employment agreements with certain
executive officers, which agreements require that the Issuer maintain a
directors' and officers' liability policy for the benefit of such officers and
that the Issuer will indemnify such officers to the fullest extent permitted by
law.
The Issuer has adopted provisions in its Certificate of Incorporation and
Bylaws that provide that the Issuer shall indemnify its officers and directors
to the fullest extent permitted by the NYBCL.
(B) ALLIED DIGITAL TECHNOLOGIES CORP., HMG DIGITAL TECHNOLOGIES CORP. AND
HRM HOLDINGS CORP.
Allied Digital Technologies Corp., ('ADT') HMG Digital Technologies Corp.
('HMG') and HRM Holdings Corp. ('HRM') are Delaware corporations. Section 145 of
the Delaware General Corporation Law ('DGCL'), inter alia, empowers a Delaware
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Similar indemnity is authorized for such person against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of any such threatened, pending or completed action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides) such
person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the shareholders or disinterested directors or by independent
legal counsel in a written opinion that indemnification is proper because the
indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against such person, and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would otherwise have the power to indemnify such person
under Section 145.
ADT has adopted provisions in its Certificate of Incorporation and Bylaws
that provide that ADT shall indemnify its officers and directors to the fullest
extent permitted by the DGCL.
HMG and HRM have both adopted provisions in their respective Certificates
of Incorporation and Bylaws that provide that HMG and HRM (each a 'Corporation')
shall indemnify officers and directors as follows:
(a) Any person made a party or threatened to be made a party, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action or suit by or in the
right of the Corporation to procure a judgment in its favor) by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall be indemnified by the
Corporation against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation, or, with respect
to any criminal action or proceeding, that the person had reasonable cause
to believe that his conduct was unlawful.
II-2
<PAGE>
(b) Any person made a party or threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise shall be indemnified by the Corporation against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, except that no
indemnification shall be made hereunder in respect of any claim, issue or
matter as to which the person shall be adjudged liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which said Court of
Chancery or such other court shall deem proper.
(c) To the extent that any person referred to above has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs (a) and (b) above, or in defense of
any claim, issue or matter therein, he shall be indemnified by the
Corporation against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) No indemnification shall be granted under paragraph (a) or (b)
above unless ordered by a court or unless it shall be specifically
determined that indemnification of the person is proper in the
circumstances because he has met the applicable standard of conduct set
forth in the applicable paragraph, which determination shall be made (i) by
the Board of Directors of the Corporation, by not less than a majority vote
of a quorum of the whole Board consisting of directors not parties to the
subject action, suit or proceeding; or (ii) if such quorum is not
obtainable, or even if obtainable if directed by such a quorum of
disinterested directors, by independent legal counsel selected by the Board
of Directors in a written opinion; or (iii) by the stockholders entitled to
vote at any meeting by majority vote of the quorum present.
(e) Expenses incurred in defending any action, suit or proceeding by a
person who may be entitled to indemnity under the above provisions may be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding if authorized under paragraph (d) above upon receipt of
an undertaking by or on behalf of the person to whom payment is to be made
that he will repay the amounts advanced if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation in
accordance with the above provisions.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the above provisions shall not be deemed exclusive of
any other rights to which those indemnified or advanced expenses may be
entitled under any provision of the Certificate of Incorporation, By-law,
agreement, vote of stockholders or disinterested directors, insurance
agreement, or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office.
(g) The indemnification and advancement of expenses, provided by, or
granted pursuant to, these provisions shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
In addition, pursuant to the Merger Agreement, ADT has agreed for a period
of six years following the effective time of the Merger to indemnify present and
former directors and officers of ADT and its subsidiaries with respect to acts
or omissions occurring prior to the effective time of the Merger to the maximum
extent permitted under the ADT's Certificate of Incorporation and Bylaws. ADT
has also agreed in the Merger Agreement to maintain for a period of six years
following the effective time of the Merger the directors' and officers'
liability insurance coverage maintained by ADT (or substantially equivalent
coverage under substitute policies) with respect to any claims arising out of
any actions or omissions occurring prior to the effective time of the Merger.
II-3
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------
<S> <C>
1 -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan of Merger, dated May 5, 1998, by and between
Analog Acquisition Corp. and Allied Digital Technologies Corp.
(Incorporated by reference to ADT's Current Report on Form 8-K dated
May 15, 1998).
2.2 -- Form of Stockholder Voting Agreement (Incorporated by reference to
Annex E of ADT's Amendment No. 1 to Schedule 14A filed with the
Commission on July 16, 1998).
2.3 -- Form of Rollover Agreement (Incorporated by reference to Annex F of
ADT's Amendment No. 1 to Schedule 14A filed with the Commission on
July 16, 1998).
4.1 -- Form of Indenture among Allied Digital, Inc., IBJ Schroder Bank &
Trust Company, as Trustee and the Guarantors named therein.
4.2 -- Form of Senior Subordinated Note (included in Exhibit 4.1).
5 -- Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the
securities being registered.
10.1 -- Amended and Restated Promissory Note, dated October 30, 1996, made
by Hauppauge Record Manufacturing Ltd. in favor of William H. Smith,
Trustee, in the principal amount of $4,000,000 (herein incorporated
by reference to Exhibit 10(b)(i) to ADT's Annual Report on Form 10-K
for the year ended July 31, 1996).
10.2 -- Amended and Restated Promissory Note dated October 30, 1996, made by
Hauppauge Record Manufacturing Ltd. in favor of William H. Smith, in
the principal amount of $2,000,000 (herein incorporated by reference
to Exhibit 10(b)(ii) to ADT's Annual Report on Form 10-K for the
year ended July 31, 1996).
10.3 -- Global Indemnification Agreement dated June 17, 1994, among Allied
Film Laboratory, Inc. and Greenfield Land Company and William H.
Smith, individually, d/b/a William H. Smith Realty and William H.
Smith, as Trustee, under the William H. Smith Trust Agreement dated
November 13, 1978 (herein incorporated by reference to Exhibit
(99)(j) filed as part of ADT's Registration Statement on Form S-4,
File No. 33-86530).
10.4 -- Consulting Agreement, dated June 16, 1994, between HMG and H. Sean
Mathis (herein incorporated be reference to Exhibit 10.22(ii) of
HMG's Annual Report on Form 10-K for the fiscal year ended July 31,
1994, Commission File No. 0-20014).
10.5 -- Subordinated Promissory Note dated October 30, 1996, made by HMG in
favor of George N. Fishman in the principal amount of $200,000
(herein incorporated by reference to Exhibit 10(ee)(i) to ADT's
Annual Report on Form 10-K for the fiscal year ended July 31, 1996).
10.6 -- Subordinated Promissory Note dated October 30, 1996, made by HMG in
favor of Donald L. Olesen in the principal amount of $200,000
(herein incorporated by reference to Exhibit 10(ee)(ii) to ADT's
Annual Report on Form 10-K for the fiscal year ended July 31, 1996).
10.7 -- Subordinated Promissory Note dated October 30, 1996, made by HMG in
favor of William H. Smith, Trustee, in the principal amount of
$1,600,000 (herein incorporated by reference to Exhibit 10(ee)(iii)
to ADT's Annual Report on Form 10-K for the fiscal year ended July
31, 1996).
10.8 -- Agreement between Anchor Bay Entertainment and ADT for Videotape
Duplication and Order Fulfillment, dated June 16, 1995 (herein
incorporated by reference to Exhibit (10)(ff) to ADT's Annual Report
on Form 10-K for the fiscal year ended July 31, 1996).
10.9 -- Modification Agreement between Anchor Bay Entertainment and ADT
dated September 12, 1997 (herein incorporated by reference to
Exhibit 10(ff)(ii) to ADT's Annual Report on Form 10-K for the
fiscal year ended July 31, 1997).
10.10 -- Exclusive CD Manufacturing Agreement, dated as of September 12,
1997, between Sofsource, Inc. and ADT (herein incorporated by
reference to Exhibit 10(hh) to ADT's Annual Report on Form 10-K for
the fiscal year ended July 31, 1997).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------
<S> <C>
10.11 -- Employment Agreement with John K. Mangini dated as of July 31, 1997
(herein incorporated by reference to Exhibit 10(gg) to ADT's Annual
Report on Form 10-K for the fiscal year ended July 31, 1997).
10.12 -- Employment Agreement with Donald L. Olesen dated as of January 1,
1995, as amended on January 1, 1998.
10.13 -- Employment Agreement with Brian R. Wilson dated as of January 1,
1995, as amended on January 1, 1998.
10.14 -- Employment Agreement with Virginia Guiette dated as of December 17,
1997.
10.15 -- Agreement between Hauppauge Record Manufacturing Co. and Local 810,
Steel, Metals, Alloys and Hardware Fabricators and Warehousemen,
affiliated with the International Brotherhood of Teamsters, dated as
of January 22, 1997.
12 -- Computation of Ratio of Earnings to Fixed Charges.
23.1 -- Consent of Grant Thornton LLP.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Morgan, Lewis & Bockius LLP (included as part of its
opinion filed as Exhibit 5 hereto).
25 -- Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of IBJ Schroder Bank & Trust Company, as Trustee.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions set forth in response to Item 15, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that the claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted form the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF HAUPPAUGE, STATE OF NEW YORK, ON THE
DAY OF JULY, 1998.
ALLIED DIGITAL, INC.
By: /s/ George N. Fishman
-------------------------
George N. Fishman
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON JULY , 1998.
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------- ----------------------------------------
<S> <C>
/s/ George N. Fishman Chairman of the Board, Chief Executive
- -------------------------------- Officer and Director
George N. Fishman
* Vice President and Treasurer
- --------------------------------
Charles P. Kavanagh
* Director
- --------------------------------
William H. Smith
*By: /s/ Charles A. Mantione
---------------------------
Charles A. Mantione
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF HAUPPAUGE, STATE OF NEW YORK, ON THE
DAY OF JULY, 1998.
ALLIED DIGITAL TECHNOLOGIES CORP.
By: /s/ George N. Fishman
-------------------------------
George N. Fishman
Co-Chairman and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON JULY , 1998.
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------- ----------------------------------------
<S> <C>
* Co-Chairman, President and Director
- --------------------------------
William H. Smith
/s/ George N. Fishman Co-Chairman, Chief Executive Officer and
- -------------------------------- Director
George N. Fishman
/s/ Charles A. Mantione Vice President--Finance
- --------------------------------
Charles A. Mantione
Director
- --------------------------------
Donald L. Olesen
* Director
- --------------------------------
Eugene L. Gargaro, Jr.
* Director
- --------------------------------
Werner H. Jean
Director
- --------------------------------
Seymour Leslie
* Director
- --------------------------------
H. Sean Mathis
Director
- --------------------------------
John A. Morgan
*By: /s/ Charles A. Mantione
---------------------------
Charles A. Mantione
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF HAUPPAUGE, STATE OF NEW YORK, ON THE
DAY OF JULY, 1998.
HMG DIGITAL TECHNOLOGIES CORP.
By: /s/ George N. Fishman
-------------------------------
George N. Fishman
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON JULY , 1998.
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------- ----------------------------------------
<S> <C>
/s/ George N. Fishman Chairman of the Board, Chief Executive
- -------------------------------- Officer and Director
George N. Fishman
* Chief Financial Officer
- --------------------------------
Charles P. Kavanagh
* Director
- --------------------------------
William H. Smith
*By: /s/ Charles A. Mantione
---------------------------
Charles A. Mantione
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF HAUPPAUGE, STATE OF NEW YORK, ON THE
DAY OF JULY, 1998.
HRM HOLDINGS CORP.
By: /s/ George N. Fishman
-------------------------------
George N. Fishman
Chief Executive Officer and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON JULY , 1998.
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------- ----------------------------------------
<S> <C>
/s/ George N. Fishman Chief Executive Officer, President and
- -------------------------------- Director
George N. Fishman
* Vice President and Treasurer
- --------------------------------
Charles P. Kavanagh
* Director
- --------------------------------
William H. Smith
*By: /s/ Charles A. Mantione
---------------------------
Charles A. Mantione
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ----------------------------------------------------------- ----------
<S> <C>
1 -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan of Merger, dated May 5, 1998, by and
between Analog Acquisition Corp. and Allied Digital
Technologies Corp. (Incorporated by reference to Current
Report on Form 8-K dated May 15, 1998).
2.2 -- Form of Stockholder Voting Agreement (Incorporated by
reference to Annex E of ADT's Amendment No. 1 to
Schedule 14A filed with the Commission on July 16,
1998).
2.3 -- Form of Rollover Agreement (Incorporated by reference to
Annex F of ADT's Amendment No. 1 to Schedule 14A filed
with the Commission on July 16, 1998).
4.1 -- Form of Indenture among Allied Digital, Inc. and IBJ
Schroder Bank & Trust Company, as Trustee and the
Guarantors named therein.
4.2 -- Form of Senior Subordinated Note (included in Exhibit
4.1).
5 -- Opinion of Morgan, Lewis & Bockius LLP regarding the
legality of the securities being registered.
10.1 -- Amended and Restated Promissory Note, dated October 30,
1996, made by Hauppauge Record Manufacturing Ltd. in
favor of William H. Smith, Trustee, in the principal
amount of $4,000,000 (herein incorporated by reference
to Exhibit 10(b)(i) to ADT's Annual Report on Form 10-K
for the year ended July 31, 1996).
10.2 -- Amended and Restated Promissory Note dated October 30,
1996, made by Hauppauge Record Manufacturing Ltd. in
favor of William H. Smith, in the principal amount of
$2,000,000 (herein incorporated by reference to Exhibit
10(b)(ii) to ADT's Annual Report on Form 10-K for the
year ended July 31, 1996).
10.3 -- Global Indemnification Agreement dated June 17, 1994,
among Allied Film Laboratory, Inc. and Greenfield Land
Company and William H. Smith, individually, d/b/a
William H. Smith Realty and William H. Smith, as
Trustee, under the William H. Smith Trust Agreement
dated November 13, 1978 (herein incorporated by
reference to Exhibit (99)(j) filed as part of ADT's
Registration Statement on Form S-4, File No. 33-86530).
10.4 -- Consulting Agreement, dated June 16, 1994, between HMG
and H. Sean Mathis (herein incorporated be reference to
Exhibit 10.22(ii) of HMG's Annual Report on Form 10-K
for the fiscal year ended July 31, 1994, Commission File
No. 0-20014).
10.5 -- Subordinated Promissory Note dated October 30, 1996,
made by HMG in favor of George N. Fishman in the
principal amount of $200,000 (herein incorporated by
reference to Exhibit 10(ee)(i) to ADT's Annual Report on
Form 10-K for the fiscal year ended July 31, 1996).
10.6 -- Subordinated Promissory Note dated October 30, 1996,
made by HMG in favor of Donald L. Olesen in the
principal amount of $200,000 (herein incorporated by
reference to Exhibit 10(ee)(ii) to ADT's Annual Report
on Form 10-K for the fiscal year ended July 31, 1996).
10.7 -- Subordinated Promissory Note dated October 30, 1996,
made by HMG in favor of William H. Smith, Trustee, in
the principal amount of $1,600,000 (herein incorporated
by reference to Exhibit 10(ee)(iii) to ADT's Annual
Report on Form 10-K for the fiscal year ended July 31,
1996).
10.8 -- Agreement between Anchor Bay Entertainment and ADT for
Videotape Duplication and Order Fulfillment, dated June
16, 1995 (herein incorporated by reference to Exhibit
(10)(ff) to ADT's Annual Report on Form 10-K for the
fiscal year ended July 31, 1996).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.9 -- Modification Agreement between Anchor Bay Entertainment
and ADT dated September 12, 1997 (herein incorporated by
reference to Exhibit 10(ff)(ii) to ADT's Annual Report
on Form 10-K for the fiscal year ended July 31, 1997).
10.10 -- Exclusive CD Manufacturing Agreement, dated as of
September 12, 1997, between Sofsource, Inc. and ADT
(herein incorporated by reference to ADT's Annual Report
on Form 10-K for the fiscal year ended July 31, 1997).
10.11 -- Employment Agreement with John K. Mangini dated as of
July 31, 1997 (herein incorporated by reference to
Exhibit 10(gg) to ADT's Annual Report on Form 10-K for
the fiscal year ended July 31, 1997).
10.12 -- Employment Agreement with Donald L. Olesen dated as of
January 1, 1995, as amended on January 1, 1998.
10.13 -- Employment Agreement with Brian R. Wilson dated as of
January 1, 1995, as amended on January 1, 1998.
10.14 -- Employment Agreement with Virginia Guiette dated as of
December 17, 1997.
10.15 -- Agreement between Hauppauge Record Manufacturing Co. and
Local 810, Steel, Metals, Alloys and Hardware
Fabricators and Warehousemen, affiliated with the
International Brotherhood of Teamsters, dated as of
January 22, 1997.
12 -- Computation of Ratio of Earnings to Fixed Charges.
23.1 -- Consent of Grant Thornton LLP.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Morgan, Lewis & Bockius LLP (included as part
of its opinion filed as Exhibit 5 hereto).
25 -- Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939 of IBJ Schroder Bank & Trust
Company, as Trustee.
</TABLE>
<PAGE>
ALLIED DIGITAL, INC.
$100,000,000
[ ]% Senior Subordinated Notes Due 2008
Underwriting Agreement
[ ], 1998
J.P. Morgan Securities Inc.
Bear, Stearns & Co. Inc.
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260-0060
Ladies and Gentlemen:
Allied Digital, Inc., a New York corporation (the "Issuer"), proposes
to issue and sell to the several Underwriters listed in Schedule I hereto (the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"), $100,000,000 principal amount of its [ ]% Senior
Subordinated Notes Due 2008 (the "Notes"). To the extent there are no additional
Underwriters listed on Schedule I other than you, the term Representatives as
used herein shall mean you, as Underwriters, and the terms Representatives and
Underwriters shall mean either the singular or plural as the context requires.
The Senior Subordinated Notes will be fully and unconditionally guaranteed (the
"Guarantees" and, together with the Notes, the "Securities") as to payment of
principal, premium (if any) and interest by Allied Digital Technologies Corp.
("ADT"), HMG Digital Technologies Corp. and HRM Holdings Corp., each a Delaware
corporation, as guarantors (the "Guarantors"). The Securities will be issued
pursuant to the provisions of an Indenture to be dated as of [ ], 1998 among the
Issuer, the Guarantors and IBJ Schroder Bank & Trust Company, as Trustee (the
"Trustee").
The Issuer and the Guarantors have prepared and filed with the
Securities and Exchange Commission (the "Commission") in accordance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Securities Act"), a
registration statement, including a prospectus, relating to the Securities. The
registration statement as amended at the time when it shall become effective,
or, if a post-effective amendment is filed with respect thereto, as amended by
such post-effective amendment at the time of its effectiveness, including in
<PAGE>
-2-
each case information (if any) deemed to be part of the registration statement
at the time of effectiveness pursuant to Rule 430A under the Securities Act, is
referred to in this Agreement as the "Registration Statement", and the
prospectus in the form first used to confirm sales of Securities is referred to
in this Agreement as the "Prospectus". If the Issuer and the Guarantors have
filed an abbreviated registration statement pursuant to Rule 462(b) under the
Securities Act (the "Rule 462 Registration Statement"), then any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462 Registration Statement. Any reference in this Agreement to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Item
12 of Form S-2 under the Securities Act, as of the effective date of the
Registration Statement or the date of such preliminary prospectus or the
Prospectus, as the case may be.
The Issuer and the Guarantors hereby agree with the Underwriters as
follows:
1. The Issuer and the Guarantors agree to issue and sell the Securities
to the several Underwriters as hereinafter provided, and each Underwriter, upon
the basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees to purchase, severally and not
jointly, from the Issuer and the Guarantors the respective principal amount of
Securities set forth opposite such Underwriter's name in Schedule I hereto at a
price equal to [ ]% of their principal amount plus accrued interest, if any,
from [ ], 1998 to the date of payment and delivery.
2. The Issuer and the Guarantors understand that the Underwriters
intend (i) to make a public offering of their respective portions of the
Securities as soon after (A) the Registration Statement has become effective and
(B) the parties hereto have executed and delivered this Agreement, as in the
judgment of the Representatives is advisable and (ii) initially to offer the
Securities upon the terms set forth in the Prospectus.
3. Payment for the Securities shall be made by wire transfer in
immediately available funds to the account specified by the Issuer to the
Representatives on [ ], 1998, or at such other time on the same or
such other date, not later than the third Business Day thereafter, as the
Representatives and the Issuer may agree upon in writing. The time and date of
such payment is referred to herein as the "Closing Date". As used herein, the
term "Business Day" means any day other than a day on which banks are permitted
or required to be closed in New York City.
Payment for the Securities shall be made against delivery to the
nominee of The Depository Trust Company for the respective accounts of the
several Underwriters of the Securities of one or more global notes
(collectively, the "Global Note") representing the Securities, with any transfer
taxes payable in connection with the transfer to the Underwrit-
<PAGE>
-3-
ers of the Securities duly paid by the Issuer and the Guarantors. The Global
Note will be made available for inspection by the Representatives at the office
of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260, not
later than 1:00 P.M., New York City time, on the Business Day prior to the
Closing Date.
As compensation to the Underwriters for their commitments hereunder,
the Issuer will pay, or cause to be paid, to J.P. Morgan Securities Inc., for
the accounts of the several Underwriters, an amount equal to [ ]% of the
principal amount of the Securities to be delivered by the Issuer and the
Guarantors hereunder on the Closing Date. On [ ], 1998, or on such
other date, no later than the third Business Day thereafter, as the
Representatives and the Issuer may agree upon in writing, the Issuer will pay or
cause to be paid, by wire transfer, in immediately available funds, such
commission to the account specified by J.P. Morgan Securities Inc.
4. Each of the Issuer and the Guarantors, jointly and severally,
represents and warrants to each Underwriter that:
(a) no order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission, and each
preliminary prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or filed pursuant
to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Issuer and the Guarantors in writing by such Underwriter through
the Representatives expressly for use therein;
(b) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to the knowledge of the Issuer and the
Guarantors, threatened by the Commission; and the Registration
Statement and Prospectus (as amended or supplemented if the Issuer and
the Guarantors shall have furnished any amendments or supplements
thereto) comply, or will comply, as the case may be, in all material
respects with the Securities Act and the Trust Indenture Act of 1939,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Trust Indenture Act") and do not and will not, as
of the applicable effective date as to the Registration Statement and
any amendment thereto and as of the date of the Prospectus and any
amendment or supplement thereto, contain any untrue statement of a
material fact or omit to state any ma-
<PAGE>
-4-
terial fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectus, as amended or
supplemented, if applicable, at the Closing Date will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that
the foregoing representations and warranties shall not apply to (i)
that part of the Registration Statement which constitutes the Statement
of Eligibility and Qualification (Form T-1) of the Trustee under the
Trust Indenture Act, and (ii) statements or omissions in the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Issuer and the Guarantors in writing by such Underwriter through
the Representatives expressly for use therein;
(c) the Issuer and the Guarantors meet the requirements for
use of Form S-2 under the Securities Act; the documents incorporated by
reference in the Prospectus, when they were filed with the Commission,
conformed in all material respects to the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Exchange
Act") and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and any further documents so filed and
incorporated by reference in the Prospectus, when such documents are
filed with the Commission, will conform in all material respects to the
requirements of the Exchange Act, and will not contain an untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(d) the financial statements, and the related notes thereto,
included or incorporated by reference in the Registration Statement and
the Prospectus present fairly the consolidated financial position of
ADT and its consolidated subsidiaries as of the dates indicated and the
results of their operations and the changes in their consolidated cash
flows for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis, and the supporting schedules included or
incorporated by reference in the Registration Statement present fairly
the information required to be stated therein; and the pro forma
financial information, and the related notes thereto, included or
incorporated by reference in the Registration Statement and the
Prospectus has been prepared in accordance with the applicable
requirements of the Securities Act and the Exchange Act, as applica-
<PAGE>
-5-
ble and is based upon good faith estimates and assumptions believed by
the Issuer and the Guarantors to be reasonable;
(e) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of ADT or any of
its subsidiaries (including the Issuer, the "Subsidiaries"), or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, business,
prospects, management, financial position, stockholders' equity or
results of operations of ADT and the Subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus; and
except as set forth or contemplated in the Prospectus neither ADT nor
any of the Subsidiaries has entered into any transaction or agreement
(whether or not in the ordinary course of business) material to ADT and
the Subsidiaries taken as a whole;
(f) each of ADT and the Subsidiaries has been duly
incorporated and is validly existing as a corporation under the laws of
its jurisdiction of incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus, and has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have a
material adverse effect on ADT and the Subsidiaries taken as a whole;
and all the outstanding shares of capital stock of ADT and each
Subsidiary have been duly authorized and validly issued, are fully-paid
and non-assessable, and, in the case of the Subsidiaries (except as
described in the Prospectus), are owned by ADT, directly or indirectly,
free and clear of all liens, encumbrances, security interests and
claims;
(g) this Agreement has been duly authorized, executed and
delivered by the Issuer and the Guarantors;
(h) the Notes have been duly authorized, and, when issued and
delivered pursuant to this Agreement, will have been duly executed,
authenticated, issued and delivered and will constitute valid and
binding obligations of the Issuer entitled to the benefits provided by
the Indenture; the Guarantees have been duly authorized, and when
issued and delivered together with the Notes pursuant to this
Agreement, will have been duly executed, issued and delivered and will
constitute valid and binding obligations of the Guarantors entitled to
the benefits provided by the Indenture; the Indenture has been duly
authorized and upon effectiveness of the Registration Statement will
have been duly qualified
<PAGE>
-6-
under the Trust Indenture Act and, when executed and delivered by the
Issuer, the Guarantors and the Trustee, the Indenture will constitute a
valid and binding instrument; and the Securities and the Indenture will
conform to the descriptions thereof in the Prospectus;
(i) neither ADT nor any of the Subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation of or
in default under, (A) its Certificate of Incorporation or Articles of
Incorporation, as the case may be, or By-Laws or (B) any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which ADT or any of the Subsidiaries is a party or by
which it or any of them or any of their respective properties is bound,
except in the case of subclause (B), for violations and defaults which
individually and in the aggregate are not material to ADT and the
Subsidiaries taken as a whole or to the holders of the Securities;
(j) the issue and sale by the Issuer of the Notes and by the
Guarantors of the Guarantees and the performance by each of the Issuer
and the Guarantors of all of the provisions of its respective
obligations under the Securities, the Indenture and this Agreement and
the consummation of the transactions herein and therein contemplated
and of the Transactions as defined in the Registration Statement and
the Prospectus (the "Transactions") will not conflict with or result in
a breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which ADT or any of the Subsidiaries is a
party or by which ADT or any of the Subsidiaries is bound or to which
any of the property or assets of ADT or any of the Subsidiaries is
subject, nor will any such action result in any violation of the
provisions of the Certificate of Incorporation or Articles of
Incorporation, as the case may be, or the By-Laws of ADT or any of the
Subsidiaries or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over ADT, the Subsidiaries or any of their respective
properties;
(k) no consent, approval, authorization, order, license,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Securities or
the consummation by the Issuer and the Guarantors of the Transactions
or the other transactions contemplated by this Agreement or the
Indenture, except such consents, approvals, authorizations, orders,
licenses, registrations or qualifications as have been obtained under
the Securities Act, the Trust Indenture Act and as may be required
under state securities or Blue Sky Laws in connection with the purchase
and distribution of the Securities by the Underwriters;
<PAGE>
-7-
(l) other than as set forth or contemplated in the Prospectus,
there are no legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Issuer and the
Guarantors, threatened against or affecting ADT or any of the
Subsidiaries or any of their respective properties or of which ADT or
any of the Subsidiaries is or may be a party or to which any property
of ADT or any of the Subsidiaries is or may be the subject which, if
determined adversely to ADT or any of the Subsidiaries, could
individually or in the aggregate have, or reasonably be expected to
have, a material adverse effect on the general affairs, business,
prospects, management, financial position, stockholders' equity or
results of operations of ADT and the Subsidiaries, taken as a whole,
and, to the best of the Issuer's and the Guarantors' knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others; and there are no statutes, regulations,
contracts or other documents that are required to be filed as an
exhibit to the Registration Statement or required to be described in
the Registration Statement or the Prospectus which are not filed or
described as required;
(m) Grant Thorton LLP and Arthur Andersen LLP (collectively,
the "Auditors"), who have certified certain financial statements of ADT
and its consolidated subsidiaries and delivered their reports with
respect to the audited consolidated financial statements included in
the Prospectus, are each independent public accountants as required by
the Securities Act;
(n) ADT and the Subsidiaries have good and marketable title in
fee simple to all items of real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described or
referred to in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made or
proposed to be made of such property by ADT and the Subsidiaries; and
any real property and buildings held under lease by ADT and the
Subsidiaries are held by them under valid, existing and enforceable
leases with such exceptions as are not material and do not interfere
with the use made or proposed to be made of such property and buildings
by ADT or the Subsidiaries;
(o) no relationship, direct or indirect, exists between or
among ADT or any of the Subsidiaries on the one hand, and the
directors, officers, stockholders, customers or suppliers of ADT or any
of the Subsidiaries on the other hand, which is required by the
Securities Act to be described in the Registration Statement and the
Prospectus which is not so described;
<PAGE>
-8-
(p) neither the Issuer nor any of the Guarantors is and, after
giving effect to the offering and sale of the Securities and the
application of the proceeds thereof as described in the Prospectus,
neither will be an "investment company" or an entity "controlled" by an
"investment company", as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act");
(q) the Issuer and the Guarantors have complied with all
provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws
of Florida) relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba;
(r) ADT and the Subsidiaries have filed all federal, state,
local and foreign tax returns which have been required to be filed and
have paid all taxes shown thereon and all assessments received by them
or any of them to the extent that such taxes have become due and are
not being contested in good faith; and, except as disclosed in the
Prospectus, there is no tax deficiency which has been or might
reasonably be expected to be asserted or threatened against ADT or any
Subsidiary;
(s) each of ADT and the Subsidiaries owns, possesses or has
obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations
and filings with, all federal, state, local and other governmental
authorities (including foreign regulatory agencies), all
self-regulatory organizations and all courts and other tribunals,
domestic or foreign, necessary to own or lease, as the case may be, and
to operate its properties and to carry on its business as conducted as
of the date hereof, and neither ADT nor any such Subsidiary has
received any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization, except as described in the
Registration Statement and the Prospectus; and each of ADT and the
Subsidiaries is in compliance with all laws and regulations relating to
the conduct of its business as conducted as of the date hereof;
(t) there are no existing or, to the best knowledge of the
Issuer and the Guarantors, threatened labor disputes with the employees
of ADT or any of the Subsidiaries which are likely to have a material
adverse effect on ADT and the Subsidiaries taken as a whole;
(u) ADT and each of the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in
which they are en-
<PAGE>
-9-
gaged; all policies of insurance and fidelity or surety bonds insuring
ADT or any of the Subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect; ADT and
the Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and neither ADT nor any such
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a material adverse
effect on ADT and the Subsidiaries, taken as a whole;
(v) ADT and the Subsidiaries own, possess, license or have
other rights to use, on reasonable terms, all material patents, patent
applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, technology, know-how and other intellectual property
(collectively, the "Intellectual Property") necessary for the conduct
of each of ADT's and the Subsidiaries' business as now conducted or as
proposed in the Prospectus to be conducted;
(w) each of the Issuer and the Guarantors is in compliance
with the Commission's staff legal bulletin No. 5 dated October 8, 1997
related to Year 2000 compliance;
(x) ADT and the Subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on ADT and the Subsidiaries, taken as a whole;
and
(y) each employee benefit plan, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is maintained, administered or contributed to by the
Issuer, the Guarantors or any of their respective affiliates for
employees or former employees of the Issuer and the Guarantors and
their respective affiliates has been maintained in compliance with its
terms and the requirements of any applicable statutes, orders, rules
and regulations, including but not limited to ERISA and
<PAGE>
-10-
the Internal Revenue Code of 1986, as amended ("Code"). No prohibited
transaction, within the meaning of Section 406 of ERISA or Section 4975
of the Code, has occurred with respect to any such plan excluding
transactions effected pursuant to a statutory or administrative
exemption. For each such plan which is subject to the funding rules of
Section 412 of the Code or Section 302 of ERISA no "accumulated funding
deficiency" as defined in Section 412 of the Code has been incurred,
whether or not waived, and the fair market value of the assets of each
such plan (excluding for these purposes accrued but unpaid
contributions) exceeded the present value of all benefits accrued under
such plan determined using reasonable actuarial assumptions.
5. Each of the Issuer and the Guarantors covenants and agrees with each
of the several Underwriters as follows:
(a) to use its best efforts to cause the Registration
Statement to become effective at the earliest possible time and, if
required, to file the final Prospectus with the Commission within the
time periods specified by Rule 424(b) and Rule 430A under the
Securities Act; and to furnish copies of the Prospectus to the
Underwriters in New York City prior to 10:00 a.m., New York City time,
on the Business Day next succeeding the date of this Agreement in such
quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Issuer and the
Guarantors, to the Representatives, three (3) signed copies of the
Registration Statement (as originally filed) and each amendment
thereto, in each case including exhibits and documents incorporated by
reference therein, and to each other Underwriter a conformed copy of
the Registration Statement (as originally filed) and each amendment
thereto, in each case without exhibits but including the documents
incorporated by reference therein and, during the period mentioned in
paragraph (e) below, to each of the Underwriters as many copies of the
Prospectus (including all amendments and supplements thereto) as the
Representatives may reasonably request;
(c) before filing any amendment or supplement to the
Registration Statement or the Prospectus, whether before or after the
time the Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for
review and not to file any such proposed amendment or supplement to
which the Representatives reasonably object;
(d) to advise the Representatives promptly, and to confirm
such advice in writing, (i) when the Registration Statement has become
effective, (ii)
<PAGE>
-11-
when any amendment to the Registration Statement has been filed or
becomes effective, (iii) when any supplement to the Prospectus or any
amendment to the Prospectus has been filed and to furnish the
Representatives with copies thereof, (iv) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus or the initiation or threatening of any proceeding for
that purpose, (vi) of the occurrence of any event, within the period
referenced in paragraph (e) below, as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, and (vii) of
the receipt by the Issuer or the Guarantors of any notification with
respect to any suspension of the qualification of the Securities for
offer and sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and to use its best efforts to prevent
the issuance of any such stop order, or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any order suspending any such qualification of the Securities, or
notification of any such order thereof and, if issued, to obtain as
soon as possible the withdrawal thereof;
(e) if, during such period of time after the first date of the
public offering of the Securities as in the opinion of counsel for the
Underwriters a prospectus relating to the Securities is required by law
to be delivered in connection with sales by an Underwriter or dealer,
any event shall occur as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement
the Prospectus to comply with law, forthwith to prepare and furnish, at
the expense of the Issuer and the Guarantors, to the Underwriters and
to the dealers (whose names and addresses the Representatives will
furnish to the Issuer and the Guarantors) to which Securities may have
been sold by the Representatives on behalf of the Underwriters and to
any other dealers upon request, such amendments or supplements to the
Prospectus as may be necessary so that the statements in the Prospectus
as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus will comply with law;
<PAGE>
-12-
(f) to endeavor to qualify the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as the
Representatives shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution
of the Securities; provided that neither the Issuer nor the Guarantors
shall be required to file a general consent to service of process in
any jurisdiction;
(g) to make generally available to its security holders and to
the Representatives as soon as practicable an earnings statement which
will satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 of the Commission promulgated thereunder covering a period of
at least twelve months beginning with the first fiscal quarter of the
Issuer and the Guarantors occurring after the "effective date" (as
defined in Rule 158) of the Registration Statement;
(h) so long as the Securities are outstanding, to furnish to
the Representatives copies of all reports or other communications
(financial or other) furnished to holders of the Securities, and copies
of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange;
(i) during the period beginning on the date hereof and
continuing to and including the Business Day following the Closing
Date, not to offer, sell, contract to sell, or otherwise dispose of any
debt securities of or guaranteed by the Issuer or the Guarantors which
are substantially similar to the Securities;
(j) to use the net proceeds received by the Issuer from the
sale of the Securities pursuant to this Agreement in the manner
specified in the Prospectus under the caption "Use of Proceeds"; and
(k) whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all costs and expenses incident to the performance of
its obligations hereunder, including without limiting the generality of
the foregoing, all costs and expenses (i) incident to the preparation,
issuance, execution, authentication and delivery of the Notes and the
Guarantees, including any expenses of the Trustee, (ii) incident to the
preparation, printing and filing under the Securities Act of the
Registration Statement, the Prospectus and any preliminary prospectus
(including in each case all exhibits, amendments and supplements
thereto), (iii) incurred in connection with the registration or
qualification and determination of eligibility for investment of the
Securities under the laws of such jurisdictions as the Underwriters may
designate (including fees of counsel for the Underwriters and their
disbursements), (iv) related to any filing with the National
Association
<PAGE>
-13-
of Securities Dealers, Inc., (v) in connection with the printing
(including word processing and duplication costs) and delivery of this
Agreement, the Indenture, the Preliminary and Supplemental Blue Sky
Memoranda and any Legal Investment Survey and the furnishing to
Underwriters and dealers of copies of the Registration Statement and
the Prospectus, including mailing and shipping, as herein provided,
(vi) payable to rating agencies in connection with the rating of the
Securities, (vii) any expenses incurred by the Issuer and the
Guarantors in connection with a "road show" presentation to potential
investors and (viii) the cost and charges of any transfer agent.
6. The several obligations of the Underwriters hereunder to purchase
the Securities on the Closing Date are subject to the performance by each of the
Issuer and the Guarantors of its respective obligations hereunder and to the
following additional conditions:
(a) the Registration Statement shall have become effective (or
if a post-effective amendment is required to be filed under the
Securities Act, such post-effective amendment shall have become
effective) not later than 5:00 P.M., New York City time, on the date
hereof; and no stop order suspending the effectiveness of the
Registration Statement or any post-affective amendment shall be in
effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission; the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) within the applicable time
period prescribed for such filing by the rules and regulations under
the Securities Act and in accordance with Section 5(a) hereof; and all
requests for additional information shall have been complied with to
the satisfaction of the Representatives;
(b) the representations and warranties of each of the Issuer
and the Guarantors contained herein are true and correct on and as of
the Closing Date as if made on and as of the Closing Date and each of
the Issuer and the Guarantors shall have complied with all agreements
and all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date;
(c) subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, there shall not have occurred any
downgrading, nor shall any notice have been given of (i) any
downgrading, (ii) any intended or potential downgrading or (iii) any
review or possible change that does not indicate an improvement, in the
rating accorded any securities of or guaranteed by the Issuer or the
Guarantors by any "nationally recognized statistical rating
organization", as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act;
<PAGE>
-14-
(d) since the respective dates as of which information is
given in the Prospectus there shall not have been any change in the
capital stock or long-term debt of ADT or any of the Subsidiaries or
any material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, business,
prospects, management, financial position, stockholders' equity or
results of operations of ADT and the Subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus, the
effect of which in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities on the Closing Date on the terms and in the
manner contemplated in the Prospectus; and neither ADT nor any of the
Subsidiaries has sustained since the date of the latest audited
financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order to decree, otherwise
than as set forth or contemplated in the Prospectus;
(e) the Representatives shall have received on and as of the
Closing Date a certificate of an executive officer of each of the
Issuer and the Guarantors, with specific knowledge about the financial
matters of the Issuer and the Guarantors, satisfactory to the
Representatives to the effect set forth in subsections (a) through (c)
(with respect to the respective representations, warranties, agreements
and conditions of the Issuer and the Guarantors) of this Section and to
the further effect that there has not occurred any material adverse
change, or any development involving a prospective material adverse
change, in or affecting the general affairs, business, prospects,
management, financial position, stockholders' equity or results of
operations of ADT and the Subsidiaries taken as a whole from that set
forth or contemplated in the Registration Statement;
(f) Morgan, Lewis & Bockius LLP and Warshaw Burstein Cohen
Schlesinger & Kuh, LLP, counsel for the Issuer and the Guarantors,
shall have furnished to the Representatives their written opinions,
dated the Closing Date, in form and substance satisfactory to the
Representatives, which opinions shall, in the aggregate, cover the
following:
(i) the Registration Statement has become effective
under the Act; any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b);
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or
threatened;
<PAGE>
-15-
(ii) such counsel is of the opinion that the
Registration Statement and the Prospectus and any amendments
and supplements thereto (other than the financial statements
included therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Trust Indenture Act
and believes that (other than the financial statements
included therein, as to which such counsel need express no
opinion, and other than that part of the Registration
Statement which constitutes the Form T-1 of the Trustee under
the Trust Indenture Act) the Registration Statement and the
prospectus included therein at the time the Registration
Statement became effective did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and that the Prospectus, as
amended or supplemented, if applicable, does not contain any
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading;
(iii) each of ADT and the Subsidiaries has been duly
incorporated and is validly existing as a corporation under
the laws of its jurisdiction of incorporation with power and
authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus and has
been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified
and in good standing would not have a material adverse effect
on ADT and the Subsidiaries taken as a whole; and all of the
outstanding shares of capital stock of ADT and each Subsidiary
have been duly and validly authorized and issued, are fully
paid and non-assessable, and, in the case of the Subsidiaries
(except as otherwise set forth in the Prospectus), are owned
directly or indirectly by ADT, free and clear of all liens,
encumbrances, equities or claims;
(iv) other than as set forth or contemplated in the
Prospectus, there are no legal or governmental investigations,
actions, suits or proceedings pending or, to the best of such
counsel's knowledge, threatened against or affecting ADT or
any of the Subsidiaries or any of their respective properties
or to which ADT or any of the Subsidiaries is or may be a
party or to which any property of ADT or the Subsidiaries is
or may be the subject which, if determined adversely to ADT or
any of the Subsidiaries, could individually or in the
aggregate have, or reasonably be expected to have, a material
adverse effect on the general affairs, business, prospects,
management, finan-
<PAGE>
-16-
cial position, stockholders' equity or results of operations
of ADT and the Subsidiaries taken as a whole; to the best of
such counsel's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by
others; and such counsel does not know of any statutes,
regulations, contracts or other documents required to be
described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement that are not
described or filed as required;
(v) this Agreement has been duly authorized, executed
and delivered by the Issuer and the Guarantors;
(vi) the Notes have been duly authorized, executed
and delivered by the Issuer and, when they have been duly
authenticated in accordance with the terms of the Indenture
and the Securities have been delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement,
the Notes will constitute valid and binding obligations of the
Issuer entitled to the benefits provided by the Indenture;
(vii) the Guarantees have been duly authorized,
executed and delivered by the Guarantors, and when the Notes
have been duly authenticated in accordance with the terms of
the Indenture and the Securities have been delivered to and
paid for by the Underwriters in accordance with the terms of
this Agreement, the Guarantees will constitute valid and
binding obligations of the Guarantors entitled to the benefits
provided by the Indenture;
(viii) the Indenture has been duly authorized,
executed and delivered by the Issuer and the Guarantors and
constitutes a valid and binding instrument of each of the
Issuer and the Guarantors; and the Indenture has been duly
qualified under the Trust Indenture Act;
(ix) neither ADT nor any of the Subsidiaries is, or
with the giving of notice or lapse of time or both would be,
in violation of or in default under (A) its Certificate of
Incorporation or Articles of Incorporation, as the case may
be, or By-Laws or (B) any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such
counsel to which ADT or any of the Subsidiaries is a party or
by which it or any of them or any of their respective
properties is bound, except in the case of subclause (B), for
violations and defaults which individually and in the
aggregate are not material to ADT and the Subsidiaries taken
as a whole or to the holders of the Securities;
<PAGE>
-17-
(x) the issue and sale by the Issuer of the Notes and
by the Guarantors of the Guarantees and the performance by
each of the Issuer and the Guarantors of its respective
obligations under the Securities, the Indenture and this
Agreement and the consummation of the transactions herein and
therein contemplated and of the Transactions will not conflict
with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument
known to such counsel to which ADT or any of the Subsidiaries
is a party or by which ADT or any of the Subsidiaries is bound
or to which any of the property or assets of ADT or any of the
Subsidiaries is subject, nor will any such action result in
any violation of the provisions of the Certificate of
Incorporation or Articles of Incorporation, as the case may
be, or the By-Laws of the Issuer or the Guarantors or any
applicable law or statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction
over ADT, the Subsidiaries or any of their respective
properties;
(xi) no consent, approval, authorization, order,
license, registration or qualification of or with any court or
governmental agency or body is required for the issue and sale
of the Securities, or the consummation of the Transactions or
the other transactions contemplated by this Agreement or the
Indenture, except such consents, approvals, authorizations,
orders, licenses, registrations or qualifications as have been
obtained under the Securities Act and the Trust Indenture Act
and as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the
Securities by the Underwriters;
(xii) each of ADT and the Subsidiaries owns,
possesses or has obtained all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and
has made all declarations and filings with, all federal,
state, local and other governmental authorities (including
foreign regulatory agencies), all self-regulatory
organizations and all courts and other tribunals, domestic or
foreign, necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as
conducted as of the date hereof, and such counsel has not
received any actual notice of any proceeding relating to
revocation or modification of any such license, permit,
certificate, consent, order, approval or other authorization,
except as described in the Registration Statement and the
Prospectus; and each of ADT and the Subsidiaries is in
compliance with all laws and regulations relating to the
conduct of its business as conducted as of the date of the
Prospectus;
<PAGE>
-18-
(xiii) ADT and the Subsidiaries have good and
marketable title in fee simple to all real property and good
and marketable title to all personal property owned by them,
in each case free and clear of all liens, encumbrances and
defects except such as are described or referred to in the
Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and
proposed to be made of such property by ADT and the
Subsidiaries; and any real property and buildings held under
lease by ADT and the Subsidiaries are held by them under
valid, existing and enforceable leases with such exceptions as
are not material and do not interfere with the use made or
proposed to be made of such property and buildings by ADT or
the Subsidiaries; and
(xiv) each of ADT and the Subsidiaries is in
compliance with all Environmental Laws, except, in each case,
where noncompliance, individually or in the aggregate, would
not have a material adverse effect on ADT and the Subsidiaries
taken as a whole; there are no legal or governmental
proceedings pending or, to the knowledge of such counsel,
threatened against or affecting ADT or any of the Subsidiaries
under any Environmental Law which, individually or in the
aggregate, could reasonably be expected to have a material
adverse effect on ADT and the Subsidiaries taken as a whole;
(xv) ADT and the Subsidiaries own, possess, license
or have other rights to use all Intellectual Property
necessary for the conduct of each of ADT's and the
Subsidiaries' business as now conducted or as proposed in the
Prospectus to be conducted;
(xvi) the statements in the Prospectus under
"Business -- Legal Proceedings", "Description of Notes",
"Description of Credit Agreement" and "Underwriting" and in
the Registration Statement in Item 15, insofar as such
statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters,
documents or proceedings;
(xvii) neither the Issuer nor any of the Guarantors
is and, after giving effect to the offering and sale of the
Securities and the application of the proceeds thereof as
described in the Prospectus, neither will be an "investment
company" or an entity "controlled" by an "investment company",
as such terms are defined in the Investment Company Act;
(xviii) the documents incorporated by reference in
the Prospectus (other than the financial statements and
related schedules therein, as to which such counsel need
express no opinion), when they were filed with the Com-
<PAGE>
-19-
ission, complied as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations
of the Commission thereunder; and they have no reason to
believe that any of such documents, when such documents were
so filed, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made when such documents were so filed,
not misleading;
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States and the States of New York and Delaware, to the extent
such counsel deems proper and to the extent specified in such opinion,
if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel
reasonably acceptable to the Underwriters' counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of the Issuer and
the Guarantors and certificates or other written statements of
officials of jurisdictions having custody of documents respecting the
corporate existence or good standing of the Issuer or the Guarantors.
The opinion of such counsel for the Issuer and the Guarantors shall
state that the opinion of any such other counsel upon which they relied
is in form satisfactory to such counsel and, in such counsel's opinion,
the Underwriters and they are justified in relying thereon. With
respect to the matters to be covered in subparagraph (ii) above counsel
may state their opinion and belief is based upon their participation in
the preparation of the Registration Statement and the Prospectus and
any amendment or supplement thereto (other than the documents
incorporated by reference therein) and review and discussion of the
contents thereof (including the documents incorporated by reference
therein) but is without independent check or verification except as
specified.
The opinions of Morgan, Lewis & Bockius LLP and Warshaw
Burstein Cohen Schlesinger & Kuh, LLP described above shall be rendered
to the Underwriters at the request of the Issuer and the Guarantors and
shall so state therein;
(g) on the effective date of the Registration Statement and
the effective date of the most recently filed post-effective amendment
to the Registration Statement and also on the Closing Date, each of the
Auditors shall have furnished to you letters, dated the respective
dates of delivery thereof, in form and substance satisfactory to you,
containing statements and information of the type customarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus;
<PAGE>
-20-
(h) substantially concurrent with or prior to the Closing Date
each of the Transactions shall have been completed as described in the
Registration Statement and the Prospectus;
(i) the Representatives shall have received on and as of the
Closing Date an opinion of Cahill Gordon & Reindel, counsel to the
Underwriters, with respect to the validity of the Indenture, the Notes
and the Guarantees, the Registration Statement, the Prospectus and
other related matters as the Representatives may reasonably request,
and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
and
(j) on or prior to the Closing Date, each of the Issuer and
the Guarantors shall have furnished to the Representatives such further
certificates and documents as the Representatives shall reasonably
request.
7. The Issuer and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, the
legal fees and other expenses incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
the Prospectus (as amended or supplemented if the Issuer and the Guarantors
shall have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Issuer and the Guarantors in
writing by such Underwriter through the Representatives expressly for use
therein.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Issuer, the Guarantors, their respective directors, their
respective officers who sign the Registration Statement and each person who
controls the Issuer or the Guarantors within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Issuer and the Guarantors to each Underwriter, but
only with reference to information relating to such Underwriter furnished to the
Issuer and the Guarantors in writing by such Underwriter through the
Representatives expressly for use in the Registration Statement, the Prospectus,
any amendment or supplement thereto, or any preliminary prospectus.
<PAGE>
-21-
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed as they are incurred. Any such separate firm for the Underwriters
and such control persons of the Underwriters shall be designated in writing by
J.P. Morgan Securities Inc. and any such separate firm for the Issuer, the
Guarantors, their respective directors, their respective officers who sign the
Registration Statement and such control persons of the Issuer and the Guarantors
shall be designated in writing by the Guarantors. The Indemnifying Person shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Person agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such Indemnifying
Person of the aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement. No Indemnifying Person shall, without the prior written
consent of the Indemnified Person, effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release of
such Indemnified Person from all liability on claims that are the subject matter
of such proceeding.
<PAGE>
-22-
If the indemnification provided for in the first and second paragraphs
of this Section 7 is unavailable to an Indemnified Person or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Issuer and the Guarantors on the one hand and the
Underwriters on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuer and
the Guarantors on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Issuer and the Guarantors on the one hand and
the Underwriters on the other shall be deemed to be in the same respective
proportions as the net proceeds from the offering (before deducting expenses)
received by the Issuer and the total underwriting discounts and the commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Securities. The relative fault of the Issuer and the Guarantors on the one hand
and the Underwriters on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Issuer and the Guarantors or by the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Issuer, the Guarantors and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The
<PAGE>
-23-
Underwriters' obligations to contribute pursuant to this Section 7 are several
in proportion to the respective principal amount of Securities set forth
opposite their names in Schedule I hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law of in equity.
The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of each of the Issuer and the Guarantors
set forth in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Issuer or the Guarantors, their respective officers or
directors or any other person controlling the Issuer or the Guarantors and (iii)
acceptance of and payment for any of the Securities.
8. Notwithstanding anything herein contained, this Agreement may be
terminated in the absolute discretion of the Representatives, by notice given to
the Issuer and the Guarantors, if after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of or guaranteed by the Issuer or the Guarantors shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities, or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in the judgment of the Representatives,
is material and adverse and which, in the judgment of the Representatives, makes
it impracticable to market the Securities on the terms and in the manner
contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.
If on the Closing Date any one or more of the Underwriters shall fail
or refuse to purchase Securities which it or they have agreed to purchase
hereunder on such date, and the aggregate principal amount of Securities which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase is not more than one-tenth of the aggregate principal amount of the
Securities to be purchased on such date, the other Underwriters
<PAGE>
-24-
shall be obligated severally in the proportions that the principal amount of
Securities set forth opposite their respective names in Schedule I bears to the
aggregate principal amount of Securities set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as the
Representatives may specify, to purchase the Securities which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the principal amount of Securities that
any Underwriter has agreed to purchase pursuant to Section 1 be increased
pursuant to this Section 9 by an amount in excess of one-tenth of such principal
amount of Securities without the written consent of such Underwriter. If on the
Closing Date any Underwriter or Underwriters shall fail or refuse to purchase
Securities which it or they have agreed to purchase hereunder on such date, and
the aggregate principal amount of Securities with respect to which such default
occurs is more than one-tenth of the aggregate principal amount of Securities to
be purchased on such date, and arrangements satisfactory to the Representatives
and the Issuer for the purchase of such Securities are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter, the Issuer or the Guarantors. In any such
case either you or the Issuer shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of the Issuer or the
Guarantors to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Issuer or the Guarantors shall be unable to
perform its obligations under this Agreement or any condition of the
Underwriters' obligations cannot be fulfilled, the Issuer and the Guarantors
agree, jointly and severally, to reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and expenses of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding upon
the Issuer, the Guarantors, the Underwriters, any controlling persons referred
to herein and their respective successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person, firm or corporation any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained. No purchaser
of Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
<PAGE>
-25-
12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260-0060 (telefax: [(212) 648-5943]); Attention: Syndicate Department.
Notices to each of the Issuer and the Guarantors shall be given to it at Allied
Digital Technologies Corp., 140 Fell Court, Hauppauge, NY 11788 (telefax: (516)
232-5370); Attention: [ ].
13. This Agreement may be signed in counterparts, each of which shall
be an original and all of which together shall constitute one and the same
instrument.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the conflicts
of laws provisions thereof.
<PAGE>
-26-
If the foregoing is in accordance with your understanding, please sign
and return four counterparts hereof.
Very truly yours,
ALLIED DIGITAL, INC.
By:
-------------------------------
Name:
Title:
ALLIED DIGITAL TECHNOLOGIES CORP.
HMG DIGITAL TECHNOLOGIES CORP.
HRM HOLDINGS CORP.
By:
-------------------------------
Name:
Title:
<PAGE>
-27-
Accepted: [ ], 1998
J.P. Morgan Securities Inc.
Bear, Stearns & Co. Inc.
Acting severally on behalf of
themselves and the several Underwriters
listed in Schedule I hereto.
By: J.P. Morgan Securities Inc.
By:
-----------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
----------
Principal Amount
of Securities
Underwriters to be Purchased
- ------------ ---------------
J.P. Morgan Securities Inc......................... $
Bear, Stearns & Co. Inc............................ $
-----------
Total..................................... $100,000,000
===========
<PAGE>
==============================================================================
INDENTURE
Dated as of [ ], 1998
Among
ALLIED DIGITAL, INC.,
THE GUARANTORS named herein
and
IBJ SCHRODER BANK & TRUST COMPANY, Trustee
-------------
up to $200,000,000
[ ]% Senior Subordinated Notes due 2008
==============================================================================
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Indenture
Trust Indenture Act Section Section
- --------------------------- -------
<S> <C>
ss.310(a)(1)............................................................ 7.10
(a)(2)............................................................ 7.10
(a)(3)............................................................ N.A.
(a)(4)............................................................ N.A.
(a)(5)............................................................ 7.10
(b)............................................................... 7.08; 7.10; 13.02
(c)............................................................... N.A.
ss.311(a)............................................................... 7.11
(b)............................................................... 7.11
(c)............................................................... N.A.
ss.312(a)............................................................... 2.05
(b)............................................................... 13.03
(c)............................................................... 13.03
ss.313(a)............................................................... 7.06
(b)(1)............................................................ N.A.
(b)(2)............................................................ 7.06
(c)............................................................... 7.06; 13.02
(d)............................................................... 7.06
ss.314(a)............................................................... 4.11; 4.12; 13.02
(b)............................................................... N.A.
(c)(1)............................................................ 13.04
(c)(2)............................................................ 13.04
(c)(3)............................................................ N.A.
(d)............................................................... N.A.
(e)............................................................... 13.05
(f)............................................................... N.A.
ss.315(a)............................................................... 7.01(b)
(b)............................................................... 7.05; 13.02
(c)............................................................... 7.01(a)
(d)............................................................... 7.01(c)
(e)............................................................... 6.11
ss.316(a)(last sentence)................................................ 2.09
(a)(1)(A)......................................................... 6.05
(a)(1)(B)......................................................... 6.04
(a)(2)............................................................ N.A.
(b)............................................................... 6.07
(c)............................................................... 10.04
ss.317(a)(1)............................................................ 6.08
(a)(2)............................................................ 6.09
(b)............................................................... 2.04
ss.318(a)............................................................... 13.01
</TABLE>
- --------------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
SECTION 1.01. Definitions..........................................................1
SECTION 1.02. Other Definitions...................................................13
SECTION 1.03. Incorporation by Reference of Trust Indenture Act...................13
SECTION 1.04. Rules of Construction...............................................14
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.....................................................14
SECTION 2.02. Execution and Authentication........................................15
SECTION 2.03. Registrar and Paying Agent..........................................16
SECTION 2.04. Paying Agent To Hold Money in Trust.................................16
SECTION 2.05. Noteholder Lists....................................................16
SECTION 2.06. Transfer and Exchange...............................................17
SECTION 2.07. Replacement Notes...................................................19
SECTION 2.08. Outstanding Notes...................................................19
SECTION 2.09. Treasury Notes......................................................19
SECTION 2.10. Temporary Notes.....................................................19
SECTION 2.11. Cancellation........................................................20
SECTION 2.12. Defaulted Interest..................................................20
SECTION 2.13. CUSIP or CINS Number................................................20
SECTION 2.14. Payments of Interest................................................20
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee..................................................21
SECTION 3.02. Selection of Notes To Be Redeemed...................................21
SECTION 3.03. Notice of Redemption................................................21
SECTION 3.04. Effect of Notice of Redemption......................................22
SECTION 3.05. Deposit of Redemption Price.........................................22
SECTION 3.06. Notes Redeemed in Part..............................................22
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes....................................................22
SECTION 4.02. Maintenance of Office or Agency.....................................23
SECTION 4.03. Limitation on Transactions with Affiliates and Related Persons......23
SECTION 4.04. Limitation on Indebtedness..........................................24
</TABLE>
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<TABLE>
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<S> <C>
SECTION 4.05. Limitation on Certain Asset Dispositions............................26
SECTION 4.06. Limitation on Restricted Payments...................................27
SECTION 4.07. Corporate Existence.................................................29
SECTION 4.08. Payment of Taxes and Other Claims...................................29
SECTION 4.09. Notice of Defaults..................................................29
SECTION 4.10. Maintenance of Properties...........................................29
SECTION 4.11. Compliance Certificate..............................................30
SECTION 4.12. Provision of Financial Information..................................30
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.............................30
SECTION 4.14. Change of Control...................................................30
SECTION 4.15. Limitation on Senior Subordinated Indebtedness......................31
SECTION 4.16. Limitations Concerning Distributions and
Transfers by Restricted Subsidiaries.............................31
SECTION 4.17. Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries.....................................................32
SECTION 4.18. Limitation on Liens.................................................32
SECTION 4.19. Additional Guarantors...............................................33
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Restriction on Mergers, Consolidations and Certain Sales
of Assets........................................................34
SECTION 5.02. Successor Corporation Substituted...................................34
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default...................................................35
SECTION 6.02. Acceleration........................................................36
SECTION 6.03. Other Remedies......................................................36
SECTION 6.04. Waiver of Past Default..............................................37
SECTION 6.05. Control by Majority.................................................37
SECTION 6.06. Limitation on Suits.................................................37
SECTION 6.07. Rights of Holders to Receive Payment................................38
SECTION 6.08. Collection Suit by Trustee..........................................38
SECTION 6.09. Trustee May File Proofs of Claim....................................38
SECTION 6.10. Priorities..........................................................39
SECTION 6.11. Undertaking for Costs...............................................39
SECTION 6.12. No Personal Liability of Directors, Officers,
Employees, Incorporator and Stockholders.........................39
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee...................................................39
SECTION 7.02. Rights of Trustee...................................................40
SECTION 7.03. Individual Rights of Trustee........................................41
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 7.04. Trustee's Disclaimer................................................41
SECTION 7.05. Notice of Defaults..................................................41
SECTION 7.06. Reports by Trustee to Holders.......................................42
SECTION 7.07. Compensation and Indemnity..........................................42
SECTION 7.08. Replacement of Trustee..............................................43
SECTION 7.09. Successor Trustee by Merger, etc....................................44
SECTION 7.10. Eligibility; Disqualification.......................................44
SECTION 7.11. Preferential Collection of Claims Against Issuer....................44
ARTICLE EIGHT
SUBORDINATION OF NOTES
SECTION 8.01. Notes Subordinated to Senior Debt...................................44
SECTION 8.02. No Payment on Notes in Certain Circumstances........................44
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc......................45
SECTION 8.04. Subrogation.........................................................46
SECTION 8.05. Obligations of Issuer Unconditional.................................46
SECTION 8.06. Notice to Trustee...................................................47
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating
Agent............................................................47
SECTION 8.08. Trustee's Relation to Senior Debt...................................48
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions
of the Issuer or Holders of Senior Debt..........................48
SECTION 8.10. Noteholders Authorize Trustee To Effectuate
Subordination of Notes...........................................48
SECTION 8.11. This Article Not to Prevent Events of Default.......................48
SECTION 8.12. No Waiver of Subordination Provisions...............................48
SECTION 8.13. Subordination Provisions Not Applicable to Money Held
in Trust for Noteholders; Payments May Be Paid
Prior to Dissolution.............................................49
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Issuer's Obligations.................................49
SECTION 9.02. Application of Trust Money..........................................50
SECTION 9.03. Repayment to Issuer.................................................51
SECTION 9.04. Reinstatement.......................................................51
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders..........................................51
SECTION 10.02. With Consent of Holders.............................................52
SECTION 10.03. Compliance with Trust Indenture Act.................................53
SECTION 10.04. Revocation and Effect of Consents...................................53
SECTION 10.05. Notation on or Exchange of Notes....................................54
SECTION 10.06. Trustee To Sign Amendments, etc.....................................54
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ARTICLE ELEVEN
GUARANTEE
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SECTION 11.01. Unconditional Guarantee.............................................54
SECTION 11.02. Severability........................................................55
SECTION 11.03. Release of a Guarantor..............................................55
SECTION 11.04. Limitation of Guarantor's Liability.................................55
SECTION 11.05. Contribution........................................................56
SECTION 11.06. Execution of Guarantee..............................................56
SECTION 11.07. Subordination of Subrogation and Other Rights.......................56
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Subordinated to Senior Debt of Guarantor..................56
SECTION 12.02. No Payment on Guarantees in Certain Circumstances...................57
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc......................58
SECTION 12.04. Subrogation.........................................................59
SECTION 12.05. Obligations of Guarantors Unconditional.............................59
SECTION 12.06. Notice to Trustee...................................................59
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating
Agent............................................................60
SECTION 12.08. Trustee's Relation to Senior Debt of Guarantors.....................60
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions
of the Guarantors or Holders of Senior Debt of Guarantors........60
SECTION 12.10. Noteholders Authorize Trustee To Effectuate
Subordination of Guarantees......................................61
SECTION 12.11. This Article Not to Prevent Events of Default.......................61
SECTION 12.12. No Waiver of Guarantee Subordination Provisions.....................61
SECTION 12.13. Subordination Provisions Not Applicable to Money Held
in Trust for Noteholders; Payments May Be Paid
Prior to Dissolution.............................................61
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls........................................62
SECTION 13.02. Notices.............................................................62
SECTION 13.03. Communications by Holders with Other Holders........................63
SECTION 13.04. Certificate and Opinion as to Conditions Precedent..................64
SECTION 13.05. Statements Required in Certificate or Opinion.......................64
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar...........................64
SECTION 13.07. Governing Law.......................................................64
SECTION 13.08. No Recourse Against Others..........................................64
SECTION 13.09. Successors..........................................................65
SECTION 13.10. Counterpart Originals...............................................65
SECTION 13.11. Severability........................................................65
SECTION 13.12. No Adverse Interpretation of Other Agreements.......................65
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SECTION 13.13. Legal Holidays......................................................65
EXHIBIT A - Form of Note ............................................................A-1
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NOTE: This Table of Contents shall not, for any purpose, be deemed to be a
part of this Indenture.
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<PAGE>
INDENTURE dated as of [ ], 1998, among ALLIED DIGITAL, INC., a New
York corporation (the "Issuer"), the Guarantors (as hereinafter defined) and
IBJ SCHRODER BANK & TRUST COMPANY, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Issuer's [
]% Senior Subordinated Notes due 2008:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"399" means 399 Venture Partners, Inc.
"Acquired Indebtedness" means, with respect to any Person,
Indebtedness of such Person (i) existing at the time such Person becomes a
Restricted Subsidiary or (ii) assumed in connection with the acquisition of
assets from another Person, including Indebtedness Incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary or
such acquisition, as the case may be.
"Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Company or such
Restricted Subsidiary of the Company, or shall be merged with or into the
Company or any Restricted Subsidiary of the Company, or (b) the acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
Person (other than a Restricted Subsidiary of the Company) which constitute
all or substantially all of the assets of such Person or comprise any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
'controlling' and 'controlled' have meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or co-Registrar. See
Section 2.03.
"Applicable Premium" means with respect to a Note at any date fixed
for redemption, the greater of (i) 1.0% of the principal amount of such Note
and (ii) the excess of (A) the present value at such time of (1) the
redemption price of such Note at [ ], 2003 (such redemption price being
described in paragraph 5 of the Notes), plus (2) all remaining required
interest payments due on such Note through [ ], 2003, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (B) the
then outstanding principal amount of such Note.
"Applicable Procedures" means with respect to any transfer or
exchange of interests in a Global Note , the rules and procedures of DTC,
Euroclear and Cedel that apply to such transfer or exchange.
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"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or sale-and-leaseback
transaction) of (i) shares of Capital Stock of a Restricted Subsidiary of the
Company (other than directors' qualifying shares) or (ii) property or assets
of the Company or any Restricted Subsidiary of the Company other than in the
ordinary course of business; provided, however, that an Asset Disposition
shall not include (a) any sale, transfer or other disposition of shares of
Capital Stock, property or assets by a Restricted Subsidiary of the Company
(other than the Issuer) to the Issuer or to any Guarantor, (b) any sale,
transfer or other disposition of defaulted receivables for collection or any
sale, transfer or other disposition of property or assets in the ordinary
course of business, (c) any isolated sale, transfer or other disposition that
does not involve aggregate consideration in excess of $1.0 million
individually, (d) the grant in the ordinary course of business of any
non-exclusive license of patents, trademarks, registrations therefor and other
similar intellectual property, (e) any Lien (or foreclosure thereon) securing
Indebtedness to the extent that such Lien is granted in compliance with
Section 4.18 hereof, (f) any Restricted Payment permitted by Section 4.06
hereof, (g) any disposition of assets or property in the ordinary course of
business to the extent such property or assets are obsolete, worn-out or no
longer useful in the Company's or its Restricted Subsidiaries' business, (h)
the sale, lease, conveyance or disposition or other transfer of all or
substantially all of the assets of the Company as permitted under Section 5.01
hereof; provided, however, that the assets not so sold, leased, conveyed,
disposed of or otherwise transferred shall be deemed an Asset Disposition or
(i) any disposition that constitutes a Change of Control.
"Average Life" means, as of the date of determination, with respect
to any Indebtedness for borrowed money or Preferred Stock, the quotient
obtained by dividing (i) the sum of the products of the number of years from
the date of determination to the dates of each successive scheduled principal
or liquidation value payments of such Indebtedness or Preferred Stock,
respectively, and the amount of such principal or liquidation value payments,
by (ii) the sum of all such principal or liquidation value payments.
"Bankruptcy Code" means Title 11, United States Code, as amended.
"Board of Directors" with respect to any Person means the board of
directors of such Person or any authorized committee of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the City of New
York, New York are authorized or obligated by law or executive order to close.
"Capital Lease Obligations" of any Person means the obligations to
pay rent or other amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which are
required to be classified and accounted for as a capital lease or liability on
the face of a balance sheet of such Person in accordance with GAAP. The amount
of such obligations shall be the capitalized amount thereof in accordance with
GAAP and the stated maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person (including any Preferred Stock outstanding on the Issue Date).
<PAGE>
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"Citicorp" means Citicorp, a Delaware corporation.
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or
winding up of such Person, to shares of Capital Stock of any other class of
such Person.
"Company" means Allied Digital Technologies Corp., a Delaware
Corporation.
"Consolidated Coverage Ratio" of any Person means for any period the
ratio of (i) EBITDA of such Person for such period to (ii) the sum of (A)
Consolidated Interest Expense of such Person for such period, plus (B) the
annual interest expense with respect to any Indebtedness proposed to be
Incurred by such Person or its Restricted Subsidiaries, minus (C) Consolidated
Interest Expense of such Person to the extent included in clause (ii)(A) with
respect to any Indebtedness that will no longer be outstanding as a result of
the Incurrence of the Indebtedness proposed to be Incurred, plus (D) the
annual interest expense with respect to any other Indebtedness Incurred by
such Person or its Restricted Subsidiaries since the end of such period to the
extent not included in clause (ii)(A), minus (E) Consolidated Interest Expense
of such Person to the extent included in clause (ii)(A) with respect to any
Indebtedness that no longer is outstanding as a result of the Incurrence of
the Indebtedness referred to in clause (ii)(D); provided, however, that in
making such computation, the Consolidated Interest Expense of such Person
attributable to interest on any Indebtedness bearing a floating interest rate
shall be computed on a pro forma basis as if the rate in effect on the date of
computation (after giving effect to any hedge in respect of such Indebtedness
that will, by its terms, remain in effect until the earlier of the maturity of
such Indebtedness or the date one year after the date of such determination)
had been the applicable rate for the entire period; provided, further,
however, that, in the event such Person or any of its Restricted Subsidiaries
has made any Asset Dispositions or Acquisitions during or after such period
and on or prior to the date of measurement, such computation shall be made on
a pro forma basis as if the Asset Dispositions or Acquisitions had taken place
on the first day of such period. Calculations of pro forma amounts in
accordance with this definition shall be done in accordance with Article 11 of
Regulation S-X under the Securities Act of 1933 or any successor provision and
may include reasonably ascertainable cost savings.
"Consolidated Income Tax Expense" of any Person means for any period
the consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" for any Person means for any period,
without duplication, (a) the consolidated interest expense included in a
consolidated income statement (without deduction of interest or finance charge
income) of such Person and its Restricted Subsidiaries for such period
calculated on a consolidated basis in accordance with GAAP and (b) dividend
requirements of such Person and its Restricted Subsidiaries with respect to
Disqualified Stock and with respect to all other Preferred Stock of Restricted
Subsidiaries of such Person (in each case whether in cash or otherwise (except
dividends payable solely in shares of Capital Stock of such Person or such
Restricted Subsidiary)) paid, declared, accrued or accumulated during such
period times a fraction the numerator of which is one and the denominator of
which is one minus the then effective consolidated Federal, state and local
tax rate of such Person, expressed as a decimal.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; provided, however, that there shall be excluded therefrom (a) the
net income (or loss) of any Person
<PAGE>
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acquired by such Person or a Restricted Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (but not net loss) of any Restricted
Subsidiary of such Person which is subject to restrictions which prevent or
limit the payment of dividends or the making of distributions to such Person
to the extent of such restrictions (regardless of any waiver thereof), (c)
non-cash gains and losses due solely to fluctuations in currency values, (d)
the net income of any Person that is not a Restricted Subsidiary of such
Person, except to the extent of the amount of dividends or other distributions
representing such Person's proportionate share of such other Person's net
income for such period actually paid in cash to such Person by such other
Person during such period, (e) gains but not losses on Asset Dispositions by
such Person or its Restricted Subsidiaries, (f) all gains and losses
classified as extraordinary, unusual or nonrecurring in accordance with GAAP
and (g) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any earnings (or
losses) of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Continuing Director" means a director who either was a member of the
Board of Directors of the Company on the Issue Date or who became a director
of the Company subsequent to the Issue Date and whose election, or nomination
for election by the Company's stockholders, was duly approved by a majority of
the Continuing Directors then on the Board of Directors of the Company, either
by a specific vote or by approval of the proxy statement issued by the Company
on behalf of the entire Board of Directors of the Company in which such
individual is named as nominee for director.
"Credit Agreement" means, collectively, (i) that certain Credit
Agreement, dated as of [ ], between the Company and Fleet National Bank
and (ii) any Refinancings thereof or any amendments, modifications or
supplements thereto (including, without limitation, any amendment increasing the
amount borrowed or reimbursement obligation thereunder) whether by or with the
same or any other lender, creditor, or group of creditors and including related
notes, guarantee agreements and other instruments and agreements executed in
connection therewith.
"Default" means any event that is, or after notice or lapse of time
or both would become, an Event of Default.
"Designated Senior Debt" means (i) so long as the Credit Agreement is
in effect, the Senior Debt Incurred thereunder and (ii) thereafter, any other
Senior Debt which has at the time of initial issuance an aggregate outstanding
principal amount in excess of $25 million which has been so designated as
Designated Senior Debt by the Board of Directors of the Company at the time of
initial issuance in a resolution delivered to the Trustee.
"Disqualified Stock" of any Person means any Capital Stock of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final maturity of the Notes other than
pursuant to change of control provisions similar to those applicable to the
Notes, provided, however, that such provisions expressly provided that no
payment can be made on such Capital Stock until any Offer to Purchase the
Notes required pursuant to the provisions described under Section 4.14 hereof
above shall have been consummated and paid in full).
"DTC" means The Depository Trust Company or its successors.
"EBITDA" of any Person means for any period the Consolidated Net
Income of such Person for such period increased (to the extent Consolidated
Net Income for such period has been reduced thereby) by the sum of (without
duplication) (i) Consolidated Interest Expense of such Person for such period,
plus (ii) Consolidated
<PAGE>
-5-
Income Tax Expense of such Person for such period, plus (iii) the consolidated
depreciation and amortization expense included in the income statement of such
Person prepared in accordance with GAAP for such period, plus (iv) any other
non-cash charges to the extent deducted from or reflected in Consolidated Net
Income except for any non-cash charges that represent accruals of, or reserves
for, cash disbursements to be made in any future accounting period.
"Euroclear" means Morgan Guaranty Trust Company of New York (Brussels
Office) as operator of the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
and the rules and regulations promulgated by the Commission thereunder.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect on the Issue Date in the United States of America, as
set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as is approved by a significant segment
of the accounting profession in the United States. All ratios and computations
based on GAAP contained in this Indenture shall be computed in conformity with
GAAP applied on a consistent basis.
"Guarantee" means the guarantee of the Notes by each Guarantor under
this Indenture.
"Guarantor" means the Company, each of its existing Restricted
Subsidiaries (other than the Issuer) and each Restricted Subsidiary of the
Company formed or acquired after the Issue Date, which pursuant to Section
4.19 hereof executes a supplement to this Indenture as a Guarantor.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation
of any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of any Person or any of
its Restricted Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary of such Person (or is merged into or consolidates with
such Person or any of its Restricted Subsidiaries), whether or not such
Indebtedness was incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary of such Person (or being merged into
or consolidated with such Person or any of its Restricted Subsidiaries), shall
be deemed Incurred at the time any such Person becomes a Restricted Subsidiary
of such Person or merges into or consolidates with such Person or any of its
Restricted Subsidiaries.
"Indebtedness" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person
and whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable
or accrued liabilities arising in the ordinary course of business which are
not overdue or which are being contested in good faith), (v)
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every Capital Lease Obligation of such Person, (vi) every net obligation under
interest rate swap or similar agreements or foreign currency hedge, exchange
or similar agreements of such Person and (vii) every obligation of the type
referred to in clauses (i) through (vi) of another Person and all dividends of
another Person the payment of which, in either case, such Person has
guaranteed or is responsible or liable for, directly or indirectly, as
obligor, guarantor or otherwise. Indebtedness shall include the liquidation
preference and any mandatory redemption payment obligations in respect of any
Disqualified Stock of the Company, and any Preferred Stock of a Subsidiary of
the Company (other than Preferred Stock of a Subsidiary of the Company issued
to and held by the Company or a Restricted Subsidiary of the Company).
Indebtedness shall never be calculated taking into account any cash and cash
equivalents held by such Person. Indebtedness shall not include obligations
arising from agreements of the Company or a Restricted Subsidiary of the
Company to provide for indemnification, adjustment of purchase price,
earn-out, or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business or assets of a Restricted
Subsidiary of the Company.
"Indenture" means this Indenture as amended or supplemented from time
to time in accordance with its terms.
"interest" means, with respect to the Notes, the sum of any cash
interest on the Notes.
"Interest Payment Date" has the meaning given to such term in the
Notes.
"Investment" by any Person means any direct or indirect loan,
advance, guarantee or other extension of credit or capital contribution to (by
means of transfers of cash or other property to others or payments for
property or services for the account or use of others, or otherwise), or
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
securities or evidence of Indebtedness issued by any other Person. If the
Company or any Restricted Subsidiary sells or otherwise disposes of any Voting
Stock of any direct or indirect Restricted Subsidiary such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly
or indirectly, greater than 50% of the outstanding Voting Stock of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment
on the date of any such sale or disposition in an amount equal to the fair
market value of the Capital Stock not so sold or otherwise disposed of.
"Issue Date" means [ ], 1998, the original issue date of the Notes.
"Lien" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, security interest, lien,
charge, easement (other than any easement not materially impairing usefulness
or marketability), encumbrance, preference, priority or other security
agreement with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Management Investors" means any of [ ] and other full-time members
of management of the Company who acquire stock of the Company through
management stock purchase or option plans.
"Net Available Proceeds" from any Asset Disposition by any Person
means cash or readily marketable cash equivalents received (including by way
of sale or discounting of a note, installment receivable or other receivable,
but excluding any other consideration received in the form of assumption by
the acquiror of Indebtedness or other obligations relating to such properties
or assets or received in any other non-cash form) therefrom by such Person,
including any cash received by way of deferred payment or upon the
monetization or other disposition of any non-cash consideration (including
notes or other securities) received in connection with such Asset Disposition,
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses
<PAGE>
-7-
incurred and all federal, state, foreign and local taxes required to be
accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Restricted Subsidiaries on any
Indebtedness which is secured by such assets in accordance with the terms of
any Lien upon or with respect to such assets or which must by the terms of
such Lien, or in order to obtain a necessary consent to such Asset Disposition
or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all payments made with respect to liabilities associated
with the assets which are the subject of the Asset Disposition, including,
without limitation, trade payables and other accrued liabilities, (iv)
appropriate amounts to be provided by such Person or any Restricted Subsidiary
thereof, as the case may be, as a reserve in accordance with GAAP against any
liabilities associated with such assets and retained by such Person or any
Restricted Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, until such time as such amounts are no
longer reserved or such reserve is no longer necessary (at which time any
remaining amounts will become Net Available Proceeds to be allocated in
accordance with the provisions of clause (iii) of Section 4.05) and (v) all
distributions and other payments made to minority interest holders in
Restricted Subsidiaries of such Person or joint ventures as a result of such
Asset Disposition.
"Net Investment" means the excess of (i) the aggregate amount of all
Investments in Unrestricted Subsidiaries or joint ventures made by the Company
or any Restricted Subsidiary on or after the Issue Date (in the case of an
Investment made other than in cash, the amount shall be the fair market value
of such Investment as determined in good faith by the Board of Directors of
the Company or such Restricted Subsidiary) over (ii) the aggregate amount
returned in cash on or with respect to such Investments whether through
interest payments, principal payments, dividends or other distributions or
payments; provided, however, that such payments or distributions shall not be
(and have not been) included in subclause (b) of clause (3) of the first
paragraph of Section 4.06; provided, further that with respect to all
Investments made in any Unrestricted Subsidiary or joint venture the amounts
referred to in clause (ii) above with respect to such Investments shall not
exceed the aggregate amount of all such Investments made in such Unrestricted
Subsidiary or joint venture.
"Notes" means, collectively, (i) the [ ]% Senior Subordinated Notes
due 2008 of the Issuer issued on the Issue Date under this Indenture and (ii)
one or more series of [ ]% Senior Subordinated Notes due 2008 of the Issuer
that are issued under this Indenture subsequent to the Issue Date pursuant to
Section 2.02.
"Offer To Purchase" means a written offer (the "Offer") sent by the
Issuer by first class mail, postage prepaid, to each Holder at his address
appearing in the register for the Notes on the date of the Offer offering to
purchase up to the principal amount of Notes specified in such Offer at the
purchase price specified in such Offer (as determined pursuant to this
Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be not less than 30 days nor more than 60 days after the date of
such Offer and a settlement date (the "Purchase Date") for purchase of Notes
within five Business Days after the Expiration Date. The Issuer shall notify
the Trustee at least 15 Business Days (or such shorter period as is acceptable
to the Trustee) prior to the mailing of the Offer of the Issuer's obligation
to make an Offer to Purchase, and the Offer shall be mailed by the Issuer or,
at the Issuer's request, by the Trustee in the name and at the expense of the
Issuer. The Offer shall contain all the information required by applicable law
to be included therein. The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Offer to
Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer
to Purchase is being made;
(2) the Expiration Date and the Purchase Date;
<PAGE>
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(3) the aggregate principal amount of the outstanding Notes
offered to be purchased by the Company pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such
amount has been determined pursuant to the Section of this Indenture
requiring the Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Issuer for each
$1,000 aggregate principal amount of Notes accepted for payment (as
specified pursuant to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the
Notes registered in the name of such Holder and that any portion of a
Note tendered must be tendered in an integral multiple of $1,000
principal amount;
(6) the place or places where Notes are to be surrendered
for tender pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but
not purchased by the Issuer pursuant to the Offer to Purchase will
continue to accrue;
(8) that on the Purchase Date the Purchase Price will become
due and payable upon each Note being accepted for payment pursuant to
the Offer to Purchase and that interest thereon shall cease to accrue
on and after the Purchase Date;
(9) that each Holder electing to tender all or any portion
of a Note pursuant to the Offer to Purchase will be required to
surrender such Note at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Note
being, if the Issuer or the Trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory
to the Issuer and the Trustee duly executed by, the Holder thereof or
his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any
portion of Notes tendered if the Issuer (or its Paying Agent)
receives, not later than the close of business on the fifth Business
Day next preceding the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder tendered, the certificate
number of the Note the Holder tendered and a statement that such
Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes and, in the case of an Offer to
Purchase pursuant to Section 4.05, other Senior Subordinated
Indebtedness in an aggregate principal amount less than or equal to
the Purchase Amount are duly tendered and not withdrawn pursuant to
the Offer to Purchase, the Issuer shall purchase all such Notes and
other Senior Subordinated Indebtedness and (b) if Notes and, in the
case of an Offer to Purchase pursuant to Section 4.05, other Senior
Subordinated Indebtedness in an aggregate principal amount in excess
of the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, the Issuer shall purchase Notes and other Senior
Subordinated Indebtedness having an aggregate principal amount (or
the accreted value of such other Senior Subordinated Indebtedness, if
such other Senior Subordinated Indebtedness is issued at a discount)
equal to the Purchase Amount on a pro rata basis (with such
adjustments as may be deemed appropriate so that only Notes in
denominations of $1,000 or integral multiples thereof shall be
purchased); and
(12) that in the case of any holder whose Note is purchased
only in part, the Issuer shall execute and the Trustee shall
authenticate and deliver to the holder of such Note without service
charge,
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a new Note or Notes, of any authorized denomination as requested by
such Holder, in an aggregate principal amount equal to and in
exchange for the unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance
with the provisions above pertaining to any Offer.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, any Executive Vice President, any Senior Vice President, the Chief
Financial Officer, the Treasurer, or the Secretary of the
Issuer.
"Officers' Certificate" means a certificate, signed by two Officers
(at least one of whom shall be the Chief Financial Officer or Senior Vice
President-Finance of the Issuer) or by an Officer and an Assistant Treasurer
or Assistant Secretary of the Issuer, complying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Issuer or the Trustee.
"Participant" means any Person who has an account with DTC.
"Permitted Holder" means any of (i) 399 and its Related Persons,
Affiliates, and Permitted Transferees, (ii) the Management Investors and their
Related Persons, Affiliates and Permitted Transferees, and (iii) with respect
to the Issuer, the Company and its direct and indirect Wholly Owned
Subsidiaries.
"Permitted Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or any
governmental entity or agency or political subdivision thereof (provided, that
the good faith and credit of the United States of America is pledged in
support thereof), maturing within one year of the date of purchase; (ii)
Investments in commercial paper issued by corporations or financial
institutions maturing within 180 days from the date of the original issue
thereof, and rated 'P-1' or better by Moody's Investors Service or 'A-1' or
better by Standard & Poor's Corporation or an equivalent rating or better by
any other nationally recognized securities rating agency; (iii) Investments in
certificates of deposit issued or acceptances accepted by or guaranteed by any
bank or trust company organized under the laws of the United States of America
or any state thereof or the District of Columbia, in each case having capital,
surplus and undivided profits totalling more than $500,000,000, maturing
within one year of the date of purchase; (iv) Investments representing Capital
Stock or obligations issued to the Company or any of its Restricted
Subsidiaries in the course of the good faith settlement of claims against any
other Person or by reason of a composition or readjustment of debt or a
reorganization of any debtor of the Company or any of its Restricted
Subsidiaries; (v) deposits, including interest-bearing deposits, maintained in
the ordinary course of business in banks; (vi) any Investment in any Person;
provided, however, that after giving effect to any such Investment such Person
shall become a Restricted Subsidiary of the Company or such Restricted
Subsidiary; (vii) trade receivables and prepaid expenses, in each case arising
in the ordinary course of business; provided, however, that such receivables
and prepaid expenses would be recorded as assets of such Person in accordance
with GAAP; (viii) endorsements for collection or deposit in the ordinary
course of business by such Person of bank drafts and similar negotiable
instruments of such other Person received as payment for ordinary course of
business trade receivables; (ix) any interest swap or hedging obligation with
an unaffiliated Person otherwise permitted by this Indenture; (x) Investments
received as consideration for an Asset Disposition in compliance with Section
4.05 hereof; (xi) loans and advances to employees made in the ordinary course
of business; (xii) Investments the sole consideration for which consists of
Capital Stock of the Company and (xiii) Investments in businesses
complementary to the businesses of the Company or any of its Restricted
Subsidiaries in an amount not to exceed $5.0 million outstanding at any one
time.
<PAGE>
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"Permitted Junior Securities" means (i) Qualified Stock of the
Issuer, (ii) securities of the Issuer or any other corporation authorized by
an order or decree giving effect, and stating in such order or decree that
effect is given, to the subordination of such securities to the Senior Debt of
the Issuer, and made by a court of competent jurisdiction in a reorganization
proceeding under any applicable bankruptcy, insolvency or other similar law,
or (iii) any securities of the Issuer provided for by a plan of reorganization
or readjustment that are subordinated in right of payment to all Senior Debt
of the Issuer that may at the time be outstanding to substantially the same
extent as, or to a greater extent than, the Notes are subordinated as provided
in this Indenture.
"Permitted Transferee" means, (a) with respect to any Management
Investor (i) any spouse or lineal descendant (including by adoption and
stepchildren) of such Management Investor and (ii) any trust, corporation or
partnership, the beneficiaries, stockholders or partners of which consist
entirely of one or more Management Investors or individuals described in
clause (a)(i) above and (b) with respect to 399 (i) Citicorp and any direct or
indirect Wholly Owned Subsidiary of Citicorp and any officer, director or
employee of 399, Citicorp or any Wholly Owned Subsidiary of Citicorp, (ii) any
spouse or lineal descendant (including by adoption and stepchildren) of the
officers, directors and employees referred to in clause (b)(i) above and (iii)
any trust, corporation or partnership 100% in interest of the beneficiaries,
stockholders or partners of which consists of one or more of the persons
described in clause (b)(i) or (ii) above.
"Person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of such Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Principal" of any Note means principal of, and premium, if any, with
respect to, such Note.
"Prospectus" means the Prospectus included in the Registration
Statement on Form S-2 relating to the offer and sale of the Notes filed by the
Issuer with the Commission on [ ], 1998.
"Public Equity Offering" means an underwritten public offering of
Common Stock of the Issuer or the Company pursuant to an effective
registration statement filed under the Securities Act (excluding any
registration statements filed on Form S-8 or any successor form); provided,
however, that in the event of a Public Equity Offering by the Company, the
Company contributes to the capital of the Issuer the portion of the net cash
proceeds of such Public Equity Offering necessary to pay the aggregate
redemption price (plus accrued interest to the redemption date) of the Notes
to be redeemed, if any, pursuant to paragraph 5 of the Notes at the option of
the Company.
"Purchase Date" has the meaning set forth in the definition of "Offer
to Purchase."
"Qualified Stock" means any Capital Stock of any Person other than
Disqualified Stock.
"Refinance" means refinance, renew, extend, replace or refund; and
"Refinancing" and "Refinanced" have correlative meanings.
<PAGE>
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"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such
Person (or, in the case of a Person that is not a corporation, 5% or more of
the equity interest in such Person) or (b) 5% or more of the combined voting
power of the Voting Stock of such Person.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary and includes all of the Subsidiaries of the
Company existing on the Issue Date (including without reservation, the
Issuer).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Senior Debt" means, with respect to any Person at any date, (i) in
the case of the Company or the Guarantors, all Indebtedness under the Credit
Agreement, including principal, premium, if any, and interest on such
Indebtedness and all other amounts due on or in connection with such
Indebtedness including all charges, fees and expenses, (ii) all other
Indebtedness of such Person for borrowed money, including principal, premium,
if any, and interest on such Indebtedness, unless the instrument under which
such Indebtedness for money borrowed is created, incurred, assumed or
guaranteed expressly provides that such Indebtedness for money borrowed is not
senior or superior in right of payment to the Notes, and all renewals,
extensions, modifications, amendments or refinancing thereof and (iii) all
interest on any Indebtedness referred to in clauses (i) and (ii) accruing
during the pendency of any bankruptcy or insolvency proceeding, whether or not
allowed thereunder. Notwithstanding the foregoing, Senior Debt shall not
include (a) Indebtedness which is pursuant to its terms or any agreement
relating thereto or by operation of law subordinated or junior in right of
payment or otherwise to any other Indebtedness of such Person; provided,
however, that no Indebtedness shall be deemed to be subordinate or junior in
right of payment or otherwise to any other Indebtedness of a Person solely by
reason of such other Indebtedness being secured and such Indebtedness not
being secured, (b) the Notes, (c) any Indebtedness of such Person to any of
their Subsidiaries, (d) any Indebtedness which, when Incurred and without
respect to any election under Section 1111(b) of the Bankruptcy Code, is
without recourse to the Company and (e) to the extent that it may constitute
Indebtedness, any obligations in respect of any trade payable Incurred for the
purchase of goods or materials, or for services, obtained, in the ordinary
course of business.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Issuer that specifically provides that such Indebtedness
is to rank pari passu in right of payment with the Notes and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Issuer which is not Senior Debt.
"Subordinated Indebtedness" means any Indebtedness (whether
outstanding on the date hereof or hereafter Incurred) which is by its terms
expressly subordinate or junior in right of payment to (i) the Notes, with
respect to Indebtedness of the Issuer, and (ii) the Guarantees with respect to
Indebtedness of a Guarantor.
"Subsidiary" of any Person means (i) a corporation more than 50% of
the outstanding Voting Stock of which is owned, directly or indirectly, by
such Person or by one or more other Subsidiaries of such Person or by such
Person and one or more other Subsidiaries thereof or (ii) any other Person
(other than a corporation) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and voting
power relating to the policies, management and affairs thereof.
<PAGE>
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"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb), as in effect on the date of this Indenture, except as provided
in Section 10.03.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two Business Days prior
to the date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the period from the date fixed for redemption to [ ], 2003; provided,
however, that if the period from the date fixed for redemption to [ ], 2003 is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the date fixed for redemption
to [ ], 2003 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
"Trust Officer" means any officer within the corporate trust
department (or any successor group) of the Trustee including any vice
president, assistant vice president, assistant secretary, treasurer or
assistant treasurer or any other officer or assistant officer of the Trustee
customarily performing functions similar to those performed by the persons who
at that time shall be such officers, and also means, with respect to a
particular corporate trust matter, any other officer to whom such trust matter
is referred because of his knowledge of and familiarity with the particular
subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
(other than the Issuer) formed or acquired after the Issue Date that at the
time of determination is designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. Any such designation by the Board of Directors will
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions. The Board of Directors of the Company may not designate any
Subsidiary of the Company to be an Unrestricted Subsidiary if, after such
designation, (a) the Company or any other Restricted Subsidiary (i) provides
credit support for, or a guarantee of, any Indebtedness of such Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of
such Subsidiary, (b) a default with respect to any Indebtedness of such
Subsidiary (including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice, lapse
of time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its final scheduled
maturity or (c) such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, any Restricted Subsidiary which is not a
Subsidiary of the Subsidiary to be so designated.
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"Voting Stock" of any Person means the Capital Stock of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Subsidiary" of any Person means a Restricted Subsidiary
of such Person all of the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
SECTION 1.02. Other Definitions.
Term Defined in Section
---- ------------------
"Bankruptcy Law"..................................... 6.01
"Change of Control".................................. 4.14
"Custodian".......................................... 6.01
"Event of Default"................................... 6.01
"Funding Guarantor".................................. 11.05
"Global Notes"....................................... 2.01
"Guarantor Blockage Period".......................... 12.02(a)
"Guarantor Note Payment"............................. 12.02(a)
"Guarantor Payment Blockage Notice".................. 12.02(a)
"Note Payment"....................................... 8.02(a)
"Paying Agent"....................................... 2.03
"Payment Blockage Notice"............................ 8.02(a)
"Payment Blockage Period"............................ 8.02(a)
"Physical Notes"..................................... 2.06(a)
"Registrar".......................................... 2.03
"Required Filing Dates".............................. 4.12
"United States Government Obligation"................ 9.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Holder or Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuer or any other
obligor on the Notes.
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All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles in effect from time to time, and any other reference in
this Indenture to "generally accepted accounting principles" refers
to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in
the plural include the singular;
(5) Section and Article references are to sections and
articles of this Indenture;
(6) provisions apply to successive events and transactions;
and
(7) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Notes will be issued in the form of one or more fully registered
Global Notes (the "Global Notes") substantially in the form of Exhibit A that
will be deposited with, or on behalf of, DTC, as depositary, and registered in
the name of Cede & Co., DTC's nominee. Except as set forth below, the Global
Notes may be transferred, in whole and not in part, only to another nominee of
DTC or to a successor of the DTC or its nominee. The aggregate principal
amount of each of the Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee as hereinafter
provided.
Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges, redemptions and transfers of interests
therein in accordance with the terms of this Indenture. Any endorsement of a
Global Note to reflect the amount of any increase or decrease in the principal
amount of outstanding Notes represented thereby shall be made by the Trustee
in accordance with instructions given by the Holder thereof as required by
Section 2.06.
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Upon the issuance of the Global Notes to DTC, DTC shall credit, on
its internal book-entry registration and transfer system, its Participants'
accounts with the respective interests owned by such Participants. Interests
in the Global Notes shall be limited to Participants, including Euroclear and
Cedel, and indirect Participants.
The Participants shall not have any rights either under this
Indenture or under any Global Note with respect to such Global Note held on
their behalf by DTC, and DTC may be treated by the Issuer, the Trustee and any
agent of the Issuer or the Trustee as the absolute owner of such Global Note
for the purpose of receiving payment of or on account of the principal of and,
subject to the provisions of this Indenture, interest on the Global Notes and
for all other purposes. Notwithstanding the foregoing, nothing herein shall
prevent the Issuer, the Trustee or any agent of the Issuer or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by DTC or impair, as between DTC and its Participants, the operation
of customary practices of DTC governing the exercise of the rights of an owner
of a beneficial interest in any Global Note.
The provisions of the "Operating Procedures of the Euroclear System,"
"Terms and Conditions Governing Use of Euroclear," the "General Terms and
Conditions of Cedel Bank" and "Customer Handbook" of Cedel, and successor
provisions, shall be applicable to interests in the Global Note that are held
by the Participants through Euroclear or Cedel.
The provisions of the form of Notes contained in Exhibit A hereto are
incorporated herein by reference. The Notes and the Trustee's Certificates of
Authentication shall be substantially in the form of Exhibit A hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. The Issuer shall approve the form of the Notes and any
notation, legend or endorsement (including notations relating to the
Guarantee) on them. If required, the Notes shall bear the appropriate legend
regarding original issue discount for federal income tax purposes. Each Note
shall be dated the date of its authentication. The terms and provisions
contained in the Notes shall constitute, and are hereby expressly made, a part
of this Indenture.
SECTION 2.02. Execution and Authentication.
Two Officers of the Issuer shall sign the Notes for the Issuer by
manual or facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee authenticates the Note , the Note shall be
valid nevertheless.
A Note shall not be valid until an authorized officer of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate Notes for original issue in the
aggregate principal amount of up to $200,000,000 in one or more series upon a
written order signed by an Officer of the Issuer. The order shall specify the
amount of Notes to be authenticated and the date on which the original issue
of Notes is to be authenticated. The order shall also provide instructions
concerning registration, amounts for each Holder and delivery. The aggregate
principal amount of Notes outstanding at any time may not exceed $200,000,000
except as provided in Section 2.07. The Notes shall be issued only in
registered form, without coupons and only in denominations of $1,000 and any
integral multiple thereof.
In the event that the Issuer shall issue and the Trustee shall
authenticate any Notes issued under this Indenture subsequent to the Issue
Date pursuant to the first sentence of the immediately preceding paragraph,
the Issuer shall use its best efforts to obtain the same "CUSIP" number for
such Notes as is printed on the Notes out-
<PAGE>
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standing at such time; provided, however, that if any series of Notes issued
under this Indenture subsequent to the Issue Date is determined, pursuant to
an Opinion of Counsel of the Issuer in a form reasonably satisfactory to the
Trustee to be a different class of security than the Notes outstanding at such
time for federal income tax purposes, the Issuer may obtain a "CUSIP" number
for such Notes that is different than the "CUSIP" number printed on the Notes
then outstanding. Notwithstanding the foregoing, all Notes issued under this
Indenture shall vote and consent together on all matters as one class and no
series of Notes will have the right to vote or consent as a separate class on
any matter.
SECTION 2.03. Registrar and Paying Agent.
The Issuer shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").
The Issuer may have one or more co-Registrars and one or more additional
paying agents. The term "Paying Agent" includes any additional paying agent.
The Issuer shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent and shall, if required,
incorporate the provisions of the TIA. The Issuer shall notify the Trustee in
writing of the name and address of any such Agent. If the Issuer fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation in accordance with the provisions of
Section 7.07.
The Issuer initially appoints the Trustee as Registrar and Paying
Agent. The Issuer shall give written notice to the Trustee in the event that
the Issuer decides to act as Registrar. None of the Issuer, its Subsidiaries
or any of their Affiliates may act as Paying Agent.
SECTION 2.04. Paying Agent To Hold Money in Trust.
The Issuer shall require each Paying Agent to agree in writing to
hold in trust for the benefit of Noteholders or the Trustee all money held by
the Paying Agent for the payment of principal of or interest on the Notes
(whether such money has been paid to it by the Issuer or any other obligor on
the Notes), and the Issuer and the Paying Agent shall each notify the Trustee
in writing of any default by the Issuer (or any other obligor on the Notes) in
making any such payment. The Issuer at any time may require a Paying Agent to
pay all money held by it to the Trustee and account for any funds disbursed
and the Trustee may at any time during the continuance of any payment default,
upon written request to a Paying Agent, require such Paying Agent to pay all
money held by it to the Trustee and to account for any funds disbursed. Upon
making such payment the Paying Agent shall have no further liability for the
money delivered to the Trustee.
SECTION 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. If the Trustee is not the Registrar, the Issuer shall furnish to
the Trustee at least five Business Days before each Interest Payment Date and
at such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Noteholders.
<PAGE>
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SECTION 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. Transfer of the Global
Notes shall be by delivery. Global Notes will be exchanged by the Issuer for
Physical Notes only (i) if DTC notifies the Issuer that it is unwilling or
unable to continue to act as depositary with respect to the Global Notes or
ceases to be a clearing agency registered under the Exchange Act and, in
either case, a successor depositary registered as a clearing agency under the
Exchange Act is not appointed by the Issuer within 120 days, (ii) at any time
if the Issuer in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Notes in certificated form
("Physical Notes") or (iii) if the owner of an interest in the Global Notes
requests such Physical Notes, following an Event of Default under this
Indenture, in a writing delivered through DTC to the Trustee.
Upon the occurrence of any of the events specified in the previous
paragraph, Physical Notes shall be issued in such names as DTC shall instruct
the Trustee in writing and the Trustee shall cause the aggregate principal
amount of the applicable Global Note to be reduced accordingly and direct DTC
to make a corresponding reduction in its book-entry system. The Issuer shall
execute and the Trustee shall authenticate and make available for delivery to
the Person designated in the instructions a Physical Note in the appropriate
principal amount. The Trustee shall make available for delivery such Physical
Notes to the Persons in whose names such Notes are so registered. Global Notes
may also be exchanged or replaced, in whole or in part, as provided in
Sections 2.07 and 2.10. Every Note authenticated and made available for
delivery in exchange for, or in lieu of, a Global Note or any portion thereof,
pursuant to Section 2.07 or 2.10, shall be authenticated and made available
for delivery in the form of, and shall be, a Global Note. A Global Note may
not be exchanged for another Note other than as provided in this Section
2.06(a).
(b) Transfer and Exchange of Interests in Global Notes. The transfer
and exchange of interests in Global Notes shall be effected through DTC, in
accordance with this Indenture and the procedures of DTC therefor. The Trustee
shall have no obligation to ascertain DTC's compliance with any such
restrictions on transfer. In connection with all transfers and exchanges of
interests in Global Notes (other than transfers of interests in a Global Note
to Persons who take delivery thereof in the form of an interest in the same
Global Note), the transferor of such interest must deliver to the Registrar
(1) instructions given in accordance with the Applicable Procedures from a
Participant or an indirect Participant directing DTC to credit or cause to be
credited an interest in the specified Global Note in an amount equal to the
interest to be transferred or exchanged, (2) a written order given in
accordance with the Applicable Procedures containing information regarding the
Participant account to be credited with such increase and (3) instructions
given by the Holder of the Global Note to effect the transfer referred to in
(1) and (2) above.
(c) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES
IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO A NOMINEE OF DTC, OR BY ANY SUCH NOMINEE OF DTC, OR BY
DTC TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC, TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS RE-
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QUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
"TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE."
(d) Cancellation and/or Adjustment of Global Notes. At such time as
all interests in the Global Notes have been exchanged for Physical Notes, all
Global Notes shall be returned to or retained and canceled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation,
if any interest in a Global Note is exchanged for an interest in another
Global Note or for Physical Notes, the principal amount of Notes represented
by such Global Note shall be reduced accordingly and an endorsement shall be
made on such Global Note , by the Trustee to reflect such reduction.
(e) General Provisions Relating to All Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Issuer shall execute and the Trustee shall authenticate Global Notes
and Physical Notes upon a written order signed by an Officer of the
Issuer or at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Issuer may require
payment of a sum sufficient to cover any stamp or transfer tax or
similar governmental charge payable in connection therewith (other
than any such stamp or transfer taxes or similar governmental charge
payable upon exchange or transfer pursuant to Sections 2.10, 3.06,
4.05, 4.14 and 10.05 hereof).
(iii) All Global Notes and Physical Notes issued upon any
registration of transfer or exchange of Global Notes or Physical
Notes shall be the valid obligations of the Issuer, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Notes or Physical Notes surrendered upon such registration
of transfer or exchange.
(iv) The Issuer shall not be required (A) to issue, to register
the transfer of or to exchange Notes during a period beginning at the
opening of 15 Business Days before the day of any mailing of notice
of redemption of Notes under Section 3.02 and ending at the close of
business on the day of such mailing, (B) to register the transfer of
or to exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in
part or (C) to register the transfer of or to exchange a Note between
a record date and the next succeeding Interest Payment Date.
(v) Prior to due presentment for the registration of a transfer
of any Note , the Trustee, any Agent and the Issuer may deem and
treat the Person in whose name any Note is registered as the absolute
owner of such Note for the purpose of receiving payment of principal
of and interest on such Notes and for all other purposes, and none of
the Trustee, any Agent or the Issuer shall be affected by notice to
the contrary.
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(vi) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with
respect to any transfers of any interest in any Note (including any
transfers between or among Participants or beneficial owners of
interests in any Global Note ) or Physical Note other than to require
delivery of such certificates and other documentation or evidence as
are expressly required by, and to do so if and when expressly
required by the terms of, this Indenture, and to examine the same to
determine substantial compliance as to form with the express
requirements hereof.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder of
a Note claims that the Note has been lost, destroyed or wrongfully taken, the
Issuer shall issue and the Trustee shall authenticate a replacement Note if
the Trustee's requirements are met. The Holder shall provide an indemnity bond
in an amount sufficient in the judgment of the Issuer and the Trustee to
protect the Issuer, the Trustee or any Agent from any loss which any of them
may suffer if a Note is replaced may be required by the Trustee or the Issuer.
The Issuer and the Trustee each may charge such Holder for its expenses in
replacing such Note .
Every replacement Note is an additional obligation of the Issuer.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all Notes that have been
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
A Note does not cease to be outstanding because the Issuer or one of its
Affiliates holds the Note .
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the Paying Agent holds on a redemption date or Maturity Date money
sufficient to pay the principal of, and interest on Notes payable on that
date, then on and after that date such Notes cease to be outstanding and
interest on them ceases to accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by
the Issuer, any of its Subsidiaries or any of their respective Affiliates
shall be disregarded, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or
consent, only Notes that the Trustee actually knows are so owned shall be so
disregarded.
The Trustee may require an Officers' Certificate listing securities
owned by the Issuer, any of its Subsidiaries or any of their respective
Affiliates.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Issuer may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Issuer considers appropriate for temporary Notes. Without unreasonable delay,
the Issuer shall
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prepare and the Trustee shall authenticate definitive Notes in exchange for
temporary Notes. Until such exchange, temporary Notes shall be entitled to the
same rights, benefits and privileges as definitive Notes.
SECTION 2.11. Cancellation.
The Issuer at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee
and no one else shall cancel all Notes surrendered for transfer, exchange,
payment or cancellation. The Issuer may not issue new Notes to replace,
reissue or resell Notes which the Issuer has redeemed, paid, purchased on the
open market or otherwise, or otherwise acquired or have been delivered to the
Trustee for cancellation. The Trustee (subject to the record-retention
requirements of the Exchange Act) may, but shall not be required to, destroy
canceled Notes.
SECTION 2.12. Defaulted Interest.
If the Issuer defaults in a payment of interest on the Notes, it
shall pay the defaulted interest, plus any interest payable on the defaulted
interest pursuant to Section 4.01 hereof, to the persons who are Noteholders
on a subsequent special record date, and such term, as used in this Section
2.12 with respect to the payment of any defaulted interest, shall mean the
fifteenth day next preceding the date fixed by the Issuer for the payment of
defaulted interest, whether or not such day is a Business Day. At least 30
days before such special record date, the Issuer shall mail to each Noteholder
and to the Trustee a notice that states such special record date, the payment
date and the amount of defaulted interest to be paid.
SECTION 2.13. CUSIP or CINS Number.
The Issuer in issuing the Notes may use a "CUSIP" or "CINS" number,
and if so, such CUSIP or CINS number shall be included in notices of
redemption or exchange as a convenience to Holders; provided, however, that
any such notice may state that no representation is made as to the correctness
or accuracy of the CUSIP or CINS number printed in the notice or on the Notes,
and that reliance may be placed only on the other identification numbers
printed on the Notes. The Issuer will promptly notify the Trustee of any
change in the CUSIP or CINS number.
SECTION 2.14. Payments of Interest.
(a) The Holder of a Physical Note at the close of business on the
regular record date with respect to any Interest Payment Date shall be
entitled to receive the interest payable on such Interest Payment Date
notwithstanding any transfer or exchange of such Physical Note subsequent to
the regular record date and prior to such Interest Payment Date, except if and
to the extent the Issuer shall default in the payment of the interest due on
such Interest Payment Date, in which case such defaulted interest shall be
paid in accordance with Section 2.12; and in the event of an exchange of a
Physical Note for a beneficial interest in any Global Note subsequent to a
regular record date or any special record date and prior to or on the related
Interest Payment Date or other payment date under Section 2.12, any payment of
the interest payable on such payment date with respect to any such Physical
Note shall be made to the Person in whose name such Physical Note was
registered on such record date. Payments of interest on the Global Notes will
be made on each Interest Payment Date to the Holder of the Global Note on the
record date with respect thereto; provided, however, that, in the event of an
exchange of all or a portion of a Global Note for a Physical Note subsequent
to the regular record date or any special record date and prior to or on the
related Interest Payment Date or other payment date under Section 2.12, any
payment of
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interest payable on such Interest Payment Date or other payment date with
respect to the Physical Note shall be made to the Holder of the Global Note as
of the applicable record date.
(b) Subject to Section 4.01, interest shall be paid to DTC, with
respect to any Global Note held by DTC, on the applicable Interest Payment
Date in accordance with instructions received from DTC at least five Business
Days before the applicable Interest Payment Date.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Issuer elects to redeem Notes pursuant to paragraph 5 of the
Notes at the applicable redemption price set forth thereon, it shall notify
the Trustee in writing of the redemption date and the principal amount of
Notes to be redeemed.
The Issuer shall give the notice provided for in this Section 3.01 at
least 45 days before the redemption date (unless a shorter notice shall be
agreed to by the Trustee in writing) but not more than 60 days before the
redemption date, together with an Officers' Certificate stating that such
redemption will comply with the conditions contained herein.
SECTION 3.02. Selection of Notes To Be Redeemed.
If less than all of the Notes are to be redeemed pursuant to
paragraph 5 thereof, the Trustee shall select the Notes to be redeemed pro
rata or by lot or in such other manner as the Trustee shall deem appropriate
and fair. The Trustee shall make the selection from the Notes then
outstanding, subject to redemption and not previously called for redemption.
The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Notes that have denominations
larger than $1,000. Provisions of this Indenture that apply to Notes called
for redemption also apply to portions of Notes called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date,
the Issuer shall mail a notice of redemption by first class mail to each
Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the CUSIP number (subject to Section 2.13);
(4) the name and address of the Paying Agent to which the
Notes are to be surrendered for redemption;
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(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(6) that, unless the Issuer defaults in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date and the only remaining right
of the Holders is to receive payment of the redemption price upon
surrender to the Paying Agent; and
(7) in the case of a redemption pursuant to paragraph 5(a)
or (b) of the Notes, if any Note is being redeemed in part, the
portion of the principal amount of such Note to be redeemed and that,
after the redemption date, upon surrender of such Note , a new Note
or Notes in principal amount equal to the unredeemed portion thereof
will be issued.
At the Issuer's request, the Trustee shall give the notice of
redemption on behalf of the Issuer, in the Issuer's name and at the Issuer's
expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Notes called for redemption
become due and payable on the redemption date and at the redemption price.
Upon surrender to the Paying Agent, such Notes shall be paid at the redemption
price, plus accrued interest thereon to the redemption date, but interest
installments whose maturity is on or prior to such redemption date shall be
payable to the Holders of record at the close of business on the relevant
record dates referred to in the Notes. The Trustee shall not be required to
(i) issue, authenticate, register the transfer of or exchange any Note during
a period beginning 15 days before the date a notice of redemption is mailed
and ending at the close of business on the date the redemption notice is
mailed, or (ii) register the transfer or exchange of any Note so selected for
redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
SECTION 3.05. Deposit of Redemption Price.
Prior to 10:00 a.m. on the redemption date, the Issuer shall deposit
with the Paying Agent money sufficient to pay the redemption price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date which have been delivered
by the Issuer to the Trustee for cancellation.
SECTION 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Trustee shall
authenticate for the Holder a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
The Issuer shall pay the principal of and interest on the Notes in
the manner provided in the Notes. An installment of principal or interest
shall be considered paid on the date due if the Trustee or Paying Agent holds
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on that date money designated for and sufficient to pay the installment in
full and is not prohibited from paying such money to the Holders of the Notes
pursuant to the terms of this Indenture.
The Issuer shall pay interest on overdue principal at the same rate
per annum borne by the Notes. The Issuer shall pay interest on overdue
installments of interest at the same rate per annum borne by the Notes, to the
extent lawful.
SECTION 4.02. Maintenance of Office or Agency.
The Issuer shall maintain in the Borough of Manhattan, The City of
New York, an office or agency where Notes may be surrendered for registration
of transfer or exchange or for presentation for payment and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may
be served. The Issuer shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuer shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.02.
The Issuer may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Issuer of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Issuer
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
The Issuer hereby designates the principal Corporate Trust Office of
the Trustee as one such office or agency of the Issuer in accordance with
Section 2.03.
SECTION 4.03. Limitation on Transactions with Affiliates and Related
Persons.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into directly or indirectly any transaction with any of
their respective Affiliates or Related Persons (other than the Company or a
Restricted Subsidiary of the Company), including, without limitation, the
purchase, sale, lease or exchange of property, the rendering of any service,
or the making of any guarantee, loan, advance or Investment, either directly
or indirectly, involving aggregate consideration in excess of $5.0 million
unless a majority of the disinterested directors of the Board of Directors of
the Company determines, in its good faith judgment evidenced by a resolution
of such Board of Directors filed with the Trustee, that the terms of such
transaction are at least as favorable as the terms that could be obtained by
the Company or such Restricted Subsidiary, as the case may be, in a comparable
transaction made on an arms-length basis between unaffiliated parties;
provided, however, that if the aggregate consideration is in excess of $10.0
million the Company shall also obtain, prior to the consummation of the
transaction, the favorable opinion as to the fairness of the transaction to
the Company or such Restricted Subsidiary, from a financial point of view from
an independent financial advisor. The provisions of this Section 4.03 shall
not apply to (i) transactions permitted by Section 4.06 hereof, (ii)
reasonable fees and compensation paid to, and indemnity provided on behalf of,
officers, directors and employees of the Company and its Restricted
Subsidiaries as determined in good faith by the Board of Directors of the
Company, (iii) loans to employees in the ordinary course of business which are
approved in good faith by the Board of Directors of the Company, (iv)
transactions exclusively between or among the Issuer and the Guarantors or
exclusively between or among such Guarantors, provided such transactions are
not otherwise prohibited by this Indenture and (v) any
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transactions undertaken pursuant to contractual obligations or rights in
existence on the Issue Date (as in effect on the Issue Date).
SECTION 4.04. Limitation on Indebtedness.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness), except:
(i) Indebtedness of the Company or any of its Restricted
Subsidiaries, if immediately after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the net proceeds
thereof, the Consolidated Coverage Ratio of the Company for the four
full fiscal quarters for which quarterly or annual financial
statements are available next preceding the Incurrence of such
Indebtedness, calculated on a pro forma basis in accordance with
Article 11 of Regulation S-X under the Securities Act of 1933 or any
successor provision as if such Indebtedness had been Incurred on the
first day of such four full fiscal quarters, would be greater than
1.75 to 1.00 if such proposed Incurrence is on or prior to [ ], 1999
and greater than 2.00 to 1.00 if such proposed Incurrence is
thereafter;
(ii) Indebtedness of the Company and its Restricted Subsidiaries,
Incurred under the Credit Agreement in an aggregate amount not to
exceed the greater of (a) $25.0 million and (b) an amount equal to
the sum of (x) 85% of the total book value of the accounts receivable
of the Company and its Restricted Subsidiaries and (y) 50% of the
total book value of inventory of the Company and its Restricted
Subsidiaries, in each case as reflected on the Company's most recent
consolidated financial statements prepared in accordance with GAAP
(it being understood that the amount Incurred under the Credit
Agreement may be increased as a result of the operation of clause
(xi) below);
(iii) Indebtedness owed by the Company to any direct or indirect
Wholly Owned Subsidiary of the Company or Indebtedness owed by a
direct or indirect Restricted Subsidiary of the Company to the
Company or any direct or indirect Wholly Owned Subsidiary of the
Company; provided, however, upon either (I) the transfer or other
disposition by such direct or indirect Wholly Owned Subsidiary or the
Company of any Indebtedness so permitted under this clause (iii) to a
Person other than the Company or another direct or indirect Wholly
Owned Subsidiary of the Company or (II) the issuance (other than
directors' qualifying shares), sale, transfer or other disposition of
shares of Capital Stock or other ownership interests (including by
consolidation or merger) of such direct or indirect Wholly Owned
Subsidiary to a Person other than the Company or another such Wholly
Owned Subsidiary of the Company the provisions of this clause (iii)
shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been Incurred at the time of any
such issuance, sale, transfer or other disposition, as the case may
be;
(iv) Indebtedness of the Company or any Restricted Subsidiary
under any interest rate or other similar agreement to the extent
entered into to hedge any other Indebtedness permitted to be Incurred
under this Indenture (including the Notes);
(v) Indebtedness of the Issuer under the Notes issued on the Issue
Date and Indebtedness outstanding on the Issue Date;
(vi) Indebtedness Incurred to Refinance any Indebtedness
outstanding on the Issue Date, any Indebtedness Incurred under the
prior clause (i) above or the Notes and the Guarantees; provided,
however, that (I) such Indebtedness does not exceed the principal
amount (or accreted value, if less) of the Indebtedness so Refinanced
plus the amount of any premium required to be paid in connection with
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such Refinancing pursuant to the terms of the Indebtedness being
Refinanced or the amount of any premium reasonably determined by the
issuer of such Indebtedness as necessary to accomplish such
Refinancing by means of a tender offer, exchange offer, or privately
negotiated repurchase, plus the expenses of such issuer reasonably
Incurred in connection therewith and (II)(A) in the case of any
Refinancing of Indebtedness that is pari passu with the Notes, such
Refinancing Indebtedness is made pari passu with or subordinate in
right of payment to the Notes, and, in the case of any Refinancing of
Indebtedness that is subordinate in right of payment to the Notes,
such Refinancing Indebtedness is subordinate in right of payment to
the Notes on terms no less favorable to the Holders than those
contained in the Indebtedness being Refinanced, (B) in either case,
the Refinancing Indebtedness by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is
issued, does not have an Average Life that is less than the remaining
Average Life of the Indebtedness being Refinanced and does not
require redemption or other retirement (including pursuant to any
required offer to purchase to be made by the Company or a Restricted
Subsidiary) of such Indebtedness at the option of the holder thereof
prior to the final stated maturity of the Indebtedness being
Refinanced, other than a redemption or other retirement at the option
of the holder of such Indebtedness (including pursuant to a required
offer to purchase made by the Company or a Restricted Subsidiary)
which is conditioned upon a change of control of the Company or any
Restricted Subsidiary pursuant to provisions substantially similar to
those contained in Section 4.14 hereof and (C) any Indebtedness
Incurred to Refinance any Indebtedness is Incurred by the obligor on
the Indebtedness being Refinanced or by a Guarantor; provided,
further, that clause (II) of the immediately preceding proviso shall
not apply to any Indebtedness Incurred to Refinance term loans under
the Credit Agreement outstanding on the Issuer Date or to subsequent
Refinancings of any such refinancing Indebtedness;
(vii) Indebtedness of the Guarantors, under the Guarantees Incurred
in accordance with this Indenture;
(viii) Indebtedness (including Capitalized Lease Obligations and
obligations with respect to industrial revenue bonds) Incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of
any Person owning such assets) in an aggregate principal amount
outstanding not to exceed 10% of the total amount of assets of the
Company and the Restricted Subsidiaries (as set forth on the most
recent consolidated balance sheet of the Company and computed in
accordance with GAAP) at any time (which amount may, but need not, be
Incurred in whole or in part under the Credit Agreement) provided that
the principal amount of such Indebtedness does not exceed the fair
market value of such property or equipment;
(ix) Indebtedness Incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business,
including, without limitation, letters of credit in respect of
workers' compensation claims or self-insurance, or other Indebtedness
with respect to reimbursement type obligations regarding workers'
compensation claims or self-insurance, and obligations in respect of
performance and surety bonds and completion guarantees provided by
the Company or any Restricted Subsidiary of the Company in the
ordinary course of business;
(x) guarantees by the Company or its Restricted Subsidiaries of
Indebtedness otherwise permitted to be Incurred hereunder; and
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(xi) Indebtedness of the Company or its Restricted Subsidiaries
not otherwise permitted to be Incurred pursuant to clauses (i)
through (x) above which, together with any other outstanding
Indebtedness Incurred pursuant to this clause (xi), has an
aggregate principal amount (or accreted value, as applicable) not in
excess of $5.0 million at any time outstanding, which Indebtedness
may be Incurred under the Credit Agreement, this Indenture or
otherwise.
SECTION 4.05. Limitation on Certain Asset Dispositions.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make one or more Asset Dispositions
unless: (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration for such Asset Disposition at least equal to the fair
market value of the assets sold or disposed of as determined by the Board of
Directors of the Company in good faith and evidenced by a resolution of such
Board of Directors filed with the Trustee; (ii) not less than 75% of the
consideration for the disposition consists of cash or readily marketable cash
equivalents or the assumption of Indebtedness (other than non-recourse
Indebtedness or any Subordinated Indebtedness) of the Company or such
Restricted Subsidiary or other obligations relating to such assets (and
release of the Company or such Restricted Subsidiary from all liability on the
Indebtedness or other obligations assumed); and (iii) all Net Available
Proceeds, less any amounts invested within 360 days of such Asset Disposition
in assets related to the business of the Company (including the Capital Stock
of another Person (other than any Person that is a Restricted Subsidiary of
the Company immediately prior to such investment); provided, however, that
immediately after giving effect to any such investment (and not prior thereto)
such Person shall be a Restricted Subsidiary of the Company), are applied, on
or prior to the 360th day after such Asset Disposition, unless and to the
extent that the Issuer shall determine to make an Offer to Purchase, to the
permanent reduction and prepayment of any Senior Debt of the Issuer then
outstanding (including a permanent reduction of commitments in respect
thereof). Any Net Available Proceeds from any Asset Disposition which is
subject to the immediately preceding sentence that are not applied as provided
in the immediately preceding sentence shall be used promptly after the
expiration of the 360th day after such Asset Disposition, or promptly after
the Issuer shall have earlier determined to not apply any Net Available
Proceeds therefrom as provided in clause (iii) of the immediately preceding
sentence, to make an Offer to Purchase outstanding Notes and other Senior
Subordinated Indebtedness, pro rata, at a purchase price in cash equal to 100%
of their principal amount (or the accreted value of such other Senior
Subordinated Indebtedness, if such other Senior Subordinated Indebtedness is
issued at a discount) plus accrued interest to the Purchase Date.
Notwithstanding the foregoing, the Issuer may defer making any Offer to
Purchase outstanding Notes until there are aggregate unutilized Net Available
Proceeds from Asset Dispositions otherwise subject to the two immediately
preceding sentences equal to or in excess of $10.0 million (at which time, the
entire unutilized Net Available Proceeds from Asset Dispositions otherwise
subject to the two immediately preceding sentences, and not just the amount in
excess of $10.0 million, shall be applied as required pursuant to this
paragraph). Any remaining Net Available Proceeds following the completion of
the required Offer to Purchase may be used by the Issuer for any other purpose
(subject to the other provisions of this Indenture) and the amount of Net
Available Proceeds then required to be otherwise applied in accordance with
this Section 4.05 shall be reset to zero, subject to any subsequent Asset
Disposition. These provisions will not apply to a transaction consummated in
compliance with Section 5.01 hereof.
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In the event that the Issuer makes an Offer to Purchase the Notes and
other Senior Subordinated Indebtedness, the Company shall comply with any
applicable securities laws and regulations, including any applicable
requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act, and
any violation of the provisions of this Indenture relating to such Offer to
Purchase occurring as a result of such compliance shall not be deemed an Event
of Default or any event that with the passing of time or giving of notice, or
both, would constitute an Event of Default.
SECTION 4.06. Limitation on Restricted Payments.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend, or make any distribution of any
kind or character (whether in cash, property or securities), on or in
respect of any class of the Capital Stock of the Company or any of
its Restricted Subsidiaries or to the holders thereof, excluding any
(x) dividends or distributions payable solely in shares of Qualified
Stock of the Company or any of its Restricted Subsidiaries or in
options, warrants or other rights to acquire Qualified Stock of the
Company or any of its Restricted Subsidiaries, (y) in the case of any
Restricted Subsidiary of the Company, dividends or distributions
payable to the Company or a Restricted Subsidiary of the Company, or
(z) in the case of any Guarantor, dividends or distributions payable
to the Issuer or another Guarantor,
(ii) purchase, redeem, or otherwise acquire or retire for value
shares of Capital Stock of the Company or any of its Restricted
Subsidiaries, any options, warrants or rights to purchase or acquire
shares of Capital Stock of the Company or any of its Restricted
Subsidiaries or any securities convertible or exchangeable into
shares of Capital Stock of the Company or any of its Restricted
Subsidiaries, excluding any such shares of Capital Stock, options,
warrants, rights or securities which are owned by the Company or a
Restricted Subsidiary of the Company,
(iii) make any Investment (other than a Permitted Investment) in, or
make any payment on a guarantee of any obligation of, any Person,
other than the Company or a direct or indirect Wholly Owned
Subsidiary of the Company, or
(iv) redeem, defease, repurchase, retire or otherwise acquire or
retire for value, prior to any scheduled maturity, repayment or
sinking fund payment, Subordinated Indebtedness (each of the
transactions described in clauses (i) through (iv) (other than any
exception to any such clause) being a "Restricted Payment")
if at the time thereof:
(1) a Default or an Event of Default shall have occurred and
be continuing, or
(2) upon giving effect to such Restricted Payment, the
Company could not Incur at least $1.00 of additional Indebtedness
pursuant to clause (i) of Section 4.04 hereof, or
(3) upon giving effect to such Restricted Payment, the
aggregate of all Restricted Payments made on or after the Issue Date
exceeds the sum of: (a) 50% of cumulative Consolidated Net Income of
the Company (or, in the case cumulative Consolidated Net Income of
the Company shall be negative, less 100% of such deficit) since the
end of the fiscal quarter in which the Issue Date occurs through the
last day of the fiscal quarter ending on or prior to the date of such
proposed Rendered Pay-
<PAGE>
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ment for which financial statements are available; plus (b) 100% of
the aggregate net proceeds received after the Issue Date, including
the fair market value of property other than cash (determined in
good faith by the Board of Directors of the Company as evidenced by
a resolution of such Board of Directors filed with the Trustee),
from the issuance of, or equity contribution with respect to,
Qualified Stock of the Company and warrants, rights or options on
Qualified Stock of the Company (other than in respect of any such
issuance to a Restricted Subsidiary of the Company) and the
principal amount of Indebtedness of the Company or any of its
Restricted Subsidiaries that has been converted into or exchanged
for Qualified Stock of the Company which Indebtedness was Incurred
after the Issue Date; plus (c) 100% of the aggregate after-tax net
proceeds, including the fair market value of property other than
cash (determined in good faith by the Board of Directors of the
Company as evidenced by a resolution of such Board of Directors
filed with the Trustee) from the sale or other disposition of any
Investment constituting a Restricted Payment made after the Issue
Date; provided, however, that any gain on the sale or disposition
included in such after tax net proceeds shall not be included in
determining Consolidated Net Income for purposes of clause (a)
above; and provided, further, that amounts included in this clause
(c) shall not exceed the Net Investment by the Company and its
Restricted Subsidiaries in the asset so sold or disposed.
The foregoing provision will not prohibit (i) any dividend on any
class of Capital Stock of the Company or any of its Restricted Subsidiaries
paid within 60 days after the declaration thereof if, on the date when the
dividend was declared, the Company or such Restricted Subsidiary, as the case
may be, could have paid such dividend in accordance with the provisions of
this Indenture, (ii) the Refinancing of any Indebtedness otherwise permitted
pursuant to clause (vi) of Section 4.04 hereof, (iii) the exchange or
conversion of any Indebtedness of the Company or any of its Restricted
Subsidiaries for or into Qualified Stock of the Company, (iv) so long as no
Default or Event of Default has occurred and is continuing, any Investment
made with the proceeds of a substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of Qualified Stock of the Company;
provided, however, that the proceeds of such sale of Qualified Stock shall not
be (and have not been) included in subclause (b) of clause (3) of the
preceding paragraph, (v) the redemption, repurchase, retirement or other
acquisition of any Capital Stock of the Company in exchange for or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of Qualified Stock of the Company;
provided, however, that the proceeds of such sale of Capital Stock shall not
be (and have not been) included in subclause (b) of clause (3) of the
preceding paragraph, (vi) so long as no Default or Event of Default has
occurred and is continuing, other Restricted Payments of up to $5.0 million in
the aggregate, (vii) payments in lieu of fractional shares in an amount not in
excess of $100,000 in the aggregate and (viii) payments to holders of Capital
Stock of the Company made in connection with the application of the net
proceeds from the offering of the Notes as contemplated by the Prospectus.
Each Restricted Payment described in clauses (i) (to the extent not already
taken into account for purposes of computing the aggregate amount of all
Restricted Payments pursuant to clause (3) of the preceding paragraph), (vi)
and (vii) of the previous sentence shall be taken into account for purposes of
computing the aggregate amount of all Restricted Payments pursuant to clause
(3) of the preceding paragraph.
For purposes of this Section 4.06, (i) an "Investment" shall be
deemed to have been made at the time any Restricted Subsidiary is designated
as an Unrestricted Subsidiary in an amount (proportionate to the Company's
equity interest in such Subsidiary) equal to the net worth of such Restricted
Subsidiary at the time that such Restricted Subsidiary is designated as an
Unrestricted Subsidiary; (ii) at any date the aggregate of all Restricted
Payments made as Investments since the Issue Date shall exclude and be reduced
by an amount (proportionate to the Company's equity interest in such
Subsidiary) equal to the net worth of an Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary, not
to exceed, in the case of any such redesignation of an Unrestricted Subsidiary
as a Restricted Subsidiary, the amount of In-
<PAGE>
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vestments previously made by the Company and the Restricted Subsidiaries in
such Unrestricted Subsidiary (in each case (i) and (ii) "net worth" to be
calculated based upon the fair market value of the assets of such Subsidiary
as of any such date of designation which shall, in no event, be less than
zero); and (iii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer.
SECTION 4.07. Corporate Existence
Subject to Article Five, the Company shall do or shall cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
of its Subsidiaries (including the Issuer) in accordance with the respective
organizational documents of each such Subsidiary and the rights (charter and
statutory) and material franchises of the Company and its Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right or franchise, or the corporate existence of any Subsidiary (other than
the Issuer), if the Board of Directors of the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries, taken as a whole, and that the loss thereof
is not, and will not be, adverse in any material respect to the Holders;
provided, further, however, that a determination of the Board of Directors of
the Company shall not be required in the event of a merger of one or more
Wholly Owned Subsidiaries with or into another Wholly Owned Subsidiary or
another Person, if the surviving Person is a Wholly Owned Subsidiary organized
under the laws of the United States or a State thereof or of the District of
Columbia.
SECTION 4.08. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, all material taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries; provided, however, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings or where the failure to effect such
payment is not adverse in any material respect to the Holders.
SECTION 4.09. Notice of Defaults.
Within five days after becoming aware of any Default, if such Default
is then continuing, the Issuer shall promptly deliver an Officers' Certificate
to the Trustee specifying the details of such Default and the action which the
Issuer proposes to take with respect thereto.
SECTION 4.10. Maintenance of Properties.
The Company shall cause all material properties owned by or leased to
it or any of its Subsidiaries and used or useful in the conduct of its
business or the business of any of its Subsidiaries to be maintained and kept
in normal condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.10 shall prevent the Company or any of
its Subsidiaries from discontinuing the use, operation or maintenance of any
of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors of the Company or of
the Subsidiary concerned, or of an officer (or other agent employed by the
Company or of
<PAGE>
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any of its Subsidiaries) of the Company or such Subsidiary having managerial
responsibility for any such property, desirable in the conduct of the business
of the Company or any of its Subsidiaries.
SECTION 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 90 days after the
close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a
Default has occurred and whether or not the signers know of any Default by the
Company or any of Subsidiaries that occurred during such fiscal year. If they
do know of such a Default, the certificate shall describe all such Defaults,
their status and the action the Company or any such Subsidiary is taking or
proposes to take with respect thereto. The first certificate to be delivered
by the Company pursuant to this Section 4.11 shall be for the fiscal year
ending July 31, 1999.
SECTION 4.12. Provision of Financial Information.
Whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, or any successor provision thereto, the Company shall file
with the Commission the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so required, such documents to be filed with the Commission
on or prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required so to file such documents if the Company were
so required. Regardless of whether the Company files such reports or other
documents with the Commission, the Company shall (a) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Notes, as their
names and addresses appear in the Note Register, without cost to such Holders,
and (ii) file with the Trustee, copies of such annual reports, quarterly
reports and other documents, and (b) if filing such documents by the Company
with the Commission is not permitted under the Exchange Act, promptly upon
written request supply copies of such documents to any prospective Holder of
Notes.
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
The Issuer covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury
law or other law, which would prohibit or forgive the Issuer from paying all
or any portion of the principal of and/or interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and
(to the extent that it may lawfully do so) the Issuer hereby expressly waives
all benefit or advantage of any such law, and covenants that it shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 4.14. Change of Control.
Within 30 days following the date of the consummation of a
transaction resulting in a Change of Control, the Issuer will commence an
Offer to Purchase all outstanding Notes at a purchase price in cash equal to
101% of their principal amount plus accrued interest, if any, to the Purchase
Date. Such Offer to Purchase will be consummated not earlier than 30 days and
not later than 60 days after the commencement thereof. Each Holder shall be
entitled to tender all or any portion of the Notes owned by such Holder
pursuant to the Offer to Purchase, subject to the requirement that any portion
of a Note tendered must be an integral multiple of $1,000
<PAGE>
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principal amount. A "Change of Control" will be deemed to have occurred in the
event that (whether or not otherwise permitted by this Indenture), after the
Issue Date (a) any Person or any Persons acting together that would constitute
a group (for purposes of Section 13(d) of the Exchange Act, or any successor
provision thereto) (a "Group"), together with any Affiliates or Related
Persons thereof, other than Permitted Holders, shall, directly or indirectly,
"beneficially own" (as defined in Rule 13d-3 under the Exchange Act, or any
successor provision thereto) at least 40% of the voting power of the
outstanding Voting Stock of the Company or the Issuer; (b) any sale, lease or
other transfer (in one transaction or a series of related transactions) is
made by the Company or any of its Restricted Subsidiaries of all or
substantially all of the consolidated assets of the Company and its Restricted
Subsidiaries to any Person; (c) the Company consolidates with or merges with
or into another Person or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which
immediately after the consummation thereof Persons owning a majority of the
Voting Stock of the Company immediately prior to such consummation shall cease
to own a majority of the Voting Stock of the Company or the surviving entity
if other than the Company; (d) Continuing Directors cease to constitute at
least a majority of the Board of Directors of the Company; or (e) the
stockholders of the Company or the Issuer approve any plan or proposal for the
liquidation or dissolution of the Company or the Issuer.
In the event that the Issuer makes an Offer to Purchase the Notes and
other Senior Subordinated Indebtedness, the Issuer shall comply with any
applicable securities laws and regulations, including any applicable
requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act, and
any violation of the provisions of this Indenture relating to such Offer to
Purchase occurring as a result of such compliance shall not be deemed an Event
of Default or any event that with the passing of time or giving of notice, or
both, would constitute an Event of Default.
SECTION 4.15. Limitation on Senior Subordinated Indebtedness.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness that by its
terms would expressly rank senior in right of payment to the Notes or the
Guarantees, as the case may be, and expressly rank subordinate in right of
payment to any other Indebtedness of the Company or such Restricted
Subsidiary.
SECTION 4.16. Limitations Concerning Distributions and
Transfers by Restricted Subsidiaries.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company (other than the Issuer) to (i) pay,
directly or indirectly, dividends or make any other distributions in respect
of its Capital Stock or pay any Indebtedness or other obligation owed to the
Company or any other Restricted Subsidiary of the Company, (ii) make loans or
advances to the Company or any other Restricted Subsidiary of the Company or
(iii) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (a) any agreement in effect on the
Issue Date as any such agreement is in effect on such date, (b) the Credit
Agreement, (c) any agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted Subsidiary
was acquired by the Company and outstanding on such date and not Incurred in
anticipation or contemplation of becoming a Restricted Subsidiary and provided
such encumbrance or restriction shall not apply to any assets of the Company
or its Restricted Subsidiaries other than such Restricted Subsidiary, (d)
customary provisions contained in an agreement which has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of a Restricted Subsidiary; provided, however, that such encumbrance or
restriction is applicable only to such Restricted Subsidiary or assets,
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(e) an agreement effecting a Refinancing or amendment of Indebtedness Incurred
pursuant to an agreement referred to in clause (a) above; provided, however,
that the provisions contained in such Refinancing or amendment agreement
relating to such encumbrance or restriction are no more restrictive in any
material respect than the provisions contained in the agreement that is the
subject thereof in the reasonable judgment of the Board of Directors of the
Company as evidenced by a resolution of such Board of Directors filed with the
Trustee, (f) this Indenture, (g) applicable law, (h) customary provisions
restricting subletting or assignment of any lease governing any leasehold
interest of any Restricted Subsidiary of the Company, (i) restrictions
contained in Indebtedness permitted to be Incurred subsequent to the Issue
Date pursuant to Section 4.04 hereof; provided, however that any such
restrictions are ordinary and customary with respect to the type of
Indebtedness Incurred, (j) purchase money obligations for property acquired in
the ordinary course of business that impose restrictions of the type referred
to in clause (iii) of this Section 4.16 or (k) restrictions of the type
referred to in clause (iii) of this Section 4.16 contained in security
agreements securing Indebtedness of a Restricted Subsidiary of the Company to
the extent that such Liens were otherwise Incurred in accordance with Section
4.18 hereof and restrict the transfer of property subject to such agreements.
SECTION 4.17. Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries.
The Company shall not sell any Capital Stock of a Restricted
Subsidiary, and shall not cause or permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any of its Capital Stock or any Capital Stock
of another Restricted Subsidiary, except: (i) to the Company or a Wholly Owned
Subsidiary; or (ii) if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary. Notwithstanding the foregoing, the Company or any Restricted
Subsidiary shall be permitted to sell all the Capital Stock of a Restricted
Subsidiary as long as the Company is in compliance with Section 4.05 hereof
and, if applicable, Sections 4.14 and 5.01 hereof.
SECTION 4.18. Limitation on Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Lien on or with respect to any property or assets
of the Company or such Restricted Subsidiary owned on the Issue Date or
thereafter acquired or on the income or profits thereof, which Lien secures
Indebtedness, without making, or causing any such Restricted Subsidiary to
make, effective provision for securing the Notes and all other amounts due
under this Indenture (and, if the Company shall so determine, any other
Indebtedness of the Company or such Restricted Subsidiary, including
Subordinated Indebtedness; provided, however, that Liens securing the Notes
and any Indebtedness pari passu with the Notes are senior to such Liens
securing such Subordinated Indebtedness) equally and ratably with such
Indebtedness or, in the event such Indebtedness is subordinate in right of
payment to the Notes or the Guarantees prior to such Indebtedness, as to such
property or assets for so long as such Indebtedness shall be so secured.
The foregoing restrictions shall not apply to (i) Liens existing on
the Issue Date securing Indebtedness existing on the Issue Date; (ii) Liens
securing Senior Debt (including Liens securing Indebtedness outstanding under
the Credit Agreement) and any guarantees thereof to the extent that the
Indebtedness secured thereby is permitted to be Incurred under Section 4.04
hereof; (iii) Liens securing the Notes and the Guarantees; (iv) Liens in favor
of the Company or a Guarantor; (v) Liens to secure Indebtedness (including
obligations with respect to industrial revenue bonds) Incurred by the Company
or any Restricted Subsidiary for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of the property
(or any other capital expenditure financing) subject to such Liens; provided,
however, that (a) the aggregate principal amount of any Indebtedness secured
by such a Lien does not exceed 100% of such purchase price or cost, (b) such
Lien does
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not extend to or cover any other property other than such item of property and
any improvements on such item, (c) the Indebtedness secured by such Lien is
Incurred by the Company or such Restricted Subsidiary within 180 days of the
acquisition, construction or improvement of such property and (d) the
Incurrence of such Indebtedness is permitted by Section 4.04 hereof; (vi)
Liens on property existing immediately prior to the time of acquisition
thereof (and not created in anticipation or contemplation of the financing of
such acquisition); (vii) Liens on property of a Person existing at the time
such Person is acquired or merged with or into or consolidated with the
Company or any such Restricted Subsidiary (and not created in anticipation or
contemplation thereof); (viii) Liens for taxes, assessments or governmental
charges or claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP; (ix) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made in respect thereof; (x) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien securing
letters of credit issued in the ordinary course of business consistent with
past practice in connection therewith, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money); (xi)
judgment Liens not giving rise to an Event of Default so long as such Lien is
adequately bonded and any appropriate legal proceedings which may have been
duly initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceedings may be initiated shall
not have expried; (xii) Liens to secure Indebtedness Incurred to Refinance, in
whole or in part, any Indebtedness secured by Liens referred to in the
foregoing clauses (i)-(xi) so long as such Liens do not extend to any other
property and the principal amount of Indebtedness so secured is not increased
except for the amount of any premium required to be paid in connection with
such Refinancing pursuant to the terms of the Indebtedness Refinanced or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such Refinancing by means of a tender offer, exchange offer or
privately negotiated repurchase, plus the expenses of the issuer of such
Indebtedness reasonably Incurred in connection with such Refinancing; (xiii)
Liens in favor of the Trustee as provided for in this Indenture on money or
property held or collected by the Trustee in its capacity as Trustee; and
(xiv) Liens Incurred in the ordinary course of business securing assets not
having a fair market value in excess of $5.0 million.
SECTION 4.19. Additional Guarantors.
The Company will not create or acquire, nor permit any of its
Restricted Subsidiaries to create or acquire, any Restricted Subsidiary after
the Issue Date unless, at the time such Restricted Subsidiary has either
assets or stockholder's equity in excess of $25,000, such Restricted
Subsidiary (a) executes and delivers to the Trustee a supplemental indenture
in form reasonably satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall unconditionally guarantee all of the Issuer's
obligations under the Notes and this Indenture on the terms set forth herein
and (b) delivers to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Restated
Subsidiary and continues a legal, valid, binding and enforceable obligation of
such Restricted Subsidiary.
<PAGE>
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ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Restriction on Mergers, Consolidations and Certain Sales
of Assets.
The Company will not consolidate or merge with or into any Person, or
sell, assign, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to consolidate or merge with or into any
Person or sell, assign, lease, convey or otherwise dispose of) all or
substantially all of the Company's assets (determined on a consolidated basis
for the Company and its Restricted Subsidiaries), whether as an entirety or
substantially an entirety in one transaction or a series of related
transactions, including by way of liquidation or dissolution, to any Person
unless, in each such case: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Company or such Restricted
Subsidiary, as the case may be), or to which such sale, assignment, lease,
conveyance or other disposition shall have been made (the "Surviving Entity"),
is a corporation organized and existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the Surviving Entity
assumes by supplemental indenture all of the obligations of the applicable
Guarantor under its Guarantee and this Indenture or the Issuer on the Notes
and under this Indenture, as the case may be; (iii) immediately after giving
effect to such transaction and the use of any net proceeds therefrom on a pro
forma basis, the Company or the Surviving Entity, as the case may be, could
Incur at least $1.00 of Indebtedness pursuant to clause (i) of Section 4.04
hereof; (iv) immediately before and after giving effect to such transaction
and treating any Indebtedness which becomes an obligation of the Company or
any of its such Restricted Subsidiaries as a result of such transaction as
having been Incurred by the Company or such Restricted Subsidiary, as the case
may be, at the time of the transaction, no Default or Event of Default shall
have occurred and be continuing; and (v) if, as a result of any such
transaction, property or assets of the Company or a Restricted Subsidiary
would become subject to a Lien not excepted from Section 4.18 hereof, the
Company, the Restricted Subsidiary or the Surviving Entity, as the case may
be, shall have secured the Notes as required by said covenant. The provisions
of this paragraph shall not apply to (a) the Recapitalization and (b) any
merger of a Restricted Subsidiary of the Company (other than the Issuer) with
or into the Company or a Wholly Owned Subsidiary of the Company.
SECTION 5.02. Successor Corporation Substituted.
Upon the execution of a supplemental indenture by the Surviving
Person in form and substance satisfactory to the Trustee (as evidenced by the
Trustee's execution thereof) in accordance with Section 5.01, the Surviving
Person shall succeed to, and be substituted for, and may exercise every right
and power of and shall assume all obligations of, the Company, the Issuer or
such other Subsidiary, as the case may be, under this Indenture, the
Registration Rights Agreement and the Notes or the Guarantees, as the case may
be, with the same effect as if such Surviving Person had been named as the
Company, the Issuer or such other Subsidiary, as the case may be, herein and
therein, and thereafter, except in the case of a lease, the predecessor Person
shall be relieved of all obligations and covenants under this Indenture and
the Notes or the Guarantees, as the case may be.
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ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Issuer fails to pay principal of (or premium, if
any, on) any Note when due (whether or not prohibited by Article
Eight or Twelve);
(b) the Issuer fails to pay any interest on any Note when
due, continued for 30 days (whether or not prohibited by Article
Eight or Twelve);
(c) the Issuer defaults in the payment of principal of and
interest on Notes required to be purchased pursuant to an Offer to
Purchase under Sections 4.05 or 4.14 hereof when due and payable
(whether or not prohibited by Article Eight or Twelve);
(d) the Company fails to perform or comply with any of the
provisions of Section 5.01;
(e) the Company or any Restricted Subsidiary fails to
perform any other covenant or agreement of the Company or such
Restricted Subsidiary under this Indenture or the Notes continued for
45 days after written notice to the Company by the Trustee or Holders
of at least 25% in aggregate principal amount of outstanding Notes;
(f) the Company or any Restricted Subsidiary defaults under
the terms of one or more instruments evidencing or securing
Indebtedness of the Company or any of its Restricted Subsidiaries
having an outstanding principal amount of $5.0 million or more
individually or in the aggregate that has resulted in the
acceleration of the payment of such Indebtedness or failure to pay
principal when due at the stated final maturity of any such
Indebtedness;
(g) the rendering of a final judgment or judgments (not
subject to appeal) against the Company or any of its Subsidiaries in
an amount of $5.0 million or more which remains undischarged or
unstayed for a period of 60 days after the date on which the right to
appeal has expired;
(h) the Company or any of its Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(1) commences a voluntary case or proceeding,
(2) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(3) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(4) makes a general assignment for the benefit of
its creditors;
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(i) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(1) is for relief against the Company or any of its
Subsidiaries in an involuntary case or proceeding,
(2) appoints a Custodian of the Company or any of
its Subsidiaries or for all or substantially all of its
property, or
(3) orders the liquidation of the Company or any of
its Subsidiaries,
and in each case the order or decree remains unstayed and in effect
for 60 days; provided, however, that if the entry of such order or
decree is appealed and dismissed on appeal then the Event of Default
hereunder by reason of the entry of such order or decree shall be
deemed to have been cured; or
(j) any Guarantee, ceases to be in full force and effect or
is declared null and void and unenforceable or is found to be invalid
or any Guarantor denies its liability under its Guarantee (other than
by reason of a release of such Guarantor from its Guarantee in
accordance with the terms of this Indenture and such Guarantee).
The term "Bankruptcy Law" means Title 11, U.S. Code, as amended, or
any similar Federal, state or foreign law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default with respect
to the Company or the Issuer described in clause (h) or (i) of Section 6.01)
shall occur and be continuing, either the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Notes may accelerate the
maturity of all Notes; provided, however, that after such acceleration, but
before a judgment or decree based on acceleration, the Holders of a majority
in aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the non-payment of accelerated principal, have been cured or waived
as provided in this Indenture. If an Event of Default specified in clause (h)
or (i) of Section 6.01 with respect to the Company or the Issuer occurs, the
outstanding Notes will ipso facto become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder
information as to waiver of defaults, see Article Ten hereof.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
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SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration of
acceleration of the Notes, (i) the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes by written notice to the
Trustee may waive an existing Default and its consequences, except a Default
in the payment of principal of or interest on any Note as specified in Section
6.01(a) or (b), a default arising from failure to effect an Offer to Purchase
required under Section 4.14 or a Default in respect of any term or provision
of this Indenture that may not be amended or modified without the consent of
each Holder affected as provided in Section 10.02 and (ii) the Holders of
three-fourths of the aggregate principal amount of Notes affected thereby, on
behalf of all Holders, may waive a default arising from failure to effect an
Offer to Purchase required under Section 4.14. The Issuer shall deliver to the
Trustee an Officers' Certificate stating that the requisite percentage of
Holders have consented to such waiver and attaching copies of such consents.
In case of any such waiver, the Issuer, the Trustee and the Holders shall be
restored to their former positions and rights hereunder and under the Notes,
respectively. This paragraph of this Section 6.04 shall be in lieu of ss.
316(a)(1)(B) of the TIA and such ss. 316(a)(1)(B) of the TIA is hereby
expressly excluded from this Indenture and the Notes, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for
every purpose of this Indenture and the Notes, but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal
amount of the outstanding Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Noteholder, or that may involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction. In the event the
Trustee takes any action or follows any direction pursuant to this Indenture,
the Trustee shall be entitled to indemnification satisfactory to it in its
sole discretion against any loss or expense caused by taking such action or
following such direction. This Section 6.05 shall be in lieu of ss.
316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A) of the TIA is hereby
expressly excluded from this Indenture and the Notes, as permitted by the TIA.
SECTION 6.06. Limitation on Suits.
A Noteholder may not pursue any remedy with respect to this Indenture
or the Notes unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal
amount of the outstanding Notes make a written request to the Trustee
to pursue a remedy;
(3) such Holder or Holders offer and, if requested, provide
to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense;
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(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested,
the provision of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the outstanding Notes (excluding Affiliates of
the Issuer) do not give the Trustee a direction which, in the opinion
of the Trustee, is inconsistent with the request.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over such other
Noteholder.
Section 6.06 limitations do not apply to a suit instituted by a
Holder of a Note for enforcement of payment of the principal or of interest on
such Note on or after the respective due dates therefor.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on the Notes, on or
after the respective due dates therefor, or to bring suit for the enforcement
of any such payment on or after such respective dates, shall not be impaired
or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of interest or principal specified
in Section 6.01(a) or (b) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Issuer
or any other obligor on the Notes for the whole amount of principal and
accrued interest remaining unpaid, together with interest overdue on principal
and to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the
Notes and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Noteholders allowed in any judicial proceedings relative to the Issuer (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
Noteholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent
and counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Noteholder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Noteholder in any such proceeding.
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SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: subject to Articles Eight and Twelve, to Holders for
amounts due and unpaid on the Notes for principal and interest,
ratably, without preference or priority of any kind, according to
the amounts due and payable on the Notes for principal and interest,
respectively; and
Third: to the Issuer.
The Trustee, upon prior written notice to the Issuer, may fix a
record date and payment date for any payment to Noteholders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit, and
the court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 6.11 shall not apply to a suit by the Trustee, a
suit by a Holder or group of Holders of more than 10% in aggregate principal
amount of the outstanding Notes, or to any suit instituted by any Holder for
the enforcement or the payment of the principal or interest on any Notes on or
after the respective due dates therefor.
SECTION 6.12. No Personal Liability of Directors, Officers, Employees,
Incorporator and Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company or any of its Affiliates, as such, shall have any liability for any
obligations of the Company or any of its Affiliates under the Notes or this
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of a Default:
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(1) The Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions conforming to the requirements of this Indenture; provided,
however, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or take any action at the request or direction of
Holders if it shall have reasonable grounds for believing that repayment of
such funds is not assured to it or it does not receive an indemnity
satisfactory to it in its sole discretion against such risk, liability, loss,
fee or expense which might be incurred by it in compliance with such request
or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Issuer. Money or assets held in trust by the Trustee need not be segregated
from other funds or assets except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may conclusively rely and shall be protected
in acting or refraining from acting on any document whether in its
original or facsimile form believed by it to be genuine and to have
been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel of its selection and may require an Officers'
Certificate and an Opinion of Counsel, which shall conform to the
provi
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sions of Section 13.05. The Trustee shall not be liable for any
action it takes, suffers or omits to take in good faith in reliance
on such certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or
negligence of any agent or attorney (other than an agent who is an
employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers conferred upon it by this
Indenture.
(e) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Noteholders pursuant to this Indenture,
unless such Noteholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or
direction.
(f) Provided the Trustee acts in good faith, the Trustee
shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such further inquiry
or investigation, it shall be entitled to examine the books, records
and premises of the Issuer, personally or by agent or attorney at the
sole cost of the Issuer and shall incur no liability or additional
liability of any kind by reason of such inquiry or investigation.
(g) The Trustee shall not be deemed to have notice of any
Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of
the Trustee, and such notice references the Notes and this Indenture.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuer or its
Affiliates with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. However, the Trustee is subject to
Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Issuer in this Indenture or any
document issued in connection with the sale of Notes or any statement in the
Notes other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults.
The Trustee shall, within 30 days after the occurrence of any Default
or Event of Default with respect to the Notes, give the Holders thereof notice
of all uncured Defaults or Events of Default known to it; provided, however,
that, except in the case of an Event of Default or a Default in payment with
respect to the Notes or a Default or Event of Default in complying with
Section 5.01, the Trustee shall be protected in withholding such
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notice if and so long as the Board of Directors or responsible officers of the
Trustee in good faith determine that the withholding of such notice is in the
interest of the Holders of the Notes.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA ss. 313(a), within 60 days after each July 1
beginning with the July 1 following the date of this Indenture, the Trustee
shall mail to each Noteholder a report dated as of such July 1 that complies
with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b), (c)
and (d).
A copy of each such report at the time of its mailing to Noteholders
shall be filed with the Commission, the Issuer and each stock exchange, if
any, on which the Notes are listed in accordance with TIA ss. 313(d).
The Issuer shall promptly notify the Trustee in writing if the Notes
become listed on any securities exchange or of any delisting therefrom.
SECTION 7.07. Compensation and Indemnity.
The Issuer shall pay to the Trustee from time to time such
compensation as the Issuer and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The Issuer shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances (including reasonable fees, disbursements and expenses of its
agents and counsel) incurred or made by it in addition to the compensation for
its services except any such disbursements, expenses and advances as may be
attributable to the Trustee's negligence or bad faith. Such expenses shall
include the reasonable compensation, disbursements and expenses of the
Trustee's agents, accountants, experts and counsel and any taxes or other
expenses incurred by a trust created pursuant to Section 9.01 hereof.
The Issuer shall indemnify the Trustee or any predecessor Trustee and
their agents for, and hold them harmless against any and all loss, damage,
claims, liability or expense, including taxes (other than franchise taxes
imposed on the Trustee and taxes based upon, measured by or determined by the
income of the Trustee), arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of enforcing this Indenture against the Issuer (including Section
7.07) and of defending itself against any claim (whether asserted by any
Noteholder or the Issuer or any other person) or liability in connection with
the exercise or performance of any of their powers or duties hereunder, except
to the extent that such loss, damage, claim, liability or expense is due to
their own negligence or bad faith. The Trustee shall notify the Issuer
promptly of any claim asserted against the Trustee for which it may seek
indemnity. However, the failure by the Trustee to so notify the Issuer shall
not relieve the Issuer of its obligations hereunder (unless and only to the
extent that such failure results in the loss or compromise of any rights or
defenses). The Issuer shall defend the claim and the Trustee shall cooperate
in the defense (and may employ its own counsel) at the Issuer's expense;
provided, however, that the Issuer's reimbursement obligation with respect to
counsel employed by the Trustee will be limited to the reasonable fees and
expenses of such counsel. The Issuer need not pay for any settlement made
without its written consent, which consent shall not be unreasonably withheld.
The Issuer need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee as a result of the violation of this
Indenture by the Trustee.
To the extent permitted by the Senior Credit Facility, to secure the
Issuer's payment obligations in this Section 7.07, the Trustee shall have a
Lien prior to the Notes against all money or property held or collected by
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the Trustee or any predecessor Trustee, in their capacity as Trustee, except
money or property held in trust to pay principal of or interest on particular
Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(h) or (i) occurs, the expenses (including
the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the
Holders in a proceeding under any Bankruptcy Law and are intended to
constitute expenses of administration under any Bankruptcy Law. The Issuer's
obligations under this Section 7.07 and any claim arising hereunder shall
survive the resignation or removal of any Trustee, the discharge of the
Issuer's obligations pursuant to Article Nine and any rejection or termination
under any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the termination of
this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Issuer in
writing. The Holders of a majority in aggregate principal amount of the
outstanding Notes may remove the Trustee by so notifying the Trustee and the
Issuer in writing and may appoint a successor Trustee with the Issuer's
consent. The Issuer may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under
any Bankruptcy Law;
(3) a custodian or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Issuer shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties
of the Trustee under this Indenture. A successor Trustee shall mail notice of
its succession to each Noteholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or
the Holders of at least 10% in aggregate principal amount of the outstanding
Notes may, at the expense of the Issuer, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
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Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Issuer's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to
act as Trustee under TIA ss.ss. 310(a)(1) and 310(a)(5). The Trustee (or in
the case of a corporation included in a bank holding company, the related bank
holding company) shall have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition. If the Trustee has or shall acquire any "conflicting interest"
within the meaning of TIA ss. 310(b), the Trustee and the Issuer shall comply
with the provisions of TIA ss. 310(b); provided, however, that there shall be
excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures
under which other securities, or certificates of interest or participation in
other securities, of the Issuer are outstanding, if the requirements for such
exclusion set forth in TIA ss. 310(b)(1) are met. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section,
the Trustee shall resign immediately in the manner and with the effect
hereinbefore specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Issuer.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE EIGHT
SUBORDINATION OF NOTES
SECTION 8.01. Notes Subordinated to Senior Debt.
The Issuer covenants and agrees, and the Trustee and each Holder of
the Notes by his acceptance thereof likewise covenant and agree, that all
Notes shall be issued subject to the provisions of this Article; and each
Holder of any Note, whether upon original issue or upon transfer, assignment
or exchange thereof, accepts and agrees that all payments of the principal of,
premium, if any, and interest on, and all other obligations in respect of each
and all of the Notes, shall, to the extent and in the manner set forth in this
Article, be subordinated and junior in right of payment to the prior payment
in full in cash of all amounts payable under the Senior Debt.
SECTION 8.02. No Payment on Notes in Certain Circumstances.
(a) No direct or indirect payment, deposit or distribution of any
kind or character, whether in cash, property or securities (including any
payment made to Holders of the Notes under the terms of Indebtedness
subordinated to the Notes, but excluding any payment or distribution of
Permitted Junior Securities) by or on behalf of the Issuer of principal of,
premium, if any, or interest on, or any other obligation in respect of, the
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Notes (other than payments to Holders from funds held in trust for the benefit
of Holders), whether pursuant to the terms of the Notes or upon acceleration,
by way of repurchase, redemption, defeasance or otherwise (all such payments,
deposits or distributions being referred to herein, individually and
collectively, as a "Note Payment"), shall be made if, at the time of such Note
Payment, there exists a default in the payment when due of all or any portion
of the obligations under or in respect of any Designated Senior Debt, whether
at maturity, on account of mandatory redemption or prepayment, acceleration or
otherwise (and the Trustee has received written notice thereof), and such
default shall not have been cured or waived or the benefits of this sentence
waived by or on behalf of the holders of such Designated Senior Debt. In
addition, during the continuance of any non-payment default or non-payment
event of default with respect to any Designated Senior Debt pursuant to which
the maturity thereof may be accelerated immediately without the giving of any
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, and upon receipt by the
Trustee of notice (a "Payment Blockage Notice") from a holder or holders of
such Designated Senior Debt or the trustee or agent acting on behalf of such
Designated Senior Debt, then, unless and until such default or event of
default has been cured or waived or has ceased to exist or such Designated
Senior Debt has been discharged or repaid in full, in cash, no Note Payment
may be made by or on behalf of the Issuer on account of or with respect to the
Notes, except payments to Holders from funds held in trust for the benefit of
Holders, during a period (a "Payment Blockage Period") commencing on the date
of receipt of such Payment Blockage Notice by the Trustee and ending 179 days
thereafter. Notwithstanding anything herein to the contrary, (x) in no event
will a Payment Blockage Period extend beyond 179 days from the date of the
Payment Blockage Notice in respect thereof was given and (y) there must be 180
days in any 365 day period during which no Payment Blockage Period is in
effect. Not more than one Payment Blockage Period may be commenced with
respect to the Notes during any period of 365 consecutive days. No default or
event of default that existed or was continuing on the date of commencement of
any Payment Blockage Period with respect to the Designated Senior Debt
initiating such Payment Blockage Period may be, or be made, the basis for the
commencement of any other Payment Blockage Period by the holder or holders of
such Designated Senior Debt or the trustee or agent acting on behalf of such
Designated Senior Debt, whether or not within a period of 365 consecutive
days, unless such default or event of default has been cured or waived for a
period of not less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any Note
Payment shall be received by the Trustee or any Holder when such Note Payment
is prohibited by Section 8.02(a), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Designated
Senior Debt or any trustee, agent or other representative under any agreement
or indenture pursuant to which any of such Designated Senior Debt may have
been issued, as their respective interests may appear, but only to the extent
that, upon notice from the Trustee to the holders of Designated Senior Debt
that such prohibited Note Payment has been made, the holders of the Designated
Senior Debt (or their trustee, agent or other representative) notify the
Trustee in writing of the amounts then due and owing on the Designated Senior
Debt, if any, and only the amount specified in such notice to the Trustee
shall be paid to or for the account of the holders of Designated Senior Debt.
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of the
Issuer of any kind or character, whether in cash, property or securities, upon
any dissolution or winding up or total or partial liquidation or
reorganization of the Issuer, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due with respect to Senior Debt of the Issuer (including any
interest accruing subsequent to an event of bankruptcy to the extent that such
interest is an allowed claim enforceable against the debtor under the
Bankruptcy Code) shall first be paid in full, or payment provided for, in
either case in cash or cash equivalents or otherwise in a form satisfactory to
the holders of Senior Debt of the Issuer, before the Holders or the Trustee on
their behalf shall be entitled to receive any Note Payment. Before any Note
Pay-
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ment may be made by, or on behalf of, the Issuer of the principal of, premium,
if any, or interest on, or any other obligation in respect of, the Notes upon
any such dissolution or winding up or liquidation or reorganization, any
payment or distribution of assets or securities of the Issuer of any kind or
character, whether in cash, property or securities, to which the Holders or
the Trustee on their behalf would be entitled, but for the subordination
provisions of this Indenture, shall be made by the Issuer or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, directly to the holders of Senior Debt of the Issuer
(pro rata to such holders on the basis of the respective amounts of Senior
Debt held by such holders) or their representatives or to the trustee or
trustees under any indenture pursuant to which any such Senior Debt may have
been issued as their respective interests may appear, to the extent necessary
to pay all such Senior Debt in full, in cash, after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders
of such Senior Debt.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such Note Payment, any Note Payment shall be received by the
Trustee or any Holder of Notes at a time when such Note Payment is prohibited
by Section 8.03(a) and before all obligations in respect of Senior Debt are
paid in full in cash, such Note Payment shall be received and held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Debt (pro rata to such holders on the basis of the respective amounts
of Senior Debt held by such holders) or their respective trustee, agent or
other representative under any agreement or indenture pursuant to which any of
such Senior Debt may have been issued, as their respective interests may
appear, for application to the payment of Senior Debt remaining unpaid until
all such Senior Debt has been paid in full in cash after giving effect to any
concurrent payment, distribution or provision therefor to or for the account
of the holders of such Senior Debt.
The consolidation of the Issuer with, or the merger of the Issuer
with or into, another corporation or the liquidation or dissolution of the
Issuer following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section if
such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 8.04. Subrogation.
Upon the payment in full in cash of all Senior Debt, the Holders of
the Notes shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of the
Issuer made on such Senior Debt until the principal of, interest on, and all
other amounts in respect of the Notes shall be paid in full in cash; and, for
the purposes of such subrogation, no payments or distributions to the holders
of the Senior Debt of any cash, property or securities to which the Holders of
the Notes or the Trustee on their behalf would be entitled except for the
provisions of this Article, and no payment over pursuant to the provisions of
this Article to the holders of Senior Debt by Holders of the Notes or the
Trustee on their behalf shall, as between the Issuer, its creditors other than
holders of Senior Debt, and the Holders of the Notes, be deemed to be a
payment by the Issuer to or on account of the Senior Debt. It is understood
that the provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Notes, on the
one hand, and the holders of the Senior Debt, on the other hand.
SECTION 8.05. Obligations of Issuer Unconditional.
Nothing contained in this Article or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Issuer and the
Holders of the Notes, the obligation of the Issuer, which is absolute and
un
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conditional, to pay to the Holders of the Notes the principal of, interest
on, and all other amounts in respect of the Notes as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Holders of the Notes and creditors of
the Issuer other than the holders of the Senior Debt, nor shall anything
herein or therein prevent the Holder of any Note or the Trustee on their
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this
Article of the holders of the Senior Debt in respect of cash, property or
securities of the Issuer received upon the exercise of any such remedy.
SECTION 8.06. Notice to Trustee.
The Issuer shall give prompt written notice to the Trustee of any
fact known to the Issuer which would prohibit the making of any payment to or
by the Trustee in respect of the Notes pursuant to the provisions of this
Article. The Trustee shall not be charged with knowledge of the existence of
any default or event of default with respect to any Senior Debt or of any
other facts which would prohibit the making of any payment to or by the
Trustee unless and until the Trustee shall have received notice in writing at
this Corporate Trust Office to that effect signed by an Officer of the Issuer,
or by a holder of Senior Debt or trustee, agent or other representative
therefor; and prior to the receipt of any such written notice, the Trustee
shall, subject to Article Seven, be entitled to assume that no such facts
exist; provided that if the Trustee shall not have received the notice
provided for in this Section at least two Business Days prior to the date upon
which by the terms of this Indenture any moneys shall become payable for any
purpose (including, without limitation, the payment of the principal or
interest on any Note ), then, regardless of anything herein to the contrary,
the Trustee shall have full power and authority to receive any moneys from the
Issuer and to apply the same to the purpose for which they were received, and
shall not be affected by any notice to the contrary which may be received by
it on or after such prior date. Nothing contained in this Section 8.06 shall
limit the right of the holders of Senior Debt to recover payments as
contemplated by Section 8.03. The Trustee shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself or itself
to be a holder of any Senior Debt (or a trustee, agent or other representative
of, such holder) to establish that such notice has been given by a holder of
such Senior Debt or a trustee, agent or other representative on behalf of any
such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in
such payment or distribution and any other facts pertinent to the rights of
such Person under this Article, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive payment.
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets or securities referred to
in this Article, the Trustee and the Holders of the Notes shall be entitled to
rely upon any order or decrees made by any court of competent jurisdiction in
which bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, delivered to the Trustee or to the Holders of the Notes for the
purpose of ascertaining the persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other indebtedness of the
Issuer, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
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SECTION 8.08. Trustee's Relation to Senior Debt.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article with respect to any Senior Debt which may at any
time be held by it in its individual or any other capacity to the same extent
as any other holder of Senior Debt, and nothing in this Indenture shall
deprive the Trustee or any Paying Agent of any of its rights as such holder.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt (except as provided in Sections
8.02(b) and 8.03)(b)). The Trustee shall not be liable to any such holders if
the Trustee shall in good faith mistakenly pay over or distribute to Holders
of Notes or to the Issuer or to any other person cash, property or securities
to which any holders of Senior Debt shall be entitled by virtue of this
Article or otherwise.
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions
of the Issuer or Holders of Senior Debt.
No right of any present or future holders of any Senior Debt to
enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Issuer
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Issuer with the terms of this Indenture, regardless of
any knowledge thereof which any such holder may have or otherwise be charged
with. The revisions of this Article are intended to be for the benefit of, and
shall be enforceable directly by, the holders of Senior Debt.
SECTION 8.10. Noteholders Authorize Trustee To Effectuate
Subordination of Notes.
Each Holder of Notes by his acceptance of such Notes authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Issuer (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the business and assets
of the Issuer, the filing of a claim for the unpaid balance of its or his
Notes in the form required in those proceedings.
SECTION 8.11. This Article Not to Prevent Events of Default.
The failure to make a payment on account of principal of, or interest
on, or any other amount in respect of the Notes by reason of any provision of
this Article shall not be construed as preventing the occurrence of an Event
of Default under clause (a), (b) or (c) of Section 6.01.
SECTION 8.12. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee or the Holders of the Notes, without
incurring responsibility to the Holders of the Notes and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Notes to the holders of Senior Debt, do any
one or
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more of the following: (a) change the manner, place or terms of payment
or extend the time of, or renew or alter, Senior Debt or any instrument
evidencing the same or any agreement under which Senior Debt is outstanding or
secured; (b) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Debt; (c) release any Person
liable in any manner for the collection of Senior Debt; and (d) exercise or
refrain from exercising any rights against the Issuer and any other Person.
SECTION 8.13. Subordination Provisions Not Applicable to Money Held
in Trust for Noteholders; Payments May Be Paid
Prior to Dissolution.
All cash and investments deposited in trust with the Trustee pursuant
to and in accordance with Article Nine shall be for the sole benefit of the
Holders and shall not be subject to this Article Eight.
Nothing contained in this Article or elsewhere in this Indenture
shall prevent (i) the Issuer, except under the conditions described in Section
8.02, from making payments of principal of, or interest on, the Notes, or from
depositing with the Trustee any such payments or from effecting a termination
of the Issuer's obligations under the Notes and this Indenture as provided in
Article Nine, or (ii) the application by the Trustee of any moneys deposited
with it for the purpose of making such payments of principal of and interest
on the Notes, to the holders entitled thereto unless at least two Business
Days prior to the date upon which such payment becomes due and payable and the
Trustee shall have received the written notice provided for in Section 8.02(b)
or in Section 1.06. The Issuer shall give prompt written notice to the Trustee
of any dissolution, winding-up, liquidation or reorganization of the Issuer.
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Issuer's Obligations.
(a) Discharge. Subject to the provisions of Article Eight, the Issuer
may terminate its substantive obligations in respect of the Notes and the
substantive obligations of the Guarantors in respect of the Guarantees by
delivering all outstanding Notes to the Trustee for cancellation and paying
all sums payable by the Issuer on account of principal of and interest on all
Notes or otherwise.
(b) Covenant Defeasance. In addition to the provisions of Section
9.01(a), the Issuer may, provided that no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in Section 6.01(h) or (i), any time on
or prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) and provided that no default under any Senior Debt would result
therefrom, terminate its substantive obligations in respect of the Notes and
the substantive obligations of the Guarantors in respect of the Guarantees
(except for the Issuer's obligation to pay the principal of (and premium, if
any, on) and the interest on the Notes and such Guarantors' guarantee thereof)
by (i) depositing with the Trustee, under the terms of an irrevocable trust
agreement, money or direct non-callable obligations of the United States of
America for the payment of which its full faith and credit is pledged ("United
States Government Obligations") sufficient (without reinvestment) to pay all
remaining indebtedness on the Notes to maturity or to redemption, (ii)
delivering to the Trustee either an Opinion of Counsel or a ruling directed to
the Trustee from the Internal Revenue Service to the effect that the Holders
will not recognize income, gain or loss for federal income tax purposes as a
result of such de-
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posit and termination of obligations, (iii) delivering to the Trustee an
Opinion of Counsel to the effect that the Issuer's exercise of its option
under this paragraph will not result in the Issuer, the Trustee or the trust
created by the Issuer's deposit of funds pursuant to this provision becoming
or being deemed to be an "investment company" under the Investment Issuer Act
of 1940, as amended, and (iv) delivering to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that there has been
compliance with all conditions precedent provided for herein.
(c) Legal Defeasance. In addition to the provisions of Section
9.01(a) and (b), the Issuer may, provided that no Default or Event of Default
has occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in Section 6.01(h) or (i), any time on
or prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) and provided that no default under any Senior Debt would result
therefrom, terminate all of its substantive obligations in respect of the
Notes and all of the substantive obligations of the Guarantors in respect of
the Guarantees (including the Issuer's obligation to pay the principal of (and
premium, if any, on) and interest on the Notes and such Guarantors' guarantee
thereof) by (i) depositing with the Trustee, under the terms of an irrevocable
trust agreement, money or United States Government Obligations sufficient
(without reinvestment) to pay all remaining indebtedness on the Notes to
maturity or to redemption, (ii) delivering to the Trustee either a ruling
directed to the Trustee from the Internal Revenue Service to the effect that
the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and termination of obligations or an
Opinion of Counsel based upon such a ruling addressed to the Trustee or a
change in the applicable Federal tax law since the date of this Indenture, to
such effect, (iii) delivering to the Trustee an Opinion of Counsel to the
effect that the Issuer's exercise of its option under this paragraph will not
result in the Issuer, the Trustee or the trust created by the Issuer's deposit
of funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Issuer Act of 1940, as amended, and
(iv) delivering to the Trustee an Officers' Certificate and an Opinion of
Counsel each stating that there has been compliance with all conditions
precedent provided for herein.
(d) Notwithstanding the foregoing paragraphs 9.01(b) and (c) above,
the Issuer's obligations contained in Sections 2.03, 2.05, 2.06, 2.07, 4.02,
7.07, 7.08, 9.03 and 9.04 shall survive until the Notes are no longer
outstanding. In addition, notwithstanding the foregoing paragraph 9.01(b), in
that instance the Issuer's obligations contained in Section 4.01 shall also
survive until the Notes are no longer outstanding. Thereafter the Issuer's
obligations in Section 7.07, 9.03 and 9.04 shall survive. The Issuer may make
an irrevocable deposit pursuant to this Section 9.01 only if at such time it
is not prohibited from doing so under the subordination provisions of this
Indenture and the Issuer has delivered to the Trustee and any Paying Agent an
Officers' Certificate to that effect. After such delivery or irrevocable
deposit and delivery of an Officers' Certificate and Opinion of Counsel, the
Trustee upon request of the Issuer shall acknowledge in writing the discharge
of the Issuer's and the Guarantors' obligations under the Notes, the
Guarantees and this Indenture other than those surviving obligations specified
in this paragraph (d).
SECTION 9.02. Application of Trust Money.
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 9.01, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Notes. The Issuer shall indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the United States
Government Obligations deposited pursuant to Section 9.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
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SECTION 9.03. Repayment to Issuer.
Subject to Sections 7.07 and 9.01, the Trustee shall promptly pay to
the Issuer upon receipt by the Trustee of the Issuer's written request
accompanied by an Officers' Certificate any excess money held by it at any
time. The Trustee shall pay to the Issuer upon such request any money held by
it for the payment of principal or interest that remains unclaimed for two
years; provided, however, that the Trustee before being required to make any
payment may at the expense of the Issuer cause to be published once in a
newspaper of general circulation in The City of New York or mail to each
Holder entitled to such money notice that such money remains unclaimed and
that, after a date specified therein which shall be at least 30 days from the
date of such publication or mailing, any unclaimed balance of such money then
remaining shall be repaid to the Issuer. After payment to the Issuer,
Noteholders entitled to money must look to the Issuer for payment as general
creditors unless an applicable abandoned property law designates another
person, and all liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
SECTION 9.04. Reinstatement.
If the Trustee is unable to apply any money or United States
Government Obligations in accordance with Section 9.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
the Issuer's and the Guarantors' obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 9.01 until such time as the Trustee is permitted to apply
all such money or United States Government Obligations in accordance with
Section 9.01; provided, however, that if the Issuer has made any payment of
interest on or principal of any Notes because of the reinstatement of its
obligations, the Issuer shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or United States Government
Obligations held by the Trustee.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Issuer and the Guarantors when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Notes without notice to or consent of any Noteholder:
(i) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not adversely affect
the rights of any Holder;
(ii) to effect the assumption by a successor Person of all
obligations of the Issuer under the Notes and this Indenture in
connection with any transaction complying with Article Five of this
Indenture;
(iii) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(iv) to comply with any requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA;
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(v) to make any change that would provide any additional benefit
or rights to the Holders;
(vi) to make any other change that does not adversely affect the
rights of any Holder under this Indenture;
(vii) to evidence the succession of another Person to any Guarantor
and the assumption by any such successor of the covenants of such
Guarantor herein and in the Guarantee;
(viii) to add to the covenants of the Issuer or the Guarantors for
the benefit of the Holders, or to surrender any right or power herein
conferred upon the Issuer or any Guarantor;
(ix) to secure the Notes pursuant to the requirements of Section
4.17 or otherwise; or
(x) to reflect the release of a Guarantor from its obligations
with respect to its Guarantee in accordance with the provisions of
Section 11.03 and to add a Guarantor pursuant to the requirements of
Section 4.18;
provided, however, that the Issuer has delivered to the Trustee an Opinion of
Counsel and an Officers' Certificate each stating that such amendment or
supplement complies with the provisions of this Section 10.01.
SECTION 10.02. With Consent of Holders.
The Issuer, the Guarantors and the Trustee may amend or supplement
this Indenture or the Notes with the written consent of the Holders of at
least a majority in principal amount of the outstanding Notes. However,
without the consent of each Holder affected, an amendment, supplement or
waiver may not:
(1) change the Stated Maturity of the principal of any Note;
(2) alter the optional redemption or repurchase provisions
of any Note or this Indenture in a manner adverse to the holders of
the Notes;
(3) reduce the principal amount of (or premium on) any Note;
(4) reduce the rate of or extend the time for payment of
interest on any Note ;
(5) change the place or currency of payment of the principal
of (or premium on) or interest on any Note ;
(6) modify any provisions of this Indenture relating to the
waiver of past defaults (other than to add sections of this Indenture
subject thereto) or the right of the Holders to institute suit for
the enforcement of any payment on or with respect to any Note or the
Guarantees, or the modification and amendment of this Indenture and
the Notes (other than to add sections of this Indenture or the Notes
which may not be amended, supplemented or waived without the consent
of each Holder affected);
(7) reduce the percentage of the principal amount of
outstanding Notes necessary for amendment to or waiver of compliance
with any provision of this Indenture or the Notes or for waiver of
any Default;
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(8) waive a default in the payment of principal of, interest
on, or redemption payment with respect to, any Note (except a
rescission of acceleration of the Notes by the Holders as provided in
this Indenture and a waiver of the payment default that resulted from
such acceleration);
(9) modify the ranking or priority of the Notes or the
Guarantee, if any, or modify the definition of Senior Debt or
Designated Senior Debt or amend or modify the subordination
provisions of this Indenture in any manner adverse to the Holders;
(10) release any Guarantor from any of its obligations under
its Guarantee or this Indenture otherwise than in accordance with
this Indenture; or
(11) modify any of the provisions (including the definitions
relating thereto) relating to any Offer to Purchase required under
Sections 4.05 or 4.14 in a manner materially adverse to the Holders
of Notes with respect to any Asset Disposition that has been
consummated or Change of Control that has occurred.
The Holders of a majority in aggregate principal amount of the
outstanding Notes, on behalf of all Holders of Notes, may waive compliance by
the Issuer with certain restrictive provisions of this Indenture. Subject to
certain rights of the Trustee, as provided in this Indenture, the Holders of a
majority in aggregate principal amount of the outstanding Notes, on behalf of
all Holders of Notes, may waive any past default under this Indenture, except
a default in the payment of principal, premium or interest or a default
arising from failure to purchase any Note tendered pursuant to an Offer to
Purchase, or a default in respect of a provision that under this Indenture
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.
SECTION 10.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of
that Note or portion of that Note that evidences the same debt as the
consenting Holder's Note , even if notation of the consent is not made on any
Note . Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Note or portion of such Note
by written notice to the Trustee or the Issuer received before the date on
which the Trustee receives an Officers' Certificate certifying that the
Holders of the requisite principal amount of Notes have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Issuer may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the
last sentence of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment, sup-
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plement or waiver or to revoke any consent previously given, whether or not
such Persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Noteholder, unless it makes a change described in the second
sentence of Section 10.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Note who has consented to it and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note .
SECTION 10.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note ,
the Trustee may require the Holder of the Note to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Note about the changed
terms and return it to the Holder. Alternatively, if the Issuer or the Trustee
so determines, the Issuer in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation or issue a new Note shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Ten is authorized or permitted by this
Indenture and that such amendment, supplement or waiver constitutes the legal,
valid and binding obligation of the Issuer and the Guarantors, enforceable in
accordance with its terms (subject to customary exceptions). The Trustee shall
execute any amendment, supplement or waiver authorized pursuant to this
Article Ten, provided, however, that the Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver which affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise. In signing any amendment, supplement or waiver, the Trustee shall
be entitled to receive an indemnity reasonably satisfactory to it.
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
Each Guarantor who becomes a party to this Indenture hereby
unconditionally, jointly and severally, guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns that: the principal of and interest on the Notes will
be promptly paid in full when due, subject to any applicable grace period,
whether at maturity, by acceleration or otherwise, and interest on the overdue
principal and interest on any overdue interest on the Notes and all other
obligations of the Issuer to the Holders or the Trustee hereunder or under the
Notes will be promptly paid in full or performed, all in accordance with the
terms hereof and thereof; subject, however, to the limitations set forth in
Section 11.04. Each such Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Issuer, any action to enforce the same or any other circumstance
which might otherwise constitute a
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legal or equitable discharge or defense of a guarantor. Each such Guarantor
hereby waives diligence, presentment, demand of payment, filing of claims with
a court in the event of insolvency or bankruptcy of the Issuer, any right to
require a proceeding first against the Issuer, protest, notice and all demands
whatsoever and covenants that the Guarantee will not be discharged except by
complete performance of the obligations contained in the Notes, this
Indenture, and this Guarantee. If any Holder or the Trustee is required by any
court or otherwise to return to the Issuer, any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Issuer
or any Guarantor, any amount paid by the Issuer or any Guarantor to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between each Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Six for the purpose of this
Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations guaranteed hereby,
and (y) in the event of any acceleration of such obligations as provided in
Article Six, such obligations (whether or not due and payable) shall forthwith
become due and payable by each Guarantor for the purpose of this Guarantee.
SECTION 11.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Release of a Guarantor.
If the Notes are defeased in accordance with Section 9.01(c), or if
all or substantially all of the assets of a Guarantor or all of the Capital
Stock of a Guarantor is sold (including by issuance or otherwise) by the
Issuer or any of its Subsidiaries in a transaction constituting an Asset
Disposition (or which, but for the provisions of clause (c) of the definition
of such term, would constitute an Asset Disposition), and, if required by this
Indenture, (x) the Net Available Proceeds from such Asset Disposition are used
in accordance with Section 4.05 or (y) the Issuer delivers to the Trustee an
Officers' Certificate covenanting that the Net Available Proceeds from such
Asset Disposition will be used in accordance with Section 4.05 and within the
time limits specified by such Section 4.05, then such Guarantor shall be
released and discharged from all obligations under this Article Eleven upon
such use in the case of clause (x) or upon such delivery in the case of clause
(y). The Trustee shall, at the sole cost and expense of the Issuer and upon
receipt at the reasonable request of the Trustee of an Opinion of Counsel that
the provisions of this Section 11.03 have been complied with, deliver an
appropriate instrument evidencing such release upon receipt of a request by
the Issuer accompanied by an Officers' Certificate certifying as to the
compliance with this Section. Any Guarantor not so released remains liable for
the full amount of principal of and interest on the Notes and the other
obligations of the Issuer hereunder as provided in this Article Eleven.
SECTION 11.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of title 11 of the United
States Code, as amended, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar U.S. Federal or state or other
applicable law. To effectuate the foregoing intention, the Holders and such
Guarantor hereby irrevocably agree that the obligations of such Guarantor
under the Guarantee shall be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
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Guarantor under its Guarantee or pursuant to Section 11.05, result in the
obligations of such Guarantor under the Guarantee not constituting such
fraudulent transfer or conveyance.
SECTION 11.05. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each
Guarantor (including the Funding Guarantor), determined in accordance with
GAAP, subject to Section 11.04, for all payments, damages and expenses
incurred by that Funding Guarantor in discharging the Issuer's obligations
with respect to the Notes or any other Guarantor's obligations with respect to
the Guarantee.
SECTION 11.06. Execution of Guarantee.
To further evidence their Guarantee to the Holders, each current
Guarantor and any Guarantor required to Guarantee the Notes pursuant to
Section 4.18 shall execute the endorsement of Guarantee in substantially the
form set forth in Exhibit A hereto, which endorsement shall be delivered to
each Holder to be attached to each Note . Each such Guarantor hereby agrees
that its Guarantee set forth in Section 11.01 shall remain in full force and
effect notwithstanding any failure to endorse on each Note a notation of such
Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by
its Chairman of the Board, its President or one of its Vice Presidents prior
to the authentication of the Note on which it is endorsed, and the delivery of
such Note by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of such Guarantee on behalf of such Guarantor. Such
signature upon the Guarantee may be manual or facsimile signature of such
officer and may be imprinted or otherwise reproduced on the Guarantee, and in
case such officer who shall have signed the Guarantee shall cease to be such
officer before the Note on which such Guarantee is endorsed shall have been
authenticated and delivered by the Trustee or disposed of by the Issuer, such
Note nevertheless may be authenticated and delivered or disposed of as though
the Person who signed the Guarantee had not ceased to be such officer of the
Guarantor.
SECTION 11.07. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Issuer that
arises from the payment, performance or enforcement of such Guarantor's
obligations under its Guarantee or this Indenture, including, without
limitation, any right of subrogation, shall be subject and subordinate to, and
no payment with respect to any such claim of such Guarantor shall be made
before, the payment in full in cash of all outstanding Notes in accordance
with the provisions provided therefor in this Indenture.
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Subordinated to Senior Debt of Guarantor.
Each Guarantor covenants and agrees, and the Trustee and each Holder
of the Notes by his acceptance thereof likewise covenant and agree, that the
Guarantees shall be issued subject to the provisions of this Article; and each
Holder of any Note, whether upon original issue or upon transfer, assignment
or exchange thereof,
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accepts and agrees that all payments of the principal of, premium, if any, and
interest on, and all other obligations in respect of each and all of the Notes
pursuant to the Guarantee, shall, to the extent and in the manner set forth in
this Article, be subordinated and junior in right of payment to the prior
payment in full in cash of all amounts payable under the Senior Debt of such
Guarantor.
SECTION 12.02. No Payment on Guarantees in Certain Circumstances.
(a) No direct or indirect payment, deposit or distribution of any
kind or character, whether in cash, property or securities (including any
payment made to Holders of the Notes under the terms of Indebtedness
subordinated to the Notes, but excluding any payment or distribution of
Permitted Junior Securities) by or on behalf of any Guarantor of principal of,
premium, if any, or interest on, or any other obligation in respect of, the
Notes pursuant to such Guarantor's Guarantee (other than payments to Holders
from funds held in trust for the benefit of Holders), whether pursuant to the
terms of the Notes or upon acceleration, by way of repurchase, redemption,
defeasance or otherwise (all such payments, deposits or distributions being
referred to herein, individually and collectively, as a "Guarantor Note
Payment"), shall be made if, at the time of such Guarantor Note Payment, there
exists a default in the payment when due of all or any portion of the
obligations under or in respect of any Designated Senior Debt of such
Guarantor, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise (and the Trustee has received written
notice thereof), and such default shall not have been cured or waived or the
benefits of this sentence waived by or on behalf of the holders of such
Designated Senior Debt. In addition, during the continuance of any non-payment
default or non-payment event of default with respect to any Designated Senior
Debt pursuant to which the maturity thereof may be accelerated immediately
without the giving of any notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
and upon receipt by the Trustee of notice (a "Guarantor Payment Blockage
Notice") from a holder or holders of such Designated Senior Debt or the
trustee or agent acting on behalf of such Designated Senior Debt, then, unless
and until such default or event of default has been cured or waived or has
ceased to exist or such Designated Senior Debt has been discharged or repaid
in full, in cash, no Guarantor Note Payment may be made by or on behalf of
such Guarantor on account of or with respect to the Notes, except payments to
Holders from funds held in trust for the benefit of Holders, during a period
(a "Guarantor Blockage Period") commencing on the date of receipt of such
Guarantor Payment Blockage Notice by the Trustee and ending 179 days
thereafter. Notwithstanding anything herein to the contrary, (x) in no event
will a Guarantor Payment Blockage Period extend beyond 179 days from the date
of the Guarantor Payment Blockage Notice in respect thereof was given and (y)
there must be 180 days in any 365 day period during which no Guarantor Payment
Blockage Period is in effect. Not more than one Guarantor Payment Blockage
Period may be commenced with respect to the Notes during any period of 365
consecutive days. No default or event of default that existed or was
continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Debt initiating such Payment Blockage Period
may be, or be made, the basis for the commencement of any other Payment
Blockage Period by the holder or holders of such Designated Senior Debt or the
trustee or agent acting on behalf of such Designated Senior Debt, whether or
not within a period of 365 consecutive days, unless such default or event of
default has been cured or waived for a period of not less than 90 consecutive
days.
(b) In the event that, notwithstanding the foregoing, any Guarantor
Note Payment shall be received by the Trustee or any Holder when such
Guarantor Note Payment is prohibited by Section 12.02(a), such payment shall
be held in trust for the benefit of, and shall be paid over or delivered to,
the holders of such Designated Senior Debt or any trustee, agent or other
representative under any agreement or indenture pursuant to which any of such
Designated Senior Debt may have been issued, as their respective interests may
appear, but only to the extent that, upon notice from the Trustee to the
holders of such Designated Senior Debt that such prohibited Guarantor Note
Payment has been made, the holders of such Designated Senior Debt (or their
trustee, agent or
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other representative) notify the Trustee in writing of the amounts then due
and owing on such Designated Senior Debt, if any, and only the amount
specified in such notice to the Trustee shall be paid to or for the account of
the holders of such Designated Senior Debt.
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of any
Guarantor of any kind or character, whether in cash, property or securities,
upon any dissolution or winding up or total or partial liquidation or
reorganization of such Guarantor, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due with respect to Senior Debt of such Guarantor (including any
interest accruing subsequent to an event of bankruptcy to the extent that such
interest is an allowed claim enforceable against the debtor under the
Bankruptcy Code) shall first be paid in full, or payment provided for, in
either case in cash or cash equivalents or otherwise in a form satisfactory to
the holders of Senior Debt of such Guarantor, before the Holders or the
Trustee on their behalf shall be entitled to receive any Guarantor Note
Payment. Before any Guarantor Note Payment may be made by, or on behalf of,
such Guarantor of the principal of, premium, if any, or interest on, or any
other obligation in respect of, the Notes pursuant to such Guarantor's
Guarantee upon any such dissolution or winding up or liquidation or
reorganization, any payment or distribution of assets or securities of such
Guarantor of any kind or character, whether in cash, property or securities,
to which the Holders or the Trustee on their behalf would be entitled, but for
the subordination provisions of this Indenture, shall be made by such
Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, directly to the
holders of Senior Debt of such Guarantor (pro rata to such holders on the
basis of the respective amounts of Senior Debt held by such holders) or their
representatives or to the trustee or trustees under any indenture pursuant to
which any such Senior Debt may have been issued as their respective interests
may appear, to the extent necessary to pay all such Senior Debt in full, in
cash, after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of such Senior Debt.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such Guarantor Note Payment shall be received by the Trustee or
any Holder of Notes at a time when such Guarantor Note Payment is prohibited
by Section 12.03(a) and before all obligations in respect of the Senior Debt
are paid in full in cash, such Guarantor Note Payment shall be received and
held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior Debt (pro rata to such holders on the basis of the
respective amounts of such Senior Debt held by such holders) or their
respective trustee, agent or other representative under any agreement or
indenture pursuant to which any of such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of such
Senior Debt remaining unpaid until all such Senior Debt has been paid in full
in cash after giving effect to any concurrent payment, distribution or
provision therefor to or for the account of the holders of such Senior Debt.
The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution
of any Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided in Article Five or Section 11.03 shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the
purposes of this Section if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions
stated in Article Five or such Guarantor or successor entity shall be released
from the Guarantee pursuant to the terms of Section 11.03.
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SECTION 12.04. Subrogation.
Upon the payment in full in cash of all Senior Debt of a Guarantor,
the Holders of the Notes shall be subrogated to the rights of the holders of
such Senior Debt to receive payments or distributions of cash, property or
securities of such Guarantor made on such Senior Debt until the principal of,
interest on, and all other amounts in respect of the Notes shall be paid in
full in cash; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Senior Debt of any cash, property or
securities to which the Holders of the Notes or the Trustee on their behalf
would be entitled except for the provisions of this Article, and no payment
over pursuant to the provisions of this Article to the holders of such Senior
Debt by Holders of the Notes or the Trustee on their behalf shall, as between
such Guarantor, its creditors other than holders of Senior Debt, and the
Holders of the Notes, be deemed to be a payment by such Guarantor to or on
account of such Senior Debt. It is understood that the provisions of this
Article are and are intended solely for the purpose of defining the relative
rights of the Holders of the Notes, on the one hand, and the holders of the
Senior Debt of the Guarantors, on the other hand.
SECTION 12.05. Obligations of Guarantors Unconditional.
Nothing contained in this Article or elsewhere in this Indenture or
in the Notes or the Guarantee is intended to or shall impair, as among the
Guarantors and the Holders of the Notes, the obligation of each Guarantee,
which is absolute and unconditional, to pay to the Holders of the Notes the
principal of, interest on, and all other amounts in respect of the Notes as
and when the same shall become due and payable in accordance with the terms of
the Guarantee, or is intended to or shall affect the relative rights of the
Holders of the Notes and creditors of any Guarantor other than the holders of
the Senior Debt, nor shall anything herein or therein prevent the Holder of
any Note or the Trustee on their behalf from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of the Senior Debt in
respect of cash, property or securities of any Guarantor received upon the
exercise of any such remedy.
SECTION 12.06. Notice to Trustee.
The Issuer shall give prompt written notice to the Trustee of any
fact known to the Issuer or a Guarantor which would prohibit the making of any
payment to or by the Trustee in respect of the Notes pursuant to the
provisions of this Article. The Trustee shall not be charged with knowledge of
the existence of any default or event of default with respect to any Senior
Debt of a Guarantor or of any other facts which would prohibit the making of
any payment to or by the Trustee unless and until the Trustee shall have
received notice in writing at this Corporate Trust Office to that effect
signed by an Officer of the Issuer, or by a holder of Senior Debt or trustee,
agent or other representative therefor; and prior to the receipt of any such
written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided that if the Trustee shall not have
received the notice provided for in this Section at least two Business Days
prior to the date upon which by the terms of this Indenture any moneys shall
become payable for any purpose (including, without limitation, the payment of
the principal or interest on any Note ), then, regardless of anything herein
to the contrary, the Trustee shall have full power and authority to receive
any moneys from any Guarantor and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
which may be received by it on or after such prior date. Nothing contained in
this Section 12.06 shall limit the right of the holders of Senior Debt of a
Guarantor to recover payments as contemplated by Section 12.03. The Trustee
shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself or itself to be a holder of any Senior Debt of a
Guarantor (or a trustee, agent or other representative of, such holder) to
establish that
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such notice has been given by a holder of such Senior Debt or a trustee, agent
or other representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Debt of a Guarantor to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
such Senior Debt held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive
payment.
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets or securities of a
Guarantor referred to in this Article, the Trustee and the Holders of the
Notes shall be entitled to rely upon any order or decrees made by any court of
competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate
of the receiver, trustee in bankruptcy, liquidating trustee, agent or other
person making such payment or distribution, delivered to the Trustee or to the
Holders of the Notes for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt of
such Guarantor and other indebtedness of such Guarantor, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article.
SECTION 12.08. Trustee's Relation to Senior Debt of Guarantors.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article with respect to any Senior Debt of Guarantors, which
may at any time be held by it in its individual or any other capacity to the
same extent as any other holder of such Senior Debt, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights
as such holder.
With respect to the holders of a Guarantor's Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of such Senior Debt shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt of Guarantors (except as provided
in Sections 12.02(b) and 12.03)(b)). The Trustee shall not be liable to any
such holders if the Trustee shall in good faith mistakenly pay over or
distribute to Holders of Notes or to the Issuer or to any other person cash,
property or securities to which any holders of Senior Debt shall be entitled
by virtue of this Article or otherwise.
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions
of the Guarantors or Holders of Senior Debt of Guarantors.
No right of any present or future holders of any Senior Debt of
Guarantors to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by any Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have
or otherwise be charged with. The revisions of this Article are intended to be
for the benefit of, and shall be enforceable directly by, the holders of
Senior Debt of Guarantors.
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SECTION 12.10. Noteholders Authorize Trustee To Effectuate
Subordination of Guarantees.
Each Holder of Notes by his acceptance of such Notes authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of such Guarantor, the filing of a claim for the unpaid
balance of its or his Notes in the form required in those proceedings.
SECTION 12.11. This Article Not to Prevent Events of Default.
The failure to make a payment on account of principal of, or interest
on, or any other amount in respect of the Notes by reason of any provision of
this Article shall not be construed as preventing the occurrence of an Event
of Default under clause (a), (b) or (c) of Section 6.01.
SECTION 12.12. No Waiver of Guarantee Subordination Provisions.
Without in any way limiting the generality of Section 12.09, the
holders of Senior Debt of Guarantors may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Notes to the holders of Senior
Debt of Guarantors, do any one or more of the following: (a) change the
manner, place or terms of payment or extend the time of, or renew or alter,
Senior Debt of Guarantors or any instrument evidencing the same or any
agreement under which such Senior Debt is outstanding or secured; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Debt; (c) release any Person liable in any
manner for the collection of such Senior Debt; and (d) exercise or refrain
from exercising any rights against the Issuer and any other Person.
SECTION 12.13. Subordination Provisions Not Applicable to Money Held
in Trust for Noteholders; Payments May Be Paid
Prior to Dissolution.
All cash and investments deposited in trust with the Trustee pursuant
to and in accordance with Article Nine shall be for the sole benefit of the
Holders and shall not be subject to this Article Eight.
Nothing contained in this Article or elsewhere in this Indenture
shall prevent (i) a Guarantor, except under the conditions described in
Section 12.02, from making payments of principal of, or interest on, the
Notes, or from depositing with the Trustee any such payments or from effecting
a termination of such Guarantor's obligations under the Guarantee and this
Indenture as provided in Article Nine, or (ii) the application by the Trustee
of any moneys deposited with it for the purpose of making such payments of
principal of and interest on the Notes, to the holders entitled thereto unless
at least two Business Days prior to the date upon which such payment becomes
due and payable and the Trustee shall have received the written notice
provided for in Section 12.02(b) or in Section 12.06.
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ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable,
be governed by such provisions. If any provision of this Indenture modifies
any TIA provision that may be so modified, such TIA provision shall be deemed
to apply to this Indenture as so modified. If any provision of this Indenture
excludes any TIA provision that may be so excluded, such TIA provision shall
be excluded from this Indenture.
The provisions of TIA ss.ss. 310 through 317 that impose duties on
any Person (including the provisions automatically deemed included unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 13.02. Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person, by facsimile, by overnight courier, or mailed by
first-class mail addressed as follows:
if to the Issuer or the Guarantors:
Allied Digital Technologies Corp.
140 Fell Court
Hauppauge, NY 11788
Attention: Vice President of Finance
Facsimile: (516) 232-5370
Telephone: (516) 232-2323
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attention: Philip H. Werner, Esq.
Facsimile: (212) 309-6273
Telephone: (212) 309-6000
and
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Warshaw Burstein Cohen
Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, NY 10017
Attention: Stanley Schlesinger, Esq.
Facsimile: (212) 972-9150
Telephone: (212) 984-7700
if to the Trustee:
IBJ Schroder Bank & Trust Company
[Address]
Attention: Corporate Trust Administration
Facsimile: [ ]
Telephone: [ ]
The Issuer or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when telephonic acknowledgment of receipt is
obtained, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight courier promising next Business Day
delivery.
Any notice or communication to a Holder shall be mailed, by first
class mail, postage prepaid, or by overnight air courier promising next
Business Day delivery, including any notice delivered in connection with TIA
ss.ss. 310(b), 313(c), 314(a) and 315(b), to him at his address as set forth
on the registration books of the Registrar and shall be sufficiently given to
him if so mailed within the time prescribed. To the extent required by the
TIA, any notice or communication shall also be mailed to any Person described
in TIA ss. 313(c).
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication is given in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or the Notes.
The Issuer, the Trustee, the Registrar and any other person shall have the
protection of TIA ss. 312(c).
<PAGE>
-64-
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuer to the Trustee to take
or refrain from taking any action under this Indenture, the Issuer shall
furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with;
(2) an Opinion of Counsel in form and substance satisfactory
to the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with; and
(3) where applicable, a certificate or opinion by an
independent certified public accountant satisfactory to the Trustee
that complies with TIA ss. 314(c).
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel
may rely on an Officers' Certificate or certificates of public
officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting
of Noteholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.07. Governing Law.
The laws of the State of New York shall govern this Indenture, the
Notes and the Guarantee without regard to principles of conflicts of law.
SECTION 13.08. No Recourse Against Others.
No director, officer, employee or stockholder of the Company or any
of its Subsidiaries, as such, shall have any liability for any obligations of
the Issuer or any Guarantor under the Notes, this Indenture, the Guar-
<PAGE>
-65-
antees or any claim based on, in respect of, or by reason of, such obligations
or their creation. Each Noteholder by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes.
SECTION 13.09. Successors.
All agreements of the Issuer in this Indenture and the Notes shall
bind its successor. All agreements of each Guarantor in this Indenture and the
Guarantee of such Guarantor shall bind its successor.
All agreements of the Trustee in this Indenture shall bind its successor.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.11. Severability.
In case any provision in this Indenture, in the Notes or in the
Guarantee shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor
against any party hereto.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Issuer or a Subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 13.13. Legal Holidays.
If a payment date is not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
<PAGE>
-66-
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
ALLIED DIGITAL, INC.
By:
----------------------------------
Name:
Title:
ALLIED DIGITAL TECHNOLOGIES CORP.
By:
----------------------------------
Name:
Title:
HMG DIGITAL TECHNOLOGIES CORP.
By:
----------------------------------
Name:
Title:
HRM HOLDINGS CORP.
By:
---------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
ALLIED DIGITAL, INC.
CUSIP No.
No. $
[ ]% SENIOR SUBORDINATED NOTE DUE 2008
ALLIED DIGITAL, INC. promises to pay to CEDE & CO. or registered
assigns the principal sum of Dollars on [ ], 2008.
Interest Payment Dates: [ ] and [ ], beginning [ ], 1999.
Record Dates: [ ] and [ ], beginning [ ], 1999.
IN WITNESS WHEREOF, ALLIED DIGITAL, INC., has caused this instrument
to be executed by duly authorized officers.
ALLIED DIGITAL, INC.
By:
----------------------------------
Name:
Title:
Dated: By:
----------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the [ ]% Senior Subordinated Notes due 2008 referred
to in the within-mentioned Indenture.
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
By Date:
------------------------------------
Authorized Signatory
<PAGE>
(REVERSE OF SECURITY)
ALLIED DIGITAL, INC.
[ ]% Senior Subordinated Note due 2008
1. Interest.
Allied Digital, Inc., a New York corporation (the "Issuer"), promises
to pay interest at the rate of [ ]% per annum on the principal amount of this
Note semiannually commencing on [ ], 1999, until the principal hereof is paid
or made available for payment. Interest on the Notes will accrue from and
including the most recent date to which interest has been paid or, if no
interest has been paid, from and including [ ], 1998, through but excluding
the date on which interest is paid. If an Interest Payment Date falls on a day
that is not a Business Day, the interest payment to be made on such Interest
Payment Date will be made on the next succeeding Business Day with the same
force and effect as if made on such Interest Payment Date, and no additional
interest will accrue as a result of such delayed payment. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment.
The interest payable on the Notes, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture
(as defined below), be paid to the Person in whose name this Note is
registered at the close of business on the regular record date, which shall be
the [ ] or [ ] (whether or not a Business Day) next preceding such Interest
Payment Date. Any such interest not so punctually paid or duly provided for,
and any interest payable on such defaulted interest (to the extent lawful),
will forthwith cease to be payable to the Holder on such regular record date
and shall be paid to the person in whose name this Note is registered at the
close of business on a special record date for the payment of such defaulted
interest to be fixed by the Issuer, notice of which shall be given to Holders
not less than 15 days prior to such special record date. Payment of the
principal of and interest on this Note will be made at the agency of the
Issuer maintained for that purpose in New York, New York and at any other
office or agency maintained by the Issuer for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Issuer payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Note register.
3. Paying Agent and Registrar.
Initially, IBJ Schroder Bank & Trust Company (the "Trustee") will act
as Paying Agent and Registrar. The Issuer may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders of Notes. Allied
Digital Technologies Corp. (the "Company") or any of its Subsidiaries may act
as Registrar or co-Registrar but may not act as Paying Agent.
4. Indenture.
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its [ ]% Senior Subordinated Notes due 2008 (the "Notes"),
limited in aggregate principal amount to $200,000,000 (except for Notes issued
in substitution for destroyed, lost or stolen Notes) issuable under an
indenture dated as of [ ], 1998 (the "Indenture"), between the Issuer, the
Guarantors named therein and the Trustee. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by the Trust
Indenture Act of 1939 (the "Act") (15 U.S. Code ss.ss. 77aaa-77bbbb) as in
effect on the date of the Indenture. The Notes are subject to all such terms,
and Holders of Notes are referred to the Indenture and the Act for a statement
of them.
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<PAGE>
Each Noteholder, by accepting a Note , agrees to be bound to all of the terms
and provisions of the Indenture, as the same may be amended from time to time.
Payment on each Note is guaranteed on a senior subordinated basis, jointly and
severally, by the Guarantors pursuant to Article Eleven of the Indenture.
The Notes are subordinated in right of payment to all Senior Debt of
the Issuer to the extent and in the manner provided in the Indenture. Each
Holder of a Note , by accepting a Note , agrees to such subordination,
authorizes the Trustee to give effect to such subordination and appoints the
Trustee as attorney-in-fact for such purpose.
Capitalized terms contained in this Note to the extent not defined
herein shall have the meanings assigned to them in the Indenture.
5. Optional Redemption.
(a) The Notes will be subject to redemption, at the option
of the Issuer, in whole or in part, at any time on or after [ ], 2003 and
prior to maturity, upon not less than 30 nor more than 60 days' notice mailed
to each Holder of Notes to be redeemed, in amounts of $1,000 or an integral
multiple of $1,000, at the following redemption prices (expressed as
percentages of principal amount), plus accrued interest to but excluding the
date fixed for redemption (subject to the right of Holders on the relevant
Record Date to receive interest due on an interest payment date that occurs on
or prior to the date fixed for redemption), if redeemed during the 12-month
period beginning [ ] of the years indicated:
Year Percentage
---- ----------
2003 %
2004 %
2005 %
2006 and thereafter 100%
(b) Prior to, 2001, the Issuer may redeem up to 35% of the
principal amount of the Notes with the net cash proceeds received by the
Company from one or more Public Equity Offerings at a redemption price
(expressed as a percentage of the principal amount) of % of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date fixed
for redemption; provided, however, that at least $65 million in aggregate
principal amount of the Notes remains outstanding immediately after any such
redemption (excluding any Notes owned by the Issuer or any of its Affiliates).
Notice of redemption pursuant to this paragraph must be mailed to Holders of
Notes not later than 60 days following the consummation of the relevant Public
Equity Offering.
(c) In addition, notwithstanding the optional redemption
provisions described above, at any time on or prior to [ ], 2003, the Notes
may also be redeemed as a whole at the option of the Issuer upon the
occurrence of a Change of Control (but in no event more than 60 days after the
occurrence of such Change of Control) at a redemption price equal to 100% of
the principal amount, plus the Applicable Premium as of, and accrued but
unpaid interest, if any, to the date fixed for redemption (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date). Notice of redemption pursuant to this
paragraph must be mailed to Holders of Notes at least 30 days and not more
than 60 days prior to the date fixed for redemption.
(d) Selection of Notes for any partial redemption shall be
made by the Trustee, in accordance with the rules of any national securities
exchange on which the Notes may be listed or, if the Notes are not so listed,
pro rata or by lot or in such other manner as the Trustee shall deem
appropriate and fair. Notes in denominations larger than $1,000 may be
redeemed in part but only in integral multiples of $1,000. Notice of
re-
A-3
<PAGE>
demption will be mailed before the date fixed for redemption to each Holder
of Notes to be redeemed at his or her registered address. On and after the
date fixed for redemption, interest will cease to accrue on Notes or portions
thereof called for redemption.
The Notes will not have the benefit of any sinking fund.
6. Offer to Purchase upon Occurrence
of a Change of Control.
Within 30 days following a Change of Control, the Issuer will be
required to make an offer to purchase all outstanding Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus any accrued
and unpaid interest thereon.
7. Notice of Redemption.
Notice of redemption will be mailed by first class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Notes to be redeemed at his registered address. Notes in denominations larger
than $1,000 may be redeemed in part. On and after the redemption date,
interest ceases to accrue on those Notes or portion of them called for
redemption.
8. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples of $1,000. A Holder may transfer or exchange
Notes in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture.
The Registrar need not transfer or exchange any Notes selected for redemption.
9. Persons Deemed Owners.
The registered Holder of a Note may be treated as the owner of it for
all purposes.
10. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed
for two years, the Trustee or Paying Agent will repay the funds to the Issuer
at its request. After such repayment Holders of Notes entitled to such funds
must look to the Issuer for payment unless an abandoned property law
designates another person.
11. Discharge Prior to Redemption or Maturity.
The Indenture will be discharged and canceled except for certain
Sections thereof, subject to the terms of the Indenture, upon the payment of
all the Notes or upon the irrevocable deposit with the Trustee of funds or
United States Government Obligations sufficient for such payment or
redemption.
12. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the outstanding Notes, and any past default or
compliance with any provision may be waived with the consent of the Holders of
a majority in principal amount of the outstanding Notes. Without notice to or
the consent of any Holder, the Issuer, the Guarantors and
A-4
<PAGE>
the Trustee may amend or supplement the Indenture or the Notes to cure any
ambiguity, defect or inconsistency, or to make any change that does not
adversely affect the rights of any Holder of Notes.
13. Restrictive Covenants.
The Indenture restricts, among other things, the ability of the
Company or any Restricted Subsidiary to permit any Liens to be imposed on
their assets, to make certain Restricted Payments and Investments, limits the
Indebtedness which the Company or any Restricted Subsidiary may incur and
limits the terms on which the Company or any Restricted Subsidiary may engage
in certain Asset Dispositions. The Issuer is also obligated under certain
circumstances to make an offer to purchase Notes with the net cash proceeds of
certain Asset Dispositions. The Company and the Issuer must report quarterly
to the Trustee on compliance with the covenants in the Indenture.
14. Successor Corporation.
Pursuant to the Indenture, the ability of the Company or a Restricted
Subsidiary to consolidate with, merge with or into or transfer its assets to
another person is conditioned upon certain requirements, including certain
financial requirements applicable to the surviving Person.
15. Defaults and Remedies.
If an Event of Default shall occur and be continuing, the principal
of all of the outstanding Notes, plus all accrued and unpaid interest, if any,
to the date the Notes become due and payable, may be declared due and payable
in the manner and with the effect provided in the Indenture.
16. Trustee Dealings with Issuer.
The Trustee in its individual or any other capacity, may become the
owner or pledgee of Notes and make loans to, accept deposits from, and perform
services for the Issuer or its Affiliates, and may otherwise deal with the
Issuer or its Affiliates, as if it were not Trustee.
17. No Recourse Against Others.
No director, officer, employee or stockholder, as such, of the
Company or any of its Subsidiaries shall have any liability for any
obligations of the Issuer or any Guarantor under the Notes, the Guarantee or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder of a Note by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Notes.
18. Authentication.
This Note shall not be valid until the Trustee signs the certificate
of authentication on the other side of this Note .
19. Abbreviations.
Customary abbreviations may be used in the name of Noteholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
A-5
<PAGE>
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Note Identification Procedures, the Issuer has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Noteholders. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
21. Governing Law.
The laws of the State of New York shall govern the Indenture and this
Note and the Guarantee without regard to principles of conflicts of law.
The Issuer will furnish to any Holder of record of Notes upon written
request and without charge a copy of the Indenture.
A-6
<PAGE>
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantors (as defined in the Indenture referred to in the Note
upon which this notation is endorsed) hereby, jointly and severally,
unconditionally guarantee on a senior subordinated basis (such guarantee by
each Guarantor being referred to herein as the "Guarantee") the due and
punctual payment of the principal of, premium, if any, and interest on the
Notes, whether at maturity, by acceleration or otherwise, the due and punctual
payment of interest on the overdue principal, premium and interest, if any, on
the Notes, and the due and punctual performance of all other obligations of
the Issuer to the Holders or the Trustee, all in accordance with the terms set
forth in Article Eleven of the Indenture.
The obligations of each Guarantor to the Holders of Notes and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Senior Debt of such Guarantor, to the extent and in the
manner provided, in Article Twelve of the Indenture, and reference is hereby
made to such Indenture for the precise terms of the Guarantee therein made.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Notes upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
ALLIED DIGITAL TECHNOLOGIES CORP.
HMG DIGITAL TECHNOLOGIES CORP.
HRM HOLDING CORP.
By:
------------------------------------
Name:
Title:
A-7
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note , fill in the form below
and have your signature guaranteed:
I or we assign and transfer this Note to:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _____________________________________, agent to
transfer this Note on the books of the Issuer. The agent may substitute
another to act for him.
Dated: Signed:
------------------- ----------------------------------
(Sign exactly as name appears on
the other side of this Note )
Signature Guarantee:
----------------------------------------------------------
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include
membership or participation in the Note Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Notes Exchange Act of 1934, as amended.
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you the Holder want to elect to have this Note purchased by the Issuer,
check the box:
If you want to elect to have only part of this Note purchased by the Issuer,
state the amount: $
Dated: Your signature:
----------------- -------------------------------
(Sign exactly as name appears on
the other side of this Note )
Signature Guarantee:
----------------------------------------------------------
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements include membership or
participation in the Note Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Notes
Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT 5
[Letterhead of Morgan, Lewis & Bockius LLP]
July __, 1998
Allied Digital, Inc.
140 Fell Court
Hauppauge, New York 11788
Ladies and Gentlemen:
We have acted as special counsel for Allied Digital, Inc., a New York
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission (the "Commission") of a
Registration Statement on Form S-2 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") by the Company and
each of the other registrants listed as Additional Registrants in the
Registration Statement (the "Guarantors"), relating to the issuance by the
Company of $100,000,000 aggregate principal amount of its Senior Subordinated
Notes due 2008 (the "Notes") and guaranteed (the "Guarantees") by the
Guarantors.
We have examined the Registration Statement and the form of Indenture (the
"Indenture") to be entered into by the Company, the Guarantors and IBJ
Schroder Bank & Trust Company, as Trustee (the "Trustee"), which will be filed
with the Commission as an Exhibit to the Registration Statement. In addition,
we have examined, and have relied as to matters of fact upon, originals or
copies, certified or otherwise identified to our satisfaction, of such
corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers and
representatives of the Company and the Guarantors, and have made such other
and further investigations, as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of
the originals of such latter documents.
<PAGE>
Allied Digital, Inc.
July __, 1998
Page 2
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that:
1. The Notes registered on the Registration Statement, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered as contemplated in the Registration Statement and the Indenture
against payment therefor, will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance
with their terms.
2. When the Notes are duly issued and delivered by the Company, the
Guarantee of each Guarantor will constitute a valid and legally binding
obligation of such Guarantor, enforceable against the Guarantor in
accordance with its terms.
Our opinions set forth above are subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
We are members of the Bar of the State of New York and we do not express any
opinion herein concerning any law other than the law of the State of New York
and the federal law of the United States.
This opinion is rendered to you in connection with the above described
transaction and may not be relied upon by you for any other purpose without
our prior written consent.
We hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters"
in the Prospectus included therein.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
- -------------------------------
MORGAN, LEWIS & BOCKIUS LLP
<PAGE>
Amendment to Employment Agreement Dated
January 1, 1995 Between Allied Digital Inc.
(formerly Hauppauge Record Mfg. Ltd.) and
Donald L. Olesen
The parties hereby agree to extend the terms of the
aforementioned employment agreement with the following modifications:
1. The term will be for three years commencing on January 1, 1998 and
expiring on December 31, 2001.
2. Donald L. Olesen's current annual salary will be increased 10%
effective January 1, 1998 and thereafter will be adjusted to reflect
the cost of living as prescribed in the current employment agreement.
3. All other terms and conditions will remain in full force and effect.
- ------------------------------- -----------------------------------
Allied Digital Inc. Donald L. Olesen
Agreed to and accepted Agreed to and accepted
- -------------------------------
Date
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS IS AN EMPLOYMENT AGREEMENT, effective as of January 11, 1995
between Hauppauge Record Manufacturing Ltd., a New York corporation (the
"Company"), and Donald Olesen ("Employee").
In consideration of the premises and of the mutual covenants
herein contained, the parties agree as follows:
1. Position. During the term of his employment with the Company
hereunder, Employee shall continue to serve as President of the Company with
substantially the same functions, duties and responsibilities as Employee
currently discharges on behalf of the Company and also shall serve as
President - National Marketing Division of Allied Digital Technologies Corp.,
a Delaware corporation and the indirect parent company of the Company ("Allied
Digital" and with its subsidiaries, collectively, the "Allied Companies").
Employee shall devote substantially all of his business skill,
time and effort to his employment hereunder; provided, however, that he shall
be entitled annually to such vacation and sick leave in accordance with the
Company's policy for executive officers.
Employee shall not be required to perform his services for the
Company primarily at a location other than Employee's present work location
unless a change in location is mutually agreed upon between the Company and
Employee.
2. Term of Employment. Employee's term of employment by the
Company under this Agreement (the "Employment Term") shall begin on the date
hereof and shall continue for the period ending December 31, 1997 unless
sooner terminated as hereinafter provided.
3. Compensation. As compensation for the services contemplated
hereby, Employee shall receive during the Employment Term an annual base
salary to be paid monthly, equal to $298,700, as increased by the percentage
rate of inflation during the year ended December 31, 1994 as measured by the
consumer price index for urban wage earners published by the U.S. Department
of Labor, Bureau of Labor Statistics, for the New York - Northern New Jersey
area (the "CPI"). On each January 1 during the Employment Term, the base
salary shall be increased by a percentage equal to the percentage rate of
inflation during the previous calendar year as measured by the CPI; provided,
however, that such increase shall be retroactively effective on January 1 in
the event such percentage rate of inflation is not published on January 1. In
addition, Employee's base salary may be increased annually in accordance with
any compensation plan for employees of the Allied Companies as administered by
the Compensation Committee of the Board of Directors of Allied Digital.
<PAGE>
In addition to his base salary, Employee shall be entitled to
participate in any incentive bonus compensation plan for employees of the
Company existing on the date hereof and any incentive bonus compensation plan
for employees of the Allied Companies that is approved and adopted by the
Board of Directors of Allied Digital in the future to replace any plan of the
Company.
4. Employee Benefits. Employee shall be entitled to participate
in any (a) pension plans and profit sharing plans, (b) medical benefit plans,
group life insurance plans, hospitalization plans or other employee welfare
benefit plans the Allied Companies may adopt or have in effect from time to
time during the Employment Term. The Allied Companies shall allow Employee to
continue, at his sole cost and expense, his participation in any medical
benefit plan after his termination of employment hereunder for such period of
time as may be required by applicable law.
5. Expenses. The Company shall pay or reimburse Employee for any
expenses reasonably incurred by him in furtherance of his duties hereunder,
including, but not limited to, expenses for traveling, meals and hotel
accommodations, upon submission by him of vouchers therefor or itemized lists
thereof prepared in compliance with such rules and policies relating thereto
as the Company may from time to time adopt and as may be required in order to
permit such payments as proper deductions to the Company under the Internal
Revenue Code and the rules and regulations adopted pursuant thereto now or
hereafter in effect.
6. Termination.
(a) Termination for Cause. The Company may terminate this
Agreement, and (except as provided below) all of the Company's obligations
hereunder, either for cause or without cause. Such termination shall be
effected by notice thereof delivered by the company to Employee, and shall be
effective as of the date of such notice. In the event of termination for
cause, Employee shall be entitled to receive all salary earned to the date of
termination, but all other rights of Employee hereunder, including any right
to receive any incentive bonus, shall terminate as of the effective date of
Employee's termination.
In the event of termination without cause, Employee shall be
entitled to receive (i) all base salary earned to the date of termination,
which shall be payable upon such termination, (ii) any accrued and unpaid
incentive bonus to the date of termination (including a pro rata portion of
the bonus payable for the year of termination), which shall be payable to
Employee when incentive bonuses are paid to all other employees participating
in such incentive bonus plan, and (iii) an amount equal to the base salary
that would have been payable to Employee hereunder had this Agreement not been
so terminated, which shall be payable on the dates on which such base salary
would have been payable, but all other rights of Employee hereunder shall
terminate as of the effective date of Employee's termination.
-3-
<PAGE>
As used herein, "cause" shall mean: (i) Employee's
conviction of a felony which involves moral turpitude; or (ii) Employee's
repeated failure to discharge his assignments from the Board of Directors of
the Company consistent with the responsibilities of his position and the
failure by Employee to correct such failure within 30 days after written
notice thereof from the Company; or (iii) Employee's gross negligence or
willful misconduct in the performance of his duties which has a material
adverse effect on the Company's operations, profits or business.
(b) Resignation of Employee. In the event that Employee
resigns (except in the case of resignation or termination due to disability),
Employee shall be entitled to receive (i) all base salary earned to the
effective date of resignation, which shall be payable upon such resignation
(including any accrued and unused vacation time), and (ii) any accrued and
unpaid incentive bonus to the date of resignation (including a pro rata
portion of the bonus payable for the year of resignation), which shall be
payable to Employee when incentive bonuses are paid to all other employees
participating in such incentive bonus plan (provided that Employee provides to
the Company at least one month's notice of such resignation), but all other
rights of Employee hereunder shall terminate as of the effective date of
Employee's resignation. Provided Employee shall not have breached the
provisions of paragraph 7 or paragraph 8 hereof, the Company shall have no
rights hereunder after such resignation.
(c) Employee's Total Disability. In the event that Employee
is terminated by the Company, or Employee resigns, due to Employee's total
disability, Employee shall be entitled to receive (i) all base salary earned
to the date of termination (including any accrued and unused vacation time) ,
which shall be payable upon such termination or resignation, (ii) any accrued
and unpaid incentive bonus to the date of termination or resignation
(including a pro rata portion of the bonus payable f or the year of
termination or resignation), which shall be payable to Employee when incentive
bonuses are paid to all other employees participation in such incentive bonus
plan, and (iii) any benefits payable under the Company's then current
disability policy, but all other rights of Employee hereunder shall terminate
as of the date of Employee's termination or resignation. As used herein,
"total disability" shall mean any physical or mental ailment which prevents
Employee from performing the duties incident to Employee's employment with the
Company which has continued for a period of ninety (90) consecutive days and
which is expected, based upon the results of an examination by a physician
mutually acceptable to Employee and the Company, to be of permanent duration.
(d) Death. In the event that Employee dies during the
Employment Term, Employee's estate shall be entitled to receive (i) all base
salary earned to the date of death (including any accrued and unused vacation
time), which shall be payable upon the date of death, (ii) any accrued and
unpaid incentive bonus to the date of death (including a pro rata portion of
the bonus payable for the year of termination), which shall be payable to
Employee when incentive bonuses are paid to all other employees participating
in such incentive bonus plan, and (iii) any benefits payable under any then
current life insurance policy provided to Employee pursuant to paragraph 4
hereof, but all other rights of Employee hereunder shall terminate.
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<PAGE>
7. Protection of Confidential Information.
(a) Covenant. Employee acknowledges that his employment by
the Company will, throughout the term of this Agreement, bring him into close
contact with many confidential affairs of the Company, including information
about markets, key personnel, operational methods and other business affairs
and methods, computer software and other proprietary intellectual property,
other information not readily available to the public, and plans for future
developments relating thereto. Employee further acknowledges that the services
to be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character. In recognition of the foregoing, the
Employee covenants and agrees that, both during and after the Employment Term:
(i) he will keep secret all material confidential
matters of the Company known to him which are not otherwise in the
public domain and will not intentionally disclose them to anyone
outside of the Company, wherever located, either during or after the
Employment Term, except with the Company's prior written consent;
(ii) he will promptly disclose to the Company, and
that the Company will own all right, title and interest in, all
inventions, computer software and other intellectual property (the
"Intellectual Property") which he conceives or develops during the
course of his employment (excluding that which he conceives or
develops without the use of the Company's time, resources or
facilities and which does not relate to the Company's past, present
and planned future activities), will affix appropriate legends and
copyright notices indicating the Company's ownership of all
Intellectual Property and all underlying documentation, and will
execute such further assignments and other documents as the Company
consider necessary to vest, perfect, maintain or defend the Company's
right, title and interest in the Intellectual Property; and
(iii) he will deliver promptly to the Company on
termination of his employment by the Company, or at any other time
the Company may so request, all memoranda, notes, records, reports
and other documents (and all copies thereof) relating to the business
of the Company which he obtained while employed by, or otherwise
serving or acting on behalf of, the Company and which he may then
possess or have under his control or relating to the Intellectual
Property.
(b) Specific Remedy. If Employee commits a material breach
of any of the provisions of paragraph 7(a), the Company shall have the right
and remedy to have such provisions specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
-5-
<PAGE>
8. Noncompetition.
(a) Covenant. Employee shall not during the Restrictive
Period (as hereinafter defined), directly or indirectly, and whether or not
Employee is then receiving any compensation or other payments from the
Company:
(i) engage in competition with the Allied Digital
Business (as hereinafter defined) within any state in which such
business is conducted;
(ii) acquire a direct or indirect interest or an
option to acquire such interest in any entity engaged in competition
with the Allied Digital Business (other than in interest of not more
than 5% of the outstanding stock of any publicly traded company); or
(iii) serve as a director or officer of any entity
engaged in competition with the Allied Digital Business; or
(iv) solicit, employ, interfere with or attempt to
entice away from the Company or any Affiliate of the Company (A) any
customer of any of them or (B) any individual who was employed by any
of them in an executive capacity within six months prior to such
solicitation, employment, interference or enticement.
For purposes of this Section 8, the term: (A) "Restrictive
Period" means that period of time which commences on the date hereof and ends
(i) 36 months after the termination of the Employment Tern if such termination
shall occur on or before the first anniversary of the date hereof and (ii) the
months after such termination if such termination shall occur after the first
anniversary of the date hereof, and (B) "Allied Digital Business" means the
business of duplicating/replicating videocassettes, audio cassettes, D.A.T.
cassettes, compact discs and motion picture products and providing post
production services including fulfillment services as currently provided by
the company, and/or selling the aforementioned services and products.
(b) Specific Remedy. If Employee commits a material breach
of any of the provisions of paragraph 8(a), the Company shall have the right
and remedy to have such provisions specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
9. Independence, Severability and Non-Exclusivity. All of the
rights and remedies enumerated in paragraph 7(b) and paragraph 8(b) shall be
in addition to and not in lieu of any other rights and remedies available to
the Company under the law or in equity and shall survive termination of the
Employment Term. If any of the provisions contained in paragraph
-6-
<PAGE>
7(a) or paragraph 8(a) or if any of the rights or remedies enumerated in
paragraph 7(b) or paragraph 8(b) are hereafter construed to be invalid or
unenforceable, the same shall not affect the remainder of the covenant or
covenants, or rights or remedies, which shall be given full effect without
regard to the invalid portions. If the courts of any one or more jurisdictions
shall hold all of or any part of such provisions wholly unenforceable by
reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination shall not bar or in any way affect the
Company's right to relief in the court of any other jurisdiction as to
failures to observe such provisions in such other jurisdictions, the above
provisions as they relate to each jurisdiction, being, for this purpose,
severable into diverse and independent provisions. If any of the provisions
contained inn paragraph 7(a) or paragraph 8(a) is held to be unenforceable
because of the duration of such provision, the parties agree that the court
making such determination shall have the power to reduce the duration of such
provision and in its reduced form said provision shall then be enforceable.
10. Assignment of Employee Benefits. Absent the prior written
consent of the Company, and subject to transfer by will and the laws of
descent and distribution, Employee shall have no right to exchange, convert,
encumber or dispose of the rights of Employee to receive benefits and payments
under this Agreement, which payments, benefits and rights thereto are
non-assignable and non-transferable.
11. Notices. All notices hereunder shall be given in writing by
personal delivery or by registered or certified mail addressed to the Company
at its principal place of business and to Employee at his residence address as
then listed in the Company's records.
12. General.
(a) Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Nev York,
without giving effect to conflicts of laws principles thereof which might
refer such interpretations to the laws of a different state or jurisdiction.
(b) Captions. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings,
written or oral, between the parties, including, without limitation, the
Amended and Restated Employment Agreement between Employee and the Company
effective as of November 1, 1990 (as restated and amended as of March 15,
1993) which is hereby terminated.
(d) No Other Representations. No representation, promise or
inducement has been made by any party hereto that is not embodied in this
Agreement, and no
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<PAGE>
party shall be bound by or liable for any alleged representation, promise or
inducement not so set forth.
(e) Successors and Assigns. This Agreement shall inure to
the benefit of and shall be binding upon the Company and Employee and, subject
to the provisions of paragraph 10, their respective heirs, executors, personal
representatives, successors and assigns.
(f) Amendments; Waivers. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms or
covenants hereof may be waived, only by a written instrument executed by all
of the parties hereto, or in the case of a waiver, by the party waiving
compliance. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right of
such party at a later time to enforce the same. No wavier by any party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver
of the breach of any other term or covenant contained in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed Employment
Agreement as of the date first above written.
HAUPPAUGE RECORD MANUFACTURING
LTD.
By:
-----------------------------------
Name:
Title:
-----------------------------------
DONALD OLESEN
Guaranty
--------
The undersigned hereby unconditionally and absolutely guarantees
the prompt and due payment and performance of all obligations of the Company
under this Agreement.
ALLIED DIGITAL TECHNOLOGIES CORP.
By:
-----------------------------------
Name:
Title:
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<PAGE>
Amendment to Employment Agreement dated
January 1, 1995 between Allied Digital Inc.
(formerly Hauppauge Record Mfg. Ltd.) and
Brian R. Wilson
The parties hereby agree to extend the terms of the aforementioned employment
agreement with the following modifications:
1. The term will be for three years commencing January 1, 1998 and
expiring on December 31, 2001.
2. Effective January 1, 1998, Brian R. Wilson's current annual salary
will be increased by 2.1% to $ 241,002., and thereafter will be
adjusted to reflect the cost of living as prescribed in the current
employment agreement.
3. On Mr. Wilson's behalf, the company will lease, at its sole expense,
a BMW 740IL or equivalent automobile, and will pay and/or reimburse
all associated expenses, including but not limited to insurance,
maintenance, and gasoline.
4. All other terms and conditions remain in full force and effect.
- -------------------------------- ------------------------------------
Allied Digital Inc. Brian R. Wilson
Agreed to and Accepted Agreed to and Accepted
- --------------------------------
Date
<PAGE>
EMPLOYMENT AGREEMENT
THIS IS AN EMPLOYMENT AGREEMENT, effective as of January 11, 1995
between Hauppauge Record Manufacturing Ltd, a New York corporation (the
"Company"), and Brian Wilson ("Employee").
In consideration of the premises and of the mutual covenants
herein contained, the parties agree as follows:
1. Position. During the term of his employment with the Company
hereunder, Employee shall continue to serve as Vice President - Marketing of
the Company with substantially the same functions, duties and responsibilities
as Employee currently discharges on behalf of the Company.
Employee shall devote substantially all of his business skill,
time and effort to his employment hereunder; provided, however, that he shall
be entitled annually to such vacation and sick leave in accordance with the
Company's policy for executive officers.
Employee shall not be required to perform his services for the
Company primarily at a location other than Employee's present work location
unless a change in location is mutually agreed upon between the Company and
Employee.
2. Term of Employment. Employee's term of employment by the
Company under this Agreement (the "Employment Term") shall begin on the date
hereof and shall continue for the period ending December 31, 1997 unless
sooner terminated as hereinafter provided.
3. Compensation. As compensation for the services contemplated
hereby, Employee shall receive during the Employment Term an annual base
salary, to be paid monthly, equal to $154,500, as increased by the percentage
rate of inflation during the year ended December 31, 1994 as measured by the
consumer price index for urban wage earners published by the U.S. Department
of Labor, Bureau of Labor Statistics, for the New York - Northern New Jersey
area (the "CPI"). On each January 1 during the Employment Term, the base
salary shall be increased by a percentage equal to the percentage rate of
inflation during the previous calendar year, as measured by the CPI; provided,
however , that such increase shall be retroactively effective on January 1 in
the event such percentage rate of inflation is not published on January 1. In
addition, Employee's base salary may be increased annually in accordance with
any compensation plan for employees of Allied Digital Technologies Corp., a
Delaware corporation and the indirect parent company of the Company ("Allied
Digital"), and its subsidiaries (with Allied Digital collectively, the "Allied
Companies") as administered by the Compensation Committee of the Board of
Directors of Allied Digital.
-2-
<PAGE>
In addition to his base salary, Employee shall be entitled to
participate in any incentive bonus compensation plan for employees of the
Company existing on the date hereof and any incentive bonus compensation plan
for employees of the Allied Companies that is approved and adopted by the
Board of Directors of Allied Digital in the future to replace any plan of the
Company.
4. Employee Benefits. Employee shall be entitled to participate
in any (a) pension plans and profit sharing plans, (b) medical benefit plans,
group life insurance plans, hospitalization plans or other employee welfare
benefit plans the Allied Companies may adopt or have in effect from time to
time during the Employment Term. The Allied Companies shall allow Employee to
continue, at his sole cost and expense, his participation in any medical
benefit plan after his termination of employment hereunder for such period of
time as may be required by applicable law.
5. Expenses. The Company shall pay or reimburse Employee for any
expenses reasonably incurred by him in furtherance of his duties hereunder,
including, but not limited to, expenses for traveling, meals and hotel
accommodations, upon submission by him of vouchers therefor or itemized lists
thereof prepared in compliance with such rules and policies relating thereto
as the Company may from time to time adopt and as may be required in order to
permit such payments as proper deductions to the Company under the Internal
Revenue Code and the rules and regulations adopted pursuant thereto now or
hereafter in effect.
6. Termination.
(a) Termination for Cause. The Company may terminate this
Agreement, and (except as provided below) all of the Company's obligations
hereunder, either for cause or without cause. Such termination shall be
effected by notice thereof delivered by the Company to Employee, and shall be
effective as of the date of such notice. In the event of termination for
cause, Employee shall be entitled to receive all salary earned to the date of
termination, but all other rights of Employee hereunder, including any right
to receive any incentive bonus, shall terminate as of the effective date of
Employee's termination.
In the event of termination without cause, Employee shall be
entitled to receive (i) all base salary earned to the date of termination,
which shall be payable upon such termination, (ii) any accrued and unpaid
incentive bonus to the date of termination (including a pro rata portion of
the bonus payable for the year of termination), which shall be payable to
Employee when incentive bonuses are paid to all other employees participating
in such incentive bonus plan, and (iii) an amount equal to the base salary
that would have been payable to Employee hereunder had this Agreement not been
so terminated, which shall be payable on the dates on which such base salary
would have been payable, but all other rights of Employee hereunder shall
terminate as of the effective date of Employee's termination.
-3-
<PAGE>
As used herein, "cause" shall mean: (i) Employee's conviction of
a felony which involves moral turpitude; or (ii) Employee's repeated failure
to discharge his assignments from the Board of Directors of the Company
consistent with the responsibilities of his position and the failure by
Employee to correct such failure within 30 days after written notice thereof
from the Company; or (iii) Employee's gross negligence or willful misconduct
in the performance of his duties which has a material adverse effect on the
Company's operations, profits or business.
(b) Resignation of Employee. In the event that Employee resigns
(except in the case of resignation or termination due to disability), Employee
shall be entitled to receive (i) all base salary earned to the effective date
of resignation, which shall be payable upon such resignation (including any
accrued and unused vacation time), and (ii) any accrued and unpaid incentive
bonus to the date of resignation (including a pro rata portion of the bonus
payable for the year of resignation), which shall be payable to Employee when
incentive bonuses are paid to all other employees participating in such
incentive bonus plan (provided that Employee provides to the Company at least
one month's notice of such resignation), but all other rights of Employee
hereunder shall terminate as of the effective date of Employee's resignation.
Provided Employee shall not have breached the provisions of paragraph 7 or
paragraph 8 hereof, the Company shall have no rights hereunder after such
resignation.
(c) Employee's Total Disability. In the event that Employee is
terminated by the Company, or Employee resigns, due to Employee's total
disability, Employee shall be entitled to receive (i) all base salary earned
to the date of termination, which shall be payable upon such termination or
resignation (including any accrued and unused vacation time), (ii) any accrued
and unpaid incentive bonus to the date of termination or resignation
(including a pro rata portion of the bonus payable for the year of termination
or resignation), which shall be payable to Employee when incentive bonuses are
paid to all other employees participation in such incentive bonus plan, and
(iii) any benefits payable under the Company's then current disability policy,
but all other rights of Employee hereunder shall terminate as of the date of
Employee's termination or resignation. As used herein, "total disability"
shall mean any physical or mental ailment which prevents Employee from
performing the duties incident to Employee's employment with the Company which
has continued for a period of ninety (90) consecutive days and which is
expected, based upon the results of an examination by a physician mutually
acceptable to Employee and the Company, to be of permanent duration.
(d) Death. In the event that Employee dies during the Employment
Term, Employee's estate shall be entitled to receive (i) all base salary
earned to the date of death (including any accrued and unused vacation time),
which shall be payable upon the date of death, (ii) any accrued and unpaid
incentive bonus to the date of death (including a pro rata portion of the
bonus payable for the year of termination), which shall be payable to Employee
when incentive bonuses are paid to all other employees participating in such
incentive bonus plan, and (iii) any benefits payable under any then current
life insurance policy provided to Employee pursuant to paragraph 4 hereof, but
all other rights of Employee hereunder shall terminate.
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<PAGE>
7. Protection of Confidential Information.
(a) Covenant. Employee acknowledges that his employment by the
Company will, throughout the term of this Agreement, bring his into close
contact with many confidential affairs of the Company, including information
about markets, key personnel, operational methods and other business affairs
and methods, computer software and other proprietary intellectual property,
other information not readily available to the public, and plans for future
developments relating thereto. Employee further acknowledges that the services
to be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character. In recognition of the foregoing, the
Employee covenants and agrees that, both during and after the Employment Term:
(i) he will keep secret all material confidential matters
of the Company known to him which are not otherwise in the public
domain and will not intentionally disclose them to anyone outside of
the Company, wherever located, either during or after the Employment
Term, except with the Company's prior written consent;
(ii) he will promptly disclose to the Company, and that the
Company will own all right, title and interest in, all inventions,
computer software and other intellectual property (the "Intellectual
Property") which he conceives or develops during the course of his
employment (excluding that which he conceives or develops without the
use of the Company's time, resources or facilities and which does not
relate to the Company's past, present or planned future activities),
will affix appropriate legends and copyright notices indicating the
Company's ownership of all Intellectual Property and all underlying
documentation, and will execute such further assignments and other
documents as the Company consider necessary to vest, perfect,
maintain or defend the Company's right, title and interest in the
Intellectual Property; and
(iii) he will deliver promptly to the Company on
termination of his employment by the Company, or at any other time
the Company may so request, all memoranda, notes, records, reports
and other documents (and all copies thereof) relating to the business
of the Company which he obtained while employed by, or otherwise
serving or acting on behalf of, the Company and which he may then
possess or have under his control or relating to the Intellectual
Property.
(b) Specific Remedy. If Employee commits a material breach of any
of the provisions of paragraph 7(a), the Company shall have the right and
remedy to have such provisions specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
-5-
<PAGE>
8. Noncompetition.
(a) Covenant. Employee shall not during the Restrictive Period
(as hereinafter defined) , directly or indirectly, and whether or not Employee
is then receiving any compensation or other payments from the Company:
(i) engage in competition with the Allied Digital Business
(as hereinafter defined) within any state in which such business is
conducted;
(ii) acquire a direct or indirect interest or an option to
acquire such interest in any entity engaged in competition with the
Allied Digital Business (other than in interest of not more than 5%
of the outstanding stock of any publicly traded company); or
(iii) serve as a director or officer of any entity engaged
in competition with the Allied Digital Business; or
(iv) solicit, employ, interfere with or attempt to entice
away from the Company or any Affiliate of the Company (A) any
customer of any of them or (B) any individual who was employed by any
of them in an executive capacity within six months prior to such
solicitation, employment, interference or enticement.
For purposes of this Section 8, the term: (A) "Restrictive
Period" means that period of time which commences on the date hereof and ends
(i) 36 months after the termination of the Employment Term if such termination
shall occur on or before the first anniversary of the date hereof and (ii) 18
months after such termination if such termination shall occur after the first
anniversary of the date hereof, and (B) "Allied Digital Business" means the
business of duplicating/replicating videocassettes, audio cassettes, D.A.T.
cassettes, compact discs and motion picture products and providing post
production services including fulfillment services as currently provided by
the [PAGE 7 OF MASTER WAS NOT SUBMITTED]
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<PAGE>
11. Notices. All notices hereunder shall be given in writing by
personal delivery or by registered or certified mail addressed to the Company
at its principal place of business and to Employee at his residence address as
then listed in the Company's records.
12. General.
(a) Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without giving effect to conflicts of laws principles thereof which might
refer such interpretations to the laws of a different state or jurisdiction.
(b) Captions. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings,
written or oral, between the parties, including, without limitation, the
Amended and Restated Employment Agreement between Employee and the Company
effective as of November 1, 1990 (as restated and amended as of March 15,
1993) which is hereby terminated.
(d) No Other Representations. No representation, promise or
inducement has been made by any party hereto that is not embodied in this
Agreement, and no party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and shall be binding upon the Company and Employee and, subject to
the provisions of paragraph 10, their respective heirs, executors, personal
representatives, successors and assigns.
(f) Amendments; Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof
may be waived, only by a written instrument executed by all of the parties
hereto, or in the case of a waiver, by the party waiving compliance. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right of such party at a later
time to enforce the same. No waiver by any party of the breach of any term or
covenant contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed Employment
Agreement as of the date first above written.
HAUPPAUGE RECORD MANUFACTURING LTD.
By:
---------------------------------------
Name:
Title:
------------------------------------------
BRIAN WILSON
Guaranty
--------
The undersigned hereby unconditionally and absolutely guarantees
the prompt and due payment and performance of all obligations of the Company
under this Agreement.
ALLIED DIGITAL TECHNOLOGIES CORP.
By:
---------------------------------------
Name:
Title:
-8-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of this 17th day of December, 1997, by and
between ALLIED DIGITAL, INC. ("Employer") a New York corporation, having an
office at 65 Inverness Drive East, Englewood, Colorado 80112 and VIRGINIA
GUIETTE ("Executive"), residing at 5403 S. Fulton Court, Greenwood Village,
Colorado 80111.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Executive is a shareholder and the President of Denver
Dubbing, Inc. ("Predecessor"); and
WHEREAS, in light of the acquisition by Employer of substantially
all of the assets and the business of the Predecessor, Employer desires to
secure the services of Executive as its President, Denver Division, and
Executive is willing to render her services for Employer in such position upon
the terms, provisions and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, it is hereby agreed by and between Employer
and Executive as follows:
1. Employer hereby employs Executive, and Executive hereby
accepts employment, as Division Manager-Denver of Employer for a two year
period commencing December 17, 1997 and ending December 31, 1999, unless
sooner terminated as hereinafter provided. Executive, as Division
Manager-Denver of Employer, shall perform such services with respect to the
operations of the Employer as she has customarily performed for the
Predecessor, subject to the direction and control of the Chief Operating
Officer and Board of Directors of Employer, and shall report to Employer's
Chief Operating Officer. Executive shall devote all of her business time and
attention to the affairs of Employer, except for vacation periods, and for
reasonable periods permitted for illness or other incapacity. Executive's
duties shall be primarily performed at Employer's office in Englewood,
Colorado, subject to travel from time to time as is necessary or appropriate
for the performance of Executive's duties hereunder.
2. Employer agrees to pay Executive and Executive shall accept
from Employer, for her services to be rendered hereunder, a base salary at the
rate of $150,000 per year. Such base salary shall be paid in accordance with
Employer's regular payroll practices for executives, but no less frequently
than bi-weekly.
3. In addition to the payment of the compensation set forth in
Section 2, Employer also agrees that:
<PAGE>
(a) Executive shall be included in all plans that are
hereafter adopted for the benefit of executive personnel of Employer of
Executive's level and for the general benefit of Employer's employees, in the
same manner and amount provided for other executives of Executive's level,
such as pension plans, non-qualified retirement plans, investment funds,
medical and hospitalization and group or other insurance plans and benefits,
if and to the extent that she is and remains eligible to participate
thereunder, and subject to the provisions of such plans as the same may be in
effect from time to time. Employer has no present intention to adopt any such
plan or benefit and nothing herein contained shall require Employer to adopt
or continue any such plan or benefit.
(b) Executive shall be reimbursed for such reasonable items
of travel and miscellaneous business expenses as are necessarily incurred by
her in the performance of her duties hereunder, upon presentation of detailed
vouchers therefor sufficient for Employer to deduct same for its income tax
purposes.
(c) Executive shall be entitled to have, at all times
during her employment hereunder, all office accommodations and secretarial
help as shall be necessary and appropriate for the performance of her
services.
(d) Executive shall be entitled to three (3) weeks paid
vacation during each year of her employment hereunder, to be taken at such
reasonable times as Executive desires in light of Employer's business needs.
(e) Executive shall be entitled to the number of paid
holidays, personal and sick days, during her employment hereunder as shall be
consistent with Employer's policies for executives of Executive's level.
(f) Employer shall withhold all taxes, social security and
Medicare contributions and other sums required to be withheld from each
compensation or other payment to Executive pursuant to this Agreement.
4. If, during the term of this Agreement:
(a) The employment of Executive by Employer should
terminate by reason of Executive's voluntary action, or by Employer for
"cause", which for these purposes is defined as (i) fraud in dealings with or
concerning Employer or misappropriation or embezzlement of property of
Employer, on the part of Executive, (ii) Executive's willful failure to
perform her services hereunder or to obey a specific instruction from the
President of the Employer, either of which failures shall continue for five
(5) days after notice thereof to Executive, (iii) Executive's conviction of
any felony or any other crime which other crime shall result in
be intended to result in gain or personal enrichment of
Executive at the expense of the Employer or (iv) the breach by Executive of
any material covenant of this Agreement and, if such breach does not involve
Section 5 of this Agreement, the failure of
-2-
<PAGE>
Executive to remedy such breach within five (5) days, then Employer's
obligations under this Agreement, including but not limited to for payment of
compensation under Section 2, and any and all of its obligations under Section
3 and any other obligation of Employer to contribute or make provision for
Executive in or with respect to any plan, benefit or program shall thereupon
cease and terminate.
(b) The employment of Executive by Employer should be
terminated by Employer without cause, then Employer shall pay to Executive, as
liquidated damages and in lieu of any other claim Executive might have for
breach of this Agreement, wrongful discharge or otherwise, but subject to the
results of Executive's obligation to mitigate damages, an amount equal to the
aggregate base salary Executive would have been entitled to receive had she
continued her employment hereunder for the balance of the term of this
Agreement at the annual salary rate in effect on the date of such termination,
and the aggregate amount of such salary payments shall be made by Employer in
equal installments over the remaining portion of the term on the same dates
that salary would have been paid to Executive;
(c) The employment of Executive by Employer should
terminate by reason of Executive's death, then Employer shall pay to
Executive's estate or representative, (i) Executive's unpaid base salary at
the rate in effect on the date of death, through the end of the month in which
death shall occur and (ii) expense reimbursements through the date of death,
and all other obligations of Employer to Executive hereunder shall cease and
terminate; or
(d) Executive shall become disabled so as not to be able to
substantially render her customary services to Employer for two consecutive
months or three months in the aggregate out of any twelve consecutive months
then, thereafter at any time prior to the cessation of such disability
Employer may terminate Executive's employment hereunder effective upon two (2)
days notice of termination and in such event the Employer shall pay to
Executive or her legal representative (i) Executive's unpaid base salary at
the rate in effect at the date of termination through the end of the month
during which such termination shall become effective and (ii) expense
reimbursements through the date of termination, and all other obligations of
Employer to Executive hereunder shall cease and terminate; in the event
Executive shall receive payments under any disability policy provided by
Employer while she is disabled and being paid any salary by Employer, the
amount of such receipts shall reduce the salary to which Executive otherwise
would be entitled for the corresponding period.
5. (a) The Executive acknowledges that (i) her employment by
Employer is of a special, unique, unusual and extraordinary character, and
(ii) the nature of the Executive's services, position and expertise and the
businesses of the Company are such that she is capable of competing with the
Employer in the business conducted by the Employer from nearly any location in
the United States. The Executive further acknowledge that her employment and
ownership relationships with the Predecessor and with Employer have brought
and will bring her into close contact with many confidential affairs of the
Employer and its parent, Allied Digital Technologies Corporation ("Allied"),
including, without limitation, information about products,
-3-
<PAGE>
manufacturing, processes, costs, profits, markets, sales, contracts, key
personnel, pricing policies, operational methods and other business affairs
and methods, plans for future development and other information not readily
available to the public. In recognition of the foregoing considerations the
Executive covenants and agrees that during the period of her employment by
Employer and for three (3) years thereafter, the Executive shall not, directly
or indirectly, in any location in the United States or Canada: (1) own,
manage, operate, control, or engage or participate as an officer, partner,
director, consultant, employee, agent or otherwise in the ownership,
management, operation or control of, or have a financial interest in the
ownership, management, operation or control of, or aid or assist anyone else
in the conduct of, any Competitive Business (as hereinafter defined), or (2)
take away or interfere with any trade, business or patronage of the Employer
or Allied related to any Competitive Business or interfere with any officer,
employee, representative or agent of the Employer or Allied or induce any of
the foregoing to leave the employ of the Employer or Allied or violate the
terms of any agreement with the Employer or Allied; provided, however, that
nothing contained in this Section (5) shall prohibit the Executive from
acquiring or holding, as a passive investor, 2% or less of the outstanding
capital stock or other securities of any corporation whose securities are
publicly traded on any national securities exchange or in the over-the-counter
market and quoted on NASDAQ, or becoming a creditor in a transaction that does
not otherwise violate this Section (5). For purposes of this Section (5), the
term "Competitive Business" shall mean any business activity which, during the
employment of the Executive by the Employer, the Employer or Allied was
engaged in or conducting, or which is similar to or in the same field as any
business conducted by the Predecessor within the two year period preceding the
date of this Agreement, or which Employer shall have planned to engage in or
conduct, as to which planned activities there shall be evidence of the
Employer's good faith intention to engage therein within such applicable
period.
(b) In recognition of the considerations described in
Section (a) , the Executive covenants and agrees that she will keep secret all
confidential matters and trade secrets of the Employer and Allied, except
those which are in the public domain other than through a breach by the
Executive of this Section 5 (b) , and will not disclose them to any one
outside of the Employer or Allied or use them for herself or otherwise, at any
time during or after the period of Executive's employ by the Employer.
Executive further represents and warrants that she will deliver to the
Employer upon termination of her employment or upon earlier demand by the
Employer, all memoranda, notes, records, reports and other documents (and all
copies thereof) relating to the Employer's or Allied's business which she has
possessed or had under her control.
(c) If the Executive commits a breach of any of the
provisions of Sections 5(a) or 5(b), the Employer and shall have
the right and remedy to have such provisions specifically enforced by any
court of competent jurisdiction, it being acknowledge and agreed that any such
breach or threatened breach will cause irreparable injury to the Employer or
Allied and that money damages will not provide an adequate remedy to the
Employer or Allied. The parties hereto recognize that the laws and public
policies of various jurisdictions may differ as to the validity and
enforceability of agreements similar to those
-4-
<PAGE>
contained in this Agreement. It is the intention of the Executive and the
Employer that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies of each
jurisdiction in which such enforcement is sought.
(d) The right and remedy set forth in Section 5(c) shall be
in addition to and not in lieu of any other rights and remedies available to
the Employer and Allied under law or in equity. If the courts of any one or
more jurisdictions shall hold all or any part of the provisions of this
Agreement unenforceable by reason of the breadth of their scope or otherwise,
it is the intention of the parties that such determination shall not bar or in
any way affect the Employer's or Allied's right to relief in the courts of any
other jurisdiction as to failures to observe such provisions in such other
jurisdictions, the above provisions as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent provisions. If any
provision contained in this Agreement is held to be unenforceable because of
the duration of such provision or the geographical area or businesses covered
thereby, the parties hereto agree that the court making such determination
shall have the power to reduce the duration and/or area and/or businesses
covered by such provision and in its reduced form said provision shall then be
enforceable.
(e) It is agreed that because of the nature of the industry
and the business of Employer, Predecessor and Allied, Allied is a third party
beneficiary of the provisions of this Section 5 and may enforce the same in
its own name and right as above provided.
6. This Agreement contains the entire understanding of the
parties with respect to the subject matter thereof, supersedes any and all
prior agreements of the parties with respect to the subject matter thereof and
cannot be changed or extended except by a writing signed by both parties
hereto. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective heirs, legal representatives, executors,
administrators, successors and assigns. Neither this Agreement nor any rights
hereunder shall be assigned by either party except that Employer may assign
this Agreement to any subsidiary or parent corporation or to any purchaser of
substantially all of the assets of Employer. This Agreement and all matters
and issues collateral thereto shall be governed by the laws of the State of
Colorado applicable to contracts made and to be performed entirely therein. If
any provision of this Agreement, as applied to either party or to any
circumstance, shall be adjudged by a court to be void or unenforceable, the
same shall in no wise affect any other provision of this Agreement or the
validity or enforceability thereof.
7. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of them taken together shall
constitute one and the same instrument.
8. All notices or other communications hereunder shall be given
in writing and shall be deemed given if served personally against signed
receipt (in the case of Employer,
-5-
<PAGE>
by its President), dispatched by facsimile transmission to any facsimile
number as either party may hereafter designate in a notice to the other, sent
by nationally recognized overnight courier service or mailed first-class
postage prepaid by registered or certified mail, return receipt requested, to
the parties at their addresses set forth above, or at such other address or
facsimile number as either as may hereafter designate in a notice to the
other, and, in the case of Employer, addressed to the attention of the
President, with a copy of each Employer to be simultaneously given as above
provided, to Warshaw Burstein Cohen Schlesinger & Kuh, LLP, 555 Fifth Avenue,
New York, New York 10017, Attention: William B. Aronstein, Esq., Facsimile No.
IN WITNESS WHEREOF the parties have executed this Agreement on
the date first above stated.
ALLIED DIGITAL, INC.
By:
------------------------------------
Vice-President
------------------------------------
Virginia Guiette
-6-
<PAGE>
LOCAL 810, I.B.T.
AGREEMENT WITH
HAUPPAUGE RECORD MANUFACTURING CO.
a wholly owned subsidiary of
Allied Digital Technologies Corp. - HTM
January 22, 1997 - January 21, 2000
Louis Smith, President
Local 810, I.B.T.
10 East 15th Street
New York, N.Y. 10003
Donna Santoro, Delegate Telephone No. (212) 691-4100
<PAGE>
HTM
---
TABLE OF CONTENTS
-----------------
Clause Article
- ------ -------
Recognition And Bargaining Unit I
Union Security II
Checkoff Of Dues III
Hiring Hall IV
Hours And Overtime V
Night Shift and Twelve Hour Shift VI
Call-In Pay VII
No Discrimination - Equal Pay VIII
Holidays IX
Seniority And Promotions X
Discharge XI
Downgrading XII
Tools And Materials XIII
Payment Of Wages XIV
Visitation XV
Payroll Records XVI
Strike And Lockout XVII
Grievance And Arbitration XVIII
Leave Of Absence XIX
Notice of Layoff XX
Bulletin Board XXI
Shop Steward And Committeemen XXII
Telephone XXIII
Soap, Towels & Sanitary Conditions XXIV
Rest And Wash-UP Time XXV
Health And Welfare XXVI
Pension XXVII
Annuity XXVIII
Enforcement Of Welfare & Pension Contributions XXIX
Wages XXX
Vacations XXXI
Assignment Of Contract XXXII
Cost Of Living XXXIII
Jury Duty XXXIV
Plant Removal XXXV
Paid Sick Leave XXXVI
Mourning Period XXXVII
General Provisions & Efficiency To Meet Competition XXXVIII
Labor Management Committee XXXIX
Safety Provisions XL
Termination XLI
Saving Clause XLII
Schedule "A" - Schedule Of Starting & Minimum Rates
i
<PAGE>
HTM
---
INDEX
-----
ANNUITY.................................................................. 10
ARBITRATION............................................................... 7
ASSIGNMENT OF CONTRACT................................................... 12
BARGAINING UNIT........................................................... 1
BULLETIN BOARD............................................................ 8
CALL-IN PAY............................................................... 4
CHECKOFF OF DUES.......................................................... 1
COST OF LIVING........................................................... 12
DISCHARGE................................................................. 5
DOWNGRADING............................................................... 5
ENFORCEMENT OF WELFARE AND PENSION CONTRIBUTIONS......................... 10
GENERAL PROVISIONS AND EFFICIENCY TO MEET COMPETITION.................... 13
GRIEVANCE................................................................. 7
HEALTH AND WELFARE........................................................ 8
HIRING HALL............................................................... 2
HOLIDAYS.................................................................. 4
HOURS AND OVERTIME........................................................ 2
JURY DUTY................................................................ 12
LABOR MANAGEMENT COMMITTEE............................................... 14
LEAVE OF ABSENCE.......................................................... 7
MOURNING PERIOD.......................................................... 13
NIGHT SHIFT and TWELVE-HOUR SHIFT......................................... 3
NO DISCRIMINATION - EQUAL PAY............................................. 4
NOTICE OF LAYOFF.......................................................... 8
PAID SICK LEAVE.......................................................... 13
PAYMENT OF WAGES.......................................................... 6
PAYROLL RECORDS........................................................... 6
PENSION................................................................... 9
PLANT REMOVAL............................................................ 12
RECOGNITION............................................................... 1
REST AND WASH-UP TIME..................................................... 8
SAFETY PROVISIONS........................................................ 14
SAVING CLAUSE............................................................ 14
SENIORITY AND PROMOTIONS.................................................. 5
SHOP STEWARD AND COMMITTEEMEN............................................. 8
SOAP, TOWELS AND SANITARY CONDITIONS...................................... 8
STRIKE AND LOCKOUT........................................................ 6
TELEPHONE................................................................. 8
TERMINATION.............................................................. 14
TOOLS AND MATERIALS....................................................... 6
UNION SECURITY............................................................ 1
VACATIONS................................................................ 11
VISITATION................................................................ 6
WAGES.................................................................... 10
ii
<PAGE>
AGREEMENT MADE AND ENTERED into as of the 22nd day of January, 1997, by and
between HAUPPAUGE RECORD MANUFACTURING CO., A WHOLLY OWNED SUBSIDIARY OF
ALLIED DIGITAL TECHNOLOGIES CORP. - HTM, at 15 Gilpin Avenue, Hauppauge, Long
Island, New York 11788-4791, hereinafter referred to as the "EMPLOYER", and
LOCAL 810, STEEL, METALS, ALLOYS AND HARDWARE FABRICATORS AND WAREHOUSEMEN,
affiliated with the INTERNATIONAL BROTHERHOOD OF TEAMSTERS, located at 10 East
15th Street, New York, New York 10003, its successors or assigns, hereinafter
referred to as the "UNION".
W I T N E S S E T H:
--------------------
WHEREAS, the parties hereto desire to establish the standards and conditions
of labor under which the employees shall work for the Employer during the term
of this Agreement; and
WHEREAS, it is the intent and purpose of the parties that this Agreement shall
promote and improve the industrial and economic relations between them, and to
set forth herein their Agreement covering rates of pay, hours of work and
conditions of employment;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
herein contained, the parties agree as follows:
ARTICLE I
---------
RECOGNITION AND BARGAINING UNIT
-------------------------------
The Employer recognizes the Union as the sole and exclusive collective
bargaining agent for all employees in all shops of the Employer with respect
to rates of pay, wages, hours of employment and other conditions of
employment, excepting office an clerical employees and those excluded by the
Act.
ARTICLE II
----------
UNION SECURITY
--------------
A. It shall be a condition of employment that all employees of the Employer
covered by this Agreement who are members of the Union in good standing on the
execution date of this Agreement shall remain members in good standing and
those who are not members on the execution date of this Agreement shall, on or
after the thirtieth (30th) day following the execution date of this Agreement,
become and remain members in good standing in the Union. It shall also be a
condition of employment that all employees covered by this Agreement and hired
on or after its execution date shall, on or after the thirtieth (30th) day
following the beginning of such employment, become and remain members in good
standing in the Union.
B. The first thirty (30) days of employment for a newly-hired employee shall
be considered the probationary period.
C. All employees employed for a period of thirty (30) calendar days shall
become permanent employees.
ARTICLE III
-----------
CHECKOFF OF DUES
----------------
The Employer agrees that during the full term of this Agreement and any
extension of renewal thereof, he will deduct monthly from the earnings of
employees who have so authorized, in writing, and in accordance with the
provisions of said authorization, membership dues and initiation fees and
remit same to the Union. The remittance shall be accompanied by a list showing
individual names and amounts deducted. The total deductions shall be made not
later
<PAGE>
than the fifteenth (15th) day of the same month. The Union shall advise the
Employer of the amount of the initiation fees and dues and the manner the same
shall be deducted.
ARTICLE IV
----------
HIRING HALL
-----------
The Employer will notify the Union by telephone, confirmed in writing, by
letter, to be mailed on the same day, of all requirements for new help. The
Union agrees to furnish applicants, whenever possible, through its hiring
hall, which is maintained for both members of the Union and non-members of the
Union at its offices at 10 East 15th Street, New York, New York. The Employer
retains the right to reject any job applicant referred by the Union. This
provision is not to be deemed or interpreted to be a requirement for a closed
shop, as the hiring hall maintained by the Union, as aforesaid, is available
to both Union and non-Union applicants for jobs, and the selection of
applicants for referral to jobs is on a non-discriminatory basis and is not
based upon, or in any way affected by Union membership, by-laws, regulations,
constitutional provisions or any other aspect or obligation of Union
membership, policies or requirements.
All newly-hired help shall obtain a referral card from the Union, and such
referral cards shall be issued without regard to membership or non-membership
in the Union and are issued only for the purpose of appropriate record-keeping
and bookkeeping by the Union.
ARTICLE V
---------
HOURS AND OVERTIME
------------------
The work week shall be from Monday to Friday, inclusive and shall consist of
eight (8) hours in each day. Time and one-half shall be paid for all hours
worked in excess of eight (8) hours in any one day, or after forty (40) hours
in any one (1) week, or for any hours worked prior to or after the aforesaid
hours of employment. Time and one-half shall be paid for work performed on a
shift commencing on Saturday and double time for work performed on a shift
commencing on Sunday, except as it applies to employees working on the third
shift, who will receive said premium pay respectively if they work on the days
following Saturday or Sunday. Time and one-half, in addition to holiday pay,
shall be paid for work performed on a shift commencing on a Contract holiday,
except as it applies to the employees working on the third shift, who will
receive said premium holiday pay if they work on the day following a Contract
holiday.
Double time shall be paid for all work performed in excess of ten (10) hours
in any one day. Nothing in this Agreement shall be construed as requiring a
duplication or pyramiding of holiday, Saturday, Sunday or overtime
compensation involving the same hours of work.
The Shop Steward shall have preference for overtime work, provided he has the
ability to perform such work.
Weekend Overtime: When the Employer is operating on a five day work week and
finds that it is necessary to staff shifts on Saturdays and/or Sundays, but
does not secure a sufficient number of volunteers from the bargaining units to
work on such Saturdays and/or Sundays, the Employer may utilize temporary
employees and/or non-bargaining unit employees to perform such bargaining unit
work.
As set forth herein, when the Employer finds it necessary to staff shifts on
Saturdays and/or Sundays, and before or after shift hours, such overtime work
will be offered by department, by seniority, provided the employees have the
present ability to perform the available work.
2
<PAGE>
ARTICLE VI
----------
NIGHT SHIFT AND TWELVE-HOUR SHIFT
---------------------------------
NIGHT SHIFT: Employees working on a second shift shall be paid ten percent
(10%) above their regular rate of pay. Employees working on a third shift
shall be paid fifteen percent (15%) above their regular rate of pay. The
aforesaid differential shall be paid on all hours for vacations and holidays.
TWELVE-HOUR SHIFT: Upon providing a minimum of two (2) weeks' advance notice
to bargaining unit employees, the Employer shall, with volunteers from the
bargaining units, institute three (3), twelve (12) hour shift work days so as
to provide twenty-four hour per day coverage. The starting times of both the
first and second shifts shall be subject to discussion between the Employer
and the Union.
The staffing of twelve-hour shifts shall be on a voluntary basis. In the event
an insufficient number of bargaining unit employees volunteer to staff the
twelve-hour shifts, the Employer shall blend (combine) bargaining unit
employees having the present ability to do the work, who shall work eight hour
blended shifts.
When an employee is assigned to work a twelve-hour shift, his/her hourly wage
rate shall be increased by 11.1%.
When an employee is assigned to work the second shift, such employee shall
receive an additional 12.5% night differential.
On those occasions where an employee works more than twelve (12) hours in a
given day, such employee shall be paid at the rate of time and one-half for
work performed beyond his/her twelve-hour shift.
When an employee works a fourth shift within a work week, such employee shall
receive his/her shift rate of pay for the first four (4) hours worked and then
shall be paid at the rate of time and one-half the employee's rate of pay for
those additional hours worked. When a fourth or fifth shift within a work week
falls on a Sunday, employees shall be paid at the rate of time and one-half
for all hours worked that day. When a twelve-hour shift falls on a Sunday,
those employees who have agreed to work twelve (12) hour shifts shall have the
first option to work such Sunday shifts. If the Employer finds that there is a
need to utilize additional employees on such Sunday twelve-hour shifts, the
remaining bargaining unit employees, with the present ability to perform the
available work, will be offered the opportunity to work such shifts on a
seniority basis. Those with the greatest seniority shall be offered the
opportunity to work in order of their seniority.
When the Employer concludes that it is appropriate to terminate running on
twelve-hour shifts, the Employer shall afford bargaining unit employees
involved at least two weeks prior notice.
The Employer shall have the sole right to determine which work groups are
required to work twelve-hour shifts to meet competition and customer
requirements.
When employees volunteer to work twelve-hour shifts, overtime provisions
concerning pay for time and one-half after eight (8) hours of work or double
time for work performed after ten (10) hours of work and double time for
Sunday shall not be applicable.
When an employee working twelve-hour shifts performs services after forty (40)
hours, such time shall be paid at the rate of time and one-half of such
employees' twelve (12) hour shift wage rate.
Break-Time: Approximately three (3) hours after the commencement of each
twelve-hour shift, there shall be a (15) minute break period. Approximately
three (3) hours subsequent to the conclusion of such break period, there shall
be a thirty (30) minute meal period. Approximately three (3) hours subsequent
to the conclusion of the meal period, there shall be an additional thirty (30)
minute break period.
3
<PAGE>
The bargaining unit employees shall use their best efforts to provide staffing
and coverage on premium days . It is the intent of the parties to distribute
the opportunity to work on premium days as equally as possible among employees
having the present ability to perform the available work. In the event an
employee who commits to work on a premium day fails to report to work on a
premium day, said employee shall be subject to disciplinary action in
accordance with existing attendance guidelines in effect at the time of the
occurrence.
The terms of the "Hours and Overtime" article shall remain as is with respect
to those bargaining unit employees assigned to work eight (8) hour shifts.
ARTICLE VII
-----------
CALL-IN PAY
-----------
Every worker who reports for work is guaranteed a minimum of eight (8) hours
available work or pay. This provision does not relieve the Employer of the
notice of layoff provided for in "ARTICLE XX" herein, except for Acts of God
and breakdown of machinery, wherein this clause is waived.
Each worker who is assigned or committed to work a twelve-hour shift and who
reports for work is guaranteed a minimum of twelve (12) hours available work
or pay.
ARTICLE VIII
------------
NO DISCRIMINATION - EQUAL PAY
-----------------------------
In accordance with applicable law, the Employer and the Union agree not to
discriminate against any individual with respect to hiring, compensation,
terms or conditions of employment because of such individual's race, color,
religion, sex, national origin, pregnancy, disability, handicap or age, nor
will they limit, segregate or classify employees in any way to deprive any
individual employee of employment opportunities because of race, color,
religion, sex, national origin, pregnancy, disability, handicap or age.
The Company and the Union agree that there will be no discrimination by the
Company or the Union against any employee because of his or her membership in
the Union or because of any employee's lawful activity and/or support of the
Union.
Equal pay for equal work shall prevail, regardless of sex. The Employer may
grant individual merit increases after due notification to the Union.
ARTICLE IX
----------
HOLIDAYS
--------
The following shall be holidays for which every permanent employee shall
receive eight (8) hours regular straight time rates without performing any
work, provided, however, that eight (8) hours work is performed during the
holiday week by the employee, except if an employee is laid off within fifteen
(15) days prior to the work day before Christmas and Christmas Day and/or
fifteen (15) days prior to the work day before New Year's and New Year's Day,
they shall be paid for said days.
4
<PAGE>
President's Day Election Day
Good Friday Thanksgiving Day
Memorial Day Day after Thanksgiving
Independence Day Work Day before Christmas Day
Labor Day Christmas Day
Columbus Day Work Day before New Year's Day
New Year's Day
If any of the named holidays falls on a Saturday, each employee shall receive
his regular eight (8) hours' straight time rate. If any such holiday falls on
a Sunday, the holiday shall be celebrated on the following Monday.
ARTICLE X
---------
SENIORITY AND PROMOTIONS
------------------------
All employees employed for a period of thirty (30) days shall attain seniority
rights, measured from the first day of employment for the purpose of layoffs
and rehirings. Departmental-wide seniority, with the ability to do the
available work, shall prevail. The Employer, upon signing the contract and
thereafter every six (6) months, shall prepare and deliver to the Union a
seniority list containing the name of each employee, date of employment,
position on the list, classification and wage rate.
It shall be the policy of the Employer to make all promotions from the ranks
of the employees, and the Employer agrees that such principle will be
liberally applied wherever possible.
Temporary transfers of machine operators to general help positions shall be
done on a seniority basis and, more specifically, in reverse order of
seniority.
Temporary transfers of bargaining unit personnel between the three (3)
interrelated entities (HTM, HVM, and HCDM) shall be done in accordance with
seniority and, more specifically, in reverse order of seniority.
If an employee who has been laid off fails to report back to work within five
(5) working days after he is recalled by written notification sent by
registered mail, with a copy to the Union, his employment shall be deemed
terminated.
Laid-off employees shall retain seniority unless such layoff is for an
uninterrupted period of more than one (1) year.
ARTICLE XI
----------
DISCHARGE
---------
Employees can be discharged only for just and proper cause. Before any
employee is discharged the Employer must give one (1) working day's notice, in
writing, to the Union, stating the reason for and the date of the proposed
discharge to enable the Union to intercede on behalf of such employee. The
Employer hereby agrees that it will discuss the matter with the Union. In
cases involving theft or malicious mischief, the Employer may discharge
without prior notice, but shall immediately notify the Union of all of the
facts. This clause shall not be construed as a modification or waiver of any
rights which the Union has under the arbitration provisions of this Agreement.
ARTICLE XII
-----------
DOWNGRADING
-----------
There shall be no downgrading or reduction of the individual wage rates of
employees or the wage ranges covered by this Agreement.
5
<PAGE>
The Employer agrees that he will not modify or waive any provisions of this
Agreement with any employee or group of employees. The Employer will not enter
into any contract or agreement with any employee or group of employees without
the written consent of the Union.
ARTICLE XIII
------------
TOOLS AND MATERIALS
-------------------
The Employer will furnish all tools necessary or incidental to the work
without charge to the employees. No employees shall be charged for any damage
to material.
ARTICLE XIV
-----------
PAYMENT OF WAGES
----------------
Wages shall be paid weekly by check for work completed seventy-two (72) hours
prior to pay day except if pay day falls on a holiday, wages shall be paid the
following day. All employees who are laid off, quit or are discharged shall
receive all wages and other benefits which they have earned at the time of
their layoff, or termination. This provision may not be changed without
consent of the Union.
Where it is concluded that an employee has received a weekly paycheck which is
short by four (4) hours or more, the corporate payroll department will make
reasonable efforts to issue an additional check during the course of the same
day that the underpayment is brought to the department's attention.
ARTICLE XV
----------
VISITATION
----------
A representative of the Union shall be permitted to enter the factory of the
Employer, upon notification to the Employer at any time during working hours
to carry out the terms of this Agreement and to ascertain if the terms hereof
are being complied with.
ARTICLE XVI
-----------
PAYROLL RECORDS
---------------
The Employer will keep a set of payroll records which will indicate the number
of hours worked by each individual together with the rates paid to such
employees. These records may be examined by the Union through a representative
or accountant, or both, during business hours.
ARTICLE XVII
------------
STRIKE AND LOCKOUT
------------------
During the term of this Agreement, there shall be no strike, lockout or
slowdown. Employees participating in such strike, or slowdown are subject to
immediate discharge. No employee covered by this Agreement shall be compelled
to cross a picket line authorized by the Union at another Employer's premises
and his refusal to do so shall not constitute a breach of this Agreement.
6
<PAGE>
ARTICLE XVIII
-------------
GRIEVANCE AND ARBITRATION
-------------------------
A. Any dispute or grievance between the Employer and its employees or the
Union, growing out of the interpretation or application of any clause of this
Agreement, shall be settled in the following manner:
STEP 1
- ------
Between a committee person designated by the Union for the area or department
where the grievance arose and a supervisor designated by the Employer. If not
adjusted the grievance should be reduced to writing and submitted to the
office of the Plant manager within five (5) calendar days.
STEP 2
- ------
Within ten (10) work days after issuance and receipt of written grievance a
meeting shall be scheduled by appointment between the Union and the Employer.
This meeting shall be attended by the Shop Steward (or in his or her absence
by a committee person), the Plant Manager or his designee. The grievant shall
have the right at his or her option to attend the meetings in Step 1 and 2,
hereinabove mentioned.
STEP 3
- ------
If the grievance has not be adjusted in Step 2, it thereafter may be submitted
for arbitration within twelve (12) work days to an Arbitrator designated for
that purpose from a panel by the New York State Employment Relations Board at
the request of either party. The award of said Arbitrator shall be final and
binding upon all parties, even though one of the parties shall fail to appear,
and such award shall be enforceable in any court of competent jurisdiction.
The fees of the Arbitrator shall be borne equally by the parties.
B. It is understood and agreed that question involving changes in or additions
to the terms and provisions of this Agreement shall not be subject to the
foregoing grievance procedure or to Arbitration.
C. Nothing herein contained shall be construed as depriving the parties herein
of the right to initiate and process a grievance directly with each other, and
thereafter to utilize the arbitration procedure of this paragraph.
D. All meetings and discussions pertaining to disputes or grievances shall
take place during working hours on Company time and on Company premises. The
Employer shall not be required to pay for time lost from work due to
arbitration hearings.
ARTICLE XIX
-----------
LEAVE OF ABSENCE
----------------
Employees are entitled to leaves of absence not exceeding one (1) year for
good cause. Such leaves of absence shall be granted for, but not confined to,
restoration of health, medical, dental or other treatment, maternity leave or
employment by the Union, and shall not prejudice seniority status. Notice of
request for leave shall be given to the Employer in writing, and if taken, the
Employer shall notify the Union, in writing, to that effect.
7
<PAGE>
ARTICLE XX
----------
NOTICE OF LAYOFF
----------------
A layoff shall not be effective against employees employed for over three (3)
calendar months unless two (2) working days' advance notice in writing,
thereof is given to the employee or employees affected and a copy of such
notice delivered to the Union.
ARTICLE XXI
-----------
BULLETIN BOARD
--------------
The Employer shall provide bulletin boards for the exclusive use of the Union
and cause the same to be placed on the Employer's premises at places agreed
upon by the parties.
ARTICLE XXII
------------
SHOP STEWARD AND COMMITTEEMEN
-----------------------------
The Union shall designate a Chief Shop Steward who shall serve as such with
respect to the three (3) interrelated entities (HTM, HVM and HCDM). In
addition, the Union shall designate two Alternative Shop Stewards who will
assist the Chief Shop Steward and the Union in carrying out the interests and
purposes of this Agreement. The Chief Shop Steward and each of the two
Alternate Shop Stewards shall be entitled to top seniority for the purposes of
layoff and recall only.
ARTICLE XXIII
-------------
TELEPHONE
---------
A telephone shall be made available to the Shop Steward for the purpose of
communicating with the Union.
ARTICLE XXIV
------------
SOAP, TOWELS AND SANITARY CONDITIONS
------------------------------------
The Employer agrees to supply adequate soap and towels for its employees
without cost to the employees. The Employer will exercise all effort in order
to help maintain such sanitary conditions.
ARTICLE XXV
-----------
REST AND WASH-UP TIME
---------------------
Employees shall be allowed two (2) ten minute rest periods, one before lunch,
the other after lunch, without loss of pay. Each employee shall receive five
(5) minutes wash-up time at the end of the day without loss of pay. In
addition, employees who work two (2) hours or more overtime shall receive an
additional ten (10) minute rest period.
ARTICLE XXVI
------------
HEALTH AND WELFARE
------------------
Effective and retroactive to January 22, 1997, the Employer agrees to pay
eight and one-quarter percent (8 1/4%) of the gross wages of each of the
employees, regular as well as probationary, covered by this Agreement, said
gross wages
8
<PAGE>
to include overtime, incentive and bonuses of any kind and nature, to the
United Wire, Metal and Machine Health and Welfare Fund. Effective January 22,
1998, the contribution shall be increased to eight and one-half (8 1/2%)
percent per month, per employee, and effective January 22, 1999, the
contribution shall be increased to eight and three-quarters (8 3/4%) percent
per month, per employee.
Payments are to be made monthly and to be accompanied by a written list
showing the name of the employee, his shop number or classification, his
weekly wages and the amount of contribution. Such payment must be made by the
fifteenth (15th) of the month following the month for which payment is to be
made. Contributions to the Fund shall be held, managed and administered in
accordance with the current Trust Indenture, or as amended hereafter, of the
said United Wire, Metal and Machine Health and Welfare Fund, the terms of
which the Employer hereby ratifies. The Employer agrees to furnish to the Fund
all records pertaining to the names of employees whose services are
terminated, and such other information as may be required by any underwriting
insurance company or by the Fund for the proper administration thereof. The
payroll and other pertinent records of the Employer may be examined by the
Union or by the Fund, or their representatives, at reasonable hours, on
demand.
It is expressly understood and agreed that the contributions to the United
Wire, Metal and Machine Health and Welfare Fund as herein provided shall not
obligate the said Fund to provide the coverage required by the New York State
Disability Benefits Law. The said required benefits shall be provided
independently by the Employer without any deductions from, or contributions
by, the employees.
It is expressly agreed that the Union and/or the United Wire, Metal and
Machine Pension Fund shall have the right to cover its or their employees in
the United Wire, Metal and Machine Health and Welfare Fund, but neither the
Union nor the Pension Fund shall participate in the selection of
Employer-Trustees of the United Wire, Metal and Machine Health and Welfare
Fund. The Welfare Fund may provide coverage for its own employees.
The Employer must, within ten (10) days of any layoff, recall, discharge,
death or other change of status, including family status, notify the Welfare
Fund so appropriate notice, if required by COBRA, may be sent.
ARTICLE XXVII
-------------
PENSION
-------
The Employer agrees to contribute on or before the tenth (10th) day of each
month to the United Wire, Metal and Machine Pension Fund the sum of Thirteen
Dollars ($13.00) per week for each employee on the payroll, regular and
probationary, covered by this Agreement.
Effective December 22, 1999 the Employer agrees to contribute Fourteen Dollars
($14.00) per week for each employer on the payroll regular and probationary.
The contributions to the Fund shall be held, managed and administered in
accordance with the current Trust Indenture, or as amended hereafter, of the
said United Wire, Metal and Machine Pension Fund, the terms of which the
Employer hereby ratifies.
The Employer agrees to furnish to the Fund all records pertaining to the
employees which may be required by the Fund for the proper administration
thereof, and the payroll and other pertinent records of the Employer may be
examined by the Union or the Fund, or their representatives, at reasonable
hours, on demand.
It is expressly agreed that the Union and/or the United Wire, Metal and
Machine Health and Welfare Fund shall have the right to cover its or their
employees in the United Wire, Metal and Machine Pension Fund, provided that
the Union and/or the United Wire, Metal and Machine Health and Welfare Fund
shall make contributions to the said Fund, but neither the Union nor the
United Wire, Metal and Machine Health and Welfare Fund shall participate in
the selection
9
<PAGE>
of Employer-Trustees of the United Wire, Metal and Machine Pension Fund. The
Pension Fund may provide coverage for its own employees.
ARTICLE XXVIII
--------------
ANNUITY
-------
Upon certification of the Fund's actuary that the monies are not necessary to
provide the welfare benefit, the Union is authorized to direct payment of the
Welfare Fund percentage, or part thereof, to the United Wire, Metal and
Machine Pension Fund, or a separate annuity fund, at the discretion of the
Trustees, to provide an annuity account payment for each member of the
bargaining unit. The Trustees may establish uniform rules for vesting and
other requirements.
It is agreed and understood that the Employer, during the life of this
Agreement, shall not be required to pay any sums to the annuity plan or
Welfare Fund in excess of this percentage.
ARTICLE XXIX
------------
ENFORCEMENT OF WELFARE AND PENSION CONTRIBUTIONS
------------------------------------------------
In the event the Employer is delinquent in payment of contributions provided
herein to be made to the United Wire, Metal and Machine Health and Welfare
Fund and the United Wire, Metal and Machine Pension Fund, or of dues and/or
initiation fees to the Union, the Employer shall pay interest on the sums so
due at the rate and under such rules as established by the Trustees of the
Fund.
In the event the Employer defaults in the payment of the contributions to the
United Wire, Metal and Machine Health and Welfare Fund or to the United Wire,
Metal and Machine Pension Fund, enforcement thereof may be had by either the
Union or by the Trustees of the Fund, in which event the Employer shall pay,
in addition, to the amount due, reimbursement for all costs and expenses
incurred by the Union or by the Trustees of the Fund, in arbitration suit or
accountant's or auditor's fees, disbursements and interest as specified above.
In the event the Employer defaults in the payment of the contributions herein
provided to be made to the United Wire, Metal and Machine Health and Welfare
Fund, or to the United Wire, Metal and Machine Pension Fund, the Union may
authorize a work stoppage.
Notwithstanding any other provision of this Agreement relating to arbitration,
the parties specifically agree that any claim made by the Union for failure by
the Employer to pay contributions to the United Wire, Metal and Machine Health
and Welfare Fund or to the United Wire, Metal and Machine Pension Fund, or for
failure to pay initiation fees and/or dues to the Union, may be submitted upon
three (3) calendar days notice to arbitration as hereinabove provided to the
Impartial Chairman as designated by the Trustees of the Funds.
ARTICLE XXX
-----------
WAGES
-----
A. All Employees of HTM employed as of January 22, 1997 shall receive an
increase of four percent (4%) an hour, which wage increase shall amount to no
less than twenty-five cents (25(cents)) per hour, retroactive to January 22,
1997.
B. Effective January 22, 1998 all employees of HTM shall receive an increase
of four percent (4%) of their individual rates, which wage increase shall
amount to no less than twenty-five cents (25(cents)) per hour.
10
<PAGE>
C. Effective January 22, 1999 all employees of HTM shall receive an increase
of three and one-half percent (3 1/2%) of their individual rates, which wage
increase shall amount to no less than twenty-five cents (25(cents)) per hour,
plus C. of L., if any, effective January 22, 1999.
All employees employed on or after January 22, 1997, shall receive rates no
less than the applicable rates specified in Schedule "A" annexed hereto, and
made a part of this Agreement.
If new classifications, unrelated to the classifications provided in said wage
rate Schedule "A" are introduced by the Employer during the life of this
Agreement such new classifications shall be negotiated. In the event the
parties hereto fail to agree, the matter shall be submitted to arbitration in
accordance with the Arbitration provisions provided for in the Agreement.
ARTICLE XXXI
------------
VACATIONS
---------
Paid vacations shall be given to employees in accordance with the following
schedule.
Vacation
Length of Service --------
----------------- 5 days
12 months 6 days
12-15 months 7 days
15-18 months 8 days
18-21 months 9 days
21-24 months 10 days
24 months to 5 years 14 days
5 years to 6 years 16 days
6 years to 10 years 17 days
10 years to 15 years 19 days
15 years or more
Said vacations shall be computed as of the contract date (January 22nd) in
accordance with a vacation schedule to be mutually agreed upon by the Union
and the Employer.
An employee who has worked for a period of seven (7) months from January 22nd,
during the vacation year shall be entitled to his full vacation. It is
distinctly understood and agreed that the purpose of this paragraph is that
seven (7) months' work be considered the equivalent of one (1) year for the
purposes of full vacation pay.
An employee shall receive an extra day's vacation or shall be paid an extra
day's pay for a paid holiday which falls within his vacation period.
It is agreed that the vacation provided for herein shall be deemed for
employees employed for seven (7) months or more wages earned during each month
of the year and accumulated as deferred wages and payable to said employee or
his heirs immediately upon the earliest of any of the following occurrences:
a. The last working day prior to vacation.
b. Death.
c. Cessation of plant operations, sale, transfer or removal of
the business or discontinuance of operation by the Employer
for any reason.
11
<PAGE>
d. Thirty (30) days after an employee's employment is
terminated for any reason whatsoever except terminated for
cause.
This provision is intended to preserve the preferential rights of the
employees and not to create, alter, modify or eliminate any rights of the
employees under the applicable Unemployment Insurance Statute.
ARTICLE XXXII
-------------
ASSIGNMENT OF CONTRACT
----------------------
The parties agree that this Contract may be assigned by the Union to a
successor Union, and such assignment shall be binding upon the Employer
immediately upon the giving of notice by registered mail to that effect, in
which event the successor Union shall be the beneficiary of all the terms,
conditions and covenants hereof and assume all obligations hereunder.
The Employer agrees that this Contract and any assignment thereof shall be
binding upon his successor and assigns, regardless of the name or entity under
which such successors and assigns may conduct business.
ARTICLE XXXIII
--------------
COST OF LIVING
--------------
A cost of living adjustment will be determined in accordance with the changes
of the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers,
issued by the Bureau of Labor Statistics of the U.S. Department of Labor,
between said Index as of December 1997 and December 1998.
If as of December 1998, the Index shows a rise of over two (2) points between
December 1997 and December 1998, each employee in the bargaining unit who is
employed on January 22, 1999, shall receive One Cent ($.01) per hour for each
point of such excess, or part thereof, effective January 22, 1999.
ARTICLE XXXIV
-------------
JURY DUTY
---------
In the event a non-probationary employee is called for and reports for Jury
Duty, he shall be paid for time necessarily lost because of Jury Duty, the
difference between his regularly scheduled shift hours (less any regularly
scheduled shift hours actually worked on the day involved) times his payroll
rate and the daily jury fee paid by the Court. In order to receive payment
under this provision, an employee must give the Company seven (7) days prior
notice that he has been summoned for Jury Duty and furnish satisfactory
evidence from the Commissioner of Jurors or the Court of jurisdiction that
jury duty was performed on the day or days for which he claims such payment.
For the purposes of this provision "regularly scheduled shift hours" are
limited to a maximum of eight (8) hours per day. The provisions herein are not
applicable to an employee who, without being summoned, volunteers for Jury
Duty.
ARTICLE XXXV
------------
PLANT REMOVAL
-------------\
In the event the plant of the Employer is moved thirty-five (35) miles or more
from the present location, the Employer shall pay to employees with three (3)
years or more of seniority as well as those employees with three (3) years or
more seniority who are on layoff or leave of absence for six (6) months or
less at the time the plant permanently shuts down its operations at is present
location and who do not choose to work at the new location, severance pay in
accordance with the following formula:
12
<PAGE>
Years of Service Severance Pay
---------------- -------------
3 years but less than 5 years 80 hours pay
5 years but less than 7 years 120 hours pay
7 years but less than 10 years 160 hours pay
10 years or more 200 hours pay
Employees who choose to follow their job to a new location shall not suffer
reduction in pay or benefits.
ARTICLE XXXVI
-------------
PAID SICK LEAVE
---------------
A. Employees who are employed one (1) year but less than two (2) years as of
January 21 during the terms hereof shall be entitled to two (2) days paid sick
leave at eight (8) hours straight time during the Contract year.
B. Employees who are employed two (2) years but less than three (3) years as
of January 21 during the term hereof shall be entitled to four (4) days' paid
sick leave at eight (8) hours straight time during the Contract year.
C. Employees who are employed three (3) years but less than five (5) years as
of January 21 during the term hereof shall be entitled to five (5) days' paid
sick leave at eight (8) hours straight time during the Contract year.
D. Employees who are employed five (5) years or more as of January 21 during
the term hereof shall be entitled to six (6) days paid sick leave at eight (8)
hours straight time during the contract year.
E. Employees who complete one (1) year, two (2) years, three (3) years or five
(5) years of service during the Contract year shall have their sick leave
allotments pro-rated to the nearest January 21.
F. Unused sick leave shall be paid at the end of each Contract year.
ARTICLE XXXVII
--------------
MOURNING PERIOD
---------------
Each employee shall be entitled to three (3) days mourning period with full
pay for each occurrence for lost time in the event of a death in his immediate
family. Immediate family shall consist of spouse, children, father, mother,
sister, brother, grandparent, mother-in-law, father-in-law or grandchildren.
ARTICLE XXXVIII
---------------
GENERAL PROVISIONS AND EFFICIENCY TO MEET COMPETITION
-----------------------------------------------------
A. There shall be no discrimination against any employee because of his acting
as an officer of the Union, Steward or Committeeman or because of any other
activities in the interest of the Union.
B. All provisions, conditions and terms of this Agreement shall bind, apply to
and inure to the benefit of the respective parties, their successor, assignees
or transferees.
C. A permanent employee who engages in any production or maintenance work must
become a member of the Union pursuant to "ARTICLE II" of this Agreement.
13
<PAGE>
D. The parties hereto realize that it is to their mutual interest to maintain
the Company in a competitive position in the Industry and there shall be no
limitation on production by any of the employees nor shall the output of any
present or newly installed machine be restricted.
E. The Company shall have the right to determine the size of the working
force, and all layoffs and reductions in staff shall be in the Company's
discretion, except as limited by the express provisions of this Contract.
F. The Company may continue and may from time to time make such work rules and
changes as it may deem necessary and proper for the conduct of its business,
provided that the same are not inconsistent with any of the express provisions
of this Agreement.
ARTICLE XXXIX
-------------
LABOR MANAGEMENT COMMITTEE
--------------------------
A Labor-Management Committee is to be maintained for the purpose of promoting
good management-labor relations, improving efficiency, curtailing absenteeism,
promoting safety conditions and good sanitary conditions.
ARTICLE XL
----------
SAFETY PROVISIONS
-----------------
The Employer agrees to institute appropriate programs to assure that first aid
kits are properly maintained.
ARTICLE XLI
-----------
TERMINATION
-----------
This Agreement shall be effective from January 22, 1997 until midnight of
January 21, 2000, and thereafter from year to year, unless either party shall
notify the other by certified mail at least sixty (60) days prior to the end
of the current term, or as the case may be, sixty (60) days prior to the end
of any additional Contract year, of an intention to make changes in or
terminate this Agreement.
Negotiations for a new Contract, as herein provided, shall be on the
Employer's time and employees engaged in such negotiations shall suffer no
loss of pay.
Grievance or other claims existing at the time of the termination of this
Contract shall survive such termination and shall be enforceable pursuant to
"ARTICLE XVIII", hereof.
ARTICLE XLII
------------
SAVING CLAUSE
-------------
In the event that any Federal or State Legislation, governmental regulations
or court decisions cause invalidation of any Article or Section of this
Agreement, all other Articles and Sections not so invalidated shall remain in
full force and effect.
Upon a clause being so invalidated, the parties to this Agreement shall meet
in order to negotiate a replacement of no less than equal value of the clause
so invalidated. If the parties fail to reach an agreement as to a replacement
clause, the matter may be submitted to arbitration as provided for in this
Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the date first above indicated.
HAUPPAGE RECORD MANUFACTURING CO.,
A WHOLLY OWNED SUBSIDIARY OF
ALLIED DIGITAL TECHNOLOGIES CORP. - HTM
Recommended By:
By:
- ---------------------------------- ----------------------------------
Donna Santoro, Delegate
LOCAL 810, STEEL, METALS, ALLOYS AND
HARDWARE FABRICATORS AND
Committee: WAREHOUSEMEN, affiliated with
INTERNATIONAL BROTHERHOOD OF
TEAMSTERS.
- ----------------------------------
By:
----------------------------------
- ---------------------------------- Louis Smith, President
- ----------------------------------
- ----------------------------------
- ----------------------------------
- ----------------------------------
- ----------------------------------
- ----------------------------------
- ----------------------------------
15
<PAGE>
HTM
---
SCHEDULE "A"
------------
THROUGH THE PERIOD ENDING JUNE 30, 1997:
- ----------------------------------------
After
Starting Probationary
Classification Rate Period
---- ------
General Help 5.15 5.30
Machine Operator 5.25 5.50
General Helpers promoted to Machine Operator shall receive twenty-five cents
(25(cents)) after thirty (30) days.
EFFECTIVE JULY 1, 1997:
After
Starting Probationary
Classification Rate Period
---- ------
General Help 5.25 5.40
Machine Operator 5.35 5.60
General Helpers promoted to Machine Operator shall receive twenty-five cents
(25(cents)) after thirty (30) days.
16
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
PRO FORMA
UNAUDITED
TWELVE NINE SEVEN MONTHS YEAR
MONTHS MONTHS YEAR YEAR YEAR ENDED ENDED
ENDED ENDED ENDED ENDED ENDED JULY 31, DECEMBER 31,
APRIL 30, APRIL 30, JULY 31, JULY 31, JULY 31, --------------- ---------------
1998 1998 1997 1996 1995 1994 1993 1993 1992
---------- --------- -------- -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes....................... $ (2,070) $ 4,506 $2,427 $ (8,120) $ 252 $ (33) $4,142 $7,702 $6,458
Interest expense.............. 11,278 3,198 4,787 5,749 3,258 1,137 565 984 284
Amortization of deferred
financing costs............. 540 161 238 163 279
Interest portion of rental
expense..................... 1,610 1,205 1,681 1,535 1,418 532 505 888 552
---------- --------- -------- -------- -------- ------ ------ ------ ------
Earnings (loss)............... $ 11,358 $ 9,070 $9,133 $ (673) $5,207 $1,636 $5,212 $9,574 $7,294
---------- --------- -------- -------- -------- ------ ------ ------ ------
Interest expense.............. 11,278 3,198 4,787 5,749 3,258 1,137 565 984 284
Amortization of deferred
financing costs............. 540 161 238 163 279
Interest portion of rental
expense..................... 1,610 1,205 1,681 1,535 1,418 532 505 888 552
---------- --------- -------- -------- -------- ------ ------ ------ ------
Fixed charges................. $ 13,428 $ 4,564 $6,706 $ 7,447 $4,955 $1,669 $1,070 $1,872 $ 836
---------- --------- -------- -------- -------- ------ ------ ------ ------
Ratio of earnings to fixed
charges..................... 1.99x 1.36x 1.05x 4.87x 5.11x 8.72x
---------- --------- -------- -------- -------- ------ ------ ------ ------
Deficiency.................... $ 2,070 $ 8,120 $ 33
---------- --------- -------- -------- -------- ------ ------ ------ ------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated October 24, 1997 (except for Note 14, as to
which the date is May 12, 1998) accompanying the consolidated financial
statements and schedule of Allied Digital Technologies Corp. and subsidiaries
'Allied' contained in the Registration Statement and Prospectus on Amendment No.
1 to Form S-2 (File No. 333-56173), and Form 10-K of Allied for the fiscal year
ended July 31, 1997. We consent to the inclusion and incorporation by reference
of the aforementioned report in the Registration Statement and Prospectus, and
to the use of our name as it appears under the caption 'Experts.'
GRANT THORNTON LLP
Melville, New York
July 23, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in this Registration Statement File No. 333-56173 on Form S-2 and to
the incorporation by reference in this Registration Statement of our report
dated November 9, 1995 included in Allied Digital Technologies Corp's. Form 10-K
filing for the year ended July 31, 1995 and to all references to our Firm
included in this Registration Statement, including under the caption 'Experts.'
ARTHUR ANDERSEN LLP
Detroit, Michigan
July 23, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305 (b) (2)
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Barbara McCluskey, Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
ALLIED DIGITAL, INC.
(Exact name of obligor as specified in its charter)
New York 11-2574949
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
140 Fell Court
Hauppauge, New York 11788
(Address of principal executive office) (Zip code)
Senior Subordinated Notes
(Title of Indenture Securities)
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the Trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of July 21, 1998
Col. A Col. B
Title of class Amount Outstanding
Not Applicable
2
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Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in
any other securities, of the obligor are outstanding, furnish the
following information:
(a) Title of the securities outstanding under each such other
indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of
Section 310 (b) (1) of the Act arises as a result of the
trusteeship under any such other indenture, including a
statement as to how the indenture securities will rank as
compared with the securities issued under such other indenture.
Item 5. Interlocking directorates and similar relationships with the obligor
or underwriters.
If the trustee or any of the directors or executive officers of the
trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the
nature of each such connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its
officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director,
partner, and executive officer of the obligor:
As of July 21, 1998
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
- -------------- -------------- -------------- ---------------------
Not Applicable
3
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Item 7. Voting securities of the trustee owned by underwriters or their
officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and
each director, partner and executive officer of each such
underwriter:
As of July 21, 1998
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
- -------------- -------------- -------------- ---------------------
Not Applicable
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the obligor
owned beneficially or held as collateral security for obligations in
default by the trustee:
As of July 21, 1998
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or securities represented by
held as collateral amount given in Col. C
security for
obligations in
default
- -------------- -------------- -------------- ---------------------
Not Applicable
4
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Item 9. Securities of underwriters owned or held by the trustee.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the
obligor, furnish the following information as to each class of
securities of such underwriter any of which are so owned or held by
the trustee:
As of July 21, 1998
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or securities represented by
held as collateral amount given in Col. C
security for
obligations in
default
- -------------- -------------- -------------- ---------------------
Not Applicable
Item 10. Ownership or holdings by the trustee of voting securities of certain
affiliates or Securityholders of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the
knowledge of the trustee (1) owns 10 percent or more of the voting
securities of the obligor or (2) is an affiliate, other than a
subsidiary, of the obligor, furnish the following information as to
the voting securities of such person:
As of July 21, 1998
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or securities represented by
held as collateral amount given in Col. C
security for
obligations in
default
- -------------- -------------- -------------- ---------------------
Not Applicable
5
<PAGE>
Item 11. Ownership or holdings by the trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the
knowledge of the trustee, owns 50 percent or more of the voting
securities of the obligor, furnish the following information as to
each class of securities of such any of which are so owned or held
by the trustee:
As of July 21, 1998
Col. A Col. B Col. C
Nature of Indebtedness Amount Outstanding Date Due
---------------------- ---------------------- ----------------------
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is indebted to
the trustee, furnish the following information:
As of July 21, 1998
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or securities represented by
held as collateral amount given in Col. C
security for
obligations in
default
- -------------- -------------- -------------- ---------------------
Not Applicable
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to
the securities under this indenture. Explain the nature of any
such default.
Not Applicable
6
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(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, or is trustee for more than one outstanding series
of securities under the indenture, state whether there has been
a default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any
such default.
Not Applicable
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe each
such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to
be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the Trustee to
Commence Business (Included in Exhibit I above).
*3. A copy of the Authorization of the Trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission
File No. 22-19146).
*4. A copy of the existing By-Laws of the Trustee, as amended to
date (See Exhibit 4 to Form T-1, Securities and Exchange
Commission File No. 22-19146).
7
<PAGE>
5. A copy of each Indenture referred to in Item 4, if the Obligor
is in default. Not Applicable.
6. The consent of the United States institutional trustee required
by Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor and its
directors or officers, the trustee has relied upon information
furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2,
the answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to
Items 1, 2 and 16 of this form since to the best knowledge of the
trustee as indicated in Item 13, the obligor is not in default under
any indenture under which the applicant is trustee.
<PAGE>
Exhibit 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the proposed
issue of Allied Digital, Inc. Senior Subordinated Notes, we hereby
consent that reports of examinations by Federal, State, Territorial,
or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Barbara McCluskey
------------------------------
Barbara McCluskey
Vice President
Dated: July 21, 1998
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, IBJ Schroder Bank & Trust Company, a
corporation organized and existing under the laws of the State of
New York, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of
New York, on the 21st day of July, 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Barbara McCluskey
------------------------------
Barbara McCluskey
Vice President
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of March 31, 1998
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
------------
ASSETS
<S> <C> <C>
1. Cash and balance due from depository institutions:
a. Non-interest-bearing balances and currency and coin ....................................................$ 29,353
b. Interest-bearing balances.................................................................................$ 15,329
2. Securities:
a. Held-to-maturity securities...............................................................................$ 186,942
b. Available-for-sale securities.............................................................................$ 102,403
3. Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries
and in IBFs:
Federal Funds sold and Securities purchased under agreements to resell........................................$ 176,231
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................................$ 1,673,749
b. LESS: Allowance for loan and lease losses...............................................$ 63,611
c. LESS: Allocated transfer risk reserve...................................................$ -0-
d. Loans and leases, net of unearned income, allowance, and reserve..........................................$ 1,610,138
5. Trading assets held in trading accounts.......................................................................$ 584
6. Premises and fixed assets (including capitalized leases)......................................................$ 2,575
7. Other real estate owned.......................................................................................$ 819
8. Investments in unconsolidated subsidiaries and associated companies...........................................$ -0-
9. Customers' liability to this bank on acceptances outstanding..................................................$ 503
10. Intangible assets.............................................................................................$ -0-
11. Other assets..................................................................................................$ 61,923
12. TOTAL ASSETS..................................................................................................$ 2,186,800
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
13. Deposits:
a. In domestic offices.......................................................................................$ 659,051
(1) Noninterest-bearing ....................................................................$ 288,134
(2) Interest-bearing .......................................................................$ 370,917
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................................$ 1,141,113
(1) Noninterest-bearing ....................................................................$ 19,428
(2) Interest-bearing .......................................................................$ 1,121,685
14. Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and Agreement
subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase....................................$ -0-
15. a. Demand notes issued to the U.S. Treasury..................................................................$ 5,000
b. Trading Liabilities.......................................................................................$ 344
16. Other borrowed money:
a. With a remaining maturity of one year or less.............................................................$ 61,953
b. With a remaining maturity of more than one year...........................................................$ 1,763
c. With a remaining maturity of more than three years........................................................$ 2,242
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding......................................................$ 503
19. Subordinated notes and debentures.............................................................................$ -0-
20. Other liabilities.............................................................................................$ 70,344
21. TOTAL LIABILITIES.............................................................................................$ 1,942,313
22. Limited-life preferred stock and related surplus..............................................................$ N/A
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................................................$ -0-
24. Common stock..................................................................................................$ 29,649
25. Surplus (exclude all surplus related to preferred stock)......................................................$ 217,008
26. a. Undivided profits and capital reserves....................................................................$ (2,291)
b. Net unrealized gains (losses) on available-for-sale securities............................................$ 121
27. Cumulative foreign currency translation adjustments...........................................................$ -0-
28. TOTAL EQUITY CAPITAL..........................................................................................$ 244,487
29. TOTAL LIABILITIES AND EQUITY CAPITAL..........................................................................$ 2,186,800
</TABLE>
