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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997 COMMISSION FILE NO. 1-10739
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SENSORMATIC ELECTRONICS CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 34-1024665
(State of Incorporation) (I.R.S. Employer Identification Number)
951 YAMATO ROAD
BOCA RATON, FLORIDA 33431-0700
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 561-989-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No __
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
The aggregate market value of Common Stock held by non-affiliates of the
Registrant as of September 19, 1997 was $1,016,859,195.
As of September 19, 1997, there were 74,288,369 shares of the common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive proxy statement for the Company's 1997 Annual Meeting of Stockholders
(incorporated in Part III to the extent provided in Items 10, 11, 12 and 13
hereof).
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Founded in 1966, Sensormatic Electronics Corporation is a fully integrated
supplier of electronic security systems to retailers and commercial, industrial
and governmental ("commercial/industrial") users worldwide. The Company designs,
manufactures, markets and services Electronic Article Surveillance ("EAS")
systems (including the reusable hard tags and disposable labels used with such
systems), and Integrated Security Systems ("ISS") which include Closed Circuit
Television ("CCTV") systems (including microprocessor-controlled CCTV systems
and exception monitoring systems), Access Control systems and Intelligent
Tagging and Tracking ("ITT") systems utilizing radio frequency identification
("RFID"). The Company's EAS and CCTV systems and products are used by retailers
to deter shoplifting and internal theft. Sensormatic's CCTV, Access Control and
ITT systems are used by retail and commercial/industrial customers to protect
assets, information and people. Sensormatic is the leader in source tagging, the
process in which EAS labels are incorporated into manufactured articles or
packaging by the manufacturer or distributor. The Company's products are
marketed by an extensive worldwide sales and service organization complemented
by a broad network of independent distributors and dealers.
The Company operates in a single business segment. Certain information about the
Company's operations by geographic area is contained in the table under Summary
of Revenues below and in Note 12 of Notes to Consolidated Financial Statements
under Item 8 of this report.
The Company has its principal executive offices at 951 Yamato Road, Boca Raton,
Florida 33431-0700 (561-989-7000). As used in this report, the terms "Company"
and "Sensormatic" refer to Sensormatic Electronics Corporation and its
subsidiaries unless the context indicates otherwise.
STRATEGIC RESTRUCTURING AND OTHER STRATEGIES
Sensormatic has grown from a single technology, single market company with
revenues of less than $100 million in fiscal 1987 to a global provider of
multiple electronic security solutions with revenues in excess of $1 billion in
fiscal 1997. A significant percentage of this growth occurred over the past 5
years. This significant growth in revenues can be attributed in part to internal
product research and development resulting in new proprietary products and
systems, a number of strategic acquisitions and increased market penetration in
existing and new markets. The Company has increased its significant retail
presence worldwide and has emerged as a major worldwide supplier of integrated
electronic security systems to commercial/industrial users.
The rapid growth experienced by the Company in sales, customers and product
diversity and the demands of integrating acquired businesses outpaced the
Company's growth in corporate infrastructure and systems, resulting in excessive
increases in expenses and working capital needs. As a result, during fiscal
1996, the Company launched a long-term strategic restructuring plan (the "Plan")
with the following objectives: (i) expense reduction and asset control, (ii)
improved processes and systems, and (iii) quality growth. The Plan included an
extensive and systematic review of the Company's operations, cost structure and
balance sheet aimed at reducing its operating expenses and manufacturing costs
while increasing efficiencies. This review of the Company's global operations
focused on operational and organizational structures and systems, facilities
utilization, product rationalization, inventory valuation and accounts
receivable balances and related collection efforts. In fiscal 1996, as a result
of the aforementioned initiatives, the Company recorded restructuring and
special charges of $186 million, with an after-tax impact of approximately $118
million.
The Company recently announced additional restructuring actions which include
the divestment of non-core businesses and additional cost-reduction plans, which
mainly include staff reductions within its European operations. These recent
restructuring actions are expected to result in total restructuring charges of
approximately $70 million with an after-tax impact of approximately $50 million.
Approximately $27 million of this restructuring charge has been recorded in the
fourth quarter of fiscal 1997 and the Company expects to
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record the remainder in the first quarter of fiscal 1998. The Company also
recorded special charges in the fourth quarter of fiscal 1997 of $22.1 million
with an after-tax impact of $15.6 million related to the valuation allowances
for accounts receivable and receivables financed with third parties. The
non-core businesses to be divested principally included the Company's U.S.
commercial/industrial direct sales and service business which was sold in
September 1997. The Company elected to exit the commercial/industrial direct
sales and service business due to market conflicts with its indirect sales
channels and the need to focus on products related to the Company's strategy of
total systems integration. See Note 2 of Notes to the Consolidated Financial
Statements and Management's Discussion and Analysis of Results of Operations and
Financial Condition for further discussion.
In connection with its Plan, the Company embarked upon a long-term process
improvement and total quality management program internally referred to as
"Q(3)". The program's objective is to provide superior value for customers,
shareholders and employees, by establishing a culture of "continuous
improvement" in all of the Company's business processes. Q(3) is a multi-year,
enterprise-wide, effort in which the Company is reengineering operations in
every function and business unit globally. In connection with Q(3), the Company
initiated the implementation of a new enterprise-wide management information
system and an extensive internal training program, both of which are expected to
significantly enhance global operational efficiencies and improve customer
service.
The Company is currently organized into four principal sales organizations:
North America Retail, Europe Retail, International Retail (which principally
consists of the Asia Pacific, the Middle East and the Latin America regions) and
Commercial/Industrial Worldwide ("C/I Worldwide"). The Company has formed two
major product line management functions: the EAS Division and the ISS Division.
Both product line management divisions will service commercial/industrial and
retail customers and sales organizations as well as coordinate engineering,
manufacturing and quality control for these two major product groups.
Additionally, the Company has a Global Source Tagging Division, with
responsibility for managing and directing the Company's source tagging
initiatives globally. The Global Source Tagging Division is staffed with sales,
marketing and technical personnel who work globally with major retailers,
manufacturers, packaging companies, licensees, associations and industry
consultants to implement and expand the use of source tagging by manufacturers
and distributors.
STRATEGIC MERGERS AND ACQUISITIONS
Over the past several years, the Company has increased its presence in a number
of the geographic areas in which it markets its products and has expanded into
new geographic areas. Additionally, the Company has expanded its
commercial/industrial business through several strategic acquisitions.
The Company expanded its direct and indirect sales and service efforts in North
America, Europe and certain Asia Pacific and Latin America countries through,
among other things, various acquisitions, particularly of European businesses.
The Company's strategy to expand internationally also has included the use of
distribution arrangements with independent, local businesses in certain
countries, and, in some cases, controlling interest ventures with local
businesses. Currently the Company has controlling interest ventures in Brazil,
Peru and Turkey. The Company acquired its distributors in Mexico, Puerto Rico,
and more recently in Colombia and Argentina. The Company plans to expand into
additional countries in the Middle East, Latin America, Asia, Africa and eastern
Europe using distribution or controlling interest venture arrangements.
In the commercial/industrial area, important acquisitions have included Software
House, Inc. ("Software House"), a designer and marketer of high-end access
control systems; Robot Research, Inc. ("Robot Research"), a manufacturer and
marketer of sophisticated CCTV display and transmission systems; and American
Dynamics, a manufacturer of CCTV components. As a result of these acquisitions,
the Company acquired additional product lines to complement its existing CCTV
and access control products, together with well established dealer/distribution
sales channels. These acquisitions have enabled the Company to integrate certain
product lines thereby improving product compatibility and performance. Software
House, Robot Research and American Dynamics are now managed as part of the ISS
Division.
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The Company also broadened its commercial/industrial customer base with
acquisitions of three regional U.S. electronic security system integrators, Glen
Industrial Communications, Inc., Advanced Entry Systems, Inc. and Security
Specialists of San Francisco, Inc. As previously mentioned, the Company elected
to exit the direct sales and service business to commercial/industrial customers
in the U.S. and in September 1997, completed the sale of its U.S. systems
integration business. This strategic decision will allow the Company to focus on
partnering with dealers and distributors to promote products in the
commercial/industrial markets and thereby lower its distribution and
installation costs while improving customer service.
PRINCIPAL PRODUCTS AND SYSTEMS
Sensormatic's products and systems are focused in four general categories:
- - EAS systems and devices, consisting of electronic detection units which work
in conjunction with specially designed reusable tags and/or disposable labels
and label deactivation units, and benefit denial products. These systems and
devices are most commonly used by retailers to help prevent shoplifting and
reduce inventory shrinkage.
- - CCTV systems, consisting of computer controlled cameras integrated with
sophisticated video switching and transmission products which monitor activity
throughout an establishment for operational safety and/or theft deterrence and
detection purposes.
- - Access Control systems, which are software-based products used to monitor,
protect and track people and assets. These systems electronically regulate
access to facilities.
- - ITT systems, consisting of electronic identification and tracking technologies
which work in conjunction with software-based applications to protect
equipment and assets, as well as track products throughout the supply chain.
EAS Systems
EAS systems come in many different forms and make use of a number of different
technologies. The Company's typical EAS system is comprised of an electronic
detection unit, tags and/or labels and a detacher or deactivator. Detection
units can be installed directly into floors as pedestals or concealed under
floors, mounted on walls or hung from ceilings, and are usually placed in high
traffic areas, such as entrances and exits of stores or office buildings,
distribution centers and/or checkout lanes. Specially designed and sensitized
reusable tags or disposable labels are affixed to or embedded in the merchandise
or assets to be protected. When an active tag or label passes through the
detection unit, the system sounds an alarm, a light is activated and/or other
suitable control devices are set into operation indicating a possible theft in
progress. Tags and labels are available in a variety of shapes, sizes and
configurations. Tags are easily removed from merchandise using a specially
designed detacher, enabling the merchandise or asset to be taken through a
controlled zone without incident, and can then be reused. Labels are deactivated
by a deactivator positioned at the cash register and are generally disposed of
after use. Certain labels can be reactivated with the Company's reactivation
devices.
To satisfy many types of customers on a global basis, the Company offers every
EAS technology type available in addition to the Company's proprietary
technologies. The following is a description of the principal EAS technologies,
as well as the systems and products which incorporate such technologies, offered
by the Company.
Ultra-Max(R) systems utilize a proprietary acousto-magnetic technology which is
the most advanced and rapidly growing anti-theft technology in the world. This
technology is used in over 15 different electronic anti-theft systems sold by
the Company under various brand names including Pro-Max(R), Floor-Max(R),
Euro-Max(TM), Sensor-Max, Mega-Max, MAX Checkout(TM), and Ultra-Post(TM). The
versatility of Ultra-Max enables it to protect assets, merchandise, people,
property and information for retailers and commercial/industrial businesses. The
success of Ultra-Max is attributable to its unique combination of features,
which include freedom from false alarms, unobstructed coverage of wide exits, a
high "pick rate" or ability to detect labels or tags, ease of deactivation,
ability to be reactivated, and ability to work in close proximity to
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metal. This technology's sophisticated electronic capability and the unique
signal from the label or tag virtually eliminate false alarms, a problem often
encountered by retailers using other technologies.
For use in source tagging, the Company markets Ultra-Strip(TM) labels, which are
used in conjunction with Ultra-Max systems and have the performance
characteristics inherent in Ultra-Max. Ultra-Strip labels are the smallest EAS
labels available with wide exit coverage performance and are offered in a
standard and narrow width size. These labels have demonstrated superior pick
rates, are compatible with a wide range of packaging materials and product
substances, including foil and metal, are unaffected by moisture and are well
suited for high-speed manufacturing processes.
SensorStrip(TM) Checkout (the latest generation of AisleKeeper(R)) systems
utilize proprietary advanced magnetostrictive technology and standard low
frequency electromagnetic technology. These systems are designed to protect
high-theft items in supermarkets and hypermarkets around the world as well as
bookstores, libraries, health clubs, liquor stores and video stores. The
magnetostrictive technology sold by the Company includes SensorStrip Checkout
and SensorStrip Checkout Plus (formerly known as AisleKeeper and AisleKeeper II,
respectively, in the U.S., and as Checkout Control and Checkout Control II,
respectively, in Europe). The SensorStrip Checkout Plus is especially engineered
to comply with the Americans with Disabilities Act ("ADA") as well as the
European Disabilities Acts ("EDA"). The standard SensorStrip label is a thin
micromagnetic wire encapsulated in transparent tape attached to merchandise
which is passed around the system during the checkout process or, with certain
versions, can be deactivated by a device which may be fitted in the conveyor
belt at a checkout station. Like Ultra-Max, Sensormatic's electromagnetic
technology supports source tagging programs.
Microwave systems are anti-shoplifting systems that utilize high radio frequency
technology. Microwave systems protect wide exits and are widely used by
department stores and soft goods (apparel merchandisers) specialty retailers.
These systems are marketed under the names of MicroMax(R), SlimLine(R), and
Sensormat(R) II and offer a variety of features and benefits, such as concealed
protection which allows for wide exit, flexible installations which can fit in
multiple store configurations, and a variety of lightweight tags and labels.
Microwave systems are the most widely used technology with soft good retailers
and represents the largest potential for upgrade to Ultra-Max.
Swept-RF or swept radio frequency systems utilize low radio frequency technology
and are principally used to cover single door exits. The Company markets this
technology under the brand name of System One(R).
Benefit Denial products are non-electronic anti-theft devices that, when
tampered with, can destroy or damage valuable merchandise or otherwise make it
unfit for resale or use, thereby reducing the incentive to steal. Benefit denial
products can be used alone or in conjunction with other anti-theft systems to
provide an incremental level of security for retailers. The Company's Inktag(R)
and Microlock(R) products are part of a family of benefit denial products. The
Company's Inktag products are fastened to clothing and other soft goods in the
retail market. When unauthorized removal of an Inktag product is attempted, the
vials of ink inside the unit break and stain the merchandise. The Company's
Inktag products are sold primarily to department, specialty, discount and mass
merchandise stores. The Microlock product is used to protect items such as
eyeglasses and jewelry products by creating physical obstructions to the use of
the merchandise until removed. The Microlock product is designed for use
primarily in department, specialty, discount, mass merchandise, jewelry, optical
and drug stores.
CCTV Systems
CCTV video surveillance systems are used by a wide-variety of businesses,
industries and government agencies to protect against inventory shrinkage in
retail businesses and for the protection and monitoring of personnel and assets
in office and manufacturing complexes, hospitals, casinos, nuclear facilities,
warehouses, and numerous other facilities. Sensormatic's CCTV systems can be
used alone, integrated with other CCTV components or used in combination with
EAS, Access Control and ITT systems. The following is a description of key CCTV
products and systems offered by the Company.
Video cameras can be used indoors and outdoors to monitor, investigate and
record events. The Company offers multiple types of cameras which include fixed,
pan/tilt/zoom and the more sophisticated SpeedDome(R)
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cameras. These cameras include digital and high resolution color or monochrome
features. SpeedDome cameras have advanced surveillance features which include
the ability to deliver high resolution images of stationary or moving objects
and focus on objects at a distance in low light conditions, as well as the
ability to acquire, zoom and focus on targets in less than one second. SpeedDome
cameras may be integrated with other Sensormatic products to create a more
comprehensive overall security program.
Video switchers/controllers are used to switch cameras to view an object in
response to an alarm or at an operator's command. The Company markets a full
line of video switchers/controllers, ranging from systems which can support up
to sixteen cameras to more complex systems which support over 1,000 cameras.
Video switchers/controllers are marketed under various brand names including
high-end video switchers/controllers such as the AD2050 (1,024 cameras/128
monitors) and AD 2052 (512 cameras/32 monitors) used in large complex
configurations and the more retail oriented family of products consisting of
View Manager 8, View Manager 16 and View Manager(R) 96 ("VM96"), which when used
with a Touch Tracker(R) keyboard, can control 8, 16, and 96 cameras,
respectively. The VM96 is a PC-based switcher/controller which can be programmed
to automatically pan, tilt and zoom cameras in response to an alarm or at an
operator's command.
Video multiplexers provide for sophisticated video manipulation of up to 16
video inputs recorded to a single VCR. This technology captures high quality
video from multiple cameras, providing for security surveillance of multiple
areas within a facility to be viewed on a single video monitor.
Video transmission systems allow for the capability to remotely view stores,
warehouses, and other facilities and are marketed under the SensorLink(TM) PC or
HyperScan(R) Ultra brand names. These video transmission systems are PC based
and can be operated over standard telephone lines or the ISDN ("Integrated
Services Digital Network"), allowing users to view video images and/or control
and operate cameras, alarm inputs, and relay controls from remote locations.
SensorLink PC and HyperScan(R) allow users to view up to sixteen cameras
simultaneously.
Intelligent Digital Video systems search video recordings, and based on
parameters set by the user, locate and playback preprogrammed alarm events,
light levels changes, or special types of motion normally associated with a
security breach. Proprietary video tools provide image magnification and
enhancement to further improve alarm event analysis and documentation.
Intelligent digital video systems are marketed under the brand name
Intellex(TM).
Access Control Systems
Access Control systems are designed to monitor, control and appropriately
authorize passage (pedestrian or vehicular) into and out of designated areas. In
a typical access control system application, each individual is issued a badge
and inserts or swipes the badge at a door reader to gain access to buildings,
rooms, etc. The Company's Access Control systems offer a variety of features and
benefits such as environmental security of people, assets and information,
automatic data collection and report generation. Access control systems can be
integrated with CCTV, alarm and ITT systems, thus providing for additional
security and protection.
The Company offers a full line of Access Control systems to address a wide range
of customers and their requirements. Systems include the C-CURE 1 Plus Ultra, a
high end integrated security system that monitors and controls entrances and
exits with a fully embedded photo imaging system; C-CURE 800, a mid-range
integrated access control and security management system allowing manual control
and viewing from display screens; and EZ 2000 Entry(TM), a small facility
software application that manages access control and alarm monitoring. These
systems range in capacities from two readers with 3,000 cardholders up to 2,048
readers with 250,000 cardholders.
Intelligent Tagging and Tracking Systems
ITT systems are new and important emerging product lines within Sensormatic
which utilize "smart" tags that combine the security benefits of conventional
EAS tags with the intelligence capabilities of RFID. RFID chips provide a
miniature database able to store variable data, such as warranty information,
time, date, and location of sale or manufacture. ITT systems will combine
existing proprietary asset protection and access control applications with RFID
tags and software to create a complete range of sensing and tracking solutions
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which can be used to protect and track assets in commercial/industrial and
retail environments. Asset management, service, warranty, lease information,
perpetual inventory management, and reverse logistics management are some of the
applications to be provided by ITT systems.
The SenTrac ID(TM) system utilizes RFID tags or transponders attached to or
imbedded within employee access badges, vehicles or other objects. When access
into restricted areas is attempted, the coded information contained within the
transponder is revealed on a computer screen to security personnel and others.
The SenTrac ID system can function individually or in an integrated security
network. It was this technology, integrated with CCTV and access control
biometric hand readers, that was utilized at the 1996 Olympic Games.
Consolidated revenues by principal products and systems for the years ended June
30, 1997, 1996 and 1995 are as follows (in millions):
CONSOLIDATED REVENUES BY PRINCIPAL PRODUCTS AND SYSTEMS
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YEARS ENDED JUNE 30,
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1997 1996 1995
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EAS......................................................... $ 533.0 $542.2 $511.2
CCTV........................................................ 314.6 297.5 255.7
Access Control/ITT.......................................... 60.7 60.8 46.1
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Subtotal.......................................... 908.3 900.5 813.0
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Installation, Maintenance and Other......................... 117.4 94.1 76.1
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Total............................................. $1,025.7 $994.6 $889.1
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MARKETS AND MARKETING STRATEGY
Markets
The Company principally markets its EAS products and systems directly to
retailers. In many retail environments, the use of EAS systems has become a
standard operating practice because these products and systems have proven to be
a cost-effective method of reducing inventory shrinkage. Inventory shrinkage is
often the second largest variable operating expense of retailers, after payroll
costs, and normally ranges from 1% to 5% of sales. EAS products and systems help
improve a retailer's profitability not only by reducing inventory shrinkage, but
also by allowing the use of open merchandising which increases product exposure.
EAS products and systems were first used by soft goods retailers to protect
clothing. Due to technological advances, applications for hard goods merchandise
(non-apparel merchandise) have become economical and effective. Retailers, such
as supermarkets, hypermarkets, home improvement centers, drug, mass merchandise,
optical, music, hardware, book, video, and entertainment stores, have
increasingly become users of EAS products and systems. According to independent
estimates, approximately 30% of the money spent on security is for EAS systems.
The Company estimates that it holds a significant market share of this worldwide
EAS market. Retailers also make extensive use of CCTV products and systems to
enhance security and the safety of their operations as well as access control
systems.
Several of the newer EAS technologies used by retailers are used in
commercial/industrial markets to protect assets such as personal computers,
facsimile and copy machines, telephones, artwork, limited access files, and
portable laboratory equipment and tools from loss by unauthorized removal. Other
specialized applications include the protection of newborn infants in hospitals
and patients in nursing homes and other long-term care facilities.
Commercial/industrial installations of the Company's CCTV, Access Control and/or
ITT products and systems range from small to medium size businesses to large
domestic and international operations and businesses. The Company has
historically marketed its CCTV, Access Control and ITT products and systems both
directly to end user customers and indirectly through distributors and dealers
to the commercial/
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industrial markets. As previously discussed, the Company is exiting the
commercial/industrial direct sales and service business in the U.S. and in
September 1997 completed the divestiture of its U.S. commercial/ industrial
direct sales organization. The Company plans to focus on partnering with dealers
and distributors to promote its products in the commercial/industrial markets.
The Company has a broad range of electronic security products and systems, and
businesses in general are increasingly receptive to the Company's ability to
design, supply, install and service integrated security systems that combine the
technologies of the Company's various products and systems. The Company supplies
96 of the top 100 retailers in the world and over half of the Fortune 500
companies use its products.
Marketing Strategy
The Company's principal marketing strategies are as follows:
1. Ultra-Max technology expansion
The Company has focused its marketing and sales efforts on the promotion of
Ultra-Max technology to relatively unpenetrated markets such as food and hard
goods retailers. The Company is also capitalizing on its significant market
share among soft goods retailers to transition from older EAS technology to
Ultra-Max. The broader utilization of Ultra-Max is expected to provide retailers
source tagging opportunities in all merchandise categories.
2. Recurring label sales
The sale of EAS systems and devices to hard goods retailers, where the potential
for growth remains great, has been a contributing factor in the Company's growth
in recent years. Hard goods merchandise is protected with labels which leave the
store with the merchandise, representing a major source of recurring revenues to
the Company. Labels may be self-adhesive, stick-on labels which are attached to
merchandise by the retailer or applied at the point of manufacture or
distribution.
3. Source tagging
The Company has formed relationships with manufacturers and a number of its
retail customers around the world, from various segments of soft goods and hard
goods retailers (including music retailers, drug stores, home improvement
centers, supermarkets and discount stores), to enable merchandise to be
protected at the source. Source tagging is intended to help retailers increase
product sales and profitability through open merchandising and product exposure,
reduce shrinkage, and reduce costs by eliminating the need for sales associates
to apply security tags and labels to merchandise. Currently more than 500
vendors in the U.S. and more than 1,300 worldwide participate in source tagging
with the Company's Ultra-Max and electromagnetic based labels. The Company
estimates that in 1997, these suppliers provided U.S. and international
retailers with more than 430 million source tagged labels. The increased
utilization of source tagging is expected to result in increased label sales
and/or royalty income as well as increased system sales.
4. Licensing label production
The Company has entered into license agreements with leading label producing
companies, such as Avery Dennison and Wallace Computer Systems, which will
manufacture the Company's Ultra-Strip labels. The licensing agreements allow the
Company to gain efficiencies in label manufacturing, distribution and
application for source tagging that will reduce the overall cost of source
tagging programs to retailers and suppliers as well as reduce its capital
investment in label manufacturing. These agreements are expected to result in a
broader distribution of Ultra-Strip labels and, therefore, facilitate the growth
of Ultra-Max technology, as well as allow Sensormatic to focus on systems and
security solutions. Recurring revenue to the Company will be provided from
royalty fees paid by the licensees.
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5. Commercial/Industrial markets
Through C/I Worldwide, the Company intends to further expand into
commercial/industrial markets. C/I sales personnel partner with dealers and
distributors to target major national and global customers and offer complete
integrated security solutions. As part of the Company's strategy to highlight
its expansion into commercial/industrial markets, Sensormatic was the first ever
official electronic security supplier to the 1996 Olympic Games (the "Games") in
Atlanta. The Company provided the electronic security technology, including
CCTV, Access Control, and ITT systems, to the highly secured areas. The Olympics
represented the largest security installation in the world covering 46 venues
throughout the U.S.
6. Integrated security solutions
The Company is focusing its efforts on the further development of integrated
security solutions for retail and commercial/industrial users and has formed the
ISS Division to coordinate and monitor the engineering, manufacturing and
quality control efforts of CCTV, Access Control and ITT systems. The Company has
greatly expanded its product group beyond retail only products, with its CCTV
and Access Control Product lines. A key example is Intellex, the first
"intelligent" CCTV display, record and analysis system on the market, and winner
of the Security Industry Association's 1997 "Judge's Choice" award.
Additionally, ITT systems, which utilize smart tags that combine the benefits of
conventional EAS tags with the intelligence capabilities of RFID technology, are
key development projects for Sensormatic. The Company is also combining its
resources with other partners, such as Texas Instruments, Paxar and Micron
Communications, Inc. as part of its product development efforts.
SALES AND SERVICE ORGANIZATION AND DISTRIBUTION
At June 30, 1997, the Company employed a total of 3,140 sales and customer
engineering personnel worldwide to market and service its products directly to
retail and commercial/industrial customers. In addition, the Company's products
are marketed and serviced by a large network of sales and customer engineering
personnel employed by dealers and distributors throughout the world. Sales and
service personnel are directed from offices located throughout the U.S. and in
more than 80 countries worldwide. The Company believes that a major factor in
its success has been the high quality of its extensive and experienced sales and
service organization.
The Company has organized its sales force into specialized sales groups to
market its systems to specific customer groups. For example, in addition to the
C/I Worldwide business unit and the Global Source Tagging Division specialized
sales groups, retail specialized sales groups have been created to target the
supermarket industry and key soft goods retailers in the U.S. Similar
specialization, concentrated on self-service stores and hypermarkets, has
occurred in Europe. The Company will continue to specialize its sales force and
believes such specialization will accelerate its success in marketing to
targeted user groups and provide improved customer service. Approximately 400
personnel employed in the U.S. commercial/industrial direct sales and service
business were transferred to the purchaser of such operations in September 1997.
C/I Worldwide will retain a smaller sales force which will partner with dealers
and distributors to promote the Company's products and engage in national
marketing.
BACKLOG
As of June 30, 1997 and June 30, 1996, the Company had a backlog of orders for
sales and operating leases of approximately $77.1 million and $101.7 million,
respectively. Backlog includes only firm orders which are expected to be
installed or delivered within one year. Backlog at any time is not necessarily
indicative of the level of business to be expected in the ensuing period. The
1996 backlog was higher than normal levels due to product shortages.
SEASONAL ASPECT OF THE BUSINESS
Although the business of the Company is not necessarily seasonal, it has been
the Company's experience, with respect to its retail customers, that new orders
and installations generally decrease during the December
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<PAGE> 10
through February period. The Company believes this is attributable to the
preoccupation of retail store management with the holiday selling season and
year-end inventory analysis during this period. Additionally, the traditional
European vacation period during the months of July and August results in a
general decline of new orders and installations during this period.
PATENTS AND RELATED RIGHTS
The Company owns or is the exclusive licensee of 201 active patents issued by
the U.S. Patent Office. These patents cover a variety of inventions and
features, including the Company's acoustomagnetic, electromagnetic, microwave,
swept-RF systems and CCTV systems. The Company has 81 patent applications
pending in the U.S. for various other inventions relating to its products.
Patents corresponding to many of the U.S. patents have been issued or are
pending in various foreign countries. There can be no assurance that any patents
will be issued to the Company on any of its pending applications. The Company is
also a non-exclusive licensee under certain patents issued in the U.S. and
various foreign countries relating to the manufacture, use and sale of certain
labels for use with its electromagnetic systems.
The Company does not make any representation as to the scope, validity or value
of any patents which have been or may be issued or licensed to it or as to the
possible infringement by its products on patents owned by others. Although the
Company's patent program is important, the Company believes that because of its
technical knowledge and experience and the abilities of its established and
experienced sales and service organization, it is not dependent upon patent
protection to maintain its leadership in the electronic security industry.
MANUFACTURING
The Company's major production facilities are located in Puerto Rico, Florida
and Ireland. The Company also has a manufacturing facility in Brazil.
Approximately 60% of the Company's production takes place in its Puerto Rico
facility, which accounts for approximately 70% of the manufacturing personnel.
In fiscal 1995 the Company began manufacturing operations in an 80,000 square
foot leased facility located in Cork, Ireland. This facility allows the Company
to manufacture a wide range of products closer to its large European customer
base. Utilization of this facility has increased substantially since its startup
and is expected to continue to increase in the future.
The Company's strategy is to vertically integrate critical manufacturing
processes and to form strategic alliances with independent manufacturing
partners to produce its products at the lowest possible cost. This in-house
capability, combined with such alliances, provides control over costs, quality
and responsiveness to the demands of the market which results in a distinct
competitive advantage. Independent suppliers provide various component products
and materials used to manufacture the Company's products. The Company also
contracts with independent parties for the manufacture of certain component
parts and label products to the Company's specifications. A core supplier base
of approximately 100 major international suppliers has been established
worldwide to maintain a reliable flow of quality materials at the lowest
possible cost.
The Company has improved, and expects to continue to improve, its production
efficiencies and cost structures through new processes, increased automation and
improved product designs. Such improvements, particularly to increase capacity
and lower product costs of EAS products, have required additional capital
investment for new production equipment.
COMPETITION
The electronic security industry continues to be highly competitive. There are
many alternatives available to protect people and assets, in addition to the use
of EAS, CCTV, and Access Control systems. These alternatives include, among
other things, guards and private detective services, mirrors, burglar alarms and
other magnetic and electronic devices, and services combining some or all of the
above elements. To the Company's knowledge, there are several other companies
that market EAS equipment to retail stores directly or through distributors,
such as Sentry Technology Corporation in the U.S., Checkpoint Systems, Inc. in
the U.S., Europe, Latin America and Asia, and Esselte Meto and Nedap B.V. in
Europe, all of which are principal
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<PAGE> 11
competitors of the Company. With respect to CCTV system components, there are
numerous companies, including Philips, Panasonic and Pelco, that market directly
or through distributors such equipment to both retail and non-retail customers.
There are many competing companies in the sale of access control systems,
including CardKey Inc., Westinghouse Electronic Corporation, Northern Computers
Inc. and Casi-Rusco Inc.
The Company competes in marketing its systems and products principally on the
basis of product performance, multiple technologies, service and price. There
can be no assurance that other firms with greater financial and other resources
may not enter into direct competition, or expand the scope of their existing
competition, with the Company.
SALES REVENUE
Direct Sales and Sales-Type Leases
The Company's sales revenues are predominantly generated by direct sales and
sales-type leases of new products and systems. Additionally, the Company
generates sales revenues by export sales of new products and systems to
distributors in foreign countries and through the sale of selected new equipment
to dealers and system integrators.
The Company sells its systems on a current, deferred or installment payment
basis. Substantially all deferred payment obligations are payable within one
year. Installment contract obligations are payable monthly over terms generally
up to five years. Both types of obligations are subject to stated or imputed
interest at prevailing market rates and are generally secured by the purchased
equipment. The Company's sales-type leases consist of non-cancelable leases of
new equipment generally with terms of 60 months or greater. The Company believes
that offering its customers flexible terms, including long-term financing, is an
advantageous competitive marketing program. For each of the three fiscal years
in the period ended June 30, 1997, no single customer accounted for 10% or more
of the Company's consolidated revenues.
Rental and Installation, Maintenance and Other Revenues
The Company also leases systems under non-cancelable operating leases. Such
leases are generally for terms of 36 to 54 months. Additionally, the Company
generates revenues from the installation, service and maintenance of its
systems.
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Summary of Revenues
The following table summarizes the results of the Company's marketing and sales
efforts for each of the five fiscal years in the period ended June 30, 1997.
SUMMARY OF REVENUES
($ in millions)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------
1997(1) 1996(1) 1995(1) 1994 1993
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales:
United States......................... $ 414.3 40% $415.0 42% $372.0 42% $290.9 44% $197.6 41%
International subsidiaries (2)........ 407.0 40 398.2 40 358.9 40 239.7 37 182.1 37
Export to international
distributors........................ 31.7 3 37.6 4 31.5 4 26.8 4 18.4 4
-------- --- ------ --- ------ --- ------ --- ------ ---
853.0 83 850.8 86 762.4 86 557.4 85 398.1 82
Rentals and other:
International subsidiaries'
rentals(2).......................... 52.6 5 47.3 4 49.0 6 44.6 7 44.3 9
United States installation and
maintenance fees.................... 73.4 7 56.0 6 47.0 5 30.3 5 21.4 4
International subsidiaries'
installation and maintenance
fees(2)............................. 44.0 4 38.1 4 29.1 3 21.7 3 21.7 5
Other................................. 2.7 1 2.4 - 1.6 - 2.0 - 1.8 -
-------- --- ------ --- ------ --- ------ --- ------ ---
172.7 17 143.8 14 126.7 14 98.6 15 89.2 18
-------- --- ------ --- ------ --- ------ --- ------ ---
Total............................. $1,025.7 100% $994.6 100% $889.1 100% $656.0 100% $487.3 100%
======== === ====== === ====== === ====== === ====== ===
Total revenues:
United States......................... 490.4 48% 473.4 47% 420.6 47% 323.2 49% 220.8 45%
International subsidiaries(2)......... 503.6 49 483.6 49 437.0 49 306.0 47 248.1 51
Export sales to international
distributors........................ 31.7 3 37.6 4 31.5 4 26.8 4 18.4 4
-------- --- ------ --- ------ --- ------ --- ------ ---
Total............................. $1,025.7 100% $994.6 100% $889.1 100% $656.0 100% $487.3 100%
======== === ====== === ====== === ====== === ====== ===
</TABLE>
- ---------------
(1) For additional information relating to revenues, see "Revenues" under Item
7, Management's Discussion and Analysis of Results of Operations and
Financial Condition.
(2) Includes Europe and other international subsidiaries.
WORKING CAPITAL ITEMS
The Company has historically had a high level of receivables and sales-type
leases outstanding, measured as a percentage of revenues. This results in part
from a key element of the Company's marketing strategy of using its size and
financial strength to increase market penetration by providing alternative
financing options to its retail customers (i.e. vendor financing). This strategy
has given the Company a competitive marketing program and has helped the Company
penetrate markets and increase customer loyalty and commitment to Sensormatic.
The ability to pursue such a strategy results from the Company's relatively high
gross profit margins and the financing programs the Company has put in place
which allow the Company to sell its customer receivables and leases.
PRODUCT RESEARCH, DEVELOPMENT AND ENGINEERING
The Company has increased its research, development and engineering expenditures
during the past decade. The increase in these activities has resulted in the
continued broadening of the systems and technology offered by the Company,
resulting in the expansion of the applications and customer base for the
Company's systems. New product development in all product categories continues
to be a high priority for the Company.
The Company has strengthened its research, development and engineering
activities by increasing its investment in sophisticated engineering equipment,
expanding key consulting relationships throughout the world and substantially
increasing its professional engineering staff, with particular emphasis on
magnetic materials research, digital signal processing and certain application
software development skills. Several of the Company's EAS systems depend on the
use of magnetic materials. Software is another major element in the
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<PAGE> 13
Company's new product designs and manufacturing processes. At June 30, 1997, the
Company employed a staff of 199 engineering professionals, including 68 with
advanced Masters and Ph.D. degrees.
In fiscal 1997, 1996 and 1995, the Company spent approximately $24.5 million,
$27.7 million and $22.7 million, respectively, for research, development and
engineering costs. The reduced level of spending in fiscal 1997 is the result of
planned consolidations and product rationalizations. During fiscal 1998, the
Company expects spending for research, development and engineering to be
approximately 25% higher than in fiscal 1997.
GOVERNMENTAL REGULATION
The Company's traditional EAS systems generate microwaves and are subject to the
Radiation Control for the Health and Safety Act of 1968. The Department of
Health and Human Services has adopted standards for certain microwave equipment
and has continued to monitor and evaluate safe emission levels for microwave and
electronic magnetic fields ("EMF") generated by equipment such as radio and
television transmitters, cellular telephones, household appliances and power
lines. The EMF emissions from the Company's EAS systems are within the levels
permitted by the current U.S. safety standards applicable to such equipment.
Although there can be no assurance that rules or regulations establishing more
restrictive standards will not be adopted in the U.S., the Company believes that
the EMF levels generated by its EAS systems will remain within any new safety
standards which may be established.
Certification of the Company's EAS systems is required under applicable
regulations of the U.S. Federal Communications Commission ("FCC"). The Company
has obtained such certification of its presently marketed equipment. Application
for certification of new equipment will be made as such equipment is developed
by the Company. There can be no assurance that such future applications will be
approved. FCC regulations are subject to change or amendment generally, and
there can be no assurance that adverse changes or amendments will not take place
or that future adverse rulings by the FCC will not be rendered.
The Company is aware that the Food and Drug Administration ("FDA") is conducting
a study into the effects of various devices such as airport metal detectors,
store security systems and some cellular telephones on implantable heart
devices. The Company is also aware of studies as to whether any hazards are
posed to wearers of implantable heart devices by a number of devices, including
EAS systems. While the Company believes there to be substantial evidence that no
such hazards are posed by the Company's EAS systems, and offers such evidence to
persons conducting such studies, there can be no assurance that one or more of
such studies will not result in the publication of reports, the recommendation
of precautionary measures and/or the adoption of regulations which could
adversely affect the Company.
Internationally, as in the United States, the sale and use of the Company's EAS
systems are subject to regulation by governmental authorities having
jurisdiction over electronic and communication equipment use. Such systems are
in compliance with the applicable requirements under the regulations of
government authorities in countries in which the Company markets such products
through its subsidiaries and in many other countries. In addition, in view of
the Company's high level of business activity in the European Union ("EU"), the
Company actively participates in the development of evolving technical standards
issued by CENELEC (Committee on European Normalization of Electrical Standards)
and ESTI (European Telecommunications Standards Institute). As of January 1,
1996 new standards were required to be met to apply the CE Mark to market
products in the EU, and the Company certified its products to the CE Mark
requirements. There can be no assurance that all products of the Company subject
to regulations will meet the requirements of such regulations in all countries
in which the Company desires its products to be marketed, nor can there be any
assurance that adverse changes or amendments to existing regulations will not
take place, nor that future adverse rulings by the regulating authorities of
such countries will not be rendered.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 6,500 persons worldwide,
of whom approximately 3,140 were engaged in field sales, customer engineering
and marketing activities; approximately 2,220 in production; approximately 840
in administrative; and approximately 300 in research, development and
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<PAGE> 14
engineering. The Company has announced plans to reduce its workforce by
approximately 1,200 employees in connection with the divestment of non-core
businesses and cost-reduction plans. The Company also uses temporary staff,
particularly in manufacturing areas, to balance workload during peak periods.
ITEM 2. PROPERTIES
Domestically, the Company owns or leases facilities in Florida, Puerto Rico,
California, Massachusetts, and New York for executive, marketing, product
development, manufacturing and warehousing activities. The Company also leases
space in various locations throughout the U.S. for sales and customer
engineering offices and warehouse space in order to most effectively serve its
customers.
The Company's international subsidiaries own or lease office and warehouse space
for their operations. The principal facilities are located in Argentina,
Australia, Belgium, Brazil, Canada, France, Germany, Ireland, Italy, Mexico, The
Netherlands, Singapore, Spain, Sweden and the U.K.
Previously, the Company maintained its corporate headquarters, primary U.S.
operations and research and development activities in Deerfield Beach, Florida,
where the Company owns 3 buildings and leased several others. During fiscal 1996
and 1997, the Company relocated its corporate headquarters, U.S. operations and
research and development activities, with the exception of its U.S. repair
center operations, from its Deerfield Beach facilities to Boca Raton, Florida,
where it owns two buildings. As of June 30, 1997, one of the Deerfield Beach
facilities has been sold and the other two are currently held for sale.
The Company considers its key properties identified above as suitable to its
business and, in general, adequate for its current and near-term needs. All such
properties are fully utilized, except as discussed above.
ITEM 3. LEGAL PROCEEDINGS
1. The Company and Ronald G. Assaf were named defendants in a class action
commenced on November 22, 1993, in United States District Court for the Southern
District of Florida, entitled Silver v. Sensormatic Electronics Corporation, et
al., Civil Action No. 93-8619. Plaintiff, who claimed to have been a shareholder
of the Company, asserted federal securities and negligent misrepresentation
claims alleging, among other things, that defendants made false representations
concerning the growth of the Company and the quality of its Ultra-Max product.
Plaintiff sought class certification and unspecified compensatory damages for
himself and other putative class members who purchased the Company's common
stock in the period from January 8, 1993, through November 11, 1993.
A settlement agreement was entered into between the plaintiffs and the Company,
and was approved by the Court on July 16, 1996. The settlement agreement fixed
the end of the class period at April 30, 1993 and provided for the establishment
of a settlement fund of $2 million, from which claims by members of the
plaintiff class (i.e., purchasers of the Company's common stock during the
period January 8, 1993 through April 30, 1993) and counsel fees are being paid.
Such fund has been primarily funded by insurance proceeds. The agreement further
provided for the dismissal of the complaint with prejudice and the release of
the Company by the plaintiff class. Members of the plaintiff class had the right
to "opt out" of the agreement, provided, that the Company had the right to
terminate the agreement if more than a specified portion of such members
exercised such right. Other than subsequent disputes as the eligibility of
certain putative shareholders to proceeds of the settlement fund, which has no
impact on the Company's share of the settlement amount, this matter is now
concluded.
2. A number of putative shareholder class actions have been filed against the
Company in the United States District Court for the Southern District of
Florida, following announcements by the Company that its earnings for the
quarter and year ended June 30, 1995, would be substantially below expectations
and, in the later actions or complaint amendments, that the scope of the
Company's year-end audit had been expanded and results for the third quarter of
fiscal year 1995 were being restated. The actions were filed by (i) William
Neuman ("Neuman") on or about July 10, 1995, (ii) Robert Ehrenreich
("Ehrenreich") on or about July 10, 1995, (iii) Eugene Friedman and Clara
Friedman, as joint tenants, on or about July 12, 1995, (iv) Raymond Cayuso on or
about July 20, 1995, (v) Steve Silvers ("Silvers") on or about July 17, 1995,
(vi) the Thomas E. Powell Profit Sharing Plan ("Powell") on or about August 3,
1995, (vii) William Steiner ("Steiner") on or about September 1, 1995, (viii)
Jeffrey Kaliser ("Kaliser") on or about September 1, 1995, (ix) Joseph
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<PAGE> 15
DeFrank on or about September 5, 1995, (x) Helen D'Amato ("D'Amato") on or about
September 7, 1995, (xi) Andrew W. Schonzeit, custodian for Gabriel M. Schonzeit,
on or about September 13, 1995, (xii) Sol Leventhal on or about September 13,
1995, and (xiii) Charles Miller, Robert Booth, Bernice Tillman and Jed Pomerantz
("Miller") on or about September 14, 1995. Neuman filed an amendment to his
complaint on or about September 5, 1995, which also added as plaintiffs Barry
Kirshner and K. A. Krinsk. Notices of joinder were filed in the Ehrenreich
action by Barbara E. Oldziej-Pardon and Mark Matthews.
In addition, Steven Fradin filed a substantially similar action in the United
States District Court for the Southern District of New York on or about October
25, 1995. By stipulation and order dated November 28, 1995, that case was
transferred to the United States District Court for the Southern District of
Florida.
By order dated November 8, 1995, the foregoing cases have been consolidated. The
Consolidated Amended Class Action Complaint, dated January 22, 1996, alleges,
among other things, that the Company and certain of its current and former
directors, officers, and employees, as well as the Company's auditors, violated
certain Federal securities laws by issuing allegedly materially false and
misleading statements concerning the Company's results and prospects, omitting
to disclose information necessary to make existing disclosures complete and
accurate, and misstating the Company's financial performance. The Consolidated
Complaint challenges, among other things, the Company's disclosures in
connection with the Company's financial results for the fiscal year ended June
30, 1994 and for each fiscal quarter of fiscal year 1995. The Consolidated
Complaint alleges (1) violations of Sections 10(b) and 20(a) of the Securities
Exchange Act, and Rule 10b-5 promulgated thereunder, (2) violations of Section
11 of the Securities Act, (3) violations of Section 12(2) of the Securities Act,
and (4) violations of Section 14(a) of the Securities Exchange Act, and Rule
14a-9 promulgated thereunder. The defendants named in the Consolidated
Complaint, other than the Company, are Ronald G. Assaf, the Company's Chairman
of the Board and former Chief Executive Officer; James E. Lineberger, a
director; Michael E. Pardue, the Company's retired Chief Operating Officer and
Chief Financial Officer and a former director; Dennis C. Gillette, the Company's
retired Vice President of Sales; Lawrence Simmons, the Company's former Vice
President of Corporate Finance; John T. Ray, Jr., a director; Arthur Milnes, a
director; Jerome M. LeWine, a director; Gerd Witter, the Company's retired
President of Sensormatic Europe; and Ernst & Young, LLP, the Company's auditors.
One of the claims against the Company's auditors asserted under state law, and
originally included in the consolidated complaint, has been dismissed by the
Court. That claim alleged that the Company's auditors negligently misrepresented
certain information regarding the Company and failed to exercise reasonable
care. The claim against Gerd Witter has been voluntarily dismissed by the
plaintiffs.
The Consolidated Complaint requested certification of the action as a class
action on behalf of all purchasers of the common stock of the Company and
traders in certain stock options from August 10, 1994 through October 2, 1995,
including those shareholders who received common stock of the Company in
connection with the Company's merger with Knogo Corporation's European
Operations ("Knogo"). The Consolidated Complaint also seeks rescissory and/or
compensatory damages, pre-judgment and post-judgment interest, costs, attorneys'
fees, and other relief, and further provides that the shareholders of the
Company who received common stock of the Company in connection with the merger
with Knogo are tendering back to the Company such shares of common stock. The
Consolidated Complaint supersedes all prior complaints in the consolidated
actions. By order dated January 9, 1997, the United States District Court for
the Southern District of Florida certified a class consisting of all purchasers
of the common stock of the Company and certain stock option traders from August
10, 1994 through and including August 31, 1995, provided that shares purchased
on August 31, 1995 were purchased at a price of $25.25 per share or higher. The
stipulated class excludes persons who acquired common stock pursuant to the
Company's merger with Knogo approved by its shareholders in December 1994. The
stipulation is subject to court approval.
The Company has defended vigorously against the class actions, but is in serious
discussions, with the assistance of a jointly-selected mediator, and pursuant to
Court order, regarding the possibility of settlement.
3. An action was filed against the Company and certain of its current and former
directors and officers, on or about July 3, 1996, in the United States District
Court for the Northern District of Illinois, entitled Gilford Partners, L.P. v.
Sensormatic Electronics Corp., et al., 96 Civ. 4072. In addition to the Company,
the
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<PAGE> 16
complaint named as defendants Messrs. Assaf, Lineberger, Pardue, Witter,
Simmons, Ray, Milnes and LeWine. The plaintiff in this action claims to be a
"short seller" of the Company's common stock damaged by the alleged artificial
inflation in the price of the Company's stock caused by allegedly false and
misleading statements and omissions of material fact regarding, among other
things, the Company's financial results and accounting practices. The complaint
sought compensatory damages and costs and expenses of bringing the action,
including attorneys' fees, accountants' fees, experts' fees and other relief. By
Order dated September 5, 1997, pursuant to a motion filed by defendants, the
Court dismissed the complaint, without prejudice to plaintiff's right to file an
amended complaint conforming to the Court's September 5, 1997 opinion. Should
the plaintiff file an amended complaint, the Company intends to continue to
vigorously defend against this action.
4. Three derivative actions were filed against certain directors of the Company
in the Court of Chancery of the State of Delaware by Marion Lord and Norman
Rabinstein, Harry Lewis, and Alan Freberg on or about September 7, September 13
and September 14, 1995. The complaints names Messrs. Assaf, Milnes, Ray, LeWine,
Lineberger, and Thomas V. Buffett, directors of the Company, and Mr. Pardue, a
former director, as defendants and the Company as nominal defendant. The
complaints assert, among other things, claims for breach of fiduciary duties of
care and loyalty, mismanagement and waste of corporate assets. The plaintiffs,
who claim to be stockholders of the Company, seek restitution and/or damages in
favor of the Company and imposition of a constructive trust upon defendants'
proceeds from trading activities in the Company's securities allegedly based
upon non-public information, together with costs, attorneys' fees, accountants'
fees and experts' fees and other relief. These three actions have been
consolidated. These actions arise out of alleged statements and omissions
regarding, among other things, the Company's financial results and accounting
practices that are also generally the subject of the pending class action
against the Company and current and former officers and directors of the Company
referred to above. The Company intends to vigorously defend against these
actions.
5. An action was filed on November 13, 1996 by Marshall Wolf, who claims to be a
Sensormatic shareholder, against the Company and certain members of its Board of
Directors, challenging the adequacy of the disclosures in the Company's
September 30, 1996 proxy statement. The action, which is pending in the Court of
Chancery of the State of Delaware, is entitled Wolf v. Ronald G. Assaf, et al.,
C.A. No. 15339. The complaint names as defendants the Company and each of the
directors of the Company as of the time the complaint was filed: Messrs. Assaf,
Buffett, Lineberger, LeWine, Milnes, Ray, Vanourek and Hartman.
The Wolf complaint alleges, among other things, that the Company's proxy
statement distributed in connection with its November 22, 1996 annual
shareholder meeting, which solicited proxies for the election of Mr. Assaf, the
Company's Chairman of the Board and former Chief Executive Officer, and Dr.
Milnes to new terms as directors, and for approval of an amendment to the
Company's 1995 Stock Incentive Plan, failed to disclose certain admissions
regarding prior accounting irregularities allegedly made by Mr. Assaf in his
answer filed in the shareholder class action described above, and failed to
describe that class action or the derivative lawsuit described above.
Information about both these actions was reported in the Company's Annual Report
on Form 10-K for the year ended June 30, 1996, which was mailed to the Company's
stockholders with its proxy statement, and information about the pending
derivative action was also reported in the proxy statement. The Wolf complaint
seeks to invalidate the proxy solicitation, to void the election of directors as
a result of the solicitation and to require a new election and revised proxy
statement. The complaint also seeks certification as a shareholder class action,
as well as unspecified damages and attorney's fees.
The Company intends to defend vigorously against this action.
6. Pursuant to a formal order dated September 27, 1995, the Securities and
Exchange Commission is conducting a private investigation into, among other
things, certain trading in the Company's stock prior to certain announcements in
1995 concerning the Company's results of operations, as well as the propriety of
certain of the Company's public statements, the accuracy of the Company's books
and records and the accuracy of the Company's public filings, including in
particular with respect to revenue recognition matters which were the subject of
the expanded audit for fiscal 1995 by the Company's independent auditors. The
Company has been cooperating with this investigation.
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<PAGE> 17
7. In May 1997, Reliance Insurance Company ("Reliance") filed an action against
the Company and certain of its current and former officers and directors.
Reliance was one of the Company's three directors and officers liability
insurance carriers for the period December 15, 1994 to December 15, 1995. The
action, pending in the United States District Court for the Southern District of
Florida, Miami Division, is entitled Reliance Insurance Company v. Sensormatic
Electronics Corporation, et al., Case No. 97-8364. In addition to the Company,
the complaint names Messrs. Assaf, Lineberger, Pardue, Gillette, Simmons, Ray,
LeWine, and Witter as defendants. The insurance contract at issue in the suit
provides $10 million in coverage and is excess to $10 million in primary
directors and officers liability insurance for the period. The Reliance
complaint seeks, among other things, (i) rescission of the above-referenced
insurance contract; (ii) reformation of the insurance contract to exclude the
hazards raised by the pending securities class actions referred to above, the
derivative actions referred to above, the Gilford and Wolf actions, and the SEC
proceeding referred to above; and (iii) a declaratory judgment that the
insurance contract at issue does not afford coverage for defendants for any loss
arising out of such actions and proceeding. The complaint alleges, among other
things, that the Company's applications for that insurance contract and
attachments thereto contained material misrepresentations and omissions,
concealed facts and made incorrect statements, relating principally to the
Company's revenue recognition practices which are also a subject of the actions
and proceeding referred to above.
On July 17, 1997, Federal Insurance Company ("Federal") commenced an action in
the United States District Court for the Southern District of Florida entitled
Federal Insurance Company v. Sensormatic Electronics Corporation, et al., Case
No. 97-8560. In addition to the Company, the complaint names Messrs. Assaf,
Lineberger, Pardue, Gillette, Simmons, Ray, Milnes, LeWine, Witter and Buffett
as defendants. Federal was also one of the Company's three directors and
officers liability insurance carriers for the period December 15, 1994 to
December 15, 1995, providing a $10 million layer of coverage that was excess to
the Reliance coverage. The Federal complaint seeks, among other things, (i)
rescission of that insurance contract; (ii) reformation of that insurance
contract to exclude the hazards raised by the pending securities class actions
referred to above, the derivative actions referred to above, the Gilford action,
and the SEC proceeding referred to above; and (iii) a declaratory judgment that
the insurance contract does not afford coverage for defendants for any loss
arising out of such actions and proceeding. The complaint alleges, among other
things, that the Company's applications for that insurance contract and
attachments thereto contained material misrepresentations and omissions,
concealed facts and made incorrect statements, relating principally to the
Company's revenue recognition practices which are also a subject of the actions
and proceeding referred to above.
The Company intends to defend vigorously against the Reliance and Federal
actions.
8. The Company was notified, by receipt of a document subpoena on February 6,
1996, that the U.S. Federal Trade Commission has authorized a non-public
investigation to determine whether the Company, certain other U.S. manufacturers
of EAS systems and unspecified others agreed to refrain from truthful
comparative advertising relating to EAS systems, or agreed to boycott the EAS
standard-setting process of the National Association of Chain Drug Stores. The
Company has been cooperating with this investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
16
<PAGE> 18
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information as of September 19, 1997 with respect
to the executive officers of the Company.
<TABLE>
<CAPTION>
OFFICER
NAME AGE SINCE POSITION
- ---- --- ------- --------
<S> <C> <C> <C>
Robert A. Vanourek..................... 55 1995 President and Chief Executive Officer
Kenneth W. Chmiel...................... 53 1997 Senior Vice President of Supply Chain
Operations
Olin S. Giles.......................... 56 1985 Senior Vice President and Chief
Technical Officer
Jerry T. Kendall....................... 54 1993 Senior Vice President and President of
North America Retail Operations
Garrett E. Pierce...................... 53 1996 Senior Vice President and Chief
Financial Officer
Ronald F. Premuroso.................... 43 1996 Senior Vice President and President of
International Retail Operations
Terry W. Price......................... 53 1991 Senior Vice President and President of
Commercial/Industrial Worldwide
Operations
Walter A. Engdahl...................... 59 1992 Vice President -- Corporate Counsel and
Secretary
Jean-Michel Houry...................... 47 1996 Vice President and President of Europe
Retail Operations
</TABLE>
The terms of office of each of the officers, pursuant to the By-Laws of the
Company, will continue until the next Annual Meeting of the Board of Directors
(to be held after the next Annual Meeting of Stockholders) and until a successor
is elected and qualified.
Robert A. Vanourek joined the Company as President and Chief Operating Officer
in October 1995 and on August 12, 1996 became President and Chief Executive
Officer. Prior to joining the Company, Mr. Vanourek was President and Chief
Executive Officer of Recognition International, Inc. ("Recognition"), an
international provider of document processing hardware, software and services.
Prior to joining Recognition, he spent eight years at Pitney Bowes, including
four years as Group Vice President of Pitney Bowes' $800 million Mailing Systems
division. He also spent four years as President of Pitney Bowes' Monarch Marking
Systems subsidiary, which marketed price-marking systems and electronic article
surveillance equipment to retailers worldwide.
Kenneth W. Chmiel joined the Company in July 1997 as Senior Vice President of
Supply Chain Operations and is responsible for managing product manufacturing
and distribution. Prior to joining the Company, Mr. Chmiel served as Executive
Vice President and Chief Operating Officer of Amerail/Morrison Knudsen
Corporation's Transit Systems Group from 1993, and as Executive Vice President
of the Rail Systems Group from 1990. From 1973 to 1989, Mr. Chmiel held a number
of different management positions with Allied Signal.
Olin S. Giles was appointed Vice President of Engineering in 1988 and in March
1996, Mr. Giles was appointed Senior Vice President and Chief Technical Officer
of the Company. Prior to joining the Company, Mr. Giles served for over 20 years
in a number of management positions with General Electric Company.
Jerry T. Kendall joined Sensormatic as Senior Vice President -- Sales, Marketing
and Service of Security Tag Systems, Inc., which was acquired by the Company
during fiscal 1993, and was appointed Vice President of Marketing in September
1993. In 1996, Mr. Kendall was appointed Vice President, North America Retail
Operations, with responsibilities to lead the retail business unit field sales,
service and administrative organization in the U.S. and Canada. In July 1997,
Mr. Kendall was appointed Senior Vice President and President of North America
Retail Operations.
17
<PAGE> 19
Garrett E. Pierce joined the Company as Senior Vice President and Chief
Financial Officer in January 1996. Prior to joining the Company, Mr. Pierce was
the Executive Vice President and Chief Financial Officer of California
Microwave, Inc., a leading supplier of microwave, radio frequency, and satellite
systems and products for communications and wireless networks. From 1980 to
1993, Mr. Pierce was with Materials Research Corporation, a leading provider of
thin film equipment and material technology to the semiconductor,
telecommunications and media storage industries, where he progressed from Chief
Financial Officer to President and Chief Executive Officer. Materials Research
Corporation was acquired by Sony Corporation as a wholly-owned subsidiary in
1989. From 1972 to 1980, Mr. Pierce held various management positions with
Allied Signal.
Ronald F. Premuroso was the Managing Director of the Asia Pacific Operations
from 1989 to 1992 and Vice President of the Asia Pacific Operations from 1992 to
1996. In 1996, Mr. Premuroso was appointed Vice President of International
Retail Operations with responsibility to lead the retail business unit field
sales, service and administrative organizations in Asia Pacific, the Middle
East, Africa and Latin America. In July 1997, Mr. Premuroso was appointed Senior
Vice President and President of the International Retail Operations.
Terry W. Price was appointed Group Vice President -- Commercial/Industrial from
1991 until 1996, when he was promoted to Senior Vice-President and President of
Commercial/Industrial Worldwide Operations.
Walter A. Engdahl was appointed Vice President -- Corporate Counsel of the
Company in February 1992 and became Secretary of the Company in 1993. He is a
member of the Bars of both Florida and New York.
Jean-Michel Houry joined the Company in 1994 as the Managing Director of
Operations in France. In early 1996, he was promoted to Vice President of the
Southern Europe Retail Operations. In July 1997, Mr. Houry was promoted to
Vice-President and President of Europe Retail Operations. Prior to joining the
Company, Mr. Houry served as General Manager of the IBM Product Division in
France.
None of the above executive officers has any family relationship with any other
director or executive officer of the Company.
18
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Except as provided below, the information called for by this Item appears in
Item 6 under the heading "Selected Financial Data and Quarterly Summary and
Statistical Information".
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol SRM. As of September 19, 1997, there were 4,887 shareholders of
record of the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA AND QUARTERLY SUMMARY AND STATISTICAL
INFORMATION
SELECTED FINANCIAL DATA
(In millions, except per share amounts)
<TABLE>
<CAPTION>
1997(1) 1996(1) 1995(4) 1994 1993(4)
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
Total revenues................... $1,025.7 $ 994.6 $ 889.1 $ 656.0 $487.3
======== ======== ======== ======== ======
Operating income (loss).......... $ 2.1 $ (134.5) $ 97.9 $ 104.8 $ 71.0
======== ======== ======== ======== ======
(Loss) income from continuing
operations..................... $ (21.4) $ (97.7) $ 69.6 $ 72.1 $ 54.1
======== ======== ======== ======== ======
Net (loss) income................ $ (21.4) $ (97.7) $ 73.7 $ 72.1 $ 54.1
======== ======== ======== ======== ======
Primary (loss) earnings per
common share:
Continuing operations.......... $ (.29) $ (1.32) $ .97 $ 1.16 $ .97
======== ======== ======== ======== ======
Net (loss) income.............. $ (.29) $ (1.32) $ 1.02 $ 1.16 $ .97
======== ======== ======== ======== ======
Fully diluted (loss) earnings per
common share:
Continuing operations.......... $ (.29)(2) $ (1.32)(2) $ .97 $ 1.13 $ .93
======== ======== ======== ======== ======
Net (loss) income.............. $ (.29)(2) $ (1.32)(2) $ 1.02 $ 1.13 $ .93
======== ======== ======== ======== ======
Cash dividends per common
share.......................... $ .22 $ .22 $ .22 $ .21 $ .15(5)
======== ======== ======== ======== ======
AT YEAR-END
Total assets..................... $1,643.6 $1,630.3 $1,570.9 $1,155.5 $926.9
======== ======== ======== ======== ======
Total debt....................... $ 523.3 $ 516.5(3) $ 326.7 $ 219.2 $308.4(3)
======== ======== ======== ======== ======
Total stockholders' equity....... $ 772.9 $ 831.7 $ 952.7 $ 727.7(3) $489.7
======== ======== ======== ======== ======
</TABLE>
- ---------------
(1) Includes restructuring and special charges of $48.9 and $186.0, in 1997 and
1996, respectively.
(2) Amounts are not adjusted as the effect is anti-dilutive.
(3) In fiscal year 1996, the Company issued $350.0 Senior Notes; in fiscal year
1994, approximately $114.0 of the $115.0 principal amount of 7% convertible
subordinated debentures, issued in fiscal 1991, were converted to
approximately 7.3 million shares of Common Stock; and in fiscal 1993, the
Company issued $135.0 Senior Notes (see Note 8 of Notes to Consolidated
Financial Statements).
(4) In fiscal year 1995, the Company acquired Knogo Corporation's operations
outside of the United States, Puerto Rico and Canada and in fiscal 1993, it
acquired ALPS and the outstanding common stock of Security Tag (see Note 13
of Notes to Consolidated Financial Statements).
(5) Fourth quarter dividend of $.05 per share of Common Stock was declared in
July 1993.
19
<PAGE> 21
QUARTERLY SUMMARY AND STATISTICAL INFORMATION (UNAUDITED)
(In millions, except share and per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------
September 30, December 31, March 31, June 30,(3)
------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997(1)
Total revenues................................... $246.0 $ 256.6 $250.1 $273.0
Operating income (loss).......................... $ 10.9 $ 17.3 $ 15.0 $(41.1)
Net income....................................... $ 2.1 $ 6.1 $ 5.8 $(35.4)
Primary and fully diluted earnings (loss) per
common share................................... $ .03 $ .08 $ .08 $ (.48)
Dividends declared per common share.............. $ .055 $ .055 $ .055 $ .055
Market price of common stock:
High........................................... $19 3/4 $ 21 1/8 $ 18 $17 1/2
Low............................................ $13 7/8 $12 11/16 $ 14 1/2 $12 7/8
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996(2)
Total revenues................................... $267.2 $244.6 $225.3 $257.5
Operating income (loss).......................... $ 28.8 $(98.9) $(73.1) $ 8.7
Net income (loss)................................ $ 16.9 $(65.1) $(50.0) $ 0.5
Primary and fully diluted earnings (loss) per
common share................................... $ .23 $ (.88) $ (.68) $ .01
Dividends declared per common share.............. $ .055 $ .055 $ .055 $ .055
Market price of common stock:
High........................................... $36 1/2 $24 1/2 $18 7/8 $22 7/8
Low............................................ $20 1/8 $16 1/4 $13 5/8 $15 5/8
</TABLE>
- ---------------
(1) Includes restructuring and special charges of $48.9 recorded in the fourth
quarter.
(2) Includes restructuring and special charges totaling $186.0, of which $111.9
was recorded in the second quarter and $74.1 was recorded in the third
quarter.
(3) In the fourth quarter of fiscal 1997, the Company recorded nonrecurring
charges of approximately $22.0, principally related to its European
operations.
20
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS.
RESULTS OF OPERATIONS
OVERVIEW
Consolidated revenues increased 3% to $1,025.7 million in fiscal 1997 versus
$994.6 million in fiscal 1996, as compared to an increase of 12% in fiscal 1996
versus fiscal 1995. More specifically, fiscal year 1997 North America Retail and
International Retail revenues increased 12% and 33%, respectively, and C/I
Worldwide and Europe Retail revenues decreased approximately 1% and 8%,
respectively as compared to the prior year. More than 50% of fiscal 1997
revenues were generated from outside the U.S. The continued overall increase in
revenues is attributable to a strategy of product, customer and geographic
market diversification.
Results of operations reflected operating income of $2.1 million in fiscal 1997
versus a loss from operations of $134.5 million in fiscal 1996 and income from
operations of $97.9 million in fiscal 1995. The Company reported a net loss of
$21.4 million, or a per share loss of $.29, in fiscal 1997, versus a loss of
$97.7 million in fiscal 1996, or a per share loss of $1.32, and net income in
fiscal 1995 of $73.7 million, or earnings per share of $1.02. The Company's
results for fiscal 1997 and fiscal 1996 include the effects of restructuring and
special charges totaling $48.9 million and $186.0 million on a pretax basis,
respectively, with an after-tax effect of approximately $34.6 million or $.47
per share and $118.2 million or $1.60 per share, respectively. See
"Restructuring and Special Charges" below and Note 2 of Notes to the
Consolidated Financial Statements for further discussion.
The following table presents earnings, both as reported and excluding
restructuring and special charges, for fiscal 1997 as compared to fiscal 1996
and fiscal 1995 (in millions, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- --------
EXCLUDING EXCLUDING
RESTRUCTURING RESTRUCTURING
AS AND SPECIAL AS AND SPECIAL AS
REPORTED CHARGES REPORTED CHARGES REPORTED
-------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Operating Income (Loss)..... $ 2.1 $51.0 $(134.5) $51.5 $97.9
Net (Loss) Income........... $(21.4) $13.2 $ (97.7) $20.5 $73.7
(Loss) Earnings Per Share... $ (.29) $ .18 $ (1.32) $ .28 $1.02
</TABLE>
RESTRUCTURING AND SPECIAL CHARGES AND OTHER STRATEGIES
Sensormatic has grown from a single technology, single market company with
revenues of less than $100 million in fiscal 1987 to a global provider of
multiple electronic security solutions with revenues in excess of $1 billion in
fiscal 1997. A significant percentage of this growth occurred in the past 5
years, as revenues reported for fiscal 1992 were approximately $300 million and
have since grown by a compound average growth rate of 27%. This growth was
attained principally through internally developed new products, various
strategic acquisitions and increased market penetration in existing and new
markets.
The rapid growth experienced by the Company in sales, customers and product
diversity and the demands of integrating acquired businesses outpaced the
Company's growth in corporate infrastructure and systems. In addition, expenses
and working capital requirements increased to unacceptable levels. Consequently,
in fiscal 1996, the Company launched a strategic restructuring plan with the
following objectives: (i) expense reduction and asset control, (ii) improved
processes and systems, and (iii) quality growth.
The initial phase of this plan included an extensive and systematic review of
the Company's operations, cost structure and balance sheet aimed at reducing its
operating expenses and manufacturing costs while increasing efficiencies. This
review of the Company's global operations focused primarily on operational
systems, organizational structures, facilities utilization, product
rationalization, inventory levels and accounts receivable
21
<PAGE> 23
balances. In fiscal 1996, as a result of the above initiatives, the Company
recorded restructuring and special charges totaling $186.0 million with an
after-tax impact of $118.2 million.
Recently, the Company announced further restructuring actions which include the
divestment of non-core businesses and additional cost-reduction plans, which
mainly include staff reductions within its European operations, as well as
additional special charges principally for increases to the valuation allowances
for accounts receivable and receivables financed with third parties. The total
restructuring and special charges are estimated to be approximately $90 million
with an after-tax impact of $65 million. In fiscal 1997, the Company recognized
$48.9 million of this charge and expects to recognize the remainder in the first
quarter of fiscal 1998.
Restructuring Charges
As a result of its 1996 restructuring plan, the Company instituted a major
reorganization of its business units. The principal objective of the
reorganization is to improve market focus, customer service and product quality
while reducing costs and eliminating redundancies. The Company is currently
organized into four principal sales organizations: North America Retail, Europe
Retail, International Retail and C/I Worldwide. The Company has two major
product line management functions: the EAS Division and the ISS Division. Both
product line management divisions service commercial/industrial and retail
customers and sales organizations as well as coordinate engineering,
manufacturing and quality control functions for these two major product groups.
The Company also has a Global Source Tagging Division, with responsibility to
manage and direct the Company's source tagging initiatives worldwide, and a
Supply Chain Operations Division which is responsible for global manufacturing
and distribution.
Related to the fiscal 1996 restructuring plan, the Company planned for the
reduction of 875 people and the sale, disposal or termination of lease
arrangements of 30 locations, principally in the U.K. and U.S. As of June 30,
1997, all planned terminations have been completed and approximately one-half of
the facilities have been eliminated or subleased. The Company also reviewed its
existing product lines and product sourcing to discontinue marginally profitable
products and outsource other products.
The fiscal 1996, pre-tax restructuring charges were $85.3 million and the
related estimated cash outlay is $33.3 million, of which $19.4 million was
disbursed as of June 30, 1997. Upon completion of the restructuring activities,
anticipated savings in operating expenses and manufacturing costs are estimated
to be $44 million. To date, these savings have been partially offset by costs
associated with the addition of approximately 250 employees in strategic growth
and key technical areas, additional consulting fees and increased legal fees
relating principally to the pending litigation and government investigations.
In fiscal 1997, the Company continued to refine its organization to improve
market focus and customer service as well as reduce costs. Accordingly, the
Company announced additional restructuring activities in fiscal 1997 which
include the divestiture of non-core businesses and workforce reductions,
principally in its European operations. The principal noncore business which the
Company has elected to divest included its U.S. commercial/industrial direct
sales and service business which was sold in September 1997. The Company elected
to exit this business activity due to market conflicts with its indirect sales
channels and the need to focus on products related to the Company's strategy of
total systems integration. The Company has planned for the reduction in
workforce of approximately 1,200 positions, of which 600 will be eliminated in
connection with the divestment of non-core businesses and the remaining
positions principally represent the termination of administrative personnel.
The recent restructuring activities are expected to result in pre-tax
restructuring charges of $70 million of which $26.8 million has been recorded in
the fourth quarter of fiscal 1997 and the remainder is expected to be recorded
in the first quarter of fiscal 1998. The total cash outlay related to the
recently announced restructuring actions, net of expected proceeds from the
divestment of non-core businesses, is estimated to be $30 million. Upon
completion of the planned restructuring activities, the Company expects net
annualized savings of approximately $50 million.
22
<PAGE> 24
The following table sets forth the details and activity of the restructuring
charge reserves for fiscal 1997 (in millions):
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
BALANCE AT REDUCTIONS BALANCE AT
JUNE 30, 1997 ---------------- RESERVE JUNE 30,
1996 ADDITIONS CASH NON-CASH REALLOCATIONS 1997
---------- --------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Product rationalization,
related equipment charges
and other................... $11.1 $ 2.9 $ - $(12.4) $ 2.8 $ 4.4
Closure of facilities and
related costs............... 20.9 6.5 (1.4) (6.5) (7.3) 12.2
Employee termination and
related costs............... 5.4 .5 (6.6) - 4.5 3.8
Non-core business
divestments................. - 16.9 - - 16.9
----- ----- ----- ------ ----- -----
Total............... $37.4 $26.8 $(8.0) $(18.9) $ - $37.3
===== ===== ===== ====== ===== =====
</TABLE>
All of the Company's restructuring activities are expected to be substantially
complete prior to the end of fiscal 1998 and the Company believes the provisions
identified as required are adequate to cover the costs associated with these
plans.
Special Charges
In fiscal 1996, as part of the Company's plan to focus on asset management and
review its balance sheet in view of the then existing business environment, the
Company performed an extensive review of the collectibility of accounts
receivable, including off-balance sheet receivables. This initiative was
primarily the result of the overall weakening in the retail industry following a
poor holiday season. In addition, several commercial/industrial and retail
customers had filed for bankruptcy and other customers experienced financial
difficulties. The Company also conducted a review of slow moving and potentially
obsolete inventory in light of softening demand for certain EAS products.
As a result of these reviews, the Company recorded a charge to operations of
$100.7 million in fiscal 1996 which primarily represented increases in the
valuation allowances for doubtful accounts receivable and inventories. Of this
amount, $75.6 million related to receivables and other matters and $25.1 million
related to inventories and revenue equipment. Special charges are included in
the 1996 Consolidated Statement of Operations as follows: $29.1 million in costs
of sales; $2.6 million in depreciation on revenue equipment; $68.5 million in
selling, general and administrative expenses and $0.5 million in research,
development and engineering expenses.
In fiscal 1997 the Company recorded additional special charges of $22.1 million
which principally represent increases to valuation allowances for accounts
receivable and receivables financed with third parties. The special charges are
recorded in the fiscal 1997 Consolidated Statement of Operations as follows:
$2.5 million in costs of sales and $19.6 million in selling, general and
administrative expenses.
Other Strategies
To assist with the Company's restructuring plan objective to improve processes
and systems, the Company has embarked upon a process improvement and total
quality management program internally referred to as "Q(3)". The program's
objective is to provide superior value for customers, shareholders and
employees. Q(3) is a multi-year effort in which the Company will reengineer the
way it operates enterprise-wide. The program will also establish a culture of
"continuous improvement" in all of the Company's business processes to reduce
cost and increase customer satisfaction. In connection with this program, the
Company has committed to the implementation of a new enterprise-wide management
information system and an extensive internal training program, both of which are
expected to significantly enhance operational efficiencies and improve customer
service.
23
<PAGE> 25
Key revenue growth strategies of the Company include the following:
(1) Ultra-Max technology Expansion -- The Company has focused its marketing and
sales efforts on the promotion of Ultra-Max technology to relatively
unpenetrated markets such as food and hard goods retailers. The Company also
expects to capitalize on its significant market share among soft goods retailers
to transition from older EAS technology to Ultra-Max. The broader utilization of
Ultra-Max is expected to provide retailers with source tagging opportunities in
all merchandise categories.
(2) Recurring label sales -- The sale of EAS systems and devices to hard goods
retailers, where the potential for growth remains great, has been a contributing
factor in the Company's growth in recent years. Hard goods merchandise is
protected with labels which leave the store with the merchandise, representing a
major source of recurring revenues to the Company. Labels may be self-adhesive,
stick-on labels which are attached to merchandise by the retailer or applied at
the point of manufacture or distribution.
(3) Source tagging -- The Company has formed relationships with manufacturers
and a number of its retail customers around the world, from various segments of
soft goods and hard goods retailers (including music retailers, drug stores,
home improvement centers, supermarkets and discount stores), to promote source
tagging. Source tagging is intended to help retailers increase product sales and
profitability through open merchandising and product exposure, reduce shrinkage
and reduce costs by eliminating the need for sales associates to apply security
tags and labels to merchandise. Currently more than 500 vendors in the U.S. and
more than 1,300 worldwide participate in source tagging with the Company's
Ultra-Max and electromagnetic based labels. The Company estimates that in 1997,
these suppliers provided U.S. and international retailers with more than 430
million source tagged labels. The increased utilization of source tagging is
expected to result in increased label sales and/or royalty income as well as
increased system sales.
(4) Licensing label production -- The Company has entered into license
agreements with leading label producing companies, such as Avery Dennison and
Wallace Computer Systems, which will manufacture the Company's Ultra-Strip
labels. The licensing agreements will allow the Company to gain efficiencies in
label manufacturing, distribution and application for source tagging that will
reduce the overall cost of source tagging programs to retailers and suppliers as
well as reduce its capital investment in label manufacturing. These agreements
are expected to result in a broader distribution of Ultra-Strip labels and,
therefore, facilitate the growth of Ultra-Max technology, as well as allow
Sensormatic to focus on systems and security solutions. Recurring revenue to the
Company is to be provided from royalty fees paid by the licensees.
(5) Commercial/Industrial markets -- Through C/I Worldwide, the Company intends
to further expand into commercial/industrial markets. C/I sales personnel
partner with dealers and distributors to target major national and global
customers and offer complete integrated security solutions. As part of the
Company's strategy to highlight its expansion into commercial/industrial
markets, Sensormatic was the first ever official electronic security supplier to
the Games in Atlanta. The Company provided the electronic security technology,
including CCTV, Access Control, and ITT systems, to the highly secured areas.
The Olympics represented the largest security installation in the world covering
46 venues throughout the U.S.
(6) Integrated security solutions -- The Company is focusing its efforts on the
further development of integrated security solutions for retail and
commercial/industrial users and has formed the ISS Division to coordinate and
monitor the engineering, manufacturing and quality control efforts of CCTV,
Access Control and ITT systems. The Company has greatly expanded its product
group beyond retail only products, with its CCTV and Access Control product
lines. A key example is Intellex, the first "intelligent" CCTV display, record
and analysis system on the market, and winner of the Security Industry
Association's 1997 "Judge's Choice" award. Additionally, ITT systems, which
utilize smart tags that combine the benefits of conventional EAS tags with the
intelligence capabilities of RFID technology are key development projects for
Sensormatic. The Company is also combining its resources with other partners,
such as Texas Instruments, Paxar and Micron Communications, Inc. as part of its
product development efforts.
24
<PAGE> 26
RESULTS OF OPERATIONS -- FISCAL 1997 COMPARED TO FISCAL 1996
The following discussion of operating results excludes the effects of the
restructuring and special charges recorded in fiscal 1997 and 1996, which were
discussed above.
Revenues
As noted above, revenues for fiscal 1997 increased 3%, or $31.1 million, over
fiscal 1996 as a result of increased revenue by North America Retail,
International Retail and the Global Source Tagging Division. The revenue growth
resulted principally from increased sales of Ultra-Max and CCTV systems and
products. Ultra-Max revenues increased 27% from $240.2 million in fiscal 1996 to
$304.5 million in fiscal 1997. CCTV revenues increased 6% from $297.5 million in
fiscal 1996 to $314.6 million in fiscal 1997. Installation, maintenance and
other revenue also increased 25% to $117.4 million in fiscal 1997 as compared to
$94.1 million in fiscal 1996 as the Company's installed base has increased.
Worldwide Access Control system revenues remained flat at $60.7 million in
fiscal 1997 as compared to $60.8 million in fiscal 1996.
Consolidated revenues for the EAS product lines were down slightly from $542.2
million in fiscal 1996 to $533.0 million in fiscal 1997, a 2% decrease. As
previously mentioned, Ultra-Max revenues increased 27% in fiscal 1997 as
compared to fiscal 1996. This increase was offset by a decrease in other EAS
system revenues, principally the radio frequency technology systems and
SensorStrip Checkout systems. Radio frequency systems are being phased out in
connection with the Company's strategy to upgrade users from the older EAS
technologies to Ultra-Max technology. Revenues from SensorStrip Checkout
systems, which are principally sold in Europe, were negatively affected by the
overall poor performance of the European business unit.
Overall CCTV revenues increased 6% in fiscal 1997 as compared to fiscal 1996. A
significant percentage of CCTV revenues and nearly all of Access Control
revenues are generated by C/I Worldwide which was negatively impacted in fiscal
1997 by market conflicts with its indirect sales channels, product shortages and
late new product introductions As a result of the channel conflict, the Company
made a strategic decision to exit the commercial/industrial direct sales and
service business in the U.S. and will partner with its dealers and distributors
to promote its products in the commercial/industrial markets and thereby lower
its distribution and installation costs. In September 1997, the Company
completed the sale of its U.S. commercial/industrial direct sales and service
business. Installation and product revenues from this business unit were
approximately $76 million in fiscal 1997. The Company expects a decline in C/I
Worldwide revenues as a result of the divestiture of its U.S. direct sales and
service business as well as other business units; however this decrease in
revenue is expected to be partly offset by product sales to indirect channels,
including to the buyer of its U.S. integrated services business.
North America Retail revenue for fiscal 1997 increased 12% versus fiscal 1996.
Fiscal 1996 North America Retail revenues were negatively impacted by product
shortages as well as restructuring activities. This business unit entered fiscal
1997 with a significant backlog which at the end of fiscal 1997 was
approximately one-half of its fiscal 1996 year-end backlog. Significant
increases in revenues were noted in the soft goods and food divisions, with
increases over prior year of 40% and 59%, respectively, as a result of greater
penetration of the retail apparel and food markets along with improved
technology solutions. North America Retail CCTV system revenues increased 20% in
fiscal 1997 as compared to fiscal 1996 as a result of increased sales to all
market segments.
Europe Retail revenues decreased 8% in fiscal 1997 as compared to fiscal 1996.
European revenues were negatively affected by management changes and a
repositioning of the Company's market focus in the United Kingdom, a weak
economy in southern Europe and France, and the strengthening of the U.S. dollar
which resulted in a decrease to revenues of approximately $18 million. The
Company hired a new management team in the United Kingdom during fiscal 1997,
which is in the process of implementing a new higher-end market EAS strategy.
France's revenue growth was negatively impacted by a weak economy as well as
legislation which has restricted the expansion of hypermarkets. A large
percentage of France's revenue is from the hypermarket industry and as a result
of the legislation, France's market strategy has been to upgrade existing
customers to newer technologies. The Company has also experienced increased
competition in Europe during the year.
25
<PAGE> 27
Fiscal 1997 revenues in International Retail grew 33% over the prior year. More
specifically, Asia Pacific revenues increased 19% as compared to the prior year
and Latin America revenues increased 45% as compared to the prior year. The
fiscal 1997 increase in Asia Pacific revenues is due principally to increased
business partner revenues, notably in Japan, and the recent opening of a sales
office in Beijing. Revenues were slightly affected by some softness in
Australia's economy over the course of the year. Fiscal 1997 Latin America
revenues include revenues from Argentina, which was acquired in October 1996,
and Colombia, which was acquired in May 1996. Excluding these acquisitions,
fiscal 1997 Latin America revenues increased 9% as compared to fiscal 1996, with
significant increases in Brazil, a 51% owned affiliate, and Mexico.
In fiscal 1997, C/I Worldwide was negatively affected by market conflicts with
its indirect sales channels, product shortages, and late new product
introductions. C/I Worldwide revenues were flat in fiscal 1997 as compared to
fiscal 1996. Fiscal 1997 continued to be a transition year for C/I Worldwide as
this new business unit, formed within the Company in late 1996 in connection
with the Company's strategy to expand into and sell integrated security
solutions to the commercial/industrial market, reorganized its management staff
and administrative functions, aligned and just recently segregated product
development and manufacturing activities from its sales organization and
realigned its marketing strategy to partner with its dealers and distributors
rather than sell directly to customers. Additionally, C/I Worldwide has
centralized the administrative functions of its indirect sales business in
Europe during fiscal 1997. The above activity negatively affected revenue growth
during fiscal 1997.
The Company anticipates that revenues for the first quarter of fiscal 1998 will
be lower than revenues reported in the first quarter of fiscal 1997. Decreases
are expected in European and C/I Worldwide revenues for the reasons noted above.
The Company completed the divestiture of its U.S. systems integration business
in September 1997.
Gross Margins and Operating Income
Before special charges, gross margins were 45.6% for fiscal 1997 compared with
44.8% for fiscal 1996. The increase in margins is due to the Company's overall
cost reduction efforts and principally represents favorable purchase prices on
materials used in the manufacturing process. The effect of these savings on
gross margins has been offset by lower product pricing resulting from
competition in certain segments of the EAS markets and higher costs associated
with the transfer of more production to the Company's facility in Ireland to
support operations in Europe. The Company has experienced pricing pressures from
certain EAS retail customers and expects the pricing pressure to continue in
future quarters.
Excluding restructuring and special charges, operating income for fiscal 1997
was $51.0 million or 5.0% of total revenue, versus $51.5 million or 5.2% of
total revenue in fiscal 1996.
Selling, General and Administrative Expenses
Excluding special charges, total selling, general and administration expenses,
as a percentage of total revenues, were 36.4% in fiscal 1997 versus 35.2% in
fiscal 1996. In absolute dollars, selling expenses increased in fiscal 1997
versus fiscal 1996 due to higher commission expenses as a result of increased
revenue. Operating expenses in the Company's European Retail business unit were
higher than fiscal 1996 as a percentage of revenues due to a significant
overhead structure. Accordingly, the Company has recently announced additional
cost reduction programs to reduce overhead cost, principally in its European
Retail business unit. These programs include the centralization of
administrative services and workforce reductions. C/I Worldwide operating
expenses as a percentage of revenue increased over fiscal 1996 levels. The
divestiture of non-core businesses, including the exit of the systems
integration business, are expected to decrease C/I Worldwide operating expenses
as a percentage of revenues below fiscal 1997 levels. Fiscal 1997 corporate
administrative expense levels were higher than in fiscal 1996 as a result of
increased consulting fees paid in connection with the Company's process
improvement programs. Legal expenses were comparable to fiscal 1996 levels but
remain at higher than normal levels due to expenses incurred to defend against
certain actions which have been brought against the Company and in connection
with an investigation by the Securities and Exchange Commission. It is
anticipated that legal expenses and related cash expenditures will remain at an
elevated level until these matters are concluded.
26
<PAGE> 28
In fiscal 1997 and fiscal 1996 the Company incurred expenses of $4.2 million and
$6.2 million, respectively, related to its involvement as the official
electronic security sponsor and supplier to the Games. The Company's association
with the Games is part of its strategy to expand general awareness of the
Company's total electronic security capabilities. The sales benefit from the
world "showcase" exposure has benefited the Company through new business.
Research, Development and Engineering Expenses
Research, development and engineering expenses decreased to 2.4% of revenue in
fiscal 1997 versus 2.7% in fiscal 1996. The reduced level of spending is the
result of planned consolidations and product rationalizations. New product
development in all product categories continues to be a high priority for the
Company and the Company expects fiscal 1998 spending levels for research,
development and engineering to be approximately 25% higher than fiscal 1997
levels. During fiscal 1997 the Company introduced 12 major new products,
including UltraPost, Intellex and ScanThru(TM).
Other (Expenses) Income
Non-operating expenses, which include interest expense and interest income,
increased from $25.4 million in fiscal 1996 to $32.4 million in fiscal 1997. The
increase is principally due to an increase in interest expense due to higher
average debt levels in fiscal 1997 as compared to fiscal 1996 as well as the
Company's decision to substitute long-term fixed rate borrowings for short-term
variable rate borrowings. In the third and fourth quarters of fiscal 1996, the
Company issued $350 million Senior Notes, the proceeds of which were used to
repay short-term U.S. and European bank borrowings and for general corporate
purposes. Fiscal 1997 non-operating expenses also included a gain of
approximately $2.4 million as a result of the cancellation of certain foreign
currency contracts. The Company canceled certain forward contracts which allowed
it to sell British Pounds for a fixed U.S. dollar amount as a result of the
recapitalization of its U.K. affiliate.
Taxes
The Company's worldwide effective tax rate benefit for fiscal 1997 was (29)% as
compared to (38.9)% in fiscal 1996. Both fiscal 1997 and 1996 rates include the
effect of restructuring and special charges. Excluding the effect of
restructuring and special charges, the Company's effective tax rate was 29% and
21.4%, respectively. The effective tax rate for continuing operations for fiscal
1998 is expected to be approximately 30%.
In August 1996, Congress repealed the favorable tax status in Puerto Rico which
will be phased out over a ten year period for years beginning in 1996. The
Company does not anticipate any material adverse effect on net income as a
result of the new law through fiscal 2002; for years thereafter, the Company is
evaluating the impact which is linked to the Company's further growth and
investment in its Puerto Rico manufacturing facility.
Prior to fiscal 1997, the Company had recognized a valuation allowance relating
to the uncertainty as to the realization of certain deferred tax assets,
principally related to the fiscal 1995 acquisition of Knogo. Based upon
anticipated future results, the Company has concluded, after review of the
valuation allowance as of June 30, 1997, that it is more likely than not that
the remaining balance of the net deferred tax assets will be realized.
RESULTS OF OPERATIONS -- FISCAL 1996 COMPARED TO FISCAL 1995
The following discussion of operating results excludes the effects of
restructuring and special charges recorded in fiscal 1996, which were discussed
above.
Revenues
Consolidated revenues for fiscal 1996 increased 12%, or $105.5 million, over
fiscal 1995 as all regions and business units increased revenue as compared to
the prior year. The revenue growth resulted principally from increased sales of
EAS products and systems and CCTV products. CCTV revenues increased 16% from
$255.7 million in fiscal 1995 to $297.5 million in fiscal 1996. Worldwide Access
Control system revenues increased 32% to $60.8 million in fiscal 1996 as
compared to $46.1 million in fiscal 1995.
27
<PAGE> 29
Consolidated revenues for the EAS product lines increased 6% in fiscal 1996 from
the comparable period of the prior year, principally due to growth in all
geographic areas from Ultra-Max product line revenues, which increased 11% from
the prior year as noted previously. Revenues from the magnetic product lines
increased 25%, with the greatest increase in Europe, due in part to the
acquisition of Knogo effective in the third quarter of 1995; slightly offset by
a decrease in the U.S. where sales efforts are concentrated on the Ultra-Max
product line. These increases were partially offset by a decline of 24% in the
microwave product line revenues, principally in Europe, where sales efforts
focused on the magnetic product lines. CCTV and Access Control system revenues
from the U.S. region of C/I Worldwide increased 35% to $192.5 million due
primarily to increased sales of CCTV products to non-retail customers and an
increase in market penetration.
North American retail revenue for fiscal 1996 increased 4% versus fiscal 1995.
Following the downsizing and restructuring carried out in the second quarter of
fiscal 1996, revenues decreased in the third quarter but increased in the fourth
quarter. EAS revenues were adversely affected by a number of consolidations and
bankruptcies of retailers as well as increased competition in certain segments
of the retail market. The increased competition has resulted in pricing
pressures, the negative impact of which is intended to be offset by the savings
to be realized as a result of the Company's restructuring plan and Q(3).
In Europe, total revenues for fiscal 1996 increased 4% over fiscal 1995.
Operations in Europe were negatively impacted by the downsizing and
restructuring, particularly in the U.K., where the Company carried out its most
intensive restructuring while facing an increase in competition. France's
revenue growth was negatively impacted by legislation restricting the expansion
of hypermarkets resulting in a greater amount of equipment upgrade revenue
rather than new product sales. The Company has also experienced increased
competition in Europe during fiscal 1996 as compared to fiscal 1995.
Revenues in Asia/Pacific grew 9% over the prior year. Revenues were slightly
affected by some softness in Japan's and Australia's economies over the course
of the year. Revenues in Latin America grew 55% to $53.6 million as compared to
$34.5 million in fiscal 1995. All countries in Latin America reported revenue
increases in excess of 15% over fiscal 1995. In the fourth quarter of fiscal
1996, the Company completed the acquisition of its distributor operations in
Colombia.
Gross Margins and Operating Income
Before special charges, gross margins on revenues were 44.8% for fiscal 1996
compared with 49.0% in fiscal 1995. The decline in margins is due primarily to
lower product pricing resulting from competition in certain segments of the EAS
markets, higher manufacturing costs resulting from temporary curtailment of
manufacturing operations during fiscal 1996 and higher costs associated with the
transfer of more production to the Company's facility in Ireland to support
operations in Europe. In fiscal 1996, manufacturing operations were temporarily
curtailed as a result of planned reductions in inventory levels and operated at
approximately 66% of prior year levels. Worldwide inventory levels decreased $83
million from the previous year-end, including restructuring and special
writedowns.
Excluding restructuring and special charges, operating income for fiscal 1996
was $51.5 million or 5.2% of total revenue, versus $97.9 million or 11% of total
revenue in fiscal 1995. Operating costs and expenses in fiscal 1996 increased to
94.8% of consolidated revenues, compared with 89% in fiscal 1995.
Selling, General and Administrative Expenses
Excluding special charges, total selling, general and administration expenses,
as a percentage of total revenues, were 35.2% in fiscal 1996 versus 33.8% in
fiscal 1995. The increase in fiscal 1996 was due to an increase in bad debt
expense as a result of an increase in bankruptcies and financial difficulties in
the retail market following a poor holiday season and the consolidation of some
retailers which led to stronger competition for other retailers. Additionally,
legal expenses for fiscal 1996 increased to $9.8 million as compared to $4.5
million in fiscal 1995 due primarily to expenses incurred to defend against
certain actions which have been brought against the Company and in connection
with an investigation by the Securities and Exchange Commission. As previously
mentioned, fiscal 1996 includes $6.2 million related to Sensormatic's
sponsorship of the Games.
28
<PAGE> 30
Research, Development and Engineering Expenses
Research, development and engineering expenses increased to 2.7% of revenue in
fiscal 1996 versus 2.6% in fiscal 1995. During fiscal 1996 the Company
introduced 27 new products.
Other (Expenses) Income and Taxes
Non-operating expenses increased $16.5 million in fiscal 1996 as compared to
fiscal 1995. The increase is due in part to the higher level of short-term
borrowings outstanding during the first nine months of fiscal 1996 and the
issuance of $350 million Senior Notes. The interest on the Senior Notes is
slightly higher than the average fiscal 1995 short-term borrowing rate.
The Company's worldwide effective tax rate for fiscal 1996 was (38.9)% as
compared to 21.9% in fiscal 1995. The fiscal 1996 rate includes the effect of
restructuring and special charges. Excluding the effect of restructuring and
special charges, the Company's effective tax rate was 21.4%.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, cash and cash equivalents decreased $92.0 million primarily
due to capital expenditures, increases in revenue equipment and acquisitions.
Cash flow used in operating activities was $2.1 million in fiscal 1997 compared
with $34.3 million in fiscal 1996 and cash flow provided by operations of $22.4
million in fiscal 1995. The decrease in cash used in operations in fiscal 1997
as compared to fiscal 1996 was primarily due to a decrease in accounts
receivable internally financed as a result of additional receivable financing
programs put in place during fiscal 1997. This decrease was offset by an
increase in inventory levels in fiscal 1997 as compared to fiscal 1996. Current
and deferred tax benefits increased in fiscal 1997 as compared to fiscal 1996
due to additional tax benefits recorded in fiscal 1997 in connection with the
restructuring and special charges.
The Company's investing activities used $85.2 million of cash in fiscal 1997,
compared to $77.8 million in fiscal 1996. Additions to property, plant and
equipment totaled $38.4 million, primarily for software and computer hardware
purchases related to the Company's enterprise wide system implementation
project; additional investments in manufacturing equipment, principally related
to the label production process; and leasehold improvements as a result of the
completion in fiscal 1997 of the Company's relocation of its primary corporate
administrative offices and engineering facilities from its Deerfield Beach
facility to its Boca Raton facility. Additional investing activities include
increases in revenue equipment, which represents equipment held under operating
leases. The Company completed the acquisition of its Argentine distributor in
October 1996 for cash of $14.8 million along with an earn-out provision, payment
of which is dependent on the achievement of certain performance targets of the
subsidiary, and made additional investments in acquisitions of $16.4 million
relating to ongoing payments for commitments relating to prior year
acquisitions.
Fiscal 1997 financing activities used cash of $4.7 million as compared with cash
generated of $182.2 million in fiscal 1996. The decrease is principally due to
proceeds received from the issuance of $350 million Senior Notes in 1996. The
proceeds from the Senior Notes were primarily used to repay short-term U.S. and
European bank borrowing and for general corporate purposes. The Company's
percentage of total debt to total capital was 40.4% at June 30, 1997 as compared
to 38.3% at June 30, 1996
At June 30, 1997, the Company's primary sources of liquidity consisted of cash,
committed lines of credit (totaling $250.0 million, of which approximately $10.0
million was utilized) and receivable financing agreements, all of which are
available subject to compliance with certain covenants. The Company believes
that the liquidity provided by existing cash and the financing arrangements
described above will be sufficient to meet the Company's capital requirements
for fiscal 1998.
During 1998, the Company plans to invest approximately $40.0 million in capital
projects. The projects include investments in manufacturing operations for new
production equipment and management information systems. In August 1997, the
Company announced that it has suspended its quarterly dividend and plans to
reinvest the funds in the Company's operations.
CURRENCY RISKS
The Company uses the U.S. dollar as the reporting currency for financial
statement purposes. The Company conducts business in numerous countries around
the world through its international subsidiaries which use
29
<PAGE> 31
local currencies to denominate their transactions, and is therefore, subject to
certain risks associated with fluctuating foreign currencies. The Company
believes these risks are not significant as its major foreign operations are in
Western European countries which have relatively stable economies and
currencies.
The Company monitors its currency exposures but has decided not to hedge its
translation exposures due to the high economic costs of such a program and the
long-term nature of its investments in its international subsidiaries.
Translation exposure is the result of translating local currency financial
statements into the Company's reporting currency. Management has estimated that
the net impact of currency fluctuations on the Company's Results of Operations
is largely due to the strengthening of the U.S. dollar and is not considered
significant in any of the fiscal years in the three-year period ended June 30,
1997.
The Company does have a policy of managing its transaction exposure arising from
intercompany product purchase commitments. The policy provides for the use of
forward exchange contracts and options to sell the currencies received from
international subsidiaries in settlement of intercompany product purchases.
Forward contracts and options are subject to the risk of gain or loss from
changes in exchange rates, but these gains or losses are effectively offset by
losses or gains on the designated hedged commitments. The Company believes its
policy to hedge its transaction exposures has been successful as foreign
exchange gains and losses were minimal in fiscal 1997, 1996 and 1995, despite a
volatile foreign currency market.
INTEREST RATE RISKS AND DERIVATIVES
The Company is subject to the risk of fluctuating interest rates in the normal
course of business on various assets, consisting primarily of cash, installment
receivables, sales-type leases and debt. Generally, the Company has used
interest rate agreements to manage its exposure associated with the sale of
installment receivables. The Company's interest rate risks related to existing
outstanding debt are not significant as a major portion of the Company's debt is
at fixed interest rates.
The Company does not enter into speculative derivative transactions or leveraged
swap arrangements. The derivative instruments it does own are not held as
investments, and it is the Company's intent to hold such instruments for their
respective terms. Therefore, changes in their fair values will not have a
significant effect on the Company's operations, cash flows, or financial
position.
See Notes 1, 3, 8 and 14 of Notes to Consolidated Financial Statements for
further discussion.
LOSS CONTINGENCIES
As mentioned in Note 11 of Notes to the Consolidated Financial Statements, the
Company is a defendant in a number of class action lawsuits filed by alleged
shareholders of the Company following announcements by the Company that, among
other things, its earnings for the quarter and year ended June 30, 1995, would
be substantially below expectations and, in later actions or complaint
amendments, that the scope of the Company's year-end audit for fiscal 1995 had
been expanded and that the results for the third quarter of fiscal 1995 were
being restated. Also, in September 1995, actions were filed against the Company
and its directors for breach of fiduciary duties, mismanagement and waste of
corporate assets. Further, in May and July 1997, two declaratory judgment
actions were filed by the Company's two excess directors and officers liability
insurance carriers during the period December 15, 1994 to December 15, 1995. In
light of the uncertainty as to the outcome of these actions and the settlement
discussions taking place, the Company has not recorded a provision for any
liability that may result from these actions.
ACCOUNTING POLICIES
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." As permitted by
SFAS No. 123, the Company continues to follow the measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and does not recognize compensation expense for its stock-based
incentive plans. See Note 9 of Notes to the Consolidated Financial Statements
for the affect on the Company's net income and earnings per share for fiscal
1997 and 1996 had the compensation cost for the Company's stock based incentive
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the methodology prescribed by SFAS
No. 123.
30
<PAGE> 32
In January 1997, the Company adopted SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities which are based
on a financial-components approach that focuses on control. In order to continue
to recognize the transfer of accounts receivable as sales, the Company has
entered into several new receivable financing agreements during fiscal 1997. The
impact of adoption of SFAS No. 125 in 1997 was immaterial.
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of Information about
Capital Structure" which are effective for fiscal years beginning after December
15, 1997. SFAS No. 128 simplifies the current required calculation of earnings
per share ("EPS") under APB No. 15, "Earnings per Share", by replacing the
existing calculation of primary EPS with a basic EPS calculation. It requires a
dual presentation, for complex capital structures, of basic and diluted EPS on
the face of the income statement and requires a reconciliation of basic EPS
factors to diluted EPS factors. SFAS No. 129 requires disclosing information
about an entity's capital structure. The Company plans to adopt SFAS No. 128 and
SFAS No. 129 in fiscal 1999, with no material impact to the Company's EPS
calculation or disclosure information.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The new rule requires that the Company (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of the balance sheet. The
Company plans to adopt SFAS No. 130 in fiscal 1999 with no material impact to
the Company's financial statement presentation.
Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This Statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", and amends SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries". This Statement requires
annual financial statements to disclose information about products and services,
geographic areas and major customers based on a management approach, along with
interim reports. The management approach requires disclosing financial and
descriptive information about an enterprise's reportable operating segments
based on reporting information the way management organizes the segments for
making business decisions and assessing performance. It also eliminates the
requirement to disclose additional information about subsidiaries that were not
consolidated. This new management approach may result in more information being
disclosed than is presently practiced and require new interim information not
previously presented. The Company plans to adopt SFAS No. 131 in fiscal 1999
with impact only to the Company's disclosure information.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Except for historical matters, the matters discussed in this Form 10-K are
forward looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from historical results or those
anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors could cause actual results to differ materially from
historical results or those anticipated: 1) changes in international operations,
2) exchange rate risk, 3) market conditions for the Company's products, 4) the
Company's ability to provide innovative and cost-effective solutions, 5)
development risks, 6) competition, and 7) changes in the economic climate.
31
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Certified Public Accountants........ 33
Consolidated Balance Sheets at June 30, 1997 and 1996..... 34
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995........................... 35
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995........................... 36
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1997, 1996 and 1995............... 37
Notes to Consolidated Financial Statements................ 38-54
Financial Statement Schedules:
For the three years ended June 30, 1997:
Schedule II -- Valuation and Qualifying Accounts....... S-1
</TABLE>
Consolidated Financial Statement schedules not included have been omitted
because they are not applicable or the required information is shown in the
Consolidated Financial Statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
32
<PAGE> 34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of
Sensormatic Electronics Corporation
We have audited the accompanying consolidated balance sheets of Sensormatic
Electronics Corporation as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. Our audit also
included the financial statement schedule listed at Item 8. These financial
statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sensormatic Electronics Corporation at June 30, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
West Palm Beach, Florida
August 14, 1997
33
<PAGE> 35
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(In millions, except par value amounts)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 21.7 $ 113.7
Accounts receivable, net.................................... 239.6 244.0
Current portion of deferred and installment receivables,
net....................................................... 17.6 22.9
Current portion of net investment in sales-type leases...... 34.4 29.0
Inventories, net............................................ 199.6 157.8
Current portion of deferred income taxes.................... 42.9 29.3
Other current assets........................................ 54.4 37.1
-------- --------
TOTAL CURRENT ASSETS.............................. 610.2 633.8
Deferred and installment receivables, net................... 9.9 41.3
Net investment in sales-type leases......................... 128.6 111.3
Revenue equipment, less accumulated depreciation of $55.3 in
1997 and $47.1 in 1996.................................... 66.8 56.9
Property, plant and equipment, net.......................... 145.5 147.8
Costs in excess of net assets acquired, less accumulated
amortization of $61.2 in 1997 and $46.6 in 1996........... 482.7 487.5
Deferred income taxes....................................... 111.5 96.9
Patents and other assets, less accumulated amortization of
$24.5 in 1997 and $28.2 in 1996........................... 88.4 54.8
-------- --------
TOTAL ASSETS................................................ $1,643.6 $1,630.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt............................................. $ 21.8 $ 24.8
Accounts payable............................................ 67.2 59.9
Other current liabilities and deferred income taxes......... 240.4 174.5
-------- --------
TOTAL CURRENT LIABILITIES......................... 329.4 259.2
Long-term debt.............................................. 501.5 491.7
Other noncurrent liabilities and deferred income taxes...... 39.8 47.7
-------- --------
TOTAL LIABILITIES................................. 870.7 798.6
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10.0 shares authorized,
none issued............................................... - -
Common stock, $.01 par value, 125.0 shares authorized, 74.3
and 73.9 shares outstanding in 1997 and 1996,
respectively.............................................. 730.5 723.8
Retained earnings........................................... 143.7 181.8
Treasury stock at cost and other, 1.7 shares in 1997 and
1996...................................................... (14.0) (13.4)
Currency translation adjustments............................ (87.3) (60.5)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 772.9 831.7
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,643.6 $1,630.3
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(In millions, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Sales..................................................... $ 853.0 $ 850.8 $ 762.4
Rentals................................................... 55.3 49.7 50.6
Installation, maintenance and other....................... 117.4 94.1 76.1
-------- -------- --------
Total revenues.................................... 1,025.7 994.6 889.1
-------- -------- --------
Operating costs and expenses:
Costs of sales............................................ 539.4 560.2 437.3
Depreciation on revenue equipment......................... 20.8 20.3 16.3
Selling, general and administrative....................... 392.6 418.5 300.3
Restructuring charges..................................... 26.8 85.3 -
Research, development and engineering..................... 24.5 27.7 22.7
Amortization of intangible assets......................... 19.5 17.1 14.6
-------- -------- --------
Total operating costs and expenses................ 1,023.6 1,129.1 791.2
-------- -------- --------
Operating income (loss)..................................... 2.1 (134.5) 97.9
-------- -------- --------
Other (expenses) income:
Interest income........................................... 16.2 16.9 17.2
Interest expense.......................................... (47.9) (38.4) (29.0)
Other, net................................................ (0.7) (3.9) 2.9
-------- -------- --------
Total other (expenses) income..................... (32.4) (25.4) (8.9)
-------- -------- --------
(Loss) income from continuing operations before income
taxes..................................................... (30.3) (159.9) 89.0
(Benefit) provision for income taxes........................ (8.9) (62.2) 19.4
-------- -------- --------
(Loss) income from continuing operations.................... (21.4) (97.7) 69.6
Discontinued operations..................................... - - 4.1
-------- -------- --------
Net (loss) income........................................... $ (21.4) $ (97.7) $ 73.7
======== ======== ========
Primary (loss) earnings per common share:
Continuing operations..................................... $ (.29) $ (1.32) $ .97
Discontinued operations................................... - - .05
-------- -------- --------
Net (loss) income........................................... $ (.29) $ (1.32) $ 1.02
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(In millions)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income from continuing operations.................. $(21.4) $ (97.7) $ 69.6
Adjustments to reconcile net (loss) income from continuing
operations to net cash (used in) provided by operating
activities:
Depreciation......................................... 46.7 42.1 33.4
Amortization......................................... 19.5 17.1 14.6
Restructuring and special charges, net............... 48.9 174.6 -
Net changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable and receivables from financing
institutions........................................ (63.6) (62.9) (57.4)
Deferred and installment receivables................. 36.6 (5.8) 4.9
Net investment in sales-type leases.................. (22.7) (50.0) 9.2
Inventories.......................................... (45.8) 43.0 (68.4)
Current and deferred income taxes.................... (30.9) (76.5) (3.8)
Accounts payable..................................... 8.4 (4.3) 15.1
Other, net........................................... 22.2 (13.9) 5.2
------ ------- ------
Net cash (used in) provided by operating
activities................................... (2.1) (34.3) 22.4
------ ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (38.4) (49.8) (63.0)
Increase in revenue equipment, net........................ (23.0) (36.8) (4.0)
Acquisitions (net of cash acquired of $6.7 in 1995)....... (14.8) (8.6) (9.6)
Additional investments in acquisitions.................... (16.4) (14.9) (13.3)
Proceeds from sales and maturities of marketable
securities............................................. 2.4 23.3 7.7
Other, net................................................ 5.0 9.0 4.9
------ ------- ------
Net cash used in investing activities........... (85.2) (77.8) (77.3)
------ ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and other debt............................ 105.5 1.3 105.4
Repayments of bank borrowings and other debt.............. (96.0) (160.2) (25.2)
Proceeds from the issuance of Senior Notes, net........... - 348.3 -
Dividends paid............................................ (16.7) (16.1) (15.5)
Proceeds from issuance of common stock under employee
benefit plans
and for acquisitions................................... 5.6 8.9 12.9
Other, net................................................ (3.1) - -
------ ------- ------
Net cash (used in) provided by financing
activities................................... (4.7) 182.2 77.6
------ ------- ------
Net (decrease) increase in cash and cash equivalents........ (92.0) 70.1 22.7
Cash and cash equivalents at beginning of year.............. 113.7 43.6 20.9
------ ------- ------
Cash and cash equivalents at end of year.................... $ 21.7 $ 113.7 $ 43.6
====== ======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid during the year......................... $ 10.8 $ 10.3 $ 5.9
Interest paid during the year............................. $ 43.5 $ 30.4 $ 26.5
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 38
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(In millions)
<TABLE>
<CAPTION>
TREASURY CURRENCY
COMMON RETAINED STOCK TRANSLATION
STOCK EARNINGS AND OTHER ADJUSTMENTS TOTAL
------ -------- --------- ----------- ------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994......................... $546.6 $237.4 $(10.7) $(45.6) $727.7
Stock issued in connection with acquisitions
(4.6 shares)................................ 149.3 - - - 149.3
Stock issued pursuant to employee benefit
plans....................................... 13.9 - (3.3) - 10.6
Common stock cash dividends.................... - (15.5) - - (15.5)
Net income..................................... - 73.7 - - 73.7
Other.......................................... 4.1 - 0.8 2.0 6.9
------ ------ ------ ------ ------
Balance at June 30, 1995......................... 713.9 295.6 (13.2) (43.6) 952.7
Stock issued pursuant to employee benefit
plans....................................... 9.9 - (1.1) - 8.8
Common stock cash dividends.................... - (16.1) - - (16.1)
Net loss....................................... - (97.7) - - (97.7)
Other.......................................... - - 0.9 (16.9) (16.0)
------ ------ ------ ------ ------
Balance at June 30, 1996......................... 723.8 181.8 (13.4) (60.5) 831.7
Stock issued pursuant to employee benefit
plans....................................... 6.7 - (1.3) - 5.4
Common stock cash dividends.................... - (16.7) - - (16.7)
Net loss....................................... - (21.4) - - (21.4)
Other.......................................... - - 0.7 (26.8) (26.1)
------ ------ ------ ------ ------
Balance at June 30, 1997......................... $730.5 $143.7 $(14.0) $(87.3) $772.9
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 39
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Consolidated Financial Statements include the accounts of Sensormatic
Electronics Corporation and all of its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
Cash and cash equivalents
Cash equivalents include short-term highly liquid investments with a maturity of
three months or less from date of acquisition. The recorded amounts approximate
fair value because of the short maturities of these investments.
Inventories
Inventories are stated at the lower of cost or market, cost being determined on
a first-in, first-out basis.
Revenue equipment and property, plant and equipment
Revenue equipment (principally equipment on lease) and property, plant and
equipment (including assets acquired under capital leases) are recorded at cost
and depreciated using the straight-line method over their estimated useful lives
(4 years and 6 years for revenue equipment, 10 years through 40 years for
buildings and improvements and 3 years through 10 years for property, plant and
equipment).
Revenue recognition
Revenue from product sales is recognized at the time the product is shipped in
accordance with the terms agreed upon by the parties. Revenue from long-term
installation contracts is recognized on a percentage-of-completion basis.
Revenue from sales-type leases (primarily with terms of 60 months or greater) is
recognized as a "sale" upon shipment in an amount equal to the present value of
the minimum rental payments under the fixed non-cancelable lease term. The
deferred finance charges applicable to these leases are recognized over the
terms of the leases using the effective interest method.
The Company also leases equipment under long-term operating leases (primarily
leases with terms of 36 to 54 months) which are generally non-cancelable. Rental
revenues are recognized as earned over the term of the lease. Minimum future
rentals on non-cancelable operating leases at June 30, 1997 aggregated $117.7
and are due as follows: 1998 -- $43.3; 1999 -- $32.5; 2000 -- $21.6;
2001 -- $12.7; 2002 -- $7.5 and thereafter -- $0.1.
Installation and service revenues are recognized as earned and maintenance
revenues are recognized ratably over the service contract term.
Research, development and engineering
In fiscal 1997, 1996 and 1995 "Research, development and engineering" included
research and development expenses of $19.0, $21.4 and $18.2, respectively.
Accounting for currency translation and transactions
Foreign currency transactions and financial statements (except for those
relating to countries with highly inflationary economies) are translated into
U.S. dollars at the rate in effect on the date of the transaction or the date of
the financial statements, except that revenues, costs and expenses are
translated at average exchange rates during each reporting period. Translation
adjustments resulting therefrom and transaction gains or losses attributable to
certain intercompany transactions are excluded from results of operations and
accumulated in a separate component of consolidated stockholders' equity. Gains
and losses attributable to other intercompany transactions are included in
results of operations.
38
<PAGE> 40
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of subsidiaries located in countries with highly
inflationary economies are remeasured as if the functional currency were the
U.S. dollar. The remeasurement creates translation adjustments that are
reflected in net income. Allocations for income taxes included in the
translation adjustments account in shareholders' equity were not significant.
Financial instruments
The Company enters into interest rate agreements and foreign exchange forward
and option contracts to manage exposure to fluctuations in interest and foreign
currency exchange rates. The Company does not hedge its investment in the net
assets of its international subsidiaries due to the high economic cost of such a
program and the long-term nature of its investments.
The cash differentials paid or received on interest rate agreements are accrued
and recognized as adjustments to interest expense or interest income. Gains and
losses realized upon the settlement of these agreements are deferred and either
amortized to interest expense over a period relevant to the agreement if the
underlying hedged instrument remains outstanding, or recognized immediately if
the underlying hedged instrument is settled. Interest rate agreements are stated
at cost, if any.
The Company principally uses foreign exchange forward and option contracts to
hedge certain identifiable, foreign currency intercompany commitments and
certain short-term intercompany advances. Gains and losses on the contracts
which hedge anticipatory intercompany commitments are deferred and recorded in
net income in the period in which the related transaction is consummated. Gains
and losses on the contracts which hedge intercompany advances are recorded as
adjustments to net income because such advances are expected to be repaid in the
foreseeable future. Forward contracts and options which hedge anticipatory
intercompany commitments and intercompany advances are stated at cost (if any)
and market value, respectively.
Cash flows related to interest rate agreements and foreign exchange forward and
option contracts are classified as operating activities in the Consolidated
Statements of Cash Flows.
Intangible assets
Patents, stated at cost, are amortized using the straight-line method over 17
years. Costs in excess of net assets acquired are amortized using the
straight-line method over 20 to 40 years.
Earnings per share
Primary earnings per common share is calculated based on the weighted average
number of common shares, plus dilutive common stock equivalents outstanding
during the period using the treasury stock method. Common stock equivalents
include stock options issued under employee benefit plans and common stock
warrants. For the fiscal year ended June 30, 1997, 1996 and 1995, fully diluted
per common share data were either not materially different than the primary per
common share data presented, or had an antidilutive effect on the primary per
common share data presented.
Impairment
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", the Company reviews
long-lived assets and related goodwill for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be
fully recoverable. If this review indicates that goodwill will not be
recoverable, as generally determined based on estimated undiscounted cash flows
over the remaining amortization period, the carrying amount of goodwill would be
adjusted to fair value.
39
<PAGE> 41
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prospective accounting changes
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share" and SFAS No.
129 "Disclosure of Information about Capital Structure" which are effective for
fiscal years beginning after December 15, 1997. SFAS No. 128 simplifies the
current required calculation of earnings per share ("EPS") under APB No. 15,
"Earnings per Share", by replacing the existing calculation of primary EPS with
a basic EPS calculation. It requires a dual presentation, for complex capital
structures, of basic and diluted EPS on the face of the income statement and
requires a reconciliation of basic EPS factors to diluted EPS factors. SFAS No.
129 requires disclosing information about an entity's capital structure. The
Company plans to adopt SFAS No. 128 and SFAS No. 129 in fiscal 1999, and expects
no material impact to the Company's EPS calculation or disclosure information.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The new rule requires that the Company (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of the balance sheet. The
Company plans to adopt SFAS No. 130 in fiscal 1999 and expects no material
impact to the Company's financial statement presentation.
Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This Statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", and amends SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries". This Statement requires
annual financial statements to disclose information about products and services,
geographic areas and major customers based on a management approach, along with
interim reports. The management approach requires disclosing financial and
descriptive information about an enterprise's reportable operating segments
based on reporting information the way management organizes the segments for
making business decisions and assessing performance. It also eliminates the
requirement to disclose additional information about subsidiaries that were not
consolidated. This new management approach may result in more information being
disclosed than presently practiced and require new interim information not
previously presented. The Company plans to adopt SFAS No. 131 in fiscal 1999
with impact only to the Company's disclosure information and not its results of
operations.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior years' Consolidated Financial Statements have been
reclassified to conform to the current fiscal year's presentation.
2. RESTRUCTURING AND SPECIAL CHARGES
In fiscal 1996, the Company initiated a review of its global operations, cost
structure and balance sheet directed at reducing its operating expenses,
manufacturing costs and increasing efficiencies. This review focused primarily
on operational and organizational structures and systems, facilities
utilization, product rationalization and inventory valuation, receivable
balances and related collection efforts and certain other matters. This review
resulted in charges totaling $186.0, with an after-tax impact of approximately
$118.2. The
40
<PAGE> 42
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cash outlay related to these charges is estimated to be approximately $33.3, of
which $19.4 was paid as of June 30, 1997.
The Company recorded additional restructuring and special charges in the fourth
quarter of fiscal 1997 as a result of further cost-reduction actions, primarily
in Europe, and the Company's plan to divest of non-core businesses. The
restructuring activities and special charges are expected to result in pretax
charges totaling approximately $90.0, with an after-tax impact of approximately
$65.0. The total cash outlay related to these charges, net of expected proceeds
from the divestment of non-core businesses, is estimated to be approximately
$30.0, none of which was paid as of June 30, 1997. As of June 30, 1997, $48.9 of
this pretax charge has been recorded, which included $26.8 of restructuring
charges and $22.1 of special charges. The remaining restructuring charges of
approximately $40.0 are expected to be recognized in the first quarter of fiscal
1998.
Restructuring Charges
In 1996, the Company reviewed its existing products and product sourcing, the
purpose of which was to reduce the number of products, and thereby reduce
inventory carrying costs and improve gross margins on continued products. As a
result of this review, in fiscal 1996 the Company recorded a charge related to
discontinued products and equipment used in the manufacture of certain products
which will no longer be manufactured or purchased from third party suppliers. In
connection with its review of operational and organizational structures and
systems, management adopted a plan to consolidate certain sales and
manufacturing facilities, reorganize certain business units and corporate
functions, and eliminate redundant positions. The Company planned for the
termination of approximately 875 manufacturing and administrative personnel in
North America and Europe and the reduction of approximately 30 facilities. As of
June 30, 1997, all planned terminations have been completed and approximately
one-half of the facilities have been eliminated or subleased. Certain terminated
employees are receiving severance payments over time.
The Company's most recently announced restructuring activities principally
include workforce reductions in the Company's European operations and the
divestment of non-core businesses which includes the U.S. commercial/industrial
direct sales and service business sold in September 1997. The Company has
planned for the reduction in workforce of approximately 1,200 positions, of
which 600 will be eliminated in connection with the divestment of non-core
businesses and the remaining positions principally represent the termination of
administrative personnel.
The following table sets forth the details and the activity of the restructuring
charge reserves for fiscal 1997:
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
BALANCE AT REDUCTIONS BALANCE AT
JUNE 30, 1997 ---------------- RESERVE JUNE 30,
1996 ADDITIONS CASH NON-CASH REALLOCATIONS 1997
---------- --------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Product rationalization,
related equipment charges
and other................... $11.1 $ 2.9 $ - $(12.4) $ 2.8 $ 4.4
Closure of facilities and
related costs............... 20.9 6.5 (1.4) (6.5) (7.3) 12.2
Employee termination and
related costs............... 5.4 .5 (6.6) - 4.5 3.8
Non-core business
divestments................. - 16.9 - - - 16.9
----- ----- ----- ------ ----- -----
Total............... $37.4 $26.8 $(8.0) $(18.9) $ - $37.3
===== ===== ===== ====== ===== =====
</TABLE>
The restructuring activity is expected to be substantially complete prior to the
end of fiscal 1998 and the Company believes the provisions recorded are adequate
to cover the costs associated with these plans.
41
<PAGE> 43
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Special Charges
In 1996, the Company conducted an extensive evaluation and review of the
collectibility of its receivable balances (including off-balance sheet
receivables) and related collection efforts. This initiative was primarily the
result of the overall weakening in the retail industry following a poor holiday
season. In addition, several commercial/industrial and retail customers filed
for bankruptcy and other customers experienced financial difficulties. The
Company also conducted a review of slow moving inventory in light of softening
demand for certain EAS products.
As a result of these reviews, in fiscal 1996 the Company recorded a charge to
operations of $100.7 which primarily represented increases in the valuation
allowances for doubtful accounts receivable and inventories. Of this amount,
$75.6 related to receivables and other matters and $25.1 related to inventories
and revenue equipment. The special charges are recorded in the fiscal 1996
Consolidated Statement of Operations as follows: $29.1 in costs of sales, $2.6
in depreciation on revenue equipment, $68.5 in selling, general and
administrative expenses and $0.5 in research, development and engineering
expense.
In fiscal 1997 the Company recorded additional special charges of $22.1 which
principally represents increases to valuation allowances for accounts receivable
and receivables financed with third parties. The special charges are recorded in
the fiscal 1997 Consolidated Statement of Operations as follows: $2.5 in costs
of sales and $19.6 in selling, general and administrative expenses.
3. RECEIVABLES AND NET INVESTMENT IN SALES-TYPE LEASES
At June 30, receivables and sales-type lease receivables and related allowances
for doubtful accounts, allowances for uncollectible minimum lease payments and
unearned interest and maintenance are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accounts receivable......................................... $ 291.2 $ 276.1
Allowance for doubtful accounts............................. (51.6) (32.1)
------- -------
Total accounts receivable, net.................... $ 239.6 $ 244.0
======= =======
Deferred receivables........................................ $ 7.3 $ 11.3
Installment receivables..................................... 46.0 90.6
Allowance for doubtful accounts............................. (7.8) (13.4)
Unearned interest and maintenance........................... (18.0) (24.3)
------- -------
Total deferred and installment receivables, net... 27.5 64.2
------- -------
Less: Amounts due in 1 year, net............................ (17.6) (22.9)
------- -------
Total noncurrent deferred and installment
receivables, net................................ $ 9.9 $ 41.3
======= =======
Sales-type leases-minimum lease payments receivable......... $ 215.5 $ 206.0
Allowance for uncollectible minimum lease payments.......... (16.4) (17.3)
Unearned interest and maintenance........................... (36.1) (48.4)
------- -------
Total sales-type leases, net...................... 163.0 140.3
------- -------
Less: Amounts due in 1 year, net............................ (34.4) (29.0)
------- -------
Total noncurrent sales-type leases, net........... $ 128.6 $ 111.3
======= =======
</TABLE>
The Company recorded provisions to the valuation allowance for doubtful accounts
receivable and sales-type lease receivables of $39.2, $82.3 and $19.6, during
fiscal 1997, 1996 and 1995, respectively. Refer to Note 2 for a discussion of
special charges related to receivables and sales-type lease receivables.
Net receivables and sales-type lease receivables at June 30, 1997 are due as
follows: 1998 -- $291.6; 1999 -- $40.0; 2000 -- $39.4; 2001 -- $29.6;
2002 -- $19.2 and $10.3 thereafter.
42
<PAGE> 44
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1997 and 1996, credit risk concentration for receivables (including
those subject to recourse) due from supermarkets and specially, department and
discount store sectors of the U.S. retail market, aggregated $96.9 and $80.5,
respectively. Assuming the obligors under these receivables were to fail to
completely perform according to the terms of the receivables, at June 30, 1997,
the Company estimates its aggregate exposure to loss in these markets to be
$68.3. The estimate takes into consideration the related allowances for doubtful
accounts and the estimated realizable value of the collateralized equipment
securing these receivables. The Company minimizes its exposure to credit risk
through its credit review procedures and collection practices and its general
policy of retaining a security interest in the underlying equipment and ability
to re-market such equipment if repossessed.
4. ACCOUNTS RECEIVABLE FINANCING
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provides accounting and reporting standards for sales, securitizations and
servicing of receivables and other financial assets. The adoption of SFAS No.
125, which was effective for all transactions occurring after December 31, 1996,
did not have a material effect on the Company. In conjunction with the adoption
of SFAS No. 125, the Company entered into three new receivable financing
agreements and modified its principal U.S. receivable factoring agreement to
enable the Company to continue recognizing the transfer of certain receivables
as sales.
The new agreements entered into include a five year L100 million (approximately
$160.0) asset backed commercial paper conduit program (the "Program") which
allows for the sale of accounts receivables from eligible equipment lease
contracts originating in the United Kingdom and Scotland on a nonrecourse basis
to Mont Blanc Receivables Financing Limited ("MBRF"), an entity sponsored by the
Union Bank of Switzerland ("UBS"). Under the Program, the Company periodically
sells receivables to MBRF which in turn sells a percentage ownership in the
receivables to a commercial paper conduit sponsored by UBS. The Company receives
a subordinated receivable from MBRF equal to the difference between the value of
the receivables sold and the cash received from MBRF.
Effective June 1997, the Company, through a non-consolidated wholly-owned
special purpose corporation, established a committed securitization facility
sponsored by a major U.S. financial institution which will provide for the
transfer of up to $30.0 of the Company's long-term U.S. receivables. Under the
agreement, the Company periodically sells its receivables to the special purpose
corporation which in turn sells a percentage ownership interest in the long-term
receivables to a commercial paper conduit sponsored by the major U.S. financial
institution. The Company retains an investment in the special purpose
corporation equal to the difference between the value of the receivables sold
and the cash received from the special purpose corporation.
Additionally, the Company has established an uncommitted facility with a French
financial institution which will allow it to transfer, and record as a sale
under SFAS No. 125, its long-term French equipment leases.
Prior to December 31, 1996, the Company's two U.S. factoring agreements met the
requirements for sales treatment. The Company modified its principal U.S.
factoring agreement to continue to qualify for sales treatment under SFAS No.
125. Under both of the Company's U.S. factoring agreements, certain pre-approved
U.S. accounts receivables are assigned to the financial institutions without
customer non-payment recourse. The financing institutions advance, in
anticipation of customer collections, to the Company at fluctuating interest
rates of 6.15% and 5.95% at June 30, 1997 and 1996, respectively.
For the period January 1, 1997 through June 30, 1997, the Company has sold
approximately $217.0 under all of the above facilities and has received cash
proceeds of approximately $175.0. The remainder is reflected in the financial
statements as receivables from financial institutions or investments in special
purpose corporation and such amounts are recorded at fair market value based on
management's assessment of realization and the expected timing of cash flows.
Cash proceeds from the sale of receivables under these facilities are included
in
43
<PAGE> 45
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cash flows from operating activities in the Consolidated Statements of Cash
Flows. The Company is retained as servicer of the receivables sold under all of
the above agreements except for the two U.S. factoring agreements. Estimating
the fair value of the servicing asset or liability was not considered
practicable and accordingly, a servicing asset or liability has not been
recognized.
During fiscal 1997, prior to the adoption of SFAS No. 125, and in fiscal 1996,
the Company received proceeds of $193.2 and $371.3 upon the sale and assignment
of receivables and sales-type lease receivables under its receivable financing
agreements, respectively (net of repurchases due to customer non-payment of
approximately $64.3 and $22.7, respectively). The uncollected principal balance
of receivables and sales-type lease receivables sold during these periods which
is subject to varying amounts of recourse totaled $222.7 and $261.7 at June 30,
1997 and 1996, respectively. Loss reserves have been provided for receivables
and sales-type lease receivables sold and are included in accrued liabilities.
5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Finished goods.............................................. $145.0 $134.8
Parts....................................................... 58.8 42.4
Work-in-process............................................. 24.9 18.6
------ ------
228.7 195.8
Less allowance for inventory losses......................... (29.1) (38.0)
------ ------
Total inventories, net............................ $199.6 $157.8
====== ======
</TABLE>
Refer to Note 2 for discussion of restructuring and special charges related to
inventories.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Machinery and equipment..................................... $139.2 $129.2
Buildings and improvements.................................. 60.3 62.3
Leasehold improvements and furniture and fixtures........... 31.5 25.0
Land........................................................ 16.8 17.4
------ ------
247.8 233.9
Less accumulated depreciation and amortization.............. (102.3) (86.1)
------ ------
Total property, plant and equipment, net.......... $145.5 $147.8
====== ======
</TABLE>
Refer to Note 2 for discussion of restructuring charges related to property,
plant and equipment.
The Company leases certain operating plant and equipment. The future lease
commitments for plant and equipment and other assets at June 30, 1997 aggregated
$42.4 and are due as follows: 1998 -- $13.9; 1999 -- $9.8; 2000 -- $5.0;
2001 -- $2.4; 2002 -- $1.9 and $9.4 thereafter. Rent expense for certain
operating plant and equipment was charged to operations as follows:
1997 -- $13.8; 1996 -- $18.9 and 1995 -- $14.8.
7. INCOME TAXES
Sensormatic applies SFAS No. 109 "Accounting for Income Taxes" which specifies
an asset and liability approach requiring the recognition of deferred tax assets
and liabilities with respect to the expected future tax consequences of events
that have been recorded in the Consolidated Financial Statements and tax
returns.
44
<PAGE> 46
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax (benefits) provisions on (loss) income from continuing operations
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
U.S. Federal income taxes:
Current................................................. $ 6.0 $ 4.8 $ 2.0
Deferred................................................ (21.9) (27.3) 4.6
Foreign income taxes:
Current................................................. 13.1 3.6 3.2
Deferred................................................ (4.7) (36.0) 10.0
State and other........................................... (1.4) (7.3) (0.4)
------ ------ -----
Total........................................... $ (8.9) $(62.2) $19.4
====== ====== =====
</TABLE>
The 1997, 1996 and 1995 deferred provisions include a tax benefit of $14.2,
$59.2 and $20.0, respectively, relating to net operating losses.
The United States (including Puerto Rico) and foreign components of (loss)
income from continuing operations before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------------- -----------
<S> <C> <C> <C>
United States.......................................... $(35.5) $ (74.3) $ 62.8
Foreign................................................ 5.2 (85.6) 26.2
------ ------- ------
Total................................................ $(30.3) $(159.9) $ 89.0
====== ======= ======
</TABLE>
The U.S. Federal tax rate reconciles to the effective tax rate for continuing
operations as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------------- -----------
<S> <C> <C> <C>
U.S. Federal tax rate.................................. (35.0)% (35.0)% 35.0%
Benefits due to tax exempt earnings and investment
income of the Puerto Rico operations................. (19.2) (3.1) (10.2)
Amortization of costs in excess of net assets
acquired............................................. 14.4 2.4 4.6
International Tax Rate Differentials, net of foreign
tax credits.......................................... (3.2) 0.9 0.2
Tax benefit of Foreign Sales Corporation............... (4.4) (0.3) -
State income tax effect, net of Federal benefit........ (3.1) (3.0) (0.3)
Adjustment of prior years' accruals.................... - - (4.9)
Valuation allowance.................................... 18.0 (2.5) -
Other.................................................. 3.5 1.7 (2.5)
------ ------- ------
(29.0)% (38.9)% 21.9%
====== ======= ======
</TABLE>
In fiscal year 1995, the Company reduced income tax liabilities by $4.1; such
amount related to a previously discontinued business and was no longer required.
Undistributed earnings of international subsidiaries are indefinitely reinvested
except for earnings of the Company's German subsidiary which are periodically
distributed to utilize the lower German integrated tax rate. No provision has
been made for income taxes that might be payable upon the remittance of the
indefinitely reinvested earnings. Upon distribution of those earnings, the
Company would be subject to both U.S. income taxes and withholding taxes payable
to the various foreign countries. The Company has not determined the amount of
tax liability associated with an unplanned distribution of these permanently
reinvested earnings.
Certain Commonwealth of Puerto Rico taxes (tollgate taxes) are due upon
distribution of earnings at rates ranging from none to 10% depending on the
fiscal year earned. At June 30, 1997, approximately $136.7 of undistributed
earnings were considered indefinitely reinvested in the Puerto Rico subsidiary,
upon which no tollgate taxes have been provided.
45
<PAGE> 47
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at June 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Property, plant and equipment.................... $ 27.2 $ 0.4 $ 0.1 $ -
Reserves and allowances.......................... 42.1 (1.4) 37.0 (0.8)
Sales-type leases................................ (82.9) 7.0 (61.5) 7.3
Undistributed earnings of German subsidiary...... (0.4) - (0.6) -
Prepaid royalties................................ - - 0.4 -
Deemed sales revenues from Puerto Rico
operations..................................... 30.5 - 20.2 -
Restructuring and special charges................ 19.6 - 12.7 -
NOL and tax credit carryforwards................. 144.7 (1.8) 150.6 (0.7)
Valuation allowance.............................. (16.3) 0.3 (19.1) -
Other............................................ (10.1) 1.3 (13.6) (0.3)
------ ----- ------ -----
Total deferred income taxes............ $154.4 $ 5.8 $126.2 $ 5.5
====== ===== ====== =====
</TABLE>
Because deferred tax assets and liabilities are netted by jurisdiction, the
above disclosure reflects the asset and liability characterization based upon
the netting as reflected in the Consolidated Balance Sheets. The valuation
allowance relates primarily to certain deferred tax assets recorded in
connection with the fiscal 1995 acquisition of Knogo (see Note 13).
At June 30, 1997, tax carryforwards available and related expiration dates are
as follows:
<TABLE>
<S> <C>
Net operating losses:
U.S. (fiscal 2003 through 2012)........................... $129.7
Foreign (generally no expiration dates)................... 227.9
Foreign tax credits (fiscal 1998 through 2002).............. $ 3.6
</TABLE>
8. DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
7.74% Senior Notes due March, 2006.......................... $230.0 $230.0
6.99% Senior Notes due March, 2000.......................... 70.0 70.0
7.11% Senior Notes due March, 2001.......................... 50.0 50.0
8.21% Senior Notes due January, 2003........................ 135.0 135.0
Unsecured revolving credit note payable, at 3.875% to
10.6%..................................................... 20.5 24.8
Other debt, at 7.7% to 10.0%, net of unamortized interest of
$3.6 and $4.5 at 1997 and 1996, respectively.............. 17.8 6.7
------ ------
Total debt........................................ 523.3 516.5
Less: Amounts payable in 1 year............................. (21.8) (24.8)
------ ------
Total noncurrent debt............................. $501.5 $491.7
====== ======
</TABLE>
In April 1996, the Company completed the issuance of $350.0 Senior Notes which
were issued in three tranches the proceeds of which were used to reduce
short-term borrowings in Europe and the U.S. and for general corporate purposes.
In March 1996, the Company issued $230.0 of 7.74% Notes due 2006 and the
remaining tranches of $70.0 of 6.99% Notes due March 2000 and $50.0 of 7.11%
Notes due March 2001 were issued in April 1996. Interest on the Senior Notes is
payable semiannually.
46
<PAGE> 48
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 1993, the Company issued $135.0 aggregate principal amount of 8.21%
Senior Notes due January 2003. Interest on the Senior Notes is payable
semiannually. The Company had interest rate agreements that converted the $135.0
long-term fixed rate Senior Note into a floating interest rate obligation over
the term of the note which expired in 1996. The effective interest rate of this
obligation was 8.4% for fiscal year 1996.
The Company has a committed line of credit agreement expiring in December 1999
with a group of U.S. and international banks which provides for aggregate
unsecured borrowings by the Company of up to $250.0 of which $10.0 was utilized
as of June 30, 1997. Borrowings under this agreement bear interest at the London
Interbank Offered Rate (LIBOR) plus 0.375% and are subject to an annual facility
fee of 0.0225% of the total credit line. Additionally, the Company has various
uncommitted lines-of-credit with several financial institutions of which $10.5
was utilized at June 30, 1997. Borrowings under these agreements bear interest
at rates from 3.875% to 10.6%.
Under the terms of the Company's principal borrowing and financing agreements,
the Company is required, among other things, to maintain a minimum net worth, as
defined, is allowed to incur debt up to a level whereby certain debt-to-total
capitalization ratios would not be exceeded, and is subject to certain
limitations with respect to repurchases of its Common Stock and the payment of
cash dividends. The Company was in full compliance with all of these terms at
June 30, 1997 and 1996.
9. STOCK OPTION PLANS
Under the Company's existing stock incentive plan (the "1995 Plan") stock
options may be granted to officers, key employees, and directors who are also
officers or employees or otherwise participate in the 1995 Plan. The 1995 Plan
provides for granting of other awards, such as stock appreciation rights, stock
awards and cash awards, although the Company intends to continue to principally
grant stock options under this plan. The Company also has a Directors Stock
Option Plan under which non-qualified stock options may be granted to directors
not covered by the 1995 Plan.
The exercise price of a stock option granted under all stock option plans is not
less than the fair market value of the Common Stock on the date of grant. Stock
options granted under all such plans generally become exercisable, cumulatively,
in equal annual installments over three years, and expire five or ten years from
the date of grant. The Company has granted to certain corporate officers
performance-based options under the 1995 Plan. These options become exercisable
from four to ten years after grant depending upon the Company's attainment of
certain performance objectives.
All such options are non-compensatory; therefore, any U.S. Federal income tax
benefits received upon their exercise are recorded as an increase to
"Stockholders' equity -- Common stock."
47
<PAGE> 49
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information for all such plans is summarized for fiscal 1997, 1996 and 1995 as
follows (in millions, except for price per option amounts):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Options outstanding at beginning of year................ 6.6 4.6 4.2
Granted................................................. 1.0 2.3 0.9
Exercised............................................... (0.1) (0.2) (0.5)
Canceled................................................ (0.2) (0.1) -
------ ------ ------
Options outstanding at end of year...................... 7.3 6.6 4.6
====== ====== ======
Average price of options exercised...................... $15.24 $13.72 $15.45
$ 7.42 $ 5.87 $ 5.87
to to to
Prices of options outstanding at end of year............ $36.38 $36.38 $36.38
Average price of options outstanding at end of year..... $21.73 $22.22 $23.52
Exercisable options at end of year...................... 2.8 2.8 2.0
Options available for future grants at end of year...... 1.7 0.8 3.0
</TABLE>
At June 30, 1997 and 1996, 9.2 million and 7.8 million shares of Common Stock,
respectively, were reserved for issuance of which 9.0 million and 7.4 million,
respectively, were reserved for the exercise of stock options.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation."
As permitted by SFAS No. 123, the Company continues to follow the measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and does not recognize compensation expense for its
stock-based incentive plans. Had compensation cost for the Company's stock based
incentive compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the methodology
prescribed by SFAS No. 123, the Company's net income and earnings per share for
fiscal 1997 and 1996 would have been reduced to the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Net loss:
As reported............................................... $(21.4) $(97.7)
Pro forma................................................. $(26.0) $(99.6)
Primary losses per common share:
As reported............................................... $(0.29) $(1.32)
Pro forma................................................. $(0.35) $(1.35)
</TABLE>
These pro forma amounts may not be indicative of future pro forma income and
earnings per share.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model, with the following historical weighted
average assumptions applied to grants in fiscal 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Dividend yields............................................. 1.17% 1.16%
Expected volatility......................................... .398 .389
Risk-free interest rates.................................... 6.26% 5.78%
Expected life (in years)(1)................................. 5 5
</TABLE>
- ---------------
(1) With the exception of employee stock purchase plan grants with an expected
life of 1 year.
48
<PAGE> 50
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Based upon the above assumptions, the weighted-average fair value of options
granted during 1997 and 1996 was $7.75 and $7.38, respectively.
10. DEFINED CONTRIBUTION PLANS
The Company has: (a) retirement plans for U.S. employees, Puerto Rico employees
and for certain European employees which allow or require employee
contributions; (b) a Senior Executive Defined Contribution Retirement Plan for
certain officers; and (c) a Key Executive Supplemental Retirement Plan covering
certain officers and key employees. Annual contributions by the Company to all
such retirement plans are discretionary.
The Company charged to operations $5.7, $4.4 and $4.8 in fiscal 1997, 1996,
1995, respectively, related to the plans described under this section.
11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Contingent royalty payments
In connection with certain acquisitions, the Company pays royalties (ranging
from 3% to 10%) on revenues generated by the acquired businesses for periods
expiring in 1998 through 2004. Such contingent payments, when incurred, will be
recorded as additional cost of the related acquisitions and amortized over the
remaining amortization period. Royalty payments in fiscal 1997, 1996 and 1995
were $16.4, $14.9 and $13.3, respectively.
Litigation
During the first six months of fiscal 1996, a number of class actions were filed
in federal court by alleged shareholders of the Company following announcements
by the Company that, among other things, its earnings for the quarter and year
ended June 30, 1995, would be substantially below expectations and, in the later
actions or complaint amendments, that the scope of the Company's year-end audit
for the fiscal year ended 1995 had been expanded and that results for the third
quarter of fiscal 1995 were being restated. These actions have been
consolidated. The consolidated complaint alleges, among other things, that the
Company and certain of its current and former directors, officers and employees,
as well as the Company's auditors, violated certain Federal securities laws.
One of the claims against the Company's auditors, asserted under state law,
originally included in the consolidated complaint, has been dismissed by the
Court. That claim alleged that the Company's auditors negligently misrepresented
certain information regarding the Company and failed to exercise reasonable
care. The claims recited in the consolidated complaint relate to the same events
and occurrences as those alleged in the various actions referred to above,
updated to incorporate more recent events and occurrences and to reflect certain
information furnished to plaintiffs during pre-trial discovery. The consolidated
complaint requested certification of the action as a class action on behalf of
all purchasers of the common stock of the Company and certain stock option
traders from August 10, 1994 through October 2, 1995, including those
shareholders who received common stock of the Company in connection with the
Company's merger with Knogo. The consolidated complaint also seeks rescissory
and/or compensatory damages, pre-judgment and post-judgment interest, costs,
attorneys' fees, and other relief, and further provides that the shareholders of
the Company who received common stock of the Company in connection with the
merger with Knogo are tendering back to the Company such shares of common stock.
The consolidated complaint supersedes all prior complaints in the consolidated
actions. By stipulation, dated September 12, 1996, the parties to the
consolidated class actions agreed to limit the proposed class to all persons who
purchased, or received through the exercise of options, shares of common stock
of the Company during the period from August 10, 1994 through and including
August 31, 1995, provided that shares purchased on August 31, 1995 were
purchased at a price of $25.25 per share or higher. The stipulated class
excludes persons who acquired common stock pursuant to the Company's merger with
Knogo approved by its
49
<PAGE> 51
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shareholders in December 1994. The stipulation was approved by the court in an
order entered on September 30, 1996.
Also in September 1995, three derivative actions were filed against the Company
and its directors for breach of fiduciary duties, mismanagement and waste of
corporate assets. Those claimants are seeking, among other relief, restitution
and/or damages in favor of the Company and imposition of a constructive trust.
These actions have been consolidated.
Further, in May and July 1997, declaratory judgment actions were filed in
federal court against the Company and certain of its current and former officers
and certain of its current and former directors by two of the Company's three
directors and officers liability insurance carriers during the period December
15, 1994 to December 15, 1995. The insurance contracts at issue in the suit each
provide $10.0 in coverage and are in excess to $10.0 in primary directors and
officers liability insurance for the period. The complaints seek, among other
things, (i) rescission of the above-referenced insurance contracts; (ii)
reformation of the insurance contracts to exclude the hazards raised by the
pending securities class actions and derivative actions referred to above, the
Gilford action and the SEC proceeding, all of which are described in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997;
and (iii) a declaratory judgment that the above-referenced insurance contracts
do not afford coverage for defendants for any loss arising out of such actions
and proceeding. The complaints allege, among other things, that the Company's
applications for these insurance contracts and attachments thereto contained
material misrepresentations, omissions, concealment of facts and incorrect
statements relating principally to the Company's revenue recognition practices
which are also a subject of the actions and proceeding referred to above.
The Company has vigorously defended against the class actions, but is also in
serious discussions, with the assistance of a jointly-selected mediator, and
pursuant to Court order, regarding the possibility of settlement. The Company
intends to vigorously defend against the other aforementioned actions. In light
of the uncertainty as to the outcome of these actions and the settlement
discussions taking place, the Company has not recorded a provision for any
liability that may result from these actions.
50
<PAGE> 52
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BUSINESS SEGMENT, GEOGRAPHIC AREA AND INTERNATIONAL OPERATIONS DATA
The Company operates in a single business segment and its principal products and
systems are electronic article surveillance, closed circuit television and
access control products and systems. The Company's operations by geographic area
are as follows:
<TABLE>
<CAPTION>
1997 1996(2) 1995(2)
--------- -------- --------
<S> <C> <C> <C>
Revenues:
North America......................................... $ 629.9 $ 617.6 $ 565.5
Europe................................................ 388.4 417.3 387.1
Other regions......................................... 86.5 59.4 40.0
Inter area transfers.................................. (79.1) (99.7) (103.5)
--------- -------- --------
Total consolidated...................................... $ 1,025.7 $ 994.6 $ 889.1
========= ======== ========
Operating income (loss)(1):
North America......................................... $ 35.7 $ (52.6) $ 92.6
Europe................................................ (26.0) (48.3) 30.0
Other regions......................................... 20.8 8.2 6.0
Corporate items....................................... (28.4) (41.8) (30.7)
--------- -------- --------
Subtotal.................................... 2.1 (134.5) 97.9
Total other (expenses)................................ (32.4) (25.4) (8.9)
--------- -------- --------
(Loss) income from continuing operations before income
taxes................................................. $ (30.3) $ (159.9) $ 89.0
========= ======== ========
Identifiable assets:
North America......................................... $ 765.3 $ 776.8 $ 606.3
Europe................................................ 712.7 747.9 878.0
Other regions......................................... 110.4 63.2 48.5
Corporate items....................................... 55.2 42.4 38.1
--------- -------- --------
Total consolidated...................................... $ 1,643.6 $1,630.3 $1,570.9
========= ======== ========
</TABLE>
- ---------------
(1) Fiscal 1997 and 1996 include restructuring and special charges of $48.9 and
$186.0, respectively. Fiscal 1997 charges were allocated to the geographical
areas of North America and Europe for $30.9 and $18.0, respectively. Fiscal
1996 charges were allocated to the geographical areas of North America and
Europe for $114.6 and $71.4, respectively.
(2) Fiscal 1996 and 1995 has been reclassified to conform to the fiscal 1997
presentation.
In fiscal 1997, 1996, 1995, export sales of $31.7, $37.6 and $31.5,
respectively, are reported in North America revenues. Transfers from North
America to Europe are accounted for at prices sufficient to recover a reasonable
profit margin. Corporate expenses include general corporate expenses, research,
development and engineering expenses and amortization of patents. Identifiable
assets are comprised of those assets of the Company that are identified with the
operations in each geographic area. Corporate assets are comprised principally
of patents and deferred costs.
13. ACQUISITIONS AND DIVESTMENTS
In connection with acquisitions during fiscal 1997, 1996 and 1995, the market
value of the assets acquired was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
Cash paid (net of cash acquired)............................ $15.5 $ 8.6 $ 9.6
Liabilities assumed and/or incurred......................... 1.2 4.3 101.1
Common stock issued......................................... - - 149.3
----- ----- ------
Market value of assets acquired............................. $16.7 $12.9 $260.0
===== ===== ======
</TABLE>
51
<PAGE> 53
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 1995, the Company acquired the operations outside of the United
States, Puerto Rico and Canada of Knogo for stock in the Company, with a value
of approximately $100. This acquisition was accounted for under the purchase
method and resulted in costs in excess of net assets acquired of approximately
$119.8, which is being amortized using the straight-line method over 40 years.
The Company's unaudited proforma consolidated condensed statements of income for
fiscal 1995, assuming the acquisition of Knogo was effected at the beginning of
the year, is summarized as follows:
<TABLE>
<CAPTION>
1995
------
<S> <C>
Total revenues.............................................. $922.3
Income from continuing operations before income taxes....... 89.6
Net income.................................................. 73.7
Primary earnings per common share........................... $ 1.00
</TABLE>
This pro forma information does not purport to be indicative of the results
which may have been obtained had the acquisitions been consummated at the dates
assumed.
In September 1997, the Company completed the sale of its U.S.
commercial/industrial direct sales and service business and certain of the
business' assets for total proceeds of $12.5, of which $5.5 was paid at closing
and the remainder is to be paid by December 1997. The Company has retained
ownership of all of the accounts receivable related to this business.
14. FINANCIAL INSTRUMENTS
Fair value of balance sheet financial instruments
At June 30, 1997 and 1996 the recorded value of balance sheet financial
instruments as compared to their estimated market values were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
RECORDED FAIR RECORDED FAIR
VALUE VALUE VALUE VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Marketable securities......................... $ 0.3 $ 0.3 $ 3.2 $ 3.2
Receivables other than leases and accounts
receivable.................................. 27.6 27.6 64.2 64.2
Notes receivable and investments in special
purpose corporation......................... 31.8 31.8 - -
Senior Note debt.............................. 485.0 467.9 485.0 474.8
</TABLE>
Fair value is determined based on expected future cash flows (discounted at
market interest rates), quotes from financial institutions and other appropriate
valuation methodologies. At June 30, 1997 and 1996, the recorded value of other
financial instruments such as cash, short-term investments, trade receivables
and payables and short-term debt approximated their fair values, based on the
short-term maturities and floating rate characteristics of these instruments.
Interest rate agreements
The Company enters into interest rate agreements, principally to manage the
interest rate exposure associated with its sale of certain U.S. receivables.
Under the primary receivable financing agreement in the U.S., the Company sells
fixed interest rate receivables. Under such agreement, the financing institution
earns interest at a floating rate based on the one month LIBOR. Any resulting
differential in interest caused by the varying rates (variance amount) is either
paid or received by the Company. In order to manage the risk associated with the
variance amount, the Company enters into interest rate agreements for notional
amounts equal to the outstanding principal amounts of receivables sold, which
have the effect of converting the floating discount rate to a fixed discount
rate, thereby limiting the variance amount paid or received by the Company.
52
<PAGE> 54
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1997, the Company was a party to the following interest rate
agreements:
(1) FLOATING TO FIXED SWAP AGREEMENTS
<TABLE>
<CAPTION>
NOTIONAL EXPIRATION FIXED RATE FLOATING RATE
AMOUNT DATE TO BE PAID TO BE RECEIVED
- -------- ---------- ---------- --------------
<S> <C> <C> <C>
$6.0 May 1999 7.75% 1 Month LIBOR
5.0 September 1999 5.84 1 Month LIBOR
5.0 May 2000 6.16 1 Month LIBOR
2.1 April 2000 6.58 1 Month LIBOR
1.3 April 1999 4.60 1 Month LIBOR
1.2 August 1998 4.80 1 Month LIBOR
0.9 May 1998 4.94 1 Month LIBOR
0.6 March 1999 4.65% 1 Month LIBOR
</TABLE>
The weighted average interest rates paid and received under all such Floating to
Fixed Swap Agreements in fiscal year 1997 were 6.3% and 5.7%, respectively, and
would have been the same assuming market conditions existing at June 30, 1997.
(2) INTEREST RATE CAP AGREEMENT
In fiscal 1995, the Company entered into an interest rate cap agreement expiring
in September 1999, with a notional amount at June 30, 1997, of $2.0. Under the
agreement the Company will be paid an amount equal to the excess, if any, of the
one month LIBOR over 7% multiplied by the notional amount. At June 30, 1997
there was no such excess.
The notional amount of the Company's interest rate agreements at June 30, 1997
and 1996 was $24.1 and $38.8, respectively. Notional amounts do not quantify
risks or represent assets or liabilities of the Company, but are used in the
calculation of cash settlements under the agreements.
The fair value of the interest rate agreements represents the discounted cash
flow differential between offsetting interest rate agreements at market interest
rates and existing interest rate agreements at their coupon rates. At June 30,
1997 and 1996 the fair value of these agreements, as determined by the financial
institution counterparties, was immaterial.
The Company has entered into a floating to fixed interest rate swap agreement
with a party to its U.K. receivable financing program. The effect of the
interest rate swap agreement is to revert to the Company the differential
between the fixed rate to be received on the receivables sold under this program
and the floating rate to be paid to the purchasers of the receivables. As of
June 30, 1997 the notional amount of this interest rate swap agreement was L42.9
million. The interest rate agreement will expire when the underlying receivables
are paid down. At June 30, 1997 the floating rate to be paid by the Company is
the one month Fed AA commercial paper composite rate and the fixed rate to be
received is approximately 10.0%. Under SFAS No. 125, financial components
received or incurred in connection with the transfer of financial assets
accounted for as a sale are to be recorded at fair market value at the date of
sale with changes in fair value recognized immediately in earnings. The fair
market value of this interest rate swap agreement was not determinable due to
the open ended expiration date and consequently has not been recognized in the
Consolidated Balance Sheet at June 30, 1997.
Foreign currency contracts
The Company conducts business in a wide variety of currencies and consequently
enters into foreign exchange forward and option contracts to manage its exposure
to fluctuations in foreign currency exchange rates. These contracts generally
involve the exchange of one currency for another at a future date and are used
to hedge the Company's anticipatory intercompany commitments. At June 30, 1997
and 1996, the Company had contract
53
<PAGE> 55
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
principal amounts of approximately $173.1 and $247.8, respectively in contracts
to sell foreign currency in the future. At June 30, 1997 and 1996, the Company
would have gained $22.2 and been required to pay $1.7, respectively, to retire
these agreements in the OTC market as determined by the financial institution
counterparties; such amounts represent the fair value of these instruments. The
increase in the fair value from June 30, 1996 was primarily due to the
strengthening of the U.S. dollar over such period.
At June 30, 1997, the Company owned forward and option contracts which allowed
it to sell currencies for the indicated U.S. dollar amounts, in fiscal year
1998, as follows:
<TABLE>
<CAPTION>
1998
------
<S> <C>
Currencies French Francs.................................... $ 57.7
British Pounds.............................................. 27.7
Italian Lire................................................ 37.1
German Marks................................................ 56.0
Other....................................................... (5.4)
------
Total............................................. $173.1
======
</TABLE>
Credit risk
The Company is exposed to credit risk to the extent of potential nonperformance
by counterparties on financial instruments. In the event of nonperformance by
the counterparties to the Company's interest rate agreements, the effective
interest rate on the underlying transaction would revert to the respective
contractual rate. The counterparties to the Company's interest rate agreements
and foreign currency contracts are limited to major financial institutions with
investment grade ratings; thus the Company believes the risk of incurring losses
due to credit risk is remote. Refer to Note 3 for disclosure regarding accounts
receivables subject to concentrations of credit risks.
Market risk
Exposure to market risk on financial instruments results from fluctuations in
interest and currency rates during the periods in which the contracts are
outstanding. The mark-to-market valuations of interest rate, foreign currency
agreements and of associated underlying exposures are closely monitored. Overall
financial strategies and the effects of using derivatives are reviewed
periodically.
54
<PAGE> 56
PART III
ITEMS 10 TO 13 INCLUSIVE.
The information required by Item 10 (Directors and Executive Officers of the
Registrant) (other than information as to executive officers of the Company,
which is set forth in Part I under the caption "Executive Officers of the
Registrant"), Item II (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) is incorporated by reference to the Company's definitive
proxy statement for the 1997 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before September 29, 1997, except that
the "Report of the Governance and Stock Incentive Plan Committees" and the
"Performance Graph" and the text describing it contained in the proxy statement
are not incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedules -- See Index to
Consolidated Financial Statements at Item 8 of this report.
(3) Listing of exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
3(a) Composite Restated Certificate of Incorporation of the
Company filed pursuant to Rule 232.102(c) of Regulation S-T
(incorporated by reference to Exhibit 4(d) to Registration
Statement No. 33-61626).
3(b) By-Laws of the Company (incorporated by reference to Exhibit
3(b) to Form 10-K for the fiscal year ended June 30, 1996).
4(a) Article FOURTH of the Restated Certificate of Incorporation
of the Company (incorporated by reference to Exhibit 4(d) to
Registration Statement No. 33-61626).
4(b) Note Agreement, dated as of March 29, 1996, among the
Company, and the other Purchasers named therein, including
the form of 6.99% Senior Notes due March 2001, 7.74% Senior
Notes due March 2001, and 7.11% Senior Notes due March 2001,
issued thereunder (incorporated by reference to Exhibit 4(a)
to Form 10-Q for the fiscal quarter ended March 31, 1996).
4(c) Note Agreement, dated as of January 15, 1993, among the
Company, The Northwestern Mutual Life Insurance Company and
the other Purchasers named therein, including the form of
8.21% Senior Notes due January 30, 2003, issued thereunder,
and First Amendment to such Note Agreement dated as of May
31, 1993 (incorporated by reference to Exhibit 4.4 to
Registration Statement No. 33-62750).
4(d) The Registrant agrees to furnish copies of any instrument
defining the rights of holders of long-term debt of the
Registrant and its consolidated subsidiaries that does not
exceed 10 percent of the total assets of the Registrant and
its consolidated subsidiaries, which is not required to be
filed as an exhibit, to the Commission upon request.
10(a) Grant of Industrial Tax Exemption to Sensormatic Electronics
Corporation (Puerto Rico) from the Commonwealth of Puerto
Rico (incorporated by reference to Exhibit 10(n) to Form
10-K for the fiscal year ended May 31, 1986) and Order of
Conversion of Grant of Industrial Tax Exemption
(incorporated by reference to Exhibit 10(m) to Form 10-K for
the fiscal year ended May 31, 1988).
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
10(b) Description of Non-qualified Stock Option Plan (incorporated
by reference to Registration Statement No. 2-74526) and
representative form of non-qualified stock option
(incorporated by reference to Exhibit 3(c) to Registration
Statement No. 2-74526) and representative form of non-
qualified stock option (incorporated by reference to Exhibit
3(c) to Registration Statement No. 2-74526).
10(c) Amended 1989 Stock Incentive Plan and representative forms
of non-qualified stock option under such Plan (incorporated
by reference to Exhibit 10(c) to Form 10-K for the fiscal
year ended June 30, 1994).
10(d) 1995 Stock Incentive Plan and representative forms of
non-qualified stock options and Restricted Stock Agreement
under such Plan (incorporated by reference to Exhibit 10(d)
to Form 10-K for the fiscal year ended June 30, 1995).
10(e) Directors Stock Option Plan and representative form of a
non-qualified stock option under such Plan (incorporated by
reference to Exhibit 10(h) to Form 10-K for the fiscal year
ended May 31, 1992).
10(f) Stock Purchase Loan Plan (incorporated by reference to
Exhibit 10(g) to Form 10-K for the fiscal year ended May 31,
1986).
10(g) Executive Salary Continuation Plan and representative form
of agreement thereunder (incorporated by reference to
Exhibit 10(g) to Form 10-K for the fiscal year ended May 31,
1989).
10(h) Board of Directors Retirement Plan and representative form
of agreement thereunder (incorporated by reference to
Exhibit 10(h) to Form 10-K for the fiscal year ended May 31,
1989).
10(i) Senior Executive Defined Contribution Retirement Plan and
representative form of agreement thereunder (incorporated by
reference to Exhibit 10(h) to Form 10-K for the fiscal year
ended June 30, 1994).
10(j) Employment Agreement, dated as of September 24, 1993,
between the Company and Ronald G. Assaf, Chairman of the
Board of the Company (incorporated by reference to Exhibit
10(j) to Form 10-K for the fiscal year ended June 30, 1993).
10(k) Employment Agreement, dated as of January 1, 1996, between
the Company and Gerd Witter, former President of Sensormatic
Europe (incorporated by reference to Exhibit 10(k) to Form
10-K for the fiscal year ended June 30, 1996).
10(l) Employment Agreement, dated as of October 14, 1995, between
the Company and Robert A. Vanourek, President and Chief
Executive Officer of the Company (incorporated by reference
to Exhibit 10(v) to Form 10-K/A for the fiscal year ended
June 30, 1995).
10(m) Employment Agreement, dated as of December 21, 1995, between
the Company and Garrett E. Pierce, Senior Vice President and
Chief Financial Officer of the Company (incorporated by
reference to Exhibit 10(m) to Form 10-K for the fiscal year
ended June 30, 1996).
10(n) Agreement, dated as of December 23, 1988, between the
Company and Ronald G. Assaf, Chairman of the Company
(incorporated by reference to Exhibit 10(l) to Form 10-K for
the fiscal year ended May 31, 1989).
10(o) Agreement, dated as of August 9, 1996, between the Company
and Ronald G. Assaf, Chairman of the Board, and former
President and Chief Executive Officer of the Company
(incorporated by reference to Exhibit 10(o) to Form 10-K for
the fiscal year ended June 30, 1996).
10(p) Agreement, dated as of December 23, 1988, between the
Company and James E. Lineberger, Chairman of the Executive
Committee and a director of the Company, and amendment
thereto, dated as of January 27, 1989 (incorporated by
reference to Exhibit 10(m) to Form 10-K for the fiscal year
ended May 31, 1989).
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
10(q) Agreement, dated as of December 23, 1988, between the
Company and Gerd Witter, former President of Sensormatic
Europe (incorporated by reference to Exhibit 10(p) to Form
10-K for the fiscal year ended May 31, 1989).
10(r) Form of Agreement, dated as of January 27, 1989, between the
Company and Dr. Arthur G. Milnes, a director of the Company
(incorporated by reference to Exhibit 10(r) to Form 10-K for
the fiscal year ended May 31, 1989).
10(s) Agreement, dated as of December 23, 1988, between the
Company and Jerome M. LeWine, a director of the Company, and
amendment thereto, dated as of January 27, 1989
(incorporated by reference to Exhibit 10(s) to Form 10-K for
the fiscal year ended May 31, 1989).
10(t) Form of Agreement, dated as of February 12, 1996, between
the Company and each of Thomas V. Buffett, Timothy P.
Hartman and John T. Ray, Jr., directors of the Company
(incorporated by reference to Exhibit 10(u) to Form 10-K for
the fiscal year ended June 30, 1996).
10(u) Directors and Officers Liability Insurance Policies
(incorporated by reference to Exhibit 10(v) to Form 10-K for
the fiscal year ended June 30, 1996).
10(v) Amended and Restated Credit Agreement, dated as of December
12, 1995, between the Company, Wachovia Bank of Georgia,
N.A., ABN Amro Bank N.V., the other Borrowers listed therein
and the domestic banks and foreign company banks listed
therein (incorporated by reference to Exhibit 10(w) to Form
10-K for the fiscal year ended June 30, 1996).
10(w) Amended and Restated Multicurrency Revolving Credit
Agreement, dated as of March 18, 1997, between the Company
and The First National Bank of Boston as Agent and other
lenders referred to therein.
11 Computation of Earnings Per Common Share for the years ended
June 30, 1997, 1996 and 1995.
21 List of Subsidiaries of the Company.
23 Consents of Independent Certified Public Accountants.
27 Financial Data Schedule (EDGAR version only).
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three month period
ended June 30, 1997.
57
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, on September 29, 1997.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/ GARRETT E. PIERCE
------------------------------------
Garrett E. Pierce
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
the capacities indicated on September 29, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ROBERT A. VANOUREK President and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer) and Director
Robert A. Vanourek
/s/ GARRETT E. PIERCE Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
Garrett E. Pierce (Principal Financial Officer)
/s/ GREGORY C. THOMPSON Vice President and Controller
- ----------------------------------------------------- (Principal Accounting Officer)
Gregory C. Thompson
/s/ RONALD G. ASSAF Chairman of the Board of Directors
- -----------------------------------------------------
Ronald G. Assaf
/s/ THOMAS V. BUFFETT Director
- -----------------------------------------------------
Thomas V. Buffett
/s/ TIMOTHY P. HARTMAN Director
- -----------------------------------------------------
Timothy P. Hartman
/s/ WAYLAND HICKS Director
- -----------------------------------------------------
Wayland Hicks
/s/ JEROME M. LEWINE Director
- -----------------------------------------------------
Jerome M. LeWine
/s/ JAMES E. LINEBERGER Director
- -----------------------------------------------------
James E. Lineberger
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DR. ARTHUR G. MILNES Director
- -----------------------------------------------------
Dr. Arthur G. Milnes
/s/ J. RICHARD MUNRO Director
- -----------------------------------------------------
J. Richard Munro
/s/ JOHN T. RAY, JR. Director
- -----------------------------------------------------
John T. Ray, Jr.
</TABLE>
59
<PAGE> 61
SENSORMATIC ELECTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDING JUNE 30, 1997, 1996, AND 1995
(In millions)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
1997(1) 1996(1) 1995
------- ------- ------
<S> <C> <C> <C>
Balance, beginning of period................................ $ 62.8 $ 26.4 $ 20.1
Additions charged to income................................. 21.1 25.8 19.6
Restructuring and special charges........................... 18.1 56.5 -
Amounts written off......................................... (28.7) (47.3) (15.5)
Other (including currency translation)...................... 2.5 1.4 2.2
------ ------ ------
Balance, end of period...................................... $ 75.8 $ 62.8 $ 26.4
====== ====== ======
</TABLE>
ALLOWANCE FOR INVENTORY LOSSES
<TABLE>
<CAPTION>
1997(1) 1996(1) 1995
------- ------- ------
<S> <C> <C> <C>
Balance, beginning of period................................ $ 38.0 $ 10.3 $ 10.6
Additions charged to income................................. 11.6 16.5 5.5
Restructuring and special charges........................... 4.2 39.8 -
Amounts written off......................................... (19.2) (30.2) (6.0)
Other (including currency translation)...................... (5.5) 1.6 0.2
------ ------ ------
Balance, end of period...................................... $ 29.1 $ 38.0 $ 10.3
====== ====== ======
</TABLE>
- ---------------
(1) Refer to Note 2 of Notes to the Consolidated Financial Statements for
discussion of restructuring and special charges.
S-1
<PAGE> 1
Exhibit 10(w)
- --------------------------------------------------------------------------------
AMENDED AND RESTATED MULTICURRENCY
REVOLVING CREDIT AGREEMENT
dated as of March 18, 1997
among
SENSORMATIC ELECTRONICS CORPORATION,
THE FIRST NATIONAL BANK OF BOSTON, the
other lending institutions listed on SCHEDULE 1 hereto
and
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
with
NATIONSBANK, N.A. as Syndication Agent
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION............................................................1
1.1. Definitions............................................................................1
1.2. Rules of Interpretation...............................................................18
2. THE REVOLVING CREDIT FACILITY.....................................................................18
2.1. Commitment to Lend....................................................................18
2.2. Facility Fee..........................................................................19
2.3. Reduction of Total Commitment.........................................................19
2.4. The Revolving Credit Notes............................................................19
2.5. Interest on Revolving Credit Loans....................................................20
2.6. Requests for Revolving Credit Loans...................................................20
2.7. Conversion Options....................................................................21
2.7.1. Conversion to Different Type of Revolving Credit Loan.......................21
2.7.2. Continuation of Type of Revolving Credit Loan...............................21
2.7.3. Eurocurrency Rate Loans.....................................................21
2.8. Funds for Revolving Credit Loan.......................................................22
2.8.1. Funding Procedures..........................................................22
2.8.2. Advances by Agent...........................................................22
2.9. Optional Currencies...................................................................23
2.9.1. Request for Optional Currency...............................................23
2.9.2. Exchange Rate...............................................................24
2.9.3. Multiple Denominations......................................................24
2.9.4. Repayment...................................................................24
2.9.5. Funding.....................................................................24
2.10. Termination of Total Commitment; Change in Control....................................25
2.11. Swing Line Loans; Settlements.........................................................25
3. REPAYMENT OF THE REVOLVING CREDIT LOANS...........................................................27
3.1. Maturity..............................................................................27
3.2. Mandatory Repayments of Revolving Credit Loans........................................27
3.3. Optional Repayments of Revolving Credit Loans.........................................27
4. COMPETITIVE BID LOANS.............................................................................28
4.1. The Competitive Bid Option............................................................28
4.2. Competitive Bid Loan Accounts: Competitive Bid Notes..................................28
4.3. Competitive Bid Quote Request; Invitation for Competitive Bid Quotes..................29
4.4. Alternative Manner of Procedure.......................................................29
4.5. Submission and Contents of Competitive Bid Quotes.....................................30
4.6. Notice to Parent......................................................................31
4.7. Acceptance and Notice by Parent and Agent.............................................31
4.8. Allocation by Agent...................................................................32
4.9. Funding of Competitive Bid Loans......................................................32
4.10. Funding Losses........................................................................32
4.11. Repayment of Competitive Bid Loans; Interest..........................................32
4.12. Optional Repayment of Competitive Bid Loans...........................................32
5. LETTERS OF CREDIT.................................................................................33
5.1. Letter of Credit Commitments..........................................................33
5.1.1. Commitment to Issue Letters of Credit.......................................33
5.1.2. Letter of Credit Applications...............................................33
5.1.3. Terms of Letters of Credit..................................................33
5.1.4. Reimbursement Obligations of Banks..........................................33
5.1.5. Participations of Banks.....................................................34
5.2. Reimbursement Obligation of the Borrowers.............................................34
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.3. Letter of Credit Payments.............................................................34
5.4. Obligations Absolute..................................................................35
5.5. Reliance by Issuer....................................................................35
5.6. Letter of Credit Fee..................................................................35
6. GUARANTY..........................................................................................36
6.1. Guaranty..............................................................................36
6.2. Guaranty Absolute.....................................................................36
6.3. Effectiveness; Enforcement............................................................37
6.4. Waiver................................................................................38
6.5. Concerning Joint and Several Liability of the Parent..................................38
6.6. Waiver................................................................................39
6.7. Subrogation; Subordination............................................................39
6.8. Currency of Payment...................................................................40
6.9. Underlying Obligations................................................................40
7. CERTAIN GENERAL PROVISIONS........................................................................40
7.1. Closing Fee...........................................................................40
7.2. Agent's Fee...........................................................................40
7.3. Funds for Payments....................................................................40
7.3.1. Payments to Agent...........................................................40
7.3.2. No Offset, etc..............................................................41
7.4. Computations..........................................................................41
7.5. Inability to Determine Eurocurrency Rate..............................................41
7.6. Illegality............................................................................42
7.7. Additional Costs, etc.................................................................42
7.8. Capital Adequacy......................................................................44
7.9. Certificate...........................................................................45
7.10. Indemnity.............................................................................45
7.11. Interest on Overdue Amounts...........................................................45
7.12. Lending Office........................................................................45
7.13. Replacement Banks.....................................................................46
8. REPRESENTATIONS AND WARRANTIES....................................................................46
8.1. Corporate Existence and Power.........................................................46
8.2. Corporate and Governmental Authorization; No Contravention............................47
8.3. Binding Effect........................................................................47
8.4. Financial Information.................................................................47
8.5. No Litigation.........................................................................48
8.6. Compliance with ERISA.................................................................48
8.7. Compliance with Laws; Payment of Taxes................................................48
8.8. Subsidiaries..........................................................................49
8.9. Investment Company Act................................................................49
8.10. Public Utility Holding Company Act....................................................49
8.11. Ownership of Property; Liens..........................................................49
8.12. No Default............................................................................49
8.13. Full Disclosure.......................................................................49
8.14. Environmental Matters.................................................................49
8.15. Capital Stock.........................................................................50
8.16. Margin Stock..........................................................................50
8.17. Insolvency............................................................................50
8.18. Governmental Approvals................................................................51
8.19. No Filing, Recording Required.........................................................51
9. AFFIRMATIVE COVENANTS OF THE BORROWER.............................................................51
9.1. Punctual Payment......................................................................51
9.2. Maintenance of Office.................................................................51
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.3. Records and Accounts..................................................................52
9.4. Information...........................................................................52
9.5. Notices...............................................................................54
9.5.1. Environmental Events........................................................54
9.5.2. Notice of Litigation and Judgments..........................................54
9.5.3. Notice of Cancellation of Factoring Arrangements............................54
9.6. Corporate Existence; Maintenance of Properties........................................54
9.7. Insurance.............................................................................55
9.8. Taxes.................................................................................55
9.9. Inspection of Properties and Books, etc...............................................55
9.10. Compliance with Laws, Contracts, Licenses, and Permits................................55
9.11. Employee Benefit Plans................................................................56
9.12. Use of Proceeds.......................................................................56
9.13. Material Subsidiaries.................................................................56
9.14. Further Assurances....................................................................56
10. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.......................................................56
10.1. Debt.................................................................................56
10.2. Liens................................................................................57
10.3. Restricted Payments..................................................................59
10.4. Merger or Consolidation..............................................................59
10.5. Sale of Assets.......................................................................60
10.6. Environmental Matters................................................................61
10.7. Environmental Release................................................................61
10.8. Transactions with Affiliates.........................................................61
10.9. Sale and Leaseback...................................................................61
10.10. Subordinated Debt and Senior Notes...................................................61
10.11. Employee Benefit Plans...............................................................62
10.12. Dissolution..........................................................................62
10.13. Use of Proceeds......................................................................62
10.14. Restrictions on Investments..........................................................62
11. FINANCIAL COVENANTS OF THE BORROWERS.............................................................63
11.1. Net Worth............................................................................63
11.2. Senior Debt/Total Capitalization.....................................................63
11.3. Total Indebtedness/Total Capitalization..............................................63
12. CLOSING CONDITIONS...............................................................................63
12.1. Loan Documents.......................................................................64
12.2. Certified Copies of Charter Documents................................................64
12.3. Corporate, Action....................................................................64
12.4. Incumbency Certificate...............................................................64
12.5. UCC Search Results...................................................................64
12.6. Certificates of Insurance............................................................64
12.7. Solvency Certificate.................................................................64
12.8. Opinion of Counsel...................................................................64
12.9. Payment of Fees......................................................................64
13. CONDITIONS TO ALL BORROWINGS.....................................................................65
13.1. Representations True; No Event of Default............................................65
13.2. No Legal Impediment..................................................................65
13.3. Governmental Regulation..............................................................65
14. EVENTS OF DEFAULT; ACCELERATION; ETC.............................................................65
14.1. Events of Default and Acceleration...................................................65
14.2. Termination of Commitments...........................................................68
14.3. Remedies.............................................................................68
14.4. Distribution of Proceeds.............................................................68
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
14.5. Exchange Rate........................................................................69
15. SETOFF...........................................................................................70
16. THE AGENT........................................................................................70
16.1. Authorization........................................................................70
16.2. Employees and Agents.................................................................71
16.3. No Liability.........................................................................71
16.4. No Representations...................................................................71
16.5. Payments.............................................................................71
16.5.1. Payments to Agent..........................................................71
16.5.2. Distribution by Agent......................................................72
16.5.3. Delinquent Banks...........................................................72
16.6. Holders of Notes.....................................................................72
16.7. Indemnity............................................................................72
16.8. Agent as Bank........................................................................73
16.9. Resignation..........................................................................73
17. EXPENSES.........................................................................................73
18. INDEMNIFICATION..................................................................................74
19. SURVIVAL OF COVENANTS, ETC.......................................................................75
20. ASSIGNMENT AND PARTICIPATION.....................................................................75
20.1. Conditions to Assignment by Banks....................................................75
20.2. Certain Representations and Warranties; Limitations; Covenants.......................76
20.3. Register.............................................................................77
20.4. General..............................................................................77
20.5. Participations.......................................................................77
20.6. Disclosure...........................................................................77
20.7. Assignee or Participant Affiliated with the Parent...................................78
20.8. Miscellaneous Assignment Provisions..................................................78
20.9. Assignment by Borrowers..............................................................78
21. NOTICES, ETC.....................................................................................78
22. GOVERNING LAW....................................................................................79
23. HEADINGS.........................................................................................79
24. COUNTERPARTS.....................................................................................79
25. ENTIRE AGREEMENT, ETC............................................................................79
26. WAIVER OF JURY TRIAL.............................................................................80
27. CONSENTS, AMENDMENTS, WAIVERS, ETC...............................................................80
28. SEVERABILITY.....................................................................................80
</TABLE>
iv
<PAGE> 6
SCHEDULES
---------
Schedule 1 Banks; Commitments
Schedule 8.8 Subsidiaries
Schedule 10.1 Debt
Schedule 10.2 Liens
EXHIBITS
--------
Exhibit A Revolving Credit Note
Exhibit B Loan Request
Exhibit C Swing Line Note
Exhibit D Competitive Bid Note
Exhibit E Competitive Bid Quote Request
Exhibit F Invitation for Competitive Bid Quotes
Exhibit G Competitive Bid Quote
Exhibit H Notice of Acceptance or Non-acceptance
Exhibit I Compliance Certificate
Exhibit J Subordination Provisions
Exhibit K Assignment and Acceptance
Exhibit L Form of Election Request
v
<PAGE> 7
AMENDED AND RESTATED MULTICURRENCY
----------------------------------
REVOLVING CREDIT AGREEMENT
--------------------------
This AMENDED AND RESTATED MULTICURRENCY REVOLVING CREDIT AGREEMENT is
made as of March 18, 1997, by and among (a) SENSORMATIC ELECTRONICS CORPORATION
(the "Parent"), a Delaware corporation having its principal place of business at
951 Yamato Road, Boca Raton, Florida, (b) the other Borrowing Subsidiaries which
may from time to time become parties hereto in accordance with the terms hereof,
(c) THE FIRST NATIONAL BANK OF BOSTON, a national banking association, the other
lending institutions listed on SCHEDULE 1 hereto and (d) THE FIRST NATIONAL BANK
OF BOSTON as agent for itself and such other lending institutions.
WHEREAS, pursuant to a Multicurrency Revolving Credit Agreement dated
as of December 16, 1996 (as amended and in effect from time to time, the
"Original Credit Agreement"), by and among the Parent, the Borrowing
Subsidiaries, certain of the Banks (as hereinafter defined) and the Agent, the
Banks party thereto made revolving credit loans and other extensions of credit
to the Parent for general corporate and working capital purposes; and
WHEREAS, the Parent has requested, among other things, to amend and
restate the Original Credit Agreement on the terms and conditions set forth
herein and the Banks and the Agent are willing to amend and restate the Original
Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, the Parent, the Borrowing Subsidiaries, the Banks and
the Agent agree that on the Closing Date the Original Credit Agreement is hereby
amended and restated in its entirety and shall remain in full force and effect
only as set forth herein.
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. DEFINITIONS. The following terms shall have the meanings set forth
in this ss.1 or elsewhere in the provisions of this Credit Agreement referred to
below:
ABSOLUTE COMPETITIVE BID LOAN(S). See ss.4.3(a).
AFFILIATE. Any Person that would be considered to be an affiliate of
the Parent under Rule 144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Parent were issuing
securities.
AGENT. The First National Bank of Boston acting as agent for the
Banks.
AGENT'S HEAD OFFICE. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
AGENT'S LETTER AGREEMENT. That certain letter agreement, dated as of
March __, 1997, between the Parent and the Agent relating to certain fees from
time to time payable by the Borrowers to the Agent, together with all amendments
and modifications thereto.
AGENT'S SPECIAL COUNSEL. Bingham, Dana & Gould LLP or such other
counsel as may be approved by the Agent.
APPLICABLE EUROCURRENCY RATE. The applicable rate per annum of interest
on the Eurocurrency Loans shall be as set forth in the Pricing Table.
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APPLICABLE FACILITY FEE RATE. The applicable rate per annum with
respect to the Facility Fee as set forth in the Pricing Table.
APPLICABLE L/C RATE. The applicable rate per annum on the Maximum
Drawing Amount shall be as set forth in the Pricing Table.
APPLICABLE PERCENTAGE. For the period from (a) the Closing Date through
the date which is the first anniversary of the Closing Date, the Applicable
Percentage shall be 32%, (b) the day after the first anniversary of the Closing
Date through the date which is the second anniversary of the Closing Date, the
Applicable Percentage shall be 29.6%, (c) the day after the second anniversary
of the Closing Date through the date which is the third anniversary of the
Closing Date, the Applicable Percentgage shall be 27.2% and (c) thereafter the
Applicable Percentage shall be 24.8%.
APPLICABLE SWING LINE RATE. The annual rate of interest agreed upon
from time to time by FNBB and the Parent with respect to Swing Line Loans.
ASSIGNMENT AND ACCEPTANCE. See ss.20.1.
BALANCE SHEET DATE. June 30, 1996
BANKS. FNBB and the other lending institutions listed on SCHEDULE 1
hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to ss.20; provided that for purposes of any
determinination with respect to Citicorp USA, Inc. under ss.ss.7.5, 7.6 or 7.7
or the third sentence of ss.2.9.1, "Bank" shall be deemed to include Citibank,
N.A.
BASE RATE. The higher of (a) the annual rate of interest announced from
time to time by FNBB at its head office in Boston, Massachusetts, as its "base
rate" and (b) one-half of one percent (1/2%) above the Federal Funds Effective
Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall
mean for any day, the rate per annum equal to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three funds brokers of recognized
standing selected by the Agent.
BASE RATE LOANS. Loans bearing interest calculated by reference to the
Base Rate.
BORROWER. The Parent or any Borrowing Subsidiary, and "Borrowers" shall
mean the Parent and each Borrowing Subsidiary.
BORROWING SUBSIDIARY. A Wholly-Owned Subsidiary of the Parent which
shall have delivered to the Agent an election to become a Borrowing Subsidiary,
in substantially the form of EXHIBIT L hereto (the "Election Request"), duly
executed by such Wholly-Owned Subsidiary and the Parent and acknowledged by the
Agent; PROVIDED, HOWEVER that at any time at which a Borrowing Subsidiary owes
no amounts hereunder, such Borrowing Subsidiary may, by written notice to the
Agent (receipt of which is acknowledged by the Agent), rescind its election to
become a Borrowing Subsidiary; and PROVIDED, FURTHER, in the event that any
Wholly-Owned Subsidiary of the Parent elects to become a Borrowing Subsidiary,
and such Subsidiary when it is a Borrower will be a Foreign Borrower that is not
organized under the laws of the Netherlands, such Subsidiary shall only be
permitted to become a Borrowing Subsidiary with the consent of all of the Banks.
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BUSINESS DAY. Any day on which banking institutions in Boston,
Massachusetts and New York, New York, are open for the transaction of commercial
lending business and, in addition, (a) if Eurocurrency Rate Loans are involved,
a day on which dealings in Dollars and the relevant Optional Currency and
exchange can be carried on the relevant Eurocurrency Interbank Market and Dollar
settlements of such dealings may be effected, in New York, New York and (b) if
Optional Currency is involved, a day on which dealings in Dollars and in the
relevant Optional Currency and exchange can be carried on in the principal
financial center of the country in which such currency is legal tender.
CAPITAL STOCK. Any nonredeemable capital stock of the Parent or any
Consolidated Subsidiary (to the extent issued to a Person other than the
Parent), whether common or preferred.
CAPITALIZED LEASES. Leases under which any of the Borrowers or any of
their Subsidiaries is the lessee or obligor, the discounted future rental
payment obligations under which are required to be capitalized on the balance
sheet of the lessee or obligor in accordance with generally accepted accounting
principles.
CERCLA. The Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. ss.9601 et. seq. and its implementing regulations and
amendments.
CERCLIS. The Comprehensive Environmental Response Compensation and
Liability Inventory System established pursuant to CERCLA.
CHANGE IN CONTROL. The (a) acquisition through purchase or otherwise by
any Person, or group of Persons acting in concert, directly or indirectly, in
one or more transactions, of beneficial ownership or control of securities
representing more than fifty percent (50%) of the combined voting power of the
Parent's voting stock (including the written agreement to act in concert (in a
way which could reasonably be expected to have a material impact on the
operations or methods of operation of the Parent) by Persons who beneficially
own or control securities representing more than fifty percent (50%) of the
combined voting power of the Parent's voting stock), or (b) entering into by the
Parent of a written agreement providing for or contemplating an acquisition
described in clause (a) or (c) hereof, or (c) expiration, without withdrawls
reducing such percentage to fifty percent (50%) or less, of ten (10) days
following the date on which shares representing more than fifty percent (50%) of
the combined voting power of the Parent's voting stock have been tendered
pursuant to a tender offer by any Person, including the Parent or a Subsidiary,
for securities representing more than fifty percent (50%) of the combined voting
power of the Parent's voting stock, whether or not such securities are purchased
pursuant to such tender offer, or (d) the occurrence of any change of control
under any other Debt instrument or agreement for the securitization or other
sale of receivables to which the Parent or any Subsidiary is a party. The date
on which an acquisition described in the foregoing sentence occurs is referred
to as the "Effective Date of the Change in Control".
CLOSING DATE. The first date on which the conditions set forth in ss.12
have been satisfied and any Loans are to be made or any Letter of Credit is to
be issued hereunder.
CODE. The Internal Revenue Code of 1986.
COMMITMENT. With respect to each Bank, the amount set forth on SCHEDULE
1 hereto as the amount of such Bank's commitment to make Loans to, and to
participate in the issuance, extension and renewal of Letters of Credit for the
account of, the Borrowers, as the same may be reduced from time to time; or if
such commitment is terminated pursuant to the provisions hereof, zero.
COMMITMENT PERCENTAGE. With respect to each Bank, the percentage set
forth on SCHEDULE 1 hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks (subject to
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automatic adjustment based upon termination of any Commitments and reduction of
the Total Commitment pursuant to ss.2.10).
COMPETITIVE BID LOAN ACCOUNTS. See ss.4.2(a).
COMPETITIVE BID LOANS. A borrowing hereunder consisting of one or more
loans made by any of the participating Banks whose offer to make a Competitive
Bid Loan as part of such borrowing has been accepted by the Parent under the
auction bidding procedure described in ss.4 hereof.
COMPETITIVE BID MARGIN. See ss.4.5(b)(iv).
COMPETITIVE BID NOTES. See ss.4.2(b).
COMPETITIVE BID QUOTE. An offer by a Bank to make a Competitive Bid
Loan in accordance with ss.4.5 hereof.
COMPETITIVE BID QUOTE REQUEST. See ss.4.3.
COMPETITIVE BID RATE. See ss.4.5(b)(v).
COMPLIANCE CERTIFICATE. ss.9.4(c).
CONSOLIDATED OR CONSOLIDATED. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Parent and its
Consolidated Subsidiaries, consolidated in accordance with generally accepted
accounting principles.
CONSOLIDATED DEBT. At any date the Debt of the Parent and its
Consolidated Subsidiaries, determined on a consolidated basis as of such date.
CONSOLIDATED NET INCOME. For any period, the net income (or loss) of
the Parent and its Subsidiaries for such period, determined on a consolidated
basis in accordance with generally accepted accounting principles after
eliminating earnings or losses attributable to outstanding minority interests,
but excluding in any event (a) net earnings and losses of any Subsidiary accrued
prior to the date it became a Subsidiary; (b) net earnings and losses for any
corporation (other than a Subsidiary), substantially all the assets of which
have been acquired in any manner, realized by such other corporation prior to
the date of such acquisition; (c) net earnings and losses of any corporation
(other than a Subsidiary) with which the Parent or a Subsidiary shall have
consolidated or which shall have merged into or with the Parent or a Subsidiary
prior to the date of such consolidation or merger; (d) net earnings of any
business entity (other than a Subsidiary) in which the Parent or any Subsidiary
has an ownership interest unless such net earnings are immediately available
without legal or contractual restriction for cash distributions to the Parent or
such Subsidiary; (e) any portion of the net earnings of any Subsidiary which for
any reason is legally or contractually unavailable for payment of cash dividends
to the Parent or any other Subsidiary; (f) earnings resulting from any
reappraisal, revaluation or write-up of assets; (g) any deferred or other credit
representing any excess of the equity in any Subsidiary at the date of
acquisition thereof over the amount invested in such Subsidiary; and (h) any
reversal subsequent to March 31, 1996 of any reserve (other than a reserve
created in the ordinary course of business in accordance with generally accepted
accounting principles) except to the extent that provision for such reserve
shall have been made from income arising subsequent to March 31, 1996.
CONSOLIDATED NET WORTH. The consolidated stockholders equity of the
Parent and its Subsidiaries determined in accordance with generally accepted
accounting principles.
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CONSOLIDATED SUBSIDIARY. At any date any Subsidiary or other entity the
accounts of which, in accordance with generally accepted accounting principles,
would be consolidated with those of the Parent in its consolidated financial
statements as of such date.
CONSOLIDATED TOTAL ASSETS. The total assets of the Parent and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
CONSOLIDATED TOTAL CAPITALIZATION. The sum of Consolidated Net Worth
and Consolidated Debt.
CONSOLIDATED TOTAL INTEREST EXPENSE. With respect to any Person, for
any fiscal period, the aggregate amount of interest expense in respect of all
Debt of such Person and its Subsidiaries for such period, on a consolidated
basis, determined in accordance with generally accepted accounting principles
(including but not limited to all non-cash interest payments, the interest
portion of any deferred payment obligation and the interest component of
Capitalized Lease obligations).
CONTROLLED GROUP. All members of a controlled up of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Code.
CONVERSION REQUEST. A notice given by a Borrower to the Agent of a
Borrower's election to convert or continue a Revolving Credit Loan in accordance
with ss.2.7.
CREDIT AGREEMENT. This Amended and Restated Multicurrency Revolving
Credit Agreement, including the Schedules and Exhibits hereto.
DEBT. With respect to any Person at any date, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (d) all obligations of such Person as lessee under capital leases, (e)
all obligations of such Person to reimburse any bank or other Person in respect
of amounts payable under a banker's acceptance, (f) all Redeemable Preferred
Stock of such Person (in the event such Person is a corporation), (g) all
obligations of such Person to reimburse any bank or other Person in respect of
amounts paid under a letter of credit or similar instrument, (h) all Debt of
others secured by a Lien on any asset of such Person, even though such Debt is
not assumed by such Person, (i) all Debt of others Guaranteed by such Person,
(j) amounts of any reserves for doubtful accounts recorded on the books of such
Person for leases, receivables and other accounts sold, factored or otherwise
disposed of by such Person, (k) solely for purposes of ss.ss.10.1(d), 11.2 and
11.3 hereof, and without duplication for amounts set forth in subparagraph (j)
of this definition, (i) the recourse portion of all Term Receivables sold by
such Person and (ii) the aggregate principal amount of all advances against
Trade Receivables sold or factored by such Person in excess of $75,000,000, and
(l) solely for purposes of ss.10.1(e) hereof and without duplication for amounts
set forth in subparagraph (j) of this definition, the recourse portion of all
Term Receivables and Trade Receivables sold or factored by any Subsidiary;
PROVIDED, that in no event shall "Debt" include any Factored Receivables
Obligations except as expressly provided in subparagraphs (k) and (l) of this
definition.
DEFAULT. See ss.14.1.
DISPOSITION. See ss.10.5.
DOLLAR EQUIVALENT. With respect to any amounts denominated in a
currency other than Dollars, the amount (as conclusively ascertained by the
Agent absent manifest error) in Dollars
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which is or could be purchased by the Agent (in accordance with its normal
banking practices) with such amounts denominated in such other currency in the
Nassau foreign currency deposits market for delivery on such date at the spot
rate of exchange, at or about 11:00 a.m., local time at the Nassau Branch, on
the date of determination.
DOLLARS or $. Dollars in lawful currency of the United States of
America.
DOMESTIC BORROWERS. Any Borrower which is not a Foreign Borrower.
DOMESTIC LENDING OFFICE. Initially, the office of each Bank designated
as such in SCHEDULE 1 hereto; thereafter, such other office of such Bank, if
any, located within the United States that will be making or maintaining Base
Rate Loans.
DRAWDOWN DATE. The date on which any Loan is made or is to be made, and
the date on which any Loan is converted or continued in accordance with ss.2.7.
EBITDA. With respect to any fiscal period, an amount equal to
Consolidated Net Income for such fiscal period, PLUS, to the extent otherwise
deducted from Consolidated Net Income and without duplication, (a) depreciation
and amortization for such period, PLUS (b) other noncash charges made in
calculating Consolidated Net Income for such period, PLUS (c) tax expense for
such period, PLUS (d) Consolidated Total Interest Expense for such period, all
as determined in accordance with generally accepted accounting principles.
ELIGIBLE ASSIGNEE. Any of (a) a commercial bank or financial
institution organized under the laws of the United States, or any State thereof
or the District of Columbia, and having total assets in excess of
$1,000,000,000; (b) a savings and loan association or savings bank organized
under the laws of the United States, or any State thereof or the District of
Columbia, and having a net worth of at least $100,000,000, calculated in
accordance with generally accepted accounting principles; (c) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having total assets in excess of
$1,000,000,000, PROVIDED that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the OECD; (d) the central bank of any country which is a member of
the OECD; and (e) if, but only if, any Event of Default has occurred and is
continuing, any other bank, insurance company, commercial finance company or
other financial institution or other Person approved by the Agent, such approval
not to be unreasonably withheld.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning of
ss.3(3) of ERISA maintained of contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
ENVIRONMENTAL AUTHORITY. Any foreign, federal, state, local or regional
government that exercises any form of jurisdiction or authority under any
Environmental Requirement.
ENVIRONMENTAL AUTHORIZATIONS. All licenses, permits, orders, approvals,
notices, registrations or other legal prerequisites for conducting the business
of the Parent or any Subsidiary required by any Environmental Requirement.
ENVIRONMENTAL JUDGMENTS AND ORDERS. All judgments, decrees or orders
arising from or in any way associated with any Environmental Requirements,
whether or not entered upon consent or written agreements with an Environmental
Authority or other entity arising from or in any way associated with any
Environmental Requirement, whether or not incorporated in a judgment, decree or
order.
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ENVIRONMENTAL LIABILITIES. Any liabilities whether accrued, contingent
or otherwise, arising from and in any way associated with any Environmental
Requirements.
ENVIRONMENTAL NOTICES. Notice from any Environmental Authority or by
any other person or entity, of possible or alleged noncompliance with or
liability under any Environmental Requirement, including without limitation any
complaints, citations, demands or requests from any Environmental Authority or
from any other person or entity for correction of any, violation of any
Environmental Requirement or any investigations concerning any violation of any
Environmental Requirement.
ENVIRONMENTAL PROCEEDINGS. Any judicial or administrative proceeding
arising from or in any way associated with any Environmental Requirement.
ENVIRONMENTAL RELEASES. Releases as defined in CERCLA or under any
applicable state or local environmental law or regulation.
ENVIRONMENTAL REQUIREMENTS. Any legal requirement relating to health,
safety or the environment and applicable to the Parent, any Subsidiary or the
Properties, including but not limited to any such requirement under CERCLA or
similar state legislation and all federal, state and local laws, ordinances,
regulations, orders, writs, decrees and common law.
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA AFFILIATE. Any Person which is treated as a single employer with
the Borrower under ss.414 of the Code.
ERISA REPORTABLE EVENT. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of ss.4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
EUROCURRENCY COMPETITIVE BID LOAN(S). See ss.4.3(a).
EUROCURRENCY INTERBANK MARKET. Any lawful recognized market in which
deposits of Dollars and the relevant Optional Currencies are offered by
international banking units of United States banking institutions and by foreign
banking institutions to each other and in which foreign currency and exchange
operations or eurocurrency funding operations are customarily conducted. From
the Closing Date through the date the Agent delivers a notice to the Borrowers
and the Banks of its election to change the Eurocurrency Interbank Market, the
Eurocurrency Interbank Market shall be designated as the London interbank
market.
EUROCURRENCY LENDING OFFICE. Initially, the office of each Bank
designated as such in SCHEDULE 1 hereto; thereafter, such other office of such
Bank, if any, that shall be making or maintaining Eurocurrency Rate Loans.
EUROCURRENCY OFFERED RATE. The rate per annum determined by the Agent
to be the rate per annum quoted by the British Bankers Association at
approximately 11:00 a.m. (London time) on the date two (2) Business Days prior
to the first day of the applicable Interest Period for deposits in the relevant
currency for a period of time approximately equal to such Interest Period. Such
quotation shall be determined by the Agent either (a) by being designated as the
"London Interbank Offered Rate" on Telerate BBA LIBOR page 3750 (or such other
page as may replace such page on the Telerate service for the purpose of
displaying the London interbank offered rate) or (b) if there is no such page on
the Telerate service, by being designated as the "London Interbank Offered Rate"
on the Bloomberg LIBOR BBA Page. With respect to the Loans which will bear
interest by reference to
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the Eurocurrency Rate, the Agent shall select a Eurocurrency Interbank Market
(subject to the last sentence of the definition of that term).
EUROCURRENCY RATE. With respect to all Eurocurrency Rate Amounts for
any Interest Period, the annual rate of interest, rounded to the nearest 1/100th
of one percent, determined by the Agent for such Interest Period in accordance
with the following formula:
Eurocurrency Rate = Eurocurrency Offered Rate
-------------------------
1-Eurocurrency Reserve Rate
EUROCURRENCY RATE AMOUNTS. Any portions of the principal amount of the
Revolving Credit Loans denominated in Dollars or in an Optional Currency, on
which the Borrower has elected pursuant to ss.2.6 and ss.2.7 hereof to pay
interest based on the Eurocurrency Rate.
EUROCURRENCY RATE LOANS. Loans bearing interest calculated by reference
to the Eurocurrency Rate.
EUROCURRENCY RESERVE RATE. For any day with respect to a Eurocurrency
Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
EVENT OF DEFAULT. See ss.14.1.
EXCLUDED TAXES. All taxes in respect of, measured by or calculated by
reference to, the overall net income or profits of the Agent or any Bank,
whether worldwide or in any jurisdiction, or franchise or similar taxes imposed
in lieu thereof , or any tax arising solely as a result of the Agent's or the
respective Bank's actions or presence in the jurisdiction imposing such tax if
such actions or presence are in no manner related to the transactions
contemplated by this Credit Agreement.
FACTORED RECEIVABLES OBLIGATIONS. Any recourse or non-recourse
obligation, guarantee or other contractual undertaking of the Parent or any
Subsidiary arising in connection with the sale, factoring or other disposition
of leases, receivables or other accounts, if such sale, factoring or
disposition, whether with or without recourse, is for a fair price (on the basis
of the face amount of the respective item, on the basis of the present value or
its income stream or on the basis of another arms' length determination)
together with the interests of the seller of such lease, receivable or other
account in the equipment or other property related to such lease, receivable or
other account, and not at a distress sale or other "deep" discount.
FISCAL QUARTER. Any fiscal quarter of the Parent.
FISCAL YEAR. Any fiscal year of the Parent.
FNBB. The First National Bank of Boston, a national banking
association, in its individual capacity.
FOREIGN BORROWERS. Any Borrowing Subsidiary that conducts substantially
all of its business in countries other than the United States of America and
that is organized under the laws of a jurisdiction other than the United States
of America and the states thereof and the Commonwealth of Puerto Rico.
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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (a) When used in ss.ss.10 and
11, whether directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and
(ii) to the extent consistent with such principles, the accounting practice of
the Parent reflected in its financial statements for the year ended on the
Balance Sheet Date, and (b) when used in general, other than as provided above,
means principles that are (i) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, as in
effect from time to time, and (ii) consistently applied with past financial
statements of the Parent adopting the same principles, provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.
GUARANTEED. By any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to secure, purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by virtue
or partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to provide collateral security, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (b) entered into
for the purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part), PROVIDED that the term Guaranteed
shall not include endorsements for collection or deposit in the ordinary course
of business.
GUARANTEED OBLIGATIONS. ss.6.1.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by the Parent or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
HAZARDOUS MATERIALS. Includes, without limitation, (a) solid or
hazardous waste, as defined in the Resource Conservation and Recovery Act of
1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and
amendments, or in any applicable state or local law or regulation, (b)
"hazardous substance", "pollutant", or "Contaminant" as defined in CERCLA, or in
any applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including, crude oil or any fraction thereof
(d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or
in any applicable state or local law or regulation or (e) insecticides,
fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide,
and Rodenticide Act of 1975, or in any applicable state or local law or
regulation, as each such Act, statute or regulation may be amended from time to
time.
INTEREST COVERAGE RATIO. As at any date of determination and with
respect to the Parent and its Subsidiaries, the ratio of (a) the sum of the
EBITDA of the Parent and its Subsidiaries for the fiscal period ending on such
date to (b) Consolidated Total Interest Expense of the Parent and its
Subsidiaries for such fiscal period.
INTEREST PAYMENT DATE. (a) As to any Base Rate Loan, the last day of
the calendar quarter which includes the Drawdown Date thereof; and (b) as to any
Eurocurrency Rate Loan in respect of which the Interest Period is (i) three (3)
months or less, the last day of such Interest Period and (ii)
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more than three (3) months, the date that is three (3) months from the first day
of such Interest Period and, in addition, the last day of such Interest Period.
INTEREST PERIOD. With respect to each Loan, (a) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in a Loan Request
(i) for any Base Rate Loan, the last day of the calendar quarter; and (ii) for
any Eurocurrency Rate Loan, 1, 2, 3, or 6 months; and (b) thereafter, each
period commencing on the last day of the next preceding Interest Period
applicable to such Loan and ending on the last day of one of the periods set
forth above, as selected by the Borrower in a Conversion Request; PROVIDED that
all of the foregoing provisions relating to Interest Periods are subject to the
following:
(i) if any Interest Period with respect to a Eurocurrency Rate
Loan would otherwise end on a day that is not a Eurocurrency Business
Day, that Interest Period shall be extended to the next succeeding
Eurocurrency Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Eurocurrency Business Day;
(ii) if any Interest Period with respect to a Base Rate Loan
would end on a day that is not a Business Day, that Interest Period
shall end on the next succeeding Business Day;
(iii) if the Borrower shall fail to give notice as provided in
ss.2.7, the Borrower shall be deemed to have requested a conversion of
the affected Eurocurrency Rate Loan to a Base Rate Loan and the
continuance of all Base Rate Loans as Base Rate Loans on the last day
of the then current Interest Period with respect thereto;
(iv) any Interest Period relating to any Eurocurrency Rate
Loan that begins on the last Eurocurrency Business Day of a calendar
month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on
the last Eurocurrency Business Day of a calendar month; and
(v) any Interest Period relating to any Eurocurrency Rate Loan
that would otherwise extend beyond the Maturity Date shall end on the
Maturity Date.
INVESTMENTS. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Debt of, or for
loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under Debt), or
obligations of, any Person. In determining the aggregate amount of Investments
outstanding at any particular time: (a) the amount of any Investment represented
by a guaranty shall be taken at not less than the principal amount of the
obligations guaranteed and still outstanding; (b) there shall be included as an
Investment all interest accrued with respect to Indebtedness constituting an
Investment unless and until such interest is paid; (c) there shall be deducted
in respect of each such Investment any amount received as a return of capital
(but only by repurchase, redemption, retirement, repayment, liquidating dividend
or liquidating distribution); (d) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment, whether as
dividends, interest or otherwise, except that accrued interest included as
provided in the foregoing clause (b) may be deducted when paid; and (e) there
shall not be deducted from the aggregate amount of Investments any decrease in
the value thereof.
LIEN. With respect to any asset, any mortgage, deed to secure debt,
deed of trust, lien, pledge, charge, security interest, security title,
preferential arrangement which has the practical effect of constituting a
security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of a Debt or a Guarantee,
whether by consensual agreement
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<PAGE> 17
or by operation of statute or other law, or by any agreement, contingent or
otherwise, to provide any of the foregoing. For the purposes of this Credit
Agreement, the Parent or any Subsidiary shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset. Notwithstanding the foregoing, in no
event shall any of the following be deemed to be a "Lien" on any assets or other
properties of any Person: (a) filings of financing statements in respect of
operating leases of such Person, sales of (and not merely security interests in)
leases, receivables and other accounts and of the equipment or other property
related to such accounts, and other similar filings of a precautionary nature,
(b) the interest of a lessee in the property subject to a lease under which such
Person is the lessor, or (c) the interest of the purchaser or factor of leases,
receivables or other accounts of such Person in the leases, receivables or
accounts sold, factored or otherwise disposed of, or in the related equipment or
other property that is the subject of such lease, receivable or account, even if
described as a Lien in the instrument pursuant to which such sale, factoring or
other disposition is effected.
LETTER OF CREDIT. See ss.5.1.1.
LETTER OF CREDIT APPLICATION. See ss.5.1.1.
LETTER OF CREDIT PARTICIPATION. See ss.5.1.4.
LOAN DOCUMENTS. This Credit Agreement, the Notes, the Letter of Credit
Applications and the Letters of Credit.
LOAN REQUEST. See ss.2.6.
LOANS. The Revolving Credit Loans (which shall include the Swing Line
Loans) and the Competitive Bid Loans.
MAJORITY BANKS. The Banks holding fifty-one percent (51%) of the
outstanding principal amount of the Revolving Credit Loans on such date
(provided, however, in the event any Swing Line Loan is outstanding and has not
been participated to the other Banks, for purposes of this definition, each Bank
(including FNBB) will be assumed to have fully funded its participation in such
Swing Line Loan; or to the extent no Revolving Credit Loans are outstanding, the
Banks with fifty-one percent (51%) of the Total Commitment (which shall include
participating interests in the risk relating to Swing Line Loans); PROVIDED THAT
in the event that the Total Commitment has been terminated by the Banks and no
Revolving Credit Loans or Letters of Credit are outstanding, the Majority Banks
shall be the Banks holding fifty-one percent (51%) of the outstanding principal
amount of the Competitive Bid Loans on such date.
MATERIAL ADVERSE EFFECT. With respect to any event, act, condition or
occurrence of whatever nature (including any adverse determination in any
litigation, arbitration, or governmental investigation or proceeding), whether
singly or in conjunction with any other event or events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related, a material
adverse change in, or a material adverse effect upon, any of (a) the financial
condition, operations, business, or properties which are central to the business
at such time, of the Parent and its Consolidated Subsidiaries taken as a whole,
(b) the ability of the Borrowers or the Parent to perform their respective
obligations under the Loan Documents to which it is a party, as applicable, or
(c) the legality, validity or enforceability of any Loan Document.
MATERIAL SUBSIDIARY. As of each date of determination, any Consolidated
Subsidiary (a) whose consolidated total assets exceed five percent (5%) of
Consolidated Total Assets or (b) whose consolidated total revenues exceed ten
percent (10%) of the consolidated revenues of the Parent and
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<PAGE> 18
its Subsidiaries determined in accordance with generally accepted accounting
principles as of the last day of the Fiscal Quarter of the Parent most recently
ended as of such date of determination and for which financial statements have
been delivered to the Banks pursuant to ss.9.4 hereof, and in any event shall
include Sensormatic GmbH and each Borrowing Subsidiary.
MATURITY DATE. December 10, 1999.
MAXIMUM DRAWING AMOUNT. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
MOODY'S. Moody's Investors Service, Inc.
MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of
ss.3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
NASSAU BRANCH. The Agent's Nassau, The Bahamas, branch office.
NET CASH AMOUNT. In respect of any judgment or settlement, the
aggregate amount to be paid by the Parent or any of its Subsidiaries in cash
pursuant to such judgment or settlement on a reasonably estimated after-tax
basis, net of all amounts which are reasonably anticipated (as determined by
mutual agreement of the Parent and the Agent) to be paid by independent third
party insurers in respect of such judgment or settlement.
NOTE AGREEMENT (1993). The Note Agreement dated as of January 15, 1993
pertaining to the Parent's $135,000,000 Principal Amount 8.21% Senior Notes Due
January 30, 2003, as amended by the First Amendment dated as of May 31, 1993,
and as it may be amended or supplemented from time to time.
NOTE AGREEMENT (1996). The Note Agreement dated as of March 29, 1996,
pertaining to Parent's $230,000,000 Principal Amount 7.74% Senior Notes Due
March 29, 2006, $50,000,000 Principal Amount 7.11% Senior Notes Due March 29,
2001 and $70,000,000 Principal Amount 6.99% Senior Notes Due March 29, 2000, and
as it may be amended or supplemented from time to time.
NOTE AGREEMENT CLOSING DATE. The "Closing Date", as defined in the Note
Agreement (1993).
NOTES. The Revolving Credit Notes, the Competitive Bid Notes and the
Swing Line Note.
OBLIGATIONS. All indebtedness, obligations and liabilities of any of
the Parent and each of the other Borrowers to any of the Banks and the Agent,
individually or collectively, existing on the date of this Credit Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Credit Agreement or any of the other Loan Documents or in
respect of any of the Loans made or Reimbursement Obligations incurred or any of
the Notes, Letter of Credit Application, Letter of Credit or other instruments
at any time evidencing any thereof.
OC NOTICE. See ss.2.9.1.
OPTIONAL CURRENCY. Any currency other than Dollars which is fully
convertible into Dollars and which is traded on any recognized Eurocurrency
Interbank Market selected by the Agent in good
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<PAGE> 19
faith; PROVIDED, HOWEVER, in the event any Borrower requests an Optional
Currency denominated in a currency other than Austrian schillings, Belgian
francs, German deutsche marks, Danish kroners, Spanish pesetas, French francs,
Finnish marks, British pounds sterling, Italian liras, Dutch guilders, Norwegian
kroners, Portuguese escudos, Swedish kroners or Swiss francs, the request for
such other Optional Currency shall be subject to the consent of the Banks.
OUTSTANDING. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
PARENT. See preamble.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of
ERISA and any successor entity or entities having similar responsibilities.
PERMITTED LIENS. Liens, security interests and other encumbrances
permitted by ss.10.2.
PERSON. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
PLAN. At any time an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either (a) maintained by a member of the Controlled Group for
employees of any member of the Controlled Group or (b) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which a member of the Controlled Group
is then making or accruing an obligation to make contributions or has within the
preceding 5 plan years made contributions but shall not include any plan which
is maintained under the laws of Puerto Rico, is covered by Section 4021(b) of
ERISA, or is unfunded and maintained primarily for the purpose of providing
deferred compensation for a select group of management, key executives or highly
compensated employees.
PRICING TABLE. With respect to all Eurocurrency Rate Loans, Letters of
Credit and the facility fee, at any time of determination thereof, the
applicable annual percentage rate set forth in the table below opposite the Debt
Ratings with respect to Long Term Senior Debt of the Parent then in effect,
subject to the provisions set forth below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
APPLICABLE APPLICABLE
FACILITY FEE APPLICABLE EUROCURRENCY
RATE L/C RATE RATE
LEVEL SENIOR PUBLIC DEBT RATING (PER ANNUM) (PER ANNUM) (PER ANNUM)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 At least A - by Standard & Poor's or at 0.0900% 0.1500% Eurocurrency Rate plus
least A3 by Moody's 0.1500%
- --------------------------------------------------------------------------------------------------------------------
2 At least BBB+ by Standard & Poor's or at 0.1000% 0.1750% Eurocurrency Rate plus
least Baa1 by Moody's 0.1750%
- --------------------------------------------------------------------------------------------------------------------
3 At least BBB by Standard & Poor's or at 0.1250% 0.2500% Eurocurrency Rate plus
least Baa2 by Moody's 0.2500%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4 At least BBB- by Standard & Poor's or at 0.1750% 0.3000% Eurocurrency Rate plus
least Baa3 by Moody's 0.3000%
- --------------------------------------------------------------------------------------------------------------------
5 At least BB+ by Standard & Poor's or at 0.2250% 0.3750% Eurocurrency Rate plus
least Ba1 by Moody's 0.3750%
- --------------------------------------------------------------------------------------------------------------------
6 If no other level applies or if no 0.2500% 0.5000% Eurocurrency Rate plus
rating is available 0.5000%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
provided that:
(a) Notwithstanding anything to the contrary contained in this
definition, for the Applicable Facility Fee Rate, Applicable L/C Rate
and Applicable Eurocurrency Rate with respect to the period commencing
on the Closing Date through the date which is the earlier to occur of
(i) the Parent having obtained a Senior Public Date Rating of at least
BBB by Standard & Poor's or (ii) the Parent having demonstrated to the
satisfaction of the Agent an Interest Coverage Ratio for two (2)
consecutive fiscal quarters of not less than 2.75:1.00 for each such
fiscal quarter, the Applicable Facility Fee Rate, Applicable L/C Rate
and Applicable Eurocurrency Rate shall be the higher of (1) the annual
percentage rates applicable to Level 5 or (2) the annual percentage
rates applicable to the actual Senior Public Debt Rating applicable to
the Parent;
(b) In the event of a split rating by the two rating agencies with
respect to the same Long Term Senior Debt, the lower Senior Public Debt
Rating (and the higher applicable rate) shall control;
(c) In the event that only one of the two rating agencies issues a
Senior Public Debt Rating, such rating shall determine the applicable
rate;
(d) In the event that different types or series of Long Term Senior
Debt have different Senior Public Debt Ratings, the Long Term Senior
Debt with the lowest Senior Public Debt Ratings will be used to
determine the applicable rate; and
(e) Determinations of the applicable rate and any resulting adjustments
of the effective interest rates and fees with respect to Eurocurrency
Rate Loans, Letters of Credit and the Facility Fee, shall be made on a
daily basis and all adjustments shall take effect on the effective date
of any change in the applicable Senior Public Debt Rating.
PROPERTIES. All real property owned, leased or otherwise used or
occupied by the Parent or any Subsidiary, wherever located.
RATE OF EXCHANGE. See ss.2.9.2.
RECORD. The grid attached to a Note, or the continuation of such grid,
or any other similar record, including computer records, maintained by any Bank
with respect to any Loan referred to in such Note.
REDEEMABLE PREFERRED STOCK. With respect to any Person, any preferred
stock issued by such Person which by its terms is, at any time prior to the
Maturity Date, subject to mandatory redemption by such Person for cash at the
demand of the holder of such stock. No security shall be considered "Redeemable
Preferred Stock" by reason of such security being convertible into other shares
of capital stock (whether common or preferred) or any other property other than
cash, even if the terms
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<PAGE> 21
of redemption or conversion provide for a nominal portion of such security to be
redeemable for cash in order to avoid the issuance of fractional shares or
irregular lots of shares or for similar purposes, but in such case only an
amount equal to the probable aggregate cash expenditure in connection with the
cash redemption shall be considered "Redeemable Preferred Stock".
REIMBURSEMENT OBLIGATION. The obligation of a Borrower to reimburse the
Agent and the Banks on account of any drawing under any Letter of Credit as
provided in ss.5.2.
RESTRICTED PAYMENTS. See ss.10.3.
REVOLVING CREDIT LOANS. Revolving credit loans made or to be made by
the Banks to a Borrower pursuant to ss.2 (including, without limitation, the
Swing Line Loans).
REVOLVING CREDIT NOTE RECORD. A Record with respect to a Revolving
Credit Note.
REVOLVING CREDIT NOTES. See ss.2.4.
SENIOR NOTES. The senior notes issued prior to the Closing Date under
the Note Agreement (1993) or the Note Agreement (1996).
SENIOR PUBLIC DEBT RATING. The rating of the Parent's public unsecured
long-term senior debt, without third party credit enhancement, (the "Long Term
Senior Debt") issued by Moody's and/or Standard & Poor's, or such other rating
service or services as the Parent may designate from time to time with the
consent of the Majority Banks (each a "Successor Rating Agency"); or in the
event no Long Term Senior Debt is outstanding, the rating of this credit
facility issued by Moody's and/or Standard & Poor's or such Successor Rating
Agency upon the request of the Parent; PROVIDED that until such time as the
Parent receives such rating on such Long Term Senior Debt or this credit
facility, the Parent's corporate credit rating by Standard & Poor's or such
Successor Rating Agency shall apply. In the event Standard & Poor's, Moody's or
such Successor Rating Agency changes its debt rating designations, definitions
or symbols, the Parent and the Majority Banks shall agree as to the exact
application of such new debt rating terminology to the Pricing Table, taking
into account the explanation of such new rating terminology by Standard &
Poor's, Moody's or such Successor Rating Agency, as the case may be, and its
comparability to the Senior Debt Ratings referred to in the Pricing Table.
SUBORDINATED CONSOLIDATED DEBT. Any unsecured Consolidated Debt which
(a) is expressly subordinate in right of payment to the Obligations and the
Senior Notes pursuant to a form of subordination substantially in the form of
EXHIBIT J, and (b) has a Weighted Average Life to Maturity extending beyond the
Maturity Date in effect from time to time and the latest final maturity of the
Senior Notes.
STANDARD & POOR'S. Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
SUBSIDIARY. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the outstanding Voting Stock.
SWING LINE LOANS. See ss.2.11(a).
SWING LINE NOTE. See ss.2.11(a).
SWING LINE SETTLEMENT AMOUNT. See ss.2.11(b).
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<PAGE> 22
SWING LINE SETTLING BANK. See ss.2.11(b).
SWING LINE SETTLEMENT DATE. See ss.2.11(b).
SWING LINE SETTLEMENT. The making or receiving of, payments in
immediately available funds, by the Banks to or from the Agent in accordance
with ss.2.11 hereof to the extent necessary to cause each Bank's actual share of
the outstanding amount of the Revolving Credit Loans to be equal to such Bank's
Commitment Percentage of the outstanding amount of such Revolving Credit Loans,
in any case when, prior to such action, the actual share is not so equal.
TERM RECEIVABLE. Any account receivable, lease or other account owned
by any Person which is not a Trade Receivable.
THIRD PARTIES. All lessees, sublessees, licensees and other users of
the Properties, excluding those users of the Properties in the ordinary course
of Parent's or any Consolidated Subsidiary's business and or a temporary basis.
TOTAL COMMITMENT. The sum of the Commitments of the Banks, as in effect
from time to time.
TRADE RECEIVABLE. Any account receivable, lease and other account owned
by any Person with original terms of ninety (90) days or less.
TYPE. As to any Revolving Credit Loan, its nature as a Base Rate Loan
or a Eurocurrency Rate Loan.
UNIFORM CUSTOMS. With respect to any Letter of Credit, the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor version thereto adopted
by the Agent in the ordinary course of its business as a letter of credit issuer
and in effect at the time of issuance of such Letter of Credit.
UNPAID REIMBURSEMENT OBLIGATION. Any Reimbursement Obligation for which
a Borrower does not reimburse the Agent and the Banks on the date specified in,
and in accordance with, ss.5.2.
VOTING STOCK. Stock or similar interests, of any class or classes
(however designated), the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or persons
performing similar functions) of the corporation, association, trust or other
business entity involved, whether or not the right so to vote exists by reason
of the happening of a contingency.
WEIGHTED AVERAGE LIFE TO MATURITY. As applied to any prepayment of
principal of the Senior Notes, or to any Subordinated Consolidated Debt, at any
date, the number of years obtained by dividing (a) the then outstanding
principal amount of the Senior Notes to be prepaid, or the then outstanding
principal amount of such Subordinated Consolidated Debt, into (b) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity, or other required payment, including
payment at final maturity, foregone by virtue of such prepayment of the Senior
Notes, or in respect of such Subordinated Consolidated Debt, by (ii) the number
of years (calculated to the nearest 1/12th) which would have elapsed between
such date and the making of such payment.
WHOLLY OWNED SUBSIDIARY. Any Subsidiary all of the shares of capital
stock or other ownership interests of which (except directors' qualifying shares
and, in the case of certain Subsidiaries which are not U.S. Persons, nominal
shares held by non-U.S. Persons in accordance with
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<PAGE> 23
applicable laws) are at the time directly or indirectly owned by the Parent.
Each Borrower other than the Parent is a Wholly Owned Subsidiary.
1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from
time to time in accordance with its terms and the terms of this Credit
Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles
applied on a consistent basis by the accounting entity to which they
refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have
the meanings assigned to them therein, with the term "instrument" being
that defined under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "ss." refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Credit Agreement as a whole and not to
any particular section or subdivision of this Credit Agreement.
2. THE REVOLVING CREDIT FACILITY.
2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth
in this Credit Agreement, each of the Banks severally agrees to lend to any
Borrower and any Borrower may borrow, repay, and reborrow from time to time
between the Closing Date and the Maturity Date upon notice by such Borrower to
the Agent given in accordance with ss.2.6, such sums, in Dollars and/or at any
Borrower's option from time to time, subject to ss.2.9 hereof (including,
without limitation, any restrictions arising from currency fluctuations as set
forth in ss.2.9.4), in an Optional Currency, as are requested by any Borrower up
to a maximum aggregate amount outstanding (after giving effect to all amounts
requested, and including any Bank's participating interest in any Swing Line
Loans outstanding) at any one time equal to such Bank's Commitment MINUS such
Bank's Commitment Percentage of the sum of the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations, PROVIDED that the sum of the outstanding
amount of the Revolving Credit Loans (after giving effect to all amounts
requested) and the Competitive Bid Loans PLUS the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations shall not at any time exceed the Total
Commitment. The Revolving Credit Loans shall be made PRO RATA in accordance with
each Bank's Commitment Percentage. Each request for a Revolving Credit Loan
hereunder shall constitute a representation and warranty by the Borrowers that
the conditions set forth in ss.12 and ss.13, in the case
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<PAGE> 24
of the initial Revolving Credit Loans to be made on the Closing Date, and ss.13,
in the case of all other Revolving Credit Loans, have been satisfied on the date
of such request. Each Base Rate Loan shall be denominated in Dollars, and each
Eurocurrency Rate Loan shall be denominated in Dollars, or, subject to ss.2.9
hereof, in an Optional Currency. No Foreign Borrower may borrow funds pursuant
to a Revolving Credit Loan hereunder in any currency other than (a) the currency
of the country in which such Borrower is organized and doing business or (b)
Dollars.
2.2. FACILITY FEE. The Parent agrees to pay to the Agent for the
accounts of the Banks in accordance with their respective Commitment Percentages
a facility fee calculated at the rate of the Applicable Facility Fee Rate per
annum on the average daily amount during each calendar quarter or portion
thereof from the Closing Date to the Maturity Date of the Total Commitment. The
facility fee shall be payable quarterly in arrears on the first day of each
calendar quarter for the immediately preceding calendar quarter commencing on
the first such date following the date hereof, with a final payment on the
Maturity Date or any earlier date on which the Commitments shall terminate.
2.3. REDUCTION OF TOTAL COMMITMENT. (a) The Parent shall have the right
at any time and from time to time upon seven (7) Business Days prior written
notice to the Agent to reduce by $10,000,000 or an integral multiple of
$5,000,000 in excess thereof or terminate entirely the Total Commitment,
whereupon the Commitments of the Banks shall be reduced PRO RATA in accordance
with their respective Commitment Percentages of the amount specified in such
notice or, as the case may be, terminated. Promptly after receiving any notice
of the Parent delivered pursuant to this ss.2.3, the Agent will notify the Banks
of the substance thereof. Upon the effective date of any such reduction or
termination, the Borrowers shall pay to the Agent for the respective accounts of
the Banks the full amount of any facility fee then accrued on the amount of the
reduction. No reduction or termination of the Commitments may be reinstated.
(b) The principal amount available to the Borrowers in Optional
Currencies pursuant to ss.2.9 hereof shall be reduced PRO RATA in accordance
with the Banks' respective Commitment Percentages by the amount by which the
Total Commitment is reduced in accordance with ss.2.3(a).
2.4. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans shall be
evidenced by a separate amended and restated promissory note of the applicable
Borrower in substantially the form of EXHIBIT A hereto (each a "Revolving Credit
Note"), dated as of the Closing Date and completed with appropriate insertions.
Each Revolving Credit Note shall be payable to the order of the Agent for the
respective accounts of the Banks in a principal amount equal to the Total
Commitment or, if less, the outstanding amount of all Revolving Credit Loans
made by all the Banks, plus interest accrued thereon, as set forth below. Each
Borrower irrevocably authorizes the Agent to make or cause to be made, at or
about the time of the Drawdown Date of any Revolving Credit Loan or at the time
of receipt of any payment of principal on the Revolving Credit Note, an
appropriate notation on the Revolving Credit Note Record reflecting the making
of such Revolving Credit Loan or (as the case may be) the receipt of such
payment. The outstanding amount of the Revolving Credit Loans set forth on each
Revolving Credit Note Record shall be PRIMA FACIE evidence of the principal
amount thereof owing and unpaid to the Agent for the accounts of the Banks, but
the failure to record, or any error in so recording, any such amount on any
Revolving Credit Note Record shall not limit or otherwise affect the obligations
of each of the Borrowers hereunder or under any Revolving Credit Note to make
payments of principal of or interest on any Revolving Credit Note when due. At
the request of any Bank, the applicable Borrower shall execute and deliver to
such requesting Bank a Revolving Credit Note made payable to such Bank in a
principal amount equal to such Bank's Commitment Percentage of the Revolving
Credit Loans, or, if less, the outstanding amount of all Revolving Credit Loans
made by such Bank, plus interest accrued thereon, as set forth below, and the
Borrower shall execute and deliver to the Agent for the respective accounts of
the Banks which do not hold their own Revolving Credit Note, an amended and
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<PAGE> 25
restated Revolving Credit Note in a principal amount equal to the Total
Commitment less the Commitment amount of any Banks which hold their own
Revolving Credit Notes, or, if less, the outstanding amount of all Revolving
Credit Loans made by all such Banks plus interest accrued thereon, as set forth
below. Upon receipt of a duly executed and delivered replacement Revolving
Credit Note, the Agent shall return to the Borrower the Revolving Credit Note
which has been superseded.
2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as otherwise provided
in ss.7.11,
(a) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the Base Rate.
(b) Each Eurocurrency Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last
day of the Interest Period with respect thereto at the rate of the
Applicable Eurocurrency Rate determined for such Interest Period.
(c) Each of the Borrowers promises to pay interest on each
Revolving Credit Loan made to such Borrower in arrears on each Interest
Payment Date with respect thereto.
2.6. REQUESTS FOR REVOLVING CREDIT LOANS. Any Borrower shall give to
the Agent, and in the event such Borrower is a Foreign Borrower requesting an
Optional Currency, to the Nassau Branch with a copy to the Agent, written notice
in the form of EXHIBIT B hereto (or telephonic notice confirmed in a writing in
the form of EXHIBIT B hereto) of each Revolving Credit Loan requested by such
Borrower hereunder (a "Loan Request") (a) by 11:00 a.m. (Boston time) on the
proposed Drawdown Date of any Base Rate Loan and (b) no less than three (3)
Business Days prior to the proposed Drawdown Date of any Eurocurrency Rate Loan;
PROVIDED that any such notice requesting an Optional Currency must comply with
the requirements of this ss.2.6 and the requirements of an OC Notice pursuant to
ss.2.9.1. Each such notice shall specify (a) the principal amount of the
Revolving Credit Loan requested, stated either in Dollars, or, subject to
ss.2.9, in an Optional Currency; (b) the proposed Drawdown Date of such
Revolving Credit Loan, (c) the initial Interest Period for such Revolving Credit
Loan; (d) the Type of such Revolving Credit Loan; PROVIDED, HOWEVER, that the
Foreign Borrowers shall only be permitted to select Eurocurrency Rate Loans; (e)
the Borrower's account to which payment of the proceeds of such Revolving Credit
Loan is to be made and (f) a representation that each of the representations and
warranties set forth in ss.8 hereof shall be deemed to be true at the time of
the borrowing (subject to the limitations in ss.13.1 hereof). Promptly upon
receipt of any such notice, the Agent shall notify each of the Banks thereof.
Each Loan Request shall be irrevocable and binding on such Borrower and shall
obligate such Borrower to accept the Revolving Credit Loan requested from the
Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum
aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof (or the Dollar equivalent if such request is for an Optional Currency).
2.7. CONVERSION OPTIONS.
2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT LOAN.
Any Domestic Borrower may elect from time to time to convert any
outstanding Revolving Credit Loan denominated in Dollars to a Revolving
Credit Loan of another Type denominated in Dollars, PROVIDED that (a)
with respect to any such conversion of a Revolving Credit Loan to a
Base Rate Loan, such Borrower shall give the Agent written notice of
such election prior to 11:00 a.m. (Boston time) on the date of such
conversion; (b) with respect to any such conversion
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of a Base Rate Loan to a Eurocurrency Rate Loan, such Borrower shall
give the Agent at least three (3) Business Days prior written notice of
such election; (c) with respect to any such conversion of a
Eurocurrency Rate Loan into a Revolving Credit Loan of another Type,
such conversion shall only be made on the last day of the Interest
Period with respect thereto and (d) no Base Rate Loan may be converted
into a Eurocurrency Rate Loan when any Default or Event of Default has
occurred and is continuing. On the date on which such conversion is
being made each Bank shall take such action as is necessary to transfer
its Commitment Percentage of such Revolving Credit Loans to its
Domestic Lending Office or its Eurocurrency Lending Office, as the case
may be. All or any part of outstanding Revolving Credit Loans
denominated in Dollars of any Type may be converted into a Revolving
Credit Loan of another Type as provided herein, PROVIDED that any
partial conversion shall be in an aggregate principal amount of
$1,000,000 or a whole multiple thereof. Each Conversion Request
relating to the conversion of a Revolving Credit Loan to a Eurocurrency
Rate Loan shall be irrevocable by a Borrower.
2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any
Revolving Credit Loan of any Type may be continued as a Revolving
Credit Loan of the same Type upon the expiration of an Interest Period
with respect thereto by compliance by a Borrower with the notice
provisions contained in ss.2.7.1; provided that (a) as to Eurocurrency
Rate Loans denominated in Dollars, no such Eurocurrency Rate Loan may
be continued as such when any Default or Event of Default has occurred
and is continuing, but shall be automatically converted to a Base Rate
Loan on the last day of the first Interest Period relating thereto
ending during the continuance of any Default or Event of Default of
which officers of the Agent active upon the Parent's account have
actual knowledge; and (b) as to Eurocurrency Rate Loans denominated in
Optional Currency, no such Eurocurrency Rate Loan may be continued as
such when any Default or Event of Default has occurred or is continuing
or the provisions of ss.2.9 hereof have not or cannot be met at the
time of such continuation, but shall be repaid by the applicable
Borrower on the last day of the Interest Period relating thereto. In
the event that a Borrower fails to provide any such notice with respect
to the continuation of any Eurocurrency Rate Loan as such, then (a) as
to Eurocurrency Rate Loans denominated in Dollars, such Eurocurrency
Rate Loans shall be automatically converted to a Base Rate Loan on the
last day of the first Interest Period relating thereto, and (b) as to
Eurocurrency Rate Advances denominated in an Optional Currency, shall
be repaid on the last day of the Interest Period relating thereto. The
Agent shall notify the Banks promptly when any such automatic
conversion contemplated by this ss.2.7 is scheduled to occur.
2.7.3. EUROCURRENCY RATE LOANS. Any conversion to or from
Eurocurrency Rate Loans shall be in such amounts and be made pursuant
to such elections so that, after giving effect thereto, the aggregate
principal amount of all Eurocurrency Rate Loans having the same
Interest Period shall not be less than $5,000,000 or a whole multiple
of $1,000,000 in excess thereof (or, in the case of Eurocurrency Rate
Loans denominated in an Optional Currency, that whole number which is
nearest to the Dollar equivalent of $5,000,000 or $1,000,000, as the
case may be, rounded to the nearest one thousandth). In no event shall
the Foreign Borrowers have more than five (5) Eurocurrency Rate Loans
outstanding at any one time.
2.8. FUNDS FOR REVOLVING CREDIT LOAN.
2.8.1. FUNDING PROCEDURES. Not later than 1:00 p.m. (Boston
time) on the proposed Drawdown Date of any Revolving Credit Loans
denominated in Dollars, and not later than 1:00 p.m. (in the
jurisdiction for which an Optional Currency is being requested) on the
proposed Drawdown Date of any Revolving Credit Loans denominated in an
Optional Currency, each of the Banks will make available to the Agent,
at the Agent's Head Office, in immediately available funds, the amount
of such Bank's Commitment Percentage of the
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amount of the requested Revolving Credit Loans and, in the case of a
Revolving Credit Loan denominated in an Optional Currency, at the place
specified in the notice delivered by the Borrower pursuant to ss.2.6
and in immediately available funds in the country in which such
Optional Currency is legal tender. Upon receipt from each Bank of such
amount, and upon receipt of the documents required by ss.ss.12 and 13
and the satisfaction of the other conditions set forth therein, to the
extent applicable, the Agent will make available to a Borrower the
aggregate amount of such Revolving Credit Loans made available to the
Agent by the Banks. The failure or refusal of any Bank to make
available to the Agent at the aforesaid time and place on any Drawdown
Date the amount of its Commitment Percentage of the requested Revolving
Credit Loans shall not relieve any other Bank from its several
obligation hereunder to make available to the Agent the amount of such
other Bank's Commitment Percentage of any requested Revolving Credit
Loans.
2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to
the contrary by any Bank prior to a Drawdown Date, assume that such
Bank has made available to the Agent on such Drawdown Date the amount
of such Bank's Commitment Percentage of the Revolving Credit Loans to
be made on such Drawdown Date, and the Agent may (but it shall not be
required to), in reliance upon such assumption, make available to a
Borrower a corresponding amount. If any Bank makes available to the
Agent such amount on a date after such Drawdown Date, such Bank shall
pay to the Agent on demand an amount equal to the product of (a) the
average computed for the period referred to in clause (c) below, of the
weighted average interest rate paid by the Agent for federal funds
acquired by the Agent during each day included in such period, TIMES
(b) the amount of such Bank's Commitment Percentage of such Revolving
Credit Loans, TIMES (c) a fraction, the numerator of which is the
number of days that elapse from and including such Drawdown Date to the
date on which the amount of such Bank's Commitment Percentage of such
Revolving Credit Loans shall become immediately available to the Agent,
and the denominator of which is 365. A statement of the Agent submitted
to such Bank with respect to any amounts owing under this paragraph
shall be PRIMA FACIE evidence of the amount due and owing to the Agent
by such Bank. If the amount of such Bank's Commitment Percentage of
such Revolving Credit Loans is not made available to the Agent by such
Bank within three (3) Business Days following such Drawdown Date, the
Agent shall be entitled to recover such amount from such Borrower
within three (3) Business Days of noticing the Borrower that it is
required to repay such amounts, with interest thereon at the rate per
annum applicable to the Revolving Credit Loans made on such Drawdown
Date PROVIDED that any such payment by the Borrower hereunder shall be
without prejudice to any rights that the Borrower may have against the
Bank which did not fund its Commitment Percentage of the requested
Revolving Credit Loan. In the event any Bank fails to make such Bank's
Commitment Percentage of such Revolving Credit Loan available to the
Agent within one (1) Business Day following the Drawdown Date, the
Agent will endeavor to provide to the Borrower notice of such failure,
PROVIDED, a failure by the Agent to so provide such notice shall not
affect the Agent's rights under this ss.2.8.2.
2.9. OPTIONAL CURRENCIES.
2.9.1. REQUEST FOR OPTIONAL CURRENCY. Subject to the
limitations set forth in ss.2.1.1., any Borrower may, upon at least
three (3) Business Days' notice to the Agent (an "OC Notice"), request
that one or more Revolving Credit Loans be made as Eurocurrency Rate
Loans in an Optional Currency, PROVIDED that (a) any Revolving Credit
Loan proposed to be made under this ss.2.9.1 shall be in an amount not
less than $5,000,000, or a greater amount which is an integral multiple
of $1,000,000, or the equivalent in an Optional Currency and (b) the
aggregate principal amount outstanding at any one time of Revolving
Credit Loans denominated in Optional Currencies shall not exceed the
equivalent of
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<PAGE> 28
$100,000,000, subject to reduction in accordance with ss.2.2(b) hereof.
Each OC Notice requesting a Revolving Credit Loan in an Optional
Currency shall be by telephone, telex, telecopy or cable (in each case
confirmed in writing by the Borrower), specifying (a) the Revolving
Credit Loan to be made, (b) the requested date of the proposed
borrowing, (c) the requested currency in which the Revolving Credit
Loan is to be made, (d) the initial Interest Period for the Revolving
Credit Loan to be borrowed, and (e) the Borrower's account with the
Agent, or, in the case of an Optional Currency which is the legal
tender of a country in which the Agent has no office, with another
depository specified by the Borrower in such country, to which payment
of the proceeds of such Revolving Credit Loan is to be made. If any
Bank has provided notice to the Parent and the Agent prior to the
Closing Date of its election not to fund in any Optional Currencies
until further notice, or if any Bank, on or prior to the second
Business Day preceding the first day of any Interest Period for which
an OC Notice has been delivered requesting a Revolving Credit Loan in
an Optional Currency or on any funding date, any Bank determines (which
determination shall be conclusive) that the Optional Currency is not
freely transferable and convertible into Dollars or that it will be
impracticable for such Bank to fund the Revolving Credit Loan in such
Optional Currency, then such Bank shall so notify Agent, which
notification shall be given immediately by the Agent to the Borrower,
and (a) as to any Foreign Borrower, such Bank's portion of the
requested Revolving Credit Loan shall be denominated in Dollars as a
Eurocurrency Rate Loan; and (b) as to any Domestic Borrower, such
Bank's portion of the requested Revolving Credit Loan shall,
notwithstanding any contrary election by such Domestic Borrower or any
other provisions hereof, be denominated in Dollars as a Base Rate Loan
unless the Domestic Borrower, on the second Business Day prior to the
commencement of the Interest Period and pursuant to the terms of ss.2.6
hereof elects to have such Revolving Credit Loan denominated in Dollars
as a Eurocurrency Rate Loan. In the event that the Borrower repays such
portion of a Revolving Credit Loan denominated in Dollars as a Base
Rate Loan or a Eurocurrency Rate Loan, as the case may be, in
accordance with ss.3.3 hereof and such repayment results in Revolving
Credit Loans outstanding that are not PRO RATA in accordance with the
Commitment Percentages, then all subsequent principal repayments
denominated in the Optional Currency which the applicable Bank did not
advance shall be made by the Borrower to the Agent for the respective
accounts of such Banks other than such Bank on a PRO RATA basis until
such time as the Revolving Credit Loans are outstanding on a PRO RATA
basis. Subject to the foregoing and to the satisfaction of the terms
and conditions of ss.ss.12 and 13, each Revolving Credit Loan requested
to be made in an Optional Currency will be made on the date specified
therefor in the OC Notice, in the currency requested in the OC Notice
and, upon being so made, will have the Interest Period requested in the
OC Notice.
2.9.2. EXCHANGE RATE. For purposes of this Credit Agreement
the amount in one currency which shall be equivalent on any particular
date to a specified amount in another currency shall be that amount (as
conclusively ascertained by the Agent by its normal banking practices,
absent manifest error) in the first currency which is or could be
purchased by the Agent (in accordance with normal banking practices)
with such specified amount in the second currency in any recognized
Eurocurrency Interbank Market selected by the Agent in good faith for
delivery on such date at the spot rate of exchange prevailing at 10:00
A.M. (Boston time) (or as soon thereafter as practicable) on such date
(such amount described in this ss.2.9.2, the "Rate of Exchange").
2.9.3. MULTIPLE DENOMINATIONS. In the event that any portion
of the funds available under the terms of this Credit Agreement is
denominated in one or more Optional Currencies, the Dollar equivalent
of such portion of the funds shall be calculated pursuant to ss.2.9.2
above. The amount so determined shall then be added to the amount
already outstanding in Dollars for the purpose of determining the
remaining availability of funds under ss.2.1 and ss.2.9.1 hereof and
any required repayments under the following ss.2.9.4.
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2.9.4. REPAYMENT. If at any time prior to the Maturity Date,
the Dollar equivalent of the aggregate principal amount outstanding of
(a) all Loans, Unpaid Reimbursement Obligations and the Maximum Drawing
Amount hereunder shall exceed the Total Commitment or (b) all Revolving
Credit Loans designated in an Optional Currency shall exceed
$100,000,000, in either case as a result of fluctuations in respective
conversion rates by more than five percent (5%) of the Total Commitment
or $100,000,000 as the case may be, for three (3) or more consecutive
Business Days, the Borrowers shall pay or cause to be paid immediately,
upon demand made by the Agent, such amounts as are sufficient to
eliminate such excess and to reduce the aggregate principal amount
outstanding to the Dollar equivalent of the Total Commitment or
$100,000,000, as the case may be. In the event there are any Revolving
Credit Loans outstanding which are denominated in an Optional Currency,
the Agent shall provide the Banks and the Borrowers with calculations
on the last day of each calendar month that such Loans are outstanding
as to the Dollar Equivalents of such Loans.
2.9.5. FUNDING. Each Bank may make any Eurocurrency Rate Loan
denominated in an Optional Currency by causing any of its foreign
branches or foreign affiliates to make such Eurocurrency Rate Loan
(whether or not such branch or affiliate is named as a lending office
on the signature pages hereof); PROVIDED that in such event the
obligation of any Borrower to repay such Eurocurrency Rate Loan shall
nevertheless be to such Bank and shall, for all purposes of this Credit
Agreement (including without limitation for purposes of the definition
of the term "Majority Banks") be deemed made by such Bank, to the
extent of such Eurocurrency Rate Loan, for the account of such branch
or affiliate.
2.10. TERMINATION OF TOTAL COMMITMENT; CHANGE IN CONTROL. The Parent
shall give written notice to the Agent of the occurrence of any Change in
Control promptly after the senior management of the Parent obtains knowledge
thereof, and shall offer to terminate the Commitments of all of the Banks on a
date specified in such notice, which shall be not less than thirty (30) nor more
than forty-five (45) days after the date of such notice, or such earlier time as
provided for such notice in the change of control provision of any other Debt
instrument or agreement for the securitization or other sale of receivables to
which the Parent or any Subsidiary is a party, but in any event shall not be
later than the Effective Date of the Change in Control. The Agent shall provide
to each Bank a copy of such written notice promptly after its receipt thereof.
Such notice by the Parent also shall specify the date by which each Bank that
wishes to accept such offer must deliver notice to the Parent (with a copy to
the Agent) of such acceptance, which date shall be no earlier than twenty (20)
and no later than ten (10) days prior to the date of the proposed termination,
or such earlier time as provided for such notice in the change of control
provision of any other Debt instrument or agreement for the securitization or
other sale of receivables to which the Parent or any Subsidiary is a party. If
any Bank shall accept such offer, then on the date so specified, or such earlier
time as provided for repayment in the change of control provision of any other
Debt instrument or agreement for the securitization or other sale of receivables
to which the Parent or any Subsidiary is a party, the Commitment of such Bank
shall terminate on the date so specified in the Parent's notice (which date
shall become the Maturity Date for those Banks for all purposes hereunder), any
Loans owing to such Banks (together with accrued interest thereon and all
accrued fees, including, without limitation and fees incurred pursuant to
ss.7.10) then outstanding shall be due and payable on such date, all
Reimbursement Obligations of such Bank and such Bank's Commitment Percentage of
the Maximum Drawing Amount of all issued and outstanding Letters of Credit shall
be cash collaterialized in accordance with ss.5 hereof and the Total Commitment
shall automatically and permanently be reduced by all such amounts.
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2.11. SWING LINE LOANS; SETTLEMENTS.
(a) Solely for ease of administration of the Revolving Credit
Loans, FNBB shall, subject to the terms and conditions contained in
this Credit Agreement (including but not limited to ss.13 hereof) fund
Base Rate Revolving Credit Loans made in accordance with the provisions
of this Credit Agreement ("Swing Line Loans"); PROVIDED, HOWEVER,
notwithstanding anything to the contrary contained in ss.2.6 hereof,
the Borrower shall have until 2:00 p.m. (Boston time) on the proposed
Drawdown Date of the Swing Line Loan to request such Swing Line Loan.
The Swing Line Loans shall be evidenced by a promissory note of the
Borrower requesting such Revolving Credit Loan in substantially the
form of EXHIBIT C hereto (the "Swing Line Note"). Each Bank shall
remain severally and unconditionally liable to fund its PRO RATA share
(based upon each Bank's Commitment Percentage) of such Swing Line Loans
on each Swing Line Settlement Date and, in the event FNBB chooses not
to fund all Base Rate Revolving Credit Loans requested on any date, to
fund its Commitment Percentage of the Base Rate Revolving Credit Loans,
as the case may be, requested, subject to satisfaction of the
provisions hereof relating to the making of Base Rate Revolving Credit
Loans. Prior to each Swing Line Settlement, all payments or repayments
of the principal and interest on Swing Line Loans shall be credited to
the account of FNBB. The aggregate outstanding amount of Swing Line
Loans advanced by FNBB hereunder shall not exceed $10,000,000, and
there shall not be more than six (6) Swing Line Loans outstanding at
any one time.
(b) The Banks shall effect Swing Line Settlements on (i) the
Business Day immediately following any day which FNBB gives written
notice to the Agent to effect a Swing Line Settlement, (ii) the
Business Day immediately following the Agent's becoming aware of the
existence of any Default or Event of Default, (iii) the Maturity Date
and (iv) the Business Day immediately following any day on which the
outstanding amount of Swing Line Loans advanced by FNBB exceeds
$10,000,000 (each such date, a "Swing Line Settlement Date"). One (1)
Business Day prior to each such Swing Line Settlement Date, the Agent
shall give telephonic notice to the Banks of (A) the respective
outstanding amount of Revolving Credit Loans made by each Bank as at
the close of business on the prior day, (B) the amount that any Bank,
as applicable (the "Swing Line Settling Bank"), shall pay to effect a
Swing Line Settlement (the "Swing Line Settlement Amount") and (C) the
portion (if any) of the aggregate Swing Line Settlement Amount to be
paid to each Bank. A statement of the Agent submitted to the Banks with
respect to any amounts owing hereunder shall be PRIMA FACIE evidence of
the amount due and owing. Each Swing Line Settling Bank shall, not
later than 1:00 p.m. (Boston time) on each Swing Line Settlement Date,
effect a wire transfer of immediately available funds to the Agent at
the Agent's Head Office in the amount of such Bank's Swing Line
Settlement Amount. The Agent shall, as promptly as practicable during
normal business hours on each Swing Line Settlement Date, effect a wire
transfer of immediately available funds to FNBB of the Swing Line
Settlement Amount to be paid to FNBB. All funds advanced by any Bank as
a Swing Line Settling Bank pursuant to this ss.2.11(b) shall for all
purposes be treated as a Base Rate Revolving Credit Loan made by such
Swing Line Settling Bank to a Borrower, and all funds received by any
Bank pursuant to this ss.2.11(b) shall for all purposes be treated as
repayment of amounts owed by the Borrower with respect to Base Rate
Loans made by such Bank.
(c) The Agent may (unless notified to the contrary by any
Swing Line Settling Bank by 12:00 noon (Boston time) one (1) Business
Day prior to the Settlement Date) assume that each Swing Line Settling
Bank has made available (or will make available by the time specified
in ss.2.11(b)) to the Agent its Swing Line Settlement Amount, and the
Agent may (but shall not be required to), in reliance upon such
assumption, make available to FNBB the aggregate Swing Line Settlement
Amount. If the Swing Line Settlement Amount of such Swing Line Settling
Bank is made available to the Agent by such Swing
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Line Settling Bank on a date after such Swing Line Settlement Date,
such Swing Line Settling Bank shall pay the Agent on demand an amount
equal to the product of (i) the average, computed for the period
referred to in clause (iii) below, of the weighted average annual
interest rate paid by the Agent for federal funds acquired by the Agent
during each day included in such period TIMES (ii) the Swing Line
Settlement Amount TIMES (iii) a fraction, the numerator of which is the
number of days that elapse from and including such Swing Line
Settlement Date to but not including the date on which the Swing Line
Settlement Amount shall become immediately available to the Agent, and
the denominator of which is 365 or 366, as the case may be. Upon
payment of such amount the Swing Line Settling Bank shall be deemed to
have delivered its Swing Line Settlement Amount on the Swing Line
Settlement Date and shall become entitled to interest payable by the
Borrowers with respect to such Bank's Swing Line Settlement Amount as
if such share were delivered on the Swing Line Settlement Date. If the
Swing Line Settlement Amount is not in fact made available to the Agent
by the Swing Line Settling Bank within three (3) Business Days of such
Swing Line Settlement Date, the Agent shall be entitled to recover such
amount from the Borrower, with interest thereon at the Base Rate,
provided that any such payment by the Borrower hereunder shall be
without prejudice to any rights that the Borrower may have against the
Swing Line Settling Bank which did not fund its required portion of the
Swing Line Loan. In the event any Swing Line Settling Bank fails to
make such Swing Line Settlement available to the Agent within one (1)
Business Day following the Swing Line Settlement Date, the Agent will
endeavor to provide to the Borrower notice of such failure, PROVIDED, a
failure by the Agent to so provide such notice shall not affect the
Agent's rights under this ss.2.11(c).
(d) After any Swing Line Settlement Date, any payment by the
Borrowers of Swing Line Loans hereunder shall be allocated among the
Banks, in amounts determined so as to provide that after such
application and the related Swing Line Settlement, the outstanding
amount of Revolving Credit Loans of each Bank equals, as nearly as
practicable, such Bank's Commitment Percentage of the aggregate amount
of Revolving Credit Loans.
(e) FNBB will notify the Agent promptly following each advance
of a Swing Line Loan or any repayment with respect thereto.
3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
3.1. MATURITY. Each of the Borrowers promise to pay on the Maturity
Date, and there shall become absolutely due and payable on the Maturity Date,
all of the Revolving Credit Loans made to such Borrower and outstanding on such
date, together with any and all accrued and unpaid interest thereon.
3.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS. If at any time the
sum of the outstanding amount of the Revolving Credit Loans, the Competitive Bid
Loans, the Maximum Drawing Amount and all Unpaid Reimbursement Obligations
exceeds the Total Commitment, then the Borrowers shall immediately pay the
amount of such excess to the Agent for the respective accounts of the Banks for
application: first, to any Unpaid Reimbursement Obligations; second, to the
Revolving Credit Loans; and third, to provide to the Agent cash collateral for
Reimbursement Obligations as contemplated by ss.5.2(b) and (c). Each payment of
any Unpaid Reimbursement Obligations or prepayment of Revolving Credit Loans
shall be allocated among the Banks, in proportion, as nearly as practicable, to
each Reimbursement Obligation or (as the case may be) the respective unpaid
principal amount of each Bank's Revolving Credit Note, with adjustments to the
extent practicable to equalize any prior payments or repayments not exactly in
proportion.
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3.3. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS. Any Borrower shall
have the right, at its election, to repay the outstanding amount of the
Revolving Credit Loans, as a whole or in part, at any time without penalty or
premium, PROVIDED that any full or partial prepayment of the outstanding amount
of any Eurocurrency Rate Loans pursuant to this ss.3.3 may be made only on the
last day of the Interest Period relating thereto or, if made prior to such date,
shall be subject to the provisions of ss.7.10. The Borrower shall give the
Agent, no later than 11:00 a.m., Boston time, on the date of prepayment written
notice of any proposed prepayment pursuant to this ss.3.3 of Base Rate Loans,
and no less than three (3) Business Days notice of any proposed prepayment
pursuant to this ss.3.3 of Eurocurrency Rate Loans, in each case specifying the
proposed date of prepayment of Revolving Credit Loans and the principal amount
to be prepaid. Each such partial prepayment of the Revolving Credit Loans shall
be in an integral multiple of $1,000,000, shall be accompanied by the payment of
accrued interest on the principal prepaid to the date of prepayment and shall be
applied, in the absence of instruction by a Borrower, first to the principal of
Base Rate Loans and then to the principal of Eurocurrency Rate Loans or both, at
the Agent's option. Each partial prepayment shall be allocated among the Banks,
in proportion, as nearly as practicable, to the respective unpaid principal
amount of each Bank's Revolving Credit Commitment, with adjustments to the
extent practicable to equalize any prior repayments not exactly in proportion.
4. COMPETITIVE BID LOANS.
4.1. THE COMPETITIVE BID OPTION. In addition to the Revolving Credit
Loans made pursuant to ss.4 hereof, any Borrower may request Competitive Bid
Loans pursuant to the terms of this ss.4. The Banks may, but shall have no
obligation to, make such offers and the Parent may, but shall have no obligation
to, accept such offers in the manner set forth in this ss.4. Notwithstanding any
other provision herein to the contrary, at no time shall the aggregate principal
amount of Competitive Bid Loans outstanding at any time exceed the lesser of (a)
the Total Commitment MINUS the sum of (i) the aggregate outstanding principal
amount of Revolving Credit Loans (including the Swing Loans), PLUS (ii) the
Maximum Drawing Amount of Letters of Credit and Unpaid Reimbursement Obligations
outstanding at such time, or (b) $100,000,000.
4.2. COMPETITIVE BID LOAN ACCOUNTS: COMPETITIVE BID NOTES.
(a) The obligation of any Borrower to repay the outstanding
principal amount of any and all Competitive Bid Loans, plus interest at
the applicable Competitive Bid Rate accrued thereon, shall be evidenced
by this Credit Agreement and by individual loan accounts (the
"Competitive Bid Loan Accounts" and individually, a "Competitive Bid
Loan Account") maintained by the Agent on its books for each of the
Banks, it being the intention of the parties hereto that, except as
provided for in paragraph (b) of this ss.4.2, the Borrowers'
obligations with respect to Competitive Bid Loans are to be evidenced
only as stated herein and not by separate promissory notes.
(b) Any Bank may at any time, and from time to time, request
that any Competitive Bid Loans outstanding to such Bank be evidenced by
a promissory note of such Borrower in substantially the form of EXHIBIT
D hereto (each, a "Competitive Bid Note"), dated as of the Closing Date
and completed with appropriate insertions. One Competitive Bid Note
shall be payable to the order of each Bank in an amount equal to the
principal amount of the Competitive Bid Loan made by such Bank to such
Borrower, and representing the obligation of the Borrower to pay such
Bank such principal amount or, if less, the outstanding principal
amount of any and all Competitive Bid Loans made by such Bank, plus
interest at the applicable Competitive Bid Rate or the sum of the
Competitive Bid Margin plus the Applicable Eurocurrency Rate accrued
thereon, as set forth herein. Upon execution and delivery by the
Borrower of a Competitive Bid Note, the Borrower's obligation to repay
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any and all Competitive Bid Loans made to it by such Bank and all
interest thereon shall thereafter be evidenced by such Competitive Bid
Note.
(c) Each of the Borrowers irrevocably authorizes (i) each Bank
to make or cause to be made, in connection with a Drawdown Date of any
Competitive Bid Loan or at the time of receipt of any payment of
principal on such Bank's Competitive Bid Note in the case of a
Competitive Bid Note, and (ii) the Agent to make or cause to be made,
in connection with a Drawdown Date of any Competitive Bid Loan or at
the time of receipt of any payment of principal on such Bank's
Competitive Bid Loan Account in the case of a Competitive Bid Loan
Account, an appropriate notation on such Bank's records or on the
schedule attached to such Bank's Competitive Bid Note or a continuation
of such schedule attached thereto, or the Agent's records, as
applicable, reflecting the making of the Competitive Bid Loan or the
receipt of such payment (as the case may be) and may, prior to any
transfer of a Competitive Bid Note, endorse on the reverse side thereof
the outstanding principal amount of Competitive Bid Loans evidenced
thereby. The outstanding amount of the Competitive Bid Loans set forth
on such Bank's record or the Agent's records, as applicable, shall be
PRIMA FACIE evidence of the principal amount thereof owing and unpaid
to such Bank, but the failure to record, or any error in so recording,
any such amount shall not limit or otherwise affect the obligations of
the Borrowers hereunder to make payments of principal of or interest on
any Competitive Bid Loan when due.
4.3. COMPETITIVE BID QUOTE REQUEST; INVITATION FOR COMPETITIVE BID
QUOTES.
(a) When a Borrower wishes to request offers to make
Competitive Bid Loans under this ss.4, it shall transmit to the Agent
by telex or facsimile a Competitive Bid Quote Request substantially in
the form of EXHIBIT E hereto (a "Competitive Bid Quote Request") so as
to be received no later than 11:00 a.m. (Boston time) (i) five (5)
Business Days prior to the requested Drawdown Date in the case of a
Eurocurrency Competitive Bid Loan (a "Eurocurrency Competitive Bid
Loan") or (ii) one (1) Business Day prior to the requested Drawdown
Date in the case of an Absolute Competitive Bid Loan (an "Absolute
Competitive Bid Loan"), specifying:
(A) the requested Drawdown Date (which must be a
Business Day);
(B) the aggregate amount of such Competitive Bid
Loans, which shall be $10,000,000 or larger multiple of
$1,000,000;
(C) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of
Interest Period; and
(D) whether the Competitive Bid Quotes requested are
for Eurocurrency Competitive Bid Loans or Absolute Competitive
Bid Loans.
A Borrower may request offers to make Competitive Bid Loans for more
than one Interest Period in a single Competitive Bid Quote Request. No
new Competitive Bid Quote Request shall be given until a Borrower has
notified the Agent of its acceptance or non-acceptance of the
Competitive Bid Quotes relating to any outstanding Competitive Bid
Quote Request.
(b) Promptly upon receipt of a Competitive Bid Quote Request
and payment by the Borrowers of a $2,000 auction fee to the Agent for
its own account, the Agent shall send to the Banks by telecopy or
facsimile transmission an Invitation for Competitive Bid Quotes
substantially in the form of EXHIBIT F hereto, which shall constitute
an invitation by a Borrower to each Bank to submit Competitive Bid
Quotes in accordance with this ss.4.
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4.4. ALTERNATIVE MANNER OF PROCEDURE. If, after receipt by the Agent
and each of the Banks of a Competitive Bid Quote Request from a Borrower in
accordance with ss.4.3, the Agent or any Bank shall be unable to complete any
procedure of the auction process described in ss.ss.4.5 through 4.6 (inclusive)
due to the inability of such Person to transmit or receive communications
through the means specified therein, such Person may rely on telephonic notice
for the transmission or receipt of such communications. In any case where such
Person shall rely on telephone transmission or receipt, any communication made
by telephone shall, as soon as possible thereafter, be followed by written
confirmation thereof.
4.5. SUBMISSION AND CONTENTS OF COMPETITIVE BID QUOTES.
(a) Each Bank may, but shall be under no obligation to, submit
a Competitive Bid Quote containing an offer or offers to make
Competitive Bid Loans in response to any Competitive Bid Quote Request.
Each Competitive Bid Quote must comply with the requirements of this
ss.4.5 and must be submitted to the Agent by telex or facsimile
transmission at its offices as specified in or pursuant to ss.21 not
later than (i) 2:00 p.m. (Boston time) on the fourth Eurocurrency
Business Day prior to the proposed Drawdown Date, in the case of a
Eurocurrency Competitive Bid Loan or (y) 10:00 a.m. (Boston time) on
the proposed Drawdown Date, in the case of an Absolute Competitive Bid
Loan, PROVIDED that Competitive Bid Quotes may be submitted by the
Agent in its capacity as a Bank only if it submits its Competitive Bid
Quote to a Borrower not later than (ii) one hour prior to the deadline
for the other Banks, in the case of a Eurocurrency Competitive Bid Loan
or (y) 15 minutes prior to the deadline for the other Banks, in the
case of an Absolute Competitive Bid Loan. Subject to the provisions of
ss.ss.12 and 13 hereof, any Competitive Bid Quote so made shall be
irrevocable except with the written consent of the Agent given on the
instructions of a Borrower.
(b) Each Competitive Bid Quote shall be in substantially the
form of EXHIBIT G hereto and shall in any case specify:
(i) the proposed Drawdown Date;
(ii) the principal amount of the Competitive Bid Loan
for which each proposal is being made, which principal amount
(i) may be greater than or less than the Commitment of the
quoting Bank, (ii) must be $5,000,000 or a larger multiple of
$1,000,000, (iii) may not exceed the aggregate principal
amount of Competitive Bid Loans for which offers were
requested and (iv) may be subject to an aggregate limitation
as to the principal amount of Competitive Bid Loans for which
offers being made by such quoting Bank may be accepted;
(iii) the Interest Periods for which Competitive Bid
Quotes are being submitted;
(iv) in the case of a Eurocurrency Competitive Bid
Loan, the margin above or below the applicable Eurocurrency
Rate (the "Competitive Bid Margin") offered for each such
Competitive Bid Loan, expressed as a percentage (specified to
the nearest 1/10,000th of 1%) to be added to or subtracted
from such Eurocurrency Rate;
(v) in the case of an Absolute Competitive Bid Loan,
the rate of interest per annum (specified to the nearest
1/10,000th of 1%) (the "Competitive Bid Rate") offered for
each such Absolute Competitive Bid Loan; and
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(vi) the identity of the quoting Bank.
A Competitive Bid Quote may include up to five (5) separate offers by
the quoting Bank with respect to each Interest Period specified in the
related Invitation for Competitive Bid Quotes.
(c) Any Competitive Bid Quote shall be disregarded if it:
(i) is not substantially in the form of EXHIBIT G
hereto;
(ii) contains qualifying, conditional or similar
language;
(iii) proposes terms other than or in addition to
those set forth in the applicable Invitation for Competitive
Bid Quotes; or
(iv) arrives after the time set forth in ss.4.5(a)
hereof.
4.6. NOTICE TO PARENT. The Agent shall promptly notify the Parent of
the terms (a) of any Competitive Bid Quote submitted by a Bank that is in
accordance with ss.4.5 and (b) of any Competitive Bid Quote that amends,
modifies or is otherwise inconsistent with a previous Competitive Bid Quote
submitted by such Bank with respect to the same Competitive Bid Quote Request.
Any such subsequent Competitive Bid Quote shall be disregarded by the Agent
unless such subsequent Competitive Bid Quote is submitted solely to correct a
manifest error in such former Competitive Bid Quote. The Agent's notice to the
Parent shall specify (i) the aggregate principal amount of Competitive Bid Loans
for which offers have been received for each Interest Period specified in the
related Competitive Bid Quote Request, (ii) the respective principal amounts and
Competitive Bid Margins or Competitive Bid Rates, as the case may be, so
offered, and the identity of the respective Banks submitting such offers, and
(iii) if applicable, limitations on the aggregate principal amount of
Competitive Bid Loans for which offers in any single Competitive Bid Quote may
be accepted.
4.7. ACCEPTANCE AND NOTICE BY PARENT AND AGENT. Not later than 11:00
a.m. (Boston time) on (a) the third Business Day prior to the proposed Drawdown
Date, in the case of a Eurocurrency Competitive Bid Loan or (b) the proposed
Drawdown Date, in the case of an Absolute Competitive Bid Loan, the Borrower
shall notify the Agent of its acceptance or non-acceptance of each Competitive
Bid Quote in substantially the form of EXHIBIT H hereto. The Borrower may accept
any Competitive Bid Quote in whole or in part; provided that:
(i) the aggregate principal amount of each
Competitive Bid Loan may not exceed the applicable amount set
forth in the related Competitive Bid Quote Request;
(ii) acceptance of offers may only be made on the
basis of ascending Competitive Bid Margins or Competitive Bid
Rates, as the case may be, and
(iii) the Borrower may not accept any offer that is
described in subsection 4.5(c) or that otherwise fails to
comply with the requirements of this Credit Agreement.
The Agent shall promptly notify each Bank which submitted a Competitive Bid
Quote of the Parent's acceptance or non-acceptance thereof. At the request of
any Bank which submitted a Competitive Bid Quote and with the consent of the
Parent, the Agent will promptly notify all Banks which submitted Competitive Bid
Quotes of (a) the aggregate principal amount of, and (b) the range of
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Competitive Bid Rates or Competitive Bid Margins of, the accepted Competitive
Bid Loans for each requested Interest Period.
4.8. ALLOCATION BY AGENT. If offers are made by two (2) or more Banks
with the same Competitive Bid Margin or Competitive Bid Rate, as the case may
be, for a greater aggregate principal amount than the amount in respect of which
offers are accepted for the related Interest Period, the principal amount of
Competitive Bid Loans in respect of which such offers are accepted shall be
allocated by the Agent among such Banks as nearly as possible (in such
multiples, not less than $1,000,000, as the Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers. Determination by
the Agent of the amounts of Competitive Bid Loans shall be conclusive in the
absence of manifest error.
4.9. FUNDING OF COMPETITIVE BID LOANS. If, on or prior to the Drawdown
Date of any Competitive Bid Loan, the Total Commitment has not terminated in
full and if, on such Drawdown Date, the applicable conditions of ss.ss.12 and 13
hereof are satisfied, the Bank or Banks whose offers the Parent has accepted
will fund each Competitive Bid Loan so accepted. Such Bank or Banks will make
such Competitive Bid Loans by crediting the Agent for further credit to a
Borrower's specified account with the Agent, in immediately available funds not
later than 1:00 p.m. (Boston time) on such Drawdown Date.
4.10. FUNDING LOSSES. If, after acceptance of any Competitive Bid Quote
pursuant to ss.4, a Borrower (a) fails to borrow any Competitive Bid Loan so
accepted on the date specified therefor, or (b) repays the outstanding amount of
the Competitive Bid Loan prior to the last day of the Interest Period relating
thereto, such Borrower shall indemnify the Bank making such Competitive Bid
Quote or funding such Competitive Bid Loan against any loss or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by such Bank to fund or maintain such unborrowed Loans, including, without
limitation compensation as provided in ss.7.10.
4.11. REPAYMENT OF COMPETITIVE BID LOANS; INTEREST. The principal of
each Competitive Bid Loan shall become absolutely due and payable by the
Borrower requesting such Competitive Bid Loan on the last day of the Interest
Period relating thereto, and such Borrower hereby absolutely and unconditionally
promises to pay to the Agent for the account of the relevant Banks at or before
1:00 p.m. (Boston time) on the last day of the Interest Periods relating thereto
the principal amount of all such Competitive Bid Loans, plus interest thereon at
the applicable Competitive Bid Rates. The Competitive Bid Loans shall bear
interest at the rate per annum specified in the applicable Competitive Bid
Quotes. Interest on the Competitive Bid Loans shall be payable (a) on the last
day of the applicable Interest Periods, and if any such Interest Period is
longer than three months, also on the last day of the third month following the
commencement of such Interest Period, and (b) on the Maturity Date for all
Loans. Subject to the terms of this Credit Agreement, the Borrowers may make
Competitive Bid Quote Requests with respect to new borrowings of any amounts so
repaid prior to the Maturity Date.
4.12. OPTIONAL REPAYMENT OF COMPETITIVE BID LOANS. Any Borrower shall
have the right, at its election, to repay the outstanding amount of any of the
Competitive Bid Loans, as a whole or in part, at any time without penalty or
premium, provided that any full or partial prepayment of the outstanding amount
of any Competitive Bid Loan pursuant to this ss.4.12 may be made only on the
last day of the Interest Period relating thereto, or, if made prior to such
date, shall be made subject to the provisions of ss.4.10 hereof. The Borrower
shall give the Agent, no less than three (3) Business Days notice of any
proposed prepayment pursuant to this ss.4.12, specifying the proposed date of
prepayment of the Competitive Bid Loan and the principal amount to be prepaid.
Each such partial prepayment of any Competitive Bid Loan shall be in an integral
multiple of $1,000,000, and shall be accompanied by the payment of accrued
interest on the principal prepaid to the date of prepayment.
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5. LETTERS OF CREDIT.
5.1. LETTER OF CREDIT COMMITMENTS.
5.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the
terms and conditions hereof (including, without limitation, the
provisions of ss.13 hereof) and the execution and delivery by a
Borrower of a letter of credit application on the Agent's customary
form (a "Letter of Credit Application"), the Agent on behalf of the
Banks and in reliance upon the agreement of the Banks set forth in
ss.5.1.4 and upon the representations and warranties of the Borrower
contained herein, agrees, in its individual capacity, to issue, extend
and renew for the account of a Borrower one or more standby or
documentary letters of credit (individually, a "Letter of Credit"), in
such form as may be requested from time to time by a Borrower and
agreed to by the Agent; PROVIDED, HOWEVER, that, after giving effect to
such request, (a) the sum of the aggregate Maximum Drawing Amount and
all Unpaid Reimbursement Obligations shall not exceed $50,000,000 at
any one time and (b) the sum of (i) the Maximum Drawing Amount on all
Letters of Credit, (ii) all Unpaid Reimbursement Obligations, and (iii)
the amount of all Revolving Credit Loans and Competitive Bid Loans
outstanding shall not exceed the Total Commitment.
5.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit
Application shall be completed to the satisfaction of the Agent. In the
event that any provision of any Letter of Credit Application shall be
inconsistent with any provision of this Credit Agreement, then the
provisions of this Credit Agreement shall, to the extent of any such
inconsistency, govern.
5.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit
issued, extended or renewed hereunder shall, among other things, (a)
provide for the payment of sight drafts for honor thereunder when
presented in accordance with the terms thereof and when accompanied by
the documents described therein, and (b) have an expiry date no later
than the earlier of the first anniversary of the issuance date or the
date which is fourteen (14) days (or, if the Letter of Credit is
confirmed by a confirmer or otherwise provides for one or more
nominated persons, forty-five (45) days) prior to the Maturity Date.
Each Letter of Credit so issued, extended or renewed shall be subject
to the Uniform Customs.
5.1.4. REIMBURSEMENT OBLIGATIONS OF BANKS. Each Bank severally
agrees that it shall be absolutely liable, without regard to the
occurrence of any Default or Event of Default or any other condition
precedent whatsoever, to the extent of such Bank's Commitment
Percentage, to reimburse the Agent on demand for the amount of each
draft paid by the Agent under each Letter of Credit to the extent that
such amount is not reimbursed by a Borrower pursuant to ss.5.2 (such
agreement for a Bank being called herein the "Letter of Credit
Participation" of such Bank).
5.1.5. PARTICIPATIONS OF BANKS. Each such payment made by a
Bank shall be treated as the purchase by such Bank of a participating
interest in the Borrowers' Reimbursement Obligation under ss.5.2 in an
amount equal to such payment. Each Bank shall share in accordance with
its participating interest in any interest which accrues pursuant to
ss.5.2.
5.2. REIMBURSEMENT OBLIGATION OF THE BORROWERS. In order to induce the
Agent to issue, extend and renew each Letter of Credit and the Banks to
participate therein, the Borrower for whose account the Letter of Credit was
issued hereby agrees to reimburse or pay to the Agent, for the
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account of the Agent or (as the case may be) the Banks, with respect to each
Letter of Credit issued, extended or renewed by the Agent for such Borrower's
account hereunder,
(a) except as otherwise expressly provided in ss.5.2(b) and
(c), by not later than the third Business Day following each date that
any draft presented under such Letter of Credit is honored by the
Agent, or the Agent otherwise makes a payment with respect thereto, (i)
the amount paid by the Agent under or with respect to such Letter of
Credit, plus any and all interest accuring on such amounts from the
date of payment by the Agent (with such interest accruing at the Base
Rate), and (ii) the amount of any taxes, fees, charges or other costs
and expenses whatsoever incurred by the Agent or any Bank in connection
with any payment made by the Agent or any Bank under, or with respect
to, such Letter of Credit,
(b) upon the reduction (but not termination) of the Total
Commitment to an amount less than the Maximum Drawing Amount, an amount
equal to such difference, which amount shall be held by the Agent for
the benefit of the Banks and the Agent as cash collateral for all
Reimbursement Obligations, and
(c) upon the termination of the Total Commitment, or the
acceleration of the Reimbursement Obligations with respect to all
Letters of Credit in accordance with ss.14, an amount equal to the then
Maximum Drawing Amount on all Letters of Credit, which amount shall be
held by the Agent for the benefit of the Banks and the Agent as cash
collateral for all Reimbursement Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
a Borrower under this ss.5.2 at any time from the date such amounts become due
and payable (whether as stated in this ss.5.2, by acceleration or otherwise)
until payment in full (whether before or after judgment) shall be payable to the
Agent on demand at the rate specified in ss.7.11 for overdue principal on the
Loans.
5.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or
other demand for payment shall be made under any Letter of Credit, the Agent
shall notify the Parent of the date and amount of the draft presented or demand
for payment and of the date and time when it expects to pay such draft or honor
such demand for payment. If the applicable Borrower fails to reimburse the Agent
as provided in ss.5.2 on or before the date that such draft is paid or other
payment is made by the Agent, the Agent may at any time thereafter notify the
Banks of the amount of any such Unpaid Reimbursement Obligation. No later than
1:00 p.m. (Boston time) on the Business Day next following the receipt of such
notice, each Bank shall make available to the Agent, at its Head Office, in
immediately available funds, such Bank's Commitment Percentage of such Unpaid
Reimbursement Obligation, together with an amount equal to the product of (a)
the average, computed for the period referred to in clause (c) below, of the
weighted average interest rate paid by the Agent for federal funds acquired by
the Agent during each day included in such period, TIMES (b) the amount equal to
such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation, TIMES
(c) a fraction, the numerator of which is the number of days that elapse from
and including the date the Agent paid the draft presented for honor or otherwise
made payment to the date on which such Bank's Commitment Percentage of such
Unpaid Reimbursement obligation shall become immediately available to the Agent,
and the denominator of which is 360. The responsibility of the Agent to the
Borrowers and the Banks shall be only to determine that the documents (including
each draft) delivered under each Letter of Credit in connection with such
presentment shall be in conformity in all material respects with such Letter of
Credit.
5.4. OBLIGATIONS ABSOLUTE. The Borrowers' obligations under this ss.5
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to
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payment which a Borrower may have or have had against the Agent, any Bank or any
beneficiary of a Letter of Credit. The Borrowers further agree with the Agent
and the Banks that the Agent and the Banks shall not be responsible for, and the
Borrowers' Reimbursement Obligations under ss.5.2 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, or any dispute between or among a
Borrower, the beneficiary of any Letter of Credit or any financing institution
or other party to which any Letter of Credit may be transferred or any claims or
defenses whatsoever of a Borrower against the beneficiary of any Letter of
Credit or any such transferee (unless any of the foregoing is as a result of the
Agent's gross negligence or willful misconduct). The Agent and the Banks shall
not be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit except for any error arising out of the
Agent's or any Bank's gross negligence or willful misconduct. The Borrowers
agree that any action taken or omitted by the Agent or any Bank under or in
connection with each Letter of Credit and the related drafts and documents, if
done in good faith, shall be binding upon the Borrowers and shall not result in
any liability on the part of the Agent or any Bank to the Borrowers.
5.5. RELIANCE BY ISSUER. To the extent not inconsistent with ss.5.4,
the Agent shall be entitled to rely, and shall be fully protected in relying
upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent.. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement in
accordance with a request of the Majority Banks, and such request and any action
taken or failure to act pursuant thereto shall be binding upon the Banks and all
future holders of the Revolving Credit Notes or of a Letter of Credit
Participation.
5.6. LETTER OF CREDIT FEE. The Borrower requesting the Letter of Credit
shall, on the date of issuance or any extension or renewal of any Letter of
Credit and at such other time or times as such charges are customarily made by
the Agent or as specified below, pay a fee (in each case, a "Letter of Credit
Fee") to the Agent (a) in respect of each standby Letter of Credit, calculated
at a per annum rate equal to the sum of 0.125% PLUS the Applicable L/C Rate in
effect from time to time, payable quarterly in arrears on the first day
following each calendar quarter thereafter PLUS the Agent's customary issuance
fee, and (b) in respect of each documentary Letter of Credit, as the case may
be, equal to (i) the Agent's customary issuance fee or amendment fee, as the
case may be, PLUS (ii) the Agent's customary time negotiation fee per document
examination (iii) PLUS an amount calculated at a per annum rate equal to the sum
of 0.125% PLUS the Applicable L/C Rate in effect from time to time, payable
quarterly in arrears on the first day after each calendar quarter thereafter,
PLUS (iv) a negotiation fee, such Letter of Credit Fee calculated based on the
Applicable L/C Rate (but not such 0.125% fee or issuance, amendment, negotiation
or document examination fee, which shall be for the account of the Agent) to be
for the accounts of the Banks in accordance with their respective Commitment
Percentages.
6. GUARANTY.
6.1. GUARANTY. For value received and hereby acknowledged and as an
inducement to the Banks and the Agent to make the Loans and Letters of Credit
available to the Borrowers, the Parent hereby unconditionally and irrevocably
guarantees (a) the full punctual payment when due, whether at stated maturity,
by acceleration or otherwise, of all Obligations of the Borrowers (other than
the Parent) now or hereafter existing whether for principal, interest, fees,
expenses or otherwise, and (b) the strict performance and observance by the
Borrowers of all agreements, warranties and covenants applicable to the
Borrowers in the Loan Documents and (c) the obligations of the Borrowers under
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the Loan Documents (such Obligations collectively being hereafter referred to as
the "Guaranteed Obligations").
6.2. GUARANTY ABSOLUTE. The Parent guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms hereof,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Bank with respect
thereto. The liability of the Parent under this guaranty with regard to the
Guaranteed Obligations of each of the Borrowers (other than the Parent) shall be
absolute and unconditional irrespective of:
(a) any Borrower's lack of authorization, execution, validity
or enforceability or any illegality of such Borrower's election to
become a Borrower, this Credit Agreement and any amendment hereof (with
regard to such Guaranteed Obligations), or any other obligation,
agreement or instrument relating thereto (it being agreed by the Parent
that the Guaranteed Obligations shall not be discharged prior to the
final and complete satisfaction of all of the Obligations of the
Borrowers) or any failure to obtain any necessary governmental consent
or approvals or necessary third party consents or approvals;
(b) the Agent's or any Bank's exercise or enforcement of, or
failure or delay in exercising or enforcing, legal proceedings to
collect the Obligations or the Guaranteed Obligations or any power,
right or remedy with respect to any of the Obligations or the
Guaranteed Obligations, including (i) any suspension of the Agent or
any Bank's right to enforce against any other Borrower of the
Guaranteed Obligations, or (ii) any change in the time, manner or place
of payment of, or in any other term of, all or any of the Guaranteed
Obligations of such Borrower or any other amendment or waiver of or any
consent to departure from this Credit Agreement or the other Loan
Documents (with regard to such Guaranteed Obligations) or any other
agreement or instrument governing or evidencing any of the Guaranteed
Obligations;
(c) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from
any other guaranty, for all or any of the Guaranteed Obligations of
such Borrower;
(d) any change in ownership of such Borrower;
(e) any acceptance of any partial payment(s) from such
Borrower;
(f) any insolvency, bankruptcy, reorganization, arrangement,
adjustment, composition, assignment for the benefit of creditors,
appointment of a receiver or trustee for all or any part of any
Borrower's assets;
(g) any assignment, participation or other transfer, in whole
or in part, of the Agent's or any Bank's interest in and rights under
this Credit Agreement or any other Loan Document, or of the Agent or
any Bank's interest in the obligations or the Guaranteed Obligations;
(h) any cancellation, renunciation or surrender of any pledge,
guaranty or any debt instrument evidencing the Obligations or the
Guaranteed Obligations;
(i) the Agent's or any Bank's vote, claim, distribution,
election, acceptance, action or inaction in any bankruptcy or
reorganization case related to the Obligations or the Guaranteed
Obligations; or
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(j) any other action or circumstance, other than payment,
which might otherwise constitute a defense available to, or a discharge
of, such Borrower or the Guarantor in respect of its Guaranteed
Obligations (other than the defense of payment in full in cash).
This guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any Guaranteed Obligation is
rescinded or must otherwise be returned by the Agent or any Bank upon the
insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as
though such payment had not been made.
6.3. EFFECTIVENESS; ENFORCEMENT. The guaranty hereunder shall be
effective and shall be deemed to be made with respect to each Loan made and each
Letter of Credit issued as of the time it is made, issued or accepted, as
applicable. No invalidity, irregularity or unenforceability by reason of any
bankruptcy or similar law, or any law or order of any government or agency
thereof purporting to reduce, amend or otherwise affect any liability of any
Borrower, and no defect in or insufficiency or want of powers of any Borrower or
irregular or improperly recorded exercise thereof, shall impair, affect, be a
defense to or claim against such guaranty. The guaranty hereunder is a
continuing guaranty and shall (a) survive any termination of this Credit
Agreement, and (b) remain in full force and effect until payment in full of, and
performance of, all Guaranteed Obligations and all other amounts payable under
the guaranty hereunder. The guaranty under this Credit Agreement is made for the
benefit of the Agent and the Banks and their successors and assigns, and may be
enforced from time to time as often as occasion therefor may arise and without
requirement on the part of the Agent or the Banks first to exercise any rights
against the Borrowers, or to resort to any other source or means of obtaining
payment of any of the said obligations or to elect any other remedy.
6.4. WAIVER. The Parent hereby waives promptness, diligence, protest,
notice of protest, all suretyship defenses, notice of acceptance and any other
notice with respect to any of the Guaranteed Obligations and the guaranty under
and any requirement that the Banks or the Agent protect, secure, perfect any
security interest or lien or any property subject thereto or exhaust any right
or take any action against the Borrowers, or any other Person. The Parent also
irrevocably waives, to the fullest extent permitted by law, all defenses which
at any time may be available to it in respect of the Guaranteed Obligations by
virtue of any statute of limitations, valuation, stay, moratorium law or other
similar law now or hereafter in effect (other than the defense of payment in
full in cash).
6.5. CONCERNING JOINT AND SEVERAL LIABILITY OF THE PARENT.
(a) The Parent hereby irrevocably and unconditionally accepts,
not merely as a surety but also as a co-debtor, joint and several
liability with the applicable Borrower, with respect to the payment and
performance of all of the Guaranteed Obligations, it being the
intention of the parties hereto that all such Guaranteed Obligations
shall be the joint and several Guaranteed Obligations of such Parent
and the applicable Borrowers without preferences or distinction among
them.
(b) If and to the extent that the applicable Borrowers shall
fail to make any payment with respect to any of its Guaranteed
Obligations as and when due or to perform any of the Guaranteed
Obligations in accordance with the terms thereof, then in each such
event the Parent will make such payment with respect to, or perform,
such Guaranteed Obligation.
(c) The Guaranteed Obligations of the Parent under the
provisions of this ss.6 constitute full recourse obligations of the
Parent enforceable against the Parent to the full
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extent of its properties and assets, irrespective of the validity,
regularity or enforceability of this Credit Agreement or any other
circumstance whatsoever.
(d) The Parent hereby waives notice of acceptance of its joint
and several liability, notice of any Loans made or Letters of Credit
issued under this Credit Agreement, notice of any action at any time
taken or omitted by the Agent or the Banks under or in respect of any
of the Guaranteed Obligations, and, generally, to the extent permitted
by applicable law, all demands, notices and other formalities of every
kind in connection with this Credit Agreement. The Parent hereby
assents to, and waives notice of, any extension or postponement of the
time for the payment of any of the Guaranteed Obligations, the
acceptance of any payment of any of the Guaranteed Obligations, the
acceptance of any partial payment thereon, any waiver, consent or other
action or acquiescence by the Agent or the Banks at any time or times
in respect of any Default or Event of Default by any of the Borrowers
or the Parent in the performance or satisfaction of any term, covenant,
condition or provision of this Credit Agreement, any and all other
indulgences whatsoever by the Agent or the Banks in respect of any of
the Guaranteed Obligations, and the taking, addition, substitution or
release, in whole or in part, at any time or times, of any security for
any of the Guaranteed Obligations or the addition, substitution or
release, in whole or in part, of any of the Borrowers or any other
guarantor. Without limiting the generality of the foregoing, the Parent
assents to any other action or delay in acting or failure to act on the
part of the Banks or the Agent with respect to the failure by any of
the Borrowers or the other guarantor to comply with its respective
Obligations or guaranty, including, without limitation, any failure
strictly or diligently to assert any right or to pursue any remedy or
to comply fully with applicable laws or regulations thereunder, which
might, but for the provisions of this ss.6, afford grounds for
terminating, discharging or relieving the Parent, in whole or in part,
from any of the Guaranteed Obligations under this ss.6, it being the
intention of the Parent that, so long as any of the Guaranteed
Obligations hereunder remain unsatisfied, the Guaranteed Obligations of
the Parent under this ss.6 shall not be discharged except by
performance and then only to the extent of such performance. The
Guaranteed Obligations of the Parent under this ss.6 shall not be
diminished or rendered unenforceable by any winding up, reorganization,
arrangement, liquidation, reconstruction or similar proceeding with
respect to any of the Borrowers or the Parent or the Banks or the
Agent. The joint and several liability of the Parent hereunder shall
continue in full force and effect notwithstanding any absorption,
merger, consolidation, amalgamation or any other change whatsoever in
the name, membership, constitution or place of formation of the
Borrowers or the Parent, the Banks or the Agent.
(e) The provisions of this ss.6 are made for the benefit of
the Agent and the Banks and their successors and assigns, and may be
enforced in good faith by them from time to time against the Parent as
often as occasion therefor may arise and without requirement on the
part of the Agent or the Banks first to marshal any of their claims or
to exercise any of their rights against the Borrowers or any other
guarantor or to exhaust any remedies available to them against the
Borrowers or any other Parent or to resort to any other source or means
of obtaining payment of any of the obligations hereunder or to elect
any other remedy. The provisions of this ss.6 shall remain in effect
until all of the Guaranteed Obligations shall have been paid in full or
otherwise fully satisfied and the Commitments have expired and all
outstanding Letters of Credit have expired, matured or otherwise been
terminated. If at any time, any payment, or any part thereof, made in
respect of any of the Guaranteed Obligations, is rescinded or must
otherwise be restored or returned by the Banks or the Agent upon the
insolvency, bankruptcy or reorganization of any of the Borrowers or the
Parent, or otherwise, the provisions of this ss.6 will forthwith be
reinstated in effect, as though such payment had not been made.
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6.6. WAIVER. Until the final payment and performance in full of all of
the Obligations, the Parent shall not exercise and hereby waives any rights the
Parent may have against the Borrowers arising as a result of payment by the
Parent hereunder, by way of subrogation, reimbursement, restitution,
contribution or otherwise, and will not prove any claim in competition with the
Agent or any Bank in respect of any payment hereunder in any bankruptcy,
insolvency or reorganization case or proceedings of any nature; the Parent will
not claim any setoff, recoupment or counterclaim against the Borrowers in
respect of any liability of any Borrower to the Parent; and the Parent waives
any benefit of and any right to participate in any collateral security which may
be held by the Agent or any Bank.
6.7. SUBROGATION; SUBORDINATION. The payment of any amounts due with
respect to any indebtedness of the Borrowers for money borrowed or credit
received now or hereafter owed to the Parent is hereby subordinated to the prior
payment in full of all of the Obligations of such Borrower on the terms
hereinafter set forth in this ss.6.7; provided, however, that so long as no
Default or Event of Default has occurred and is continuing, nothing in this
ss.6.7 shall prohibit any of the Borrowers from making regularly scheduled
payments of principal and interest to the Parent when such obligations become
due and payable. The Parent agrees that, after the occurrence and during the
continance of any default in the payment or performance of any of the
Obligations of a Borrower, the Parent will not demand, sue for or otherwise
attempt to collect any such indebtedness of such Borrower to the Parent until
all of the Obligations of such Borrower shall have been paid in full. If,
notwithstanding the foregoing sentence, the Parent shall collect, enforce or
receive any amounts in respect of such indebtedness in violation of the
foregoing sentence while any Obligations of such Borrower are still outstanding,
such amounts shall be collected, enforced and received by the Parent as trustee
for the Bank and the Agent and be paid over to the Agent, for the benefit of the
Banks and the Agent on account of the Obligations of such Borrower without
affecting in any manner the liability of the Parent under the other provisions
hereof.
6.8. CURRENCY OF PAYMENT. The Parent shall pay its respective
Guaranteed Obligations in the currency in which such Obligation was incurred by
the applicable Borrower.
6.9. UNDERLYING OBLIGATIONS. Anything in this ss.6 to the contrary
notwithstanding, the Agent and the Banks hereby agree that the Banks shall not
enter into any amendment to this Credit Agreement with any of the Borrowers
(other than the Parent) without the consent of the Parent.
7. CERTAIN GENERAL PROVISIONS.
7.1. CLOSING FEE. The Borrowers agrees to pay to the Agent a closing
fee in accordance with the Agent's Letter Agreement.
7.2. AGENT'S FEE. The Borrowers shall pay to the Agent annually in
advance, for the Agent's own account, on December 16, 1996 and on each
anniversary of thereof, an Agent's fee in the amount of $50,000.
7.3. FUNDS FOR PAYMENTS.
7.3.1. PAYMENTS TO AGENT. All payments of principal, interest,
Reimbursement Obligations, facility fees, Letter of Credit Fees and any
other amounts due hereunder or under any of the other Loan Documents
shall be made in Dollars to the Agent, for the respective accounts of
the Banks and the Agent, at the Agent's Head Office or at such other
location that the Agent may from time to time designate, in each case
in immediately
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available funds. All payments of principal of and interest on Loans
made to any Borrower which are denominated in an Optional Currency or
Currencies and all other fees due hereunder shall be made by such
Borrower to the Agent on the currency of such Loans, at or prior to
11:00 a.m., local time, on any payment date, in immediately available
funds, for the account of the Agent, at a depository designated by the
Agent in the country in which such Optional Currency is a legal tender.
Each payment in respect of any Loan made by such Borrower shall be made
in the same currency in which such Loan was made unless otherwise
agreed to by the Agent. The Agent shall be entitled to debit payment
when due in order to effect timely payment thereof. Upon receipt by the
Agent of any such payment, the Agent shall promptly send by wire
transfer, in immediately available like funds, to each Bank, to an
individual account designated by such Bank, such Bank's PRO RATA share
of such payment.
7.3.2. NO OFFSET, ETC. All payments by a Borrower hereunder
and under any of the other Loan Documents shall be made without setoff
or counterclaim and free and clear of and without deduction for any
taxes, levies, imposts, duties, charges, fees, deductions,
withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any
political subdivision thereof or taxing or other authority therein
(other than Excluded Taxes). Subject to the limitations in ss.7.7
hereof, if any Borrower is compelled by law to make such deduction or
withholding with respect to any amount payable by it hereunder or under
any of the other Loan Documents (other than for Excluded Taxes), (i)
such Borrower will pay to the Agent, for the account of the Banks or
(as the case may be) the Agent, on the date on which such amount is due
and payable hereunder or under such other Loan Document, such
additional amount in Dollars as shall be necessary after making all
required deductions (including deductions applicable to additional
amounts payable under this ss.7.3.2) to enable the Banks or the Agent
to receive the same net amount which the Banks or the Agent would have
received on such due date had no such obligation been imposed upon such
Borrower, (ii) such Borrower shall make such deductions and (iii) such
Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law Such
Borrower will deliver promptly to the Agent certificates or other valid
vouchers for all taxes or other charges deducted from or paid with
respect to payments made by such Borrower hereunder or under such other
Loan Document (other than for Excluded Taxes).
7.4. COMPUTATIONS. All computations of interest on the Loans and of
facility fees, Letter of Credit Fees shall be based on a 360-day year and paid
for the actual number of days elapsed, except that interest on Base Rate Loans
shall be based on a 365 or 366-day year, as the case may be, and paid for the
actual number of days elapsed. Except as otherwise provided in the definition of
the term "Interest Period" with respect to Eurocurrency Rate Loans, whenever a
payment hereunder or under any of the other Loan Documents becomes due on a day
that is not a Business Day, the due date for such payment shall be extended to
the next succeeding Business Day, and interest shall accrue during such
extension. The outstanding amount of the Loans as reflected on the Revolving
Credit Note Records from time to time shall be considered correct and binding on
the Borrowers unless within five (5) Business Days after receipt of any notice
by the Agent or any of the Banks of such outstanding amount, a Borrower shall
notify the Agent and the Banks to the contrary.
7.5. INABILITY TO DETERMINE EUROCURRENCY RATE. In the event, prior to
the commencement of any Interest Period relating to any Eurocurrency Rate Loan,
the Agent shall determine that adequate and reasonable methods do not exist for
ascertaining the Eurocurrency Rate that would otherwise determine the rate of
interest to be applicable to any Eurocurrency Rate Loan during any Interest
Period or deposits of Dollars or the relevant Optional Currency, as the case may
be, in the relevant Interest Period are not available to any Bank or the Agent
in the relevant Eurocurrency Interbank Market, the Agent shall forthwith give
notice of such determination (which shall be
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conclusive and binding on the Borrowers and the Banks) to the Parent and the
Banks. In such event (a) any Loan Request or Conversion Request with respect to
Eurocurrency Rate Loans shall be automatically withdrawn and shall be deemed a
request for Base Rate Loans, (b) each Eurocurrency Rate Loan will automatically,
on the last day of the then current Interest Period relating thereto if
denominated in Dollars, become a Base Rate Loan and if denominated in Optional
Currency be repaid, and (c) the obligations of the Banks to make Eurocurrency
Rate Loans or Loans in such Optional Currency, as the case may be, shall be
suspended until the Agent determines that the circumstances giving rise to such
suspension no longer exist, whereupon the Agent shall so notify the Parent and
the Banks.
7.6. ILLEGALITY. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
Eurocurrency Rate Loans or perform its obligations in respect of any Loans in
any Optional Currency or Currencies, such Bank shall forthwith give notice of
such circumstances to the Parent and the other Agent, and the Agent shall then
give notice to the other Banks, and thereupon (a) the commitment of such Bank to
make Eurocurrency Rate Loans or convert Loans of another Type to Eurocurrency
Rate Loans or to make Loans in such Optional Currency, as the case may be, shall
forthwith be suspended and (b) such Bank's Revolving Credit Loans then
outstanding as Eurocurrency Rate Loans and denominated in Dollars, if any, shall
be converted automatically to Base Rate Loans on the last day of each Interest
Period applicable to such Eurocurrency Rate Loans or within such earlier period
as may be required by law and the Loans then outstanding as Eurocurrency Rate
loans and denominated in Optional Currency, if any, shall be repaid on the last
day of each Interest Period applicable to such Eurocurrency Rate Advance or
within such earlier period as may be required by law. The Parent hereby agrees
promptly to pay the Agent for the account of such Bank, upon demand by such
Bank, any additional amounts necessary to compensate such Bank for any costs
incurred by such Bank in making any conversion in accordance with this ss.7.6,
including any interest or fees payable by such Bank to lenders of funds obtained
by it in order to make or maintain its Eurocurrency Rate Loans hereunder.
7.7. ADDITIONAL COSTS, ETC. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature with respect
to this Credit Agreement, the other Loan Documents, any Letters of
Credit, such Bank's Commitment or the Loans (other than Excluded
Taxes), or
(b) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement)
any special deposit, reserve, assessment, liquidity, capital adequacy
or other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans
by, or letters of credit issued by, or commitments of an office of any
Bank (except to the extent already reflected in the calculation of the
Eurocurrency Rate), or
(c) impose on any Bank or the Agent any other conditions or
requirements with respect to this Credit Agreement, the other Loan
Documents, any Letters of Credit, the Loans, such Bank's Commitment, or
any class of loans, letters of credit or commitments of which any of
the Loans or such Bank's Commitment forms a part,
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and the result of any of the foregoing is
(i) to increase the cost to any Bank of making,
funding, issuing, renewing, extending or maintaining any of the Loans
or such Bank's Commitment or any Letter of Credit, or
(ii) to reduce the amount of principal, interest,
Reimbursement Obligation or other amount payable to such Bank or the
Agent hereunder on account of such Bank's Commitment, any Letter of
Credit or any of the Loans, or
(iii) to require such Bank or the Agent to make any
payment or to forego any interest or Reimbursement Obligation or other
sum payable hereunder, the amount of which payment or foregone interest
or Reimbursement Obligation or other sum is calculated by reference to
the gross amount of any sum receivable or deemed received by such Bank
or the Agent from the Borrower hereunder,
then, and in each such case, the Borrowers will, upon demand made by such Bank
or (as the case may be) the Agent at any time and from time to time and as often
as the occasion therefor may arise, pay to such Bank or the Agent such
additional amounts as will be sufficient to compensate such Bank or the Agent
for such additional cost, reduction, payment or foregone interest or
Reimbursement Obligation or other sum. In the case of payments arising by reason
of clauses (b) or (c) of this ss.7.7, each Bank agrees to provide the Parent
with notice within ninety (90) days of becoming aware of any fact giving rise to
this ss.7.7, and if it shall fail to do so, the Parent shall not be obligated to
pay any amounts to such Bank arising by reason of such clauses.
On or before the date it becomes a party to this Credit Agreement and from time
to time thereafter upon any change in status rendering any certificate or
document previously delivered pursuant to this sentence invalid or inaccurate,
each Bank that is organized under the laws of a jurisdiction outside the United
States shall (but, with respect to any renewal or change in status, only to the
fullest extent that it is legally able to do so) deliver to the Parent and each
other Domestic Borrower such certificates, documents or other evidence, as
required by the Code or Treasury Regulations issued pursuant thereto, including
Internal Revenue Service Form 1001 or Form 4224 and any other certificate or
statement of exemption required by Treasury Regulation Section 1.1441-1,
1.1441-4 or 1.1441-6(c) or any subsequent version thereof or subsequent version
thereto, properly completed and duly executed by such Bank establishing that
such payment is (a) not subject to United States Federal withholding tax under
the Code because such payment is effectively connected with conduct by such Bank
of a trade or business in the United States or (b) totally exempt from United
States Federal withholding tax, or (other than in the case of such Bank on the
date such Bank became a party to this Credit Agreement), subject to a reduced
rate of such tax under a provision of an applicable tax treaty and in any event
not subject to any back-up withholding. In addition, on or before the date on
which each Foreign Borrower becomes a party to this Credit Agreement, and from
time to time thereafter upon any change in status rendering any certificate or
document previously delivered pursuant to this paragraph invalid or inaccurate,
each Bank that is organized under the laws of a jursidiction other than that in
which such Borrower is organized shall, to the extent requested by such Borrower
and to the fullest extent that it lawfully may do so, deliver to such Borrower
such certificates, documents, or other evidence, as required by applicable law
or treaty, properly completed and duly executed by such Bank, establishing that
such payment is (x) not subject to withholding tax under the law of such
jurisdiction or (y) totally exempt from such withholding tax or subject to a
reduced rate of such tax under a provision of an applicable tax treaty, and in
any event not subject to any back-up withholding. The relevant Borrower agrees
to furnish to each Bank the applicable tax forms promptly upon request therefor.
Neither the Parent nor any Borrower shall be required to pay any additional
amounts to any Bank pursuant to ss.7.3 or this ss.7.7 to the extent that the
obligation to pay
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such additional amounts would not have arisen but for a failure by such Bank to
comply with the provisions of the preceding sentences.
Any Bank claiming any additional amounts payable pursuant to ss.7.3 or
this ss.7.7 shall use reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document reasonably requested in
writing by the Parent or to change the jurisdiction of its applicable lending
certificate office if the making of such a filing or change would avoid the need
for or substantially reduce the amount of any such additional amounts which may
thereafter accrue and would not, in the sole and absolute determination of such
Bank be otherwise disadvantageous to such Bank, which determination by such Bank
shall be conclusive.
If a Bank or the Agent shall become aware that it is entitled to
receive a refund in respect of taxes as to which it has been indemnified by the
Parent or any Borrower pursuant to ss.7.3 or this ss.7.7, it shall promptly
notify the Parent of the availability of such refund and shall, within thirty
(30) days after receipt of a request by the Parent, apply for such refund at the
Parent's expense. If any Bank or the Agent, as applicable, receives a refund in
respect of any taxes to which it has been indemnified by the Parent pursuant to
ss.7.3 or this ss.7.7, it shall promptly repay such refund to the Parent (to the
extent of amounts that have been paid by the Parent or any Borrower under ss.7.3
or this ss.7.7 with respect to such refund), net of all out-of-pocket expenses
(including taxes imposed with respect to such refund) of such Bank or the Agent,
as applicable, and without interest; PROVIDED, HOWEVER, that the Borrower, upon
the request of such Bank or the Agent, as applicable, agrees to return such
refund (plus penalties, interest or other charges) to such Bank or the Agent in
the event such Bank or the Agent is required to repay such refund. In addition,
if any Borrower or the Parent makes a payment of any amounts in respect of taxes
under ss.7.3 or this ss.7.7 and such Bank later realizes any other type of tax
saving or other benefit (whether by receipt of a foreign tax credit, relief or
repayment in respect of any tax or other imposition paid or payable by it or
otherwise) in any jurisdiction, if such Bank determines, in its sole discretion
and using any method which such Bank deems appropriate, that all or any portion
of such tax saving or benefit is allocable to any taxes paid or indemnified by
the Parent or any Borrower under this Credit Agreement, such Bank will promptly
pay to such Borrower or the Parent, as the case may be, an amount equal to such
portion. Nothing contained in this paragraph shall (a) entitle the Parent or any
Borrower to inspect or review any books or records of any Bank, (b) require any
Bank to disclose any information concerning its tax position or any other
information determined by any Bank, in its sole discretion to be confidential or
proprietary, (c) require any Bank to establish procedures for allocating to
specific transactions any tax savings or benefits attributable to payments in
respect of taxes of the type described in ss.7.3 and ss.7.7 or (d) require any
Bank to disclose or detail the basis of any calculation of the amount of any tax
saving or benefit obtained by such Bank or the basis of any determination made
by such Bank under this paragraph..
7.8. CAPITAL ADEQUACY. If after the date hereof any Bank (which, for
purposes of this ss.7.8 shall include any corporation controlling such Bank) or
the Agent determines that the adoption of or change in any law, governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) regarding capital requirements for banks or bank holding companies
or any change in the interpretation or application thereof by a court or
governmental authority with appropriate jurisdiction has the effect of reducing
the return on such Bank's or the Agent's Commitment, any Loans made by it, or
any Letter of Credit or participation therein to a level below that which such
Bank or the Agent could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's or the Agent's then existing
policies with respect to capital adequacy and assuming full utilization of such
entity's capital) by any amount deemed by such Bank or (as the case may be) the
Agent to be material, then such Bank or the Agent may notify the Parent of such
fact. To the extent that the amount of such reduction in the return on capital
is not reflected in the Base Rate, the Parent and such Bank shall thereafter
attempt to negotiate in good faith, within
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thirty (30) days of the day on which the Parent receives such notice, an
adjustment payable hereunder that will adequately compensate such Bank in light
of these circumstances. If the Parent and such Bank are unable to agree to such
adjustment within thirty (30) days of the date on which the Parent receives such
notice, then commencing on the date of such notice (but not earlier than the
effective date of any such increased capital requirement), the fees payable
hereunder shall increase by an amount that will, in such Bank's reasonable
determination, provide adequate compensation. Each Bank shall allocate such cost
increases among its customers in good faith and on an equitable basis. Each Bank
agrees to provide the Parent with notice within ninety (90) days of becoming
aware of any fact giving rise to this ss.7.8, and if it shall fail to do so, the
Parent shall not be obligated to pay any adjustment or other increased amount to
such Bank under this ss.7.8.
7.9. CERTIFICATE. A certificate setting forth any additional amounts
payable pursuant to ss.ss.4.10, 7.7, 7.8 or 7.10 and a brief explanation of such
amounts which are due and setting forth the calculations of such amounts due in
reasonable detail, submitted by any Bank or the Agent to the Borrower, shall be
conclusive, absent manifest error, that such amounts are due and owing.
7.10. INDEMNITY. The Borrowers agree to indemnify each Bank and to hold
each Bank harmless from and against any loss, cost or expense (excluding loss of
anticipated profits) that such Bank may sustain or incur as a consequence of (a)
default by a Borrower in payment of the principal amount of or any interest on
any Eurocurrency Rate Loans as and when due and payable, to the extent that such
loss or expense arises from interest or fees payable by such Bank to lenders of
funds obtained by it in order to maintain its Eurocurrency Rate Loans, (b)
default by a Borrower in making a borrowing or conversion after a Borrower has
given (or is deemed to have given) a Loan Request or a Conversion Request
relating thereto in accordance with ss.2.6 or ss.2.7 or (c) the making of any
payment of a Eurocurrency Rate Loan or the making of any conversion of any such
Loan to a Base Rate Loan on a day that is not the last day of the applicable
Interest Period with respect thereto, including interest or fees payable by such
Bank to lenders of funds obtained by it in order to maintain any such Loans.
7.11. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to the extent
permitted by applicable law) interest on the Loans and all other overdue amounts
payable hereunder or under any of the other Loan Documents shall bear interest
compounded monthly and payable on demand at a rate per annum equal to
two percent (2%) above the rate of interest otherwise applicable to such amount
hereunder until the last day of the applicable Interest Period relating to such
overdue amounts, and thereafter at two percent (2%) above the Base Rate until
such amount shall be paid in full (after as well as before judgment).
7.12. LENDING OFFICE. Each Loan made by the Banks in an Optional
Currency, and each payment by any borrower in respect thereof, shall be made by,
or as the case may be, for the account of, such applicable lending office of
such Bank as such Bank shall designate; provided that if any Bank changes its
lending office, neither the Parent nor any Borrower shall be liable for any
amounts under ss.ss.4.10, 7.7 to the extent it relates to amounts other than
taxes, 7.8 or 7.10 hereof in excess of those which the Bank would have otherwise
been entitled to in its previous lending office.
7.13. REPLACEMENT BANKS. Within thirty (30) days after (a) any Bank has
demanded compensation from the Parent pursuant to ss.ss.7.7 or 7.8 hereof, or
(b) there shall have occurred a change in law with respect to any Bank as a
consequence of which it shall have become unlawful for such Bank to make a
Eurocurrency Rate Loan on any Drawdown Date, as described in ss.7.6 hereof (any
such Bank described in the foregoing clauses (a) or (b) is hereinafter referred
to as an "AFFECTED BANK"), the Borrower may request that the other Banks (the
"NON-AFFECTED BANKS") acquire all, but not less than all, of the Affected Bank's
outstanding Loans and assume all, but not less than all, of the Affected Bank's
Commitment. If the Parent so requests, the Non-Affected Banks may elect to
acquire all or any portion of the Affected Bank's outstanding Loans and to
assume all or any portion of the Affected Bank's Commitment. If the Non-Affected
Banks do not elect to acquire and assume
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all of the Affected Bank's outstanding Loans and Commitment, the Parent may
designate a replacement bank or banks, which must be satisfactory to the Agent,
to acquire and assume that portion of the outstanding Loans and Commitment of
the Affected Bank not being acquired and assumed by the Non-Affected Banks. The
provisions of ss.20 hereof shall apply to all reallocations pursuant to this
ss.7.13, and the Affected Bank and any Non-Affected Banks and/or replacement
banks which are to acquire the Loans and Commitment of the Affected Bank shall
execute and deliver to the Agent, in accordance with the provisions of ss.20
hereof, such Assignments and Acceptances and other instruments, as are required
pursuant to ss.20 hereof to give effect to such reallocations; provided,
however, the Parent shall be required to pay the registration fee set forth in
ss.20.3. Any Non-Affected Banks and/or replacement banks which are to acquire
the Revolving Credit Loans and Commitment of the Affected Bank shall be deemed
to be Eligible Assignees for all purposes of ss.20 hereof. On the effective date
of the applicable Assignments and Acceptances, the Borrower shall pay to the
Affected Bank all interest accrued on its Loans up to but excluding such date,
along with any fees payable to such Affected Bank hereunder up to but excluding
such date, including, without limitation, any amounts that would have been
payable pursuant to ss.7.10 hereof in connection with a prepayment.
8. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers represents and warrants to the Banks and the
Agent as follows:
8.1. CORPORATE EXISTENCE AND POWER. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified to transact business in
every jurisdiction where, by the nature of its business, such qualification is
necessary, except for any failure to comply with the foregoing which could not
reasonably be expected to have a Material Adverse Effect, and has all corporate
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except for any failure to
comply with the foregoing which could not reasonably be expected to have a
Material Adverse Effect.
8.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The
execution, delivery and performance by each Borrower of this Credit Agreement,
the Notes and the other Loan Documents executed by such Borrower (a) are within
such Borrower's corporate powers, (b) have been duly authorized by all necessary
corporate action, (c) require no action by or in respect of or filing with, any
governmental body, agency or official, (d) do not contravene, or constitute a
default under, any material provision of applicable law or regulation or of the
certificate of incorporation or by-laws of such Borrower or, to the best of such
Borrower's knowledge, of any material agreement relating to Debt, or other
material instrument relating to Debt, judgment, injunction, order, decree
binding upon such Borrower or any of the Subsidiaries, and (e) do not result in
the creation or imposition of any Lien on any asset of such Borrower or any of
the Subsidiaries.
8.3. BINDING EFFECT. This Credit Agreement constitutes a valid and
binding agreement of each Borrower enforceable in accordance with its terms, and
the Notes and the other Loan Documents executed by each Borrower, when executed
and delivered in accordance with this Credit Agreement, will constitute valid
and binding obligations of such Borrower enforceable in accordance with their
respective terms, PROVIDED that the enforceability hereof and thereof is subject
in each case to general principles of equity and to bankruptcy, insolvency and
similar laws affecting the enforcement of creditors' rights generally.
8.4. FINANCIAL INFORMATION. (a) The consolidated balance sheet of the
Parent and its Consolidated Subsidiaries as of June 30, 1996 and the related
consolidated statements of income, shareholders', equity and cash flows for the
Fiscal Year then ended, reported on by Ernst & Young LLP,
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copies of which have been delivered to each of the Banks, and the unaudited
consolidated financial statements of the Parent for the interim period ended
September 30, 1996, copies of which have been delivered to each of the Banks,
(i) in the case of the aforementioned annual financial statements, fairly
present, in conformity with generally accepted accounting principles, the
consolidated financial position of the Parent and its Consolidated Subsidiaries
as of such dates and their consolidated results of operations and cash flows for
such periods stated and (ii) in the case of the aforementioned interim financial
statements, reflect all adjustments consisting only of normal recurring accruals
necessary for a fair presentation of the consolidated financial condition of the
Parent and its Subsidiaries as of such date and the consolidated results of
their operations and changes in their cash flow for the period then ended,
except that such interim financial statements omit certain footnotes and are
subject to normal year-end adjustments; PROVIDED, that, during the term of this
Credit Agreement after the Closing Date, future representation as to the matters
set forth in this ss.8.4(a) shall be deemed to refer to the most recent
financial statements delivered pursuant to ss.9.4(a) and (b), respectively,
including the notes thereto and any statements of the Parent or auditors
accompanying such financial statements.
(b) Except for matters disclosed in the Parent's (i) Form 10-K for the
fiscal year ended June 30, 1996 (the "Form 10-K"), (ii) Form 10-Q for the
quarterly period ended September 30, 1996 (the "Form 10-Q"), and (iii) Form 8-K
filed on November 21, 1996 (the "Form 8-K") as to which the ultimate outcome,
and whether such matters could not reasonably be expected to have a Material
Adverse Effect, cannot be determined at this time, and, in the case of actions,
suits or proceedings, any other actions, suits or proceedings based primarily on
allegations similar to those contained in such proceedings, since September 30,
1996, there has been no event, act, condition or occurrence having a Material
Adverse Effect; PROVIDED, that, during the term of this Credit Agreement after
the Closing Date, future representations as to the matters set forth in this
ss.8.4 shall be deemed to refer to the most recent financial statements
delivered pursuant to ss.9.4(a) or (b), respectively, including notes thereto
and any statement of the Parent or auditors accompanying such financial
statements.
8.5. NO LITIGATION. Except for the proceedings described in the Form
10-K, the Form 10-Q and Form 8-K referred to above, as to which the ultimate
outcome, and whether such proceedings would have a Material Adverse Effect,
cannot be determined at this time, and any other actions, suits or proceedings
based primarily on allegations similar to those contained in such proceedings,
there is no action, suit or proceeding pending, or to the knowledge of each
Borrower threatened, against or affecting such Borrower or any of the
Subsidiaries before any court or arbitrator or any governmental body, agency or
official which could have a Material Adverse Effect or which could impair in any
material respect the ability of the Borrowers taken as a whole or, on the
occasion of each borrowing, of the Borrower making such borrowing, to perform
its obligations under, this Credit Agreement, the Notes or any of the other Loan
Documents executed by such Borrower. In addition, there is no action, suit or
proceeding pending, or to the knowledge of each Borrower threatened, against or
affecting such Borrower or any of the Subsidiaries before any court or
arbitrator or any governmental body, agency or official which in any manner
draws into question the validity of this Credit Agreement, the Notes or any of
the other Loan Documents executed by such Borrower.
8.6. COMPLIANCE WITH ERISA. (a) The Parent and each member of the
Controlled Group have fulfilled its obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and is in compliance
in all material respects with the presently applicable Provisions of ERISA and
the Code with respect to each Plan, and has not incurred any liability to the
PBGC or a Plan under Title IV of ERISA, PROVIDED, that the Parent makes no
representation or warranty under this Section 5.06 as to any Subsidiary for
matters pertaining to periods prior to the date on which such Subsidiary became
a Subsidiary of the Parent except to the extent that the Parent received any
such representations and/or warranties from the seller (or any of its
affiliates) of any relevant Subsidiary in connection with the acquisition of any
relevant Subsidiary.
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(b) Neither the Parent nor any member of the Controlled Group is or
ever has been obligated to contribute to any Multiemployer Plan PROVIDED, that
the Parent makes no representation or warranty under this ss.8.6 as to any
Subsidiary for matters pertaining to periods prior to the date on which such
Subsidiary became a Subsidiary of the Parent except to the extent that the
Parent received any such representations and/or warranties from the seller (or
any of its affiliates) of any relevant Subsidiary in connection with the
acquisition of any relevant Subsidiary.
8.7. COMPLIANCE WITH LAWS; PAYMENT OF TAXES. Each Borrower and each
Material Subsidiary is in compliance with all applicable laws, regulations and
similar requirements of governmental authorities, except where such compliance
is being contested in good faith through appropriate proceedings or the
non-compliance of which could not reasonably be expected to have a Material
Adverse Effect. There have been filed on behalf of each Borrower and each
Material Subsidiary all Federal, state and material local income, excise,
property and other tax returns which are required to be filed by them and all
taxes due pursuant to such returns or pursuant to any assessment received by or
on behalf of such Borrower or any Material Subsidiary have been paid or are
being contested in good faith or, if unpaid and uncontested, are in immaterial
amounts. The charges, accruals and reserves on the books of each Borrower and
each Material Subsidiary in respect of taxes or other governmental charges are,
in the opinion of such Borrower, adequate. United States income tax returns of
each Borrower which is a U.S. Person and each Subsidiary which is a U.S. Person
have been examined and closed through the Fiscal Year ended 1988.
8.8. SUBSIDIARIES. The Parent represents that each Material Subsidiary
which is not a Borrower is a corporation or joint venture duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except for failures to comply with the foregoing which could not
reasonably be expected to have a Material Adverse Effect. The Parent has no
active Subsidiaries except for those Subsidiaries listed on Exhibit 22 of
Parent's annual report on form 10-K, as updated from time to time by filing with
the Securities and Exchange Commission or by notice to the Agents or in SCHEDULE
8.8 hereto. All of Parent's Subsidiaries which are Material Subsidiaries as of
the Fiscal Quarter most recently ended at December 16, 1996 or any later date of
determination and for which financial statements are required to have been
delivered pursuant to ss.9.4(a) or (b), are specified in SCHEDULE 8.8, as
supplemented from time to time pursuant to ss.9.13.
8.9. INVESTMENT COMPANY ACT. Neither any Borrower nor any of
Subsidiaries is an "investment company,, within the meaning of the Investment
Company Act of 1940, as amended.
8.10. PUBLIC UTILITY HOLDING COMPANY ACT. Neither any Borrower nor any
of Subsidiaries is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
8.11. OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and the
Material Subsidiaries has title to or leasehold or other interests in its
material properties sufficient for the conduct of its business, and none of such
property is subject to any Lien except as permitted in the ss.10.2.
8.12. NO DEFAULT. Neither any Borrower nor any of the Consolidated
Subsidiaries is in default under or with respect to any agreement, instrument or
undertaking to which it is a party or by which it or any of its property is
bound which could reasonably be expected to have or cause a Material Adverse
Effect. No Default or Event of Default has occurred and is continuing.
8.13. FULL DISCLOSURE. To the best of each Borrower's knowledge, all
written information heretofore furnished by the Borrowers to the Agent or any
Bank for purposes of or in connection
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with this Credit Agreement or any transaction contemplated hereby is, and all
such information hereafter furnished by the Borrowers to the Agent or any Bank
will be true, accurate and complete in every material respect or based on
reasonable estimates on the date as of which such information is stated or
certified.
8.14. ENVIRONMENTAL MATTERS. (a) To the best of each Borrower' s actual
knowledge (without having performed any further independent inquiry therefor
solely in connection with this Credit Agreement), neither any Borrower nor any
Subsidiary is aware that it is subject to any Environmental Liability which
could reasonably be expected to have or cause a Material Adverse Effect, neither
any Borrower nor any Subsidiary (except in respect of immaterial Environmental
Liabilities in DE MINIMIS amounts) has received notice that it has been
designated as a potentially responsible party under CERCLA or under any state
statute similar to CERCLA, and none of the Properties located in the United
States, owned by any Borrower or a Material Subsidiary, has been identified on
any current or proposed (i) National Priorities List under 40 C.F.R. ss. 300,
(ii) CERCLIS list or (iii) any list arising from a state statute similar to
CERCLA.
(b) To the best of each Borrower's actual knowledge, (without having
performed any further independent inquiry therefor solely in connection with
this Agreement), no Hazardous Materials have been or are being used, produced,
manufactured, processed, .treated, recycled, generated, stored, disposed of,
managed or otherwise handled at, or shipped or transported to or from the
Properties or are otherwise present at, on, in or under the Properties owned by
any Borrower or a Material Subsidiary, or, to the best of the actual knowledge
of each Borrower, at or from any adjacent site or facility, except for Hazardous
Materials, such as cleaning solvents, pesticides and other materials used
produced, manufactured, processed, treated, recycled, generated, stored disposed
of, managed, or otherwise handled in minimal amounts in the ordinary course of
business in substantial compliance with all applicable Environmental
Requirements.
(c) Each Borrower represents as to itself, and Parent represents as to
each Material Subsidiary which is not a Borrower, that to the best of each
Borrower's and Parent's actual knowledge (without having performed any further
independent inquiry therefor solely in connection with this Agreement), each
Borrower and each of Material Subsidiaries which is not a Borrower is in
compliance in all material respects with all Environmental Requirements in
connection with the operation of the Properties and each Borrower's and each
such Material Subsidiary's respective businesses.
(d) Each Borrower represents as to itself, and the Parent represents as
to each Material Subsidiary which is not a Borrower, that each such Person
maintains reasonable procedures to monitor such Person's compliance with all
Environmental Requirements.
8.15. CAPITAL STOCK. All Capital Stock, debentures, bonds, notes and
all other securities of each Borrower and the Material Subsidiaries presently
issued and outstanding are validly and properly issued in accordance with all
applicable laws in all material respects, including but not limited to, the
"Blue Sky" laws of all applicable states and the federal securities laws. The
issued shares of Capital Stock of the Wholly Owned Subsidiaries are owned by the
Parent free and clear of any Lien or adverse claim, except for (a) nominal
shares of Subsidiaries which are not U.S. Persons that are held by non-U.S.
Persons in accordance with applicable law, (b) directors, qualifying shares, and
(c) the shares of American Dynamics, a New Jersey corporation, which are pledged
to the sellers thereof to secure payment of the purchase price thereof. At least
a majority of the issued shares of capital stock of each of the Parent's other
Subsidiaries (other than Wholly Owned Subsidiaries) is owned by Parent free and
clear of any Lien or adverse claim.
8.16. MARGIN STOCK. Neither any Borrower nor any Material Subsidiary is
engaged principally, or as one of its important activities, in the business of
purchasing or carrying any Margin
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Stock, and no part of the proceeds of any Loan will be used to purchase or carry
any Margin Stock or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock, or be used for any purpose which violates, or which
is inconsistent with, the provisions of Regulations U and X of the Board of
Governors of the Federal Reserve System.
8.17. INSOLVENCY. After giving effect to the execution and delivery of
the Loan Documents and the making of the Loans to such Borrower under this
Agreement, no Borrower which is a U.S. Person will be "insolvent," within the
meaning of such term as used in any state fraudulent transfer law or as defined
in ss. 101 of Title 11 of the United States Code, as amended from time to time,
or be unable to pay its debts generally as such debts become due, or have an
unreasonably small capital to engage in any business or transaction, whether
current or contemplated.
8.18. GOVERNMENTAL APPROVALS. The execution, delivery and performance
by the Borrowers of this Credit Agreement and the other Loan Documents to which
such Borrower is or is to become a party and the transactions contemplated
hereby and thereby (including, but not limited to the making by the Borrowers of
the borrowings contemplated by this Credit Agreement) do not require the
approval, consent, order, authorization or license by, or giving notice to, or
taking any other action with respect to, any governmental agency or authority of
any jurisdiction, or other fiscal, monetary or other authority, under any
provisions of any laws or governmental rules, regulations, order or decrees of
any jurisdiction or the central bank of any jurisdiction or other fiscal
monetary or other authority, under any provisions of any laws or governmental
rules, regulations, orders or decrees of any jurisdiction applicable to and
binding on such Borrower other than those already obtained or, to the extent the
Borrower is not required to have obtained such approvals, consents, orders,
authorizations or licenses prior to the Closing Date or prior to the borrowing
of the relevant Loan or issuance of the relevant Letter of Credit, but will be
required to obtain such items at a later date, are obtainable and such Borrower
will have used its best efforts to obtain the same when required, unless the
failure to obtain such approvals, consents, orders, authorizations or licences
could not reasonably be expected to have a Material Adverse Effect.
8.19. NO FILING, RECORDING REQUIRED. No filing, recording or enrolling
of this Credit Agreement or any other Loan Document is required to ensure the
legality, validity, enforceability or admissibility in evidence of this Credit
Agreement or any other Loan Documents in which a Foreign Borrower is organized,
unless such requirements have been complied with by the applicable Borrower to
the extent that such requirements are required to be complied with prior to the
commencement of judicial proceedings or unless the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.
9. AFFIRMATIVE COVENANTS OF THE BORROWER.
Each of the Borrowers covenants and agrees that, so long as any Loan,
Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any
Bank has any obligation to make any Loans or the Agent has any obligation to
issue, extend or renew any Letters of Credit:
9.1. PUNCTUAL PAYMENT. Each of the Borrowers will duly and punctually
pay or cause to be paid the principal and interest on the Loans, all
Reimbursement Obligations and the Letter of Credit Fees incurred by such
Borrower and the Parent will duly and punctually pay or cause to be paid, the
facility fees, the Agent's fee and all other amounts provided for in this Credit
Agreement and the other Loan Documents to which the Parent or any of its
Subsidiaries is a party, all in accordance with the terms of this Credit
Agreement and such other Loan Documents.
9.2. MAINTENANCE OF OFFICE. The Parent will maintain its chief
executive office in Boca Raton, Florida, or at such other place in the United
States of America as the Parent shall designate upon written notice to the
Agent, where notices, presentations and demands to or
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upon the Borrowers in respect of the Loan Documents to which any of the
Borrowers is a party may be given or made.
9.3. RECORDS AND ACCOUNTS. The Parent will keep, and will cause each
Subsidiary to keep, at all times proper books of record and account in which
full, true and correct entries will be made of all dealings or transactions
relating to the business and affairs of the Parent or such Subsidiary in order
to permit preparation of consolidated financial statements in accordance with
generally accepted accounting principles (except for the application of
non-United States accounting principles and practices to the financial
statements of certain non-United States Subsidiaries, to the extent that such
application does not prevent the Parent from preparing consolidated financial
statements in accordance with generally accepted accounting principles), and the
Parent will, and will cause each Subsidiary to, provide reasonable protection
against loss or damage to such books of record and account.
9.4. INFORMATION. The Borrowers will deliver to each of the Banks:
(a) as soon as available and in any event within 120 days
after the end of each Fiscal Year, a consolidated balance sheet of the
Parent and its Consolidated Subsidiaries as of the end of such Fiscal
Year and the related consolidated statements of income, shareholders'
equity and cash flows for such Fiscal Year, setting forth in each case
in comparative form the figures for the previous Fiscal Year, and
accompanied by a report, unqualified as to scope of audit and
unqualified as to going concern as to the consolidated balance sheet
and the related consolidated statements of income and cash flows by
Ernst & Young LLP, or any other firm of independent public accountants
of recognized national standing selected by the Parent, as to fairness
and consistency; PROVIDED, that the information required by this
paragraph may be satisfied by delivery of information pursuant to
paragraph (f) or (g) of this ss.9.4;
(b) as soon as available and in any event within sixty (60)
days after the end of each of the first three (3) Fiscal Quarters of
each Fiscal Year, a consolidated balance sheet of the Parent and its
Consolidated Subsidiaries as of the end of such Fiscal Quarter and the
related statement of income and statement of cash flows for such Fiscal
Quarter and for the portion of the Fiscal Year ended at the end of such
Fiscal Quarter, setting forth in each case in comparative form the
figures for the corresponding Fiscal Quarter and the corresponding
portion of the previous Fiscal Year, and a statement detailing the
aggregate principal amount outstanding of all advances against Trade
Receivables sold or factored by the Parent or any of its Subsidiaries
as at the end of such fiscal quarter, all certified by a senior
financial or accounting officer or the chief financial officer or the
Treasurer of Parent (i) outlining the basis of presentation, and (ii)
stating that the unaudited financial information presented in such
financial statements reflects all adjustments consisting only of normal
recurring accruals necessary for a fair presentation of the
consolidated financial condition of the Parent and its Subsidiaries as
of such dates and the consolidated results of their operations and
changes in their cash flows for the periods then ended, except that
such financial statements omit certain footnotes and are subject to
normal year-end adjustments; PROVIDED, that the information required by
this paragraph may be satisfied by delivery of information pursuant to
paragraph (f) or (g) of this ss.9.4;
(c) simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, a certificate,
substantially in the form of EXHIBIT I (a "Compliance Certificate"), of
a senior financial or accounting officer or the chief financial
accounting officer or the Treasurer of the Parent (i) stating whether
the Parent was in compliance the requirements of ss.ss.10.1-10.5,
ss.10.14 and 11, inclusive, on the date of such financial statements
and attaching a true, accurate and complete copy of the compliance
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certificate furnished on or about the date thereof pursuant to the Note
Agreement (1996), (ii) stating whether, to such person's knowledge,
after due inquiry, any Default or Event of Default exists on the date
of such certificate and, if such officer is aware that any Default or
Event of Default then exists, setting forth the details thereof and the
action which the Parent is making or proposes to take with respect
thereto and (iii) setting forth in reasonable detail an itemized
accounting of all consolidated Debt and Factored Receivables
Obligations of the Parent and its Subsidiaries;
(d) simultaneously with the delivery of each set of annual
financial statements referred to in paragraph (a) above, a statement of
the firm of independent public accountants which reported on such
statements to the effect that nothing has come to their attention to
cause them to believe that any Default or Event of Default the
occurrence of which is ascertainable by accountants in the course of
normal audit procedures under any of ss.ss.10 and 11, inclusive,
existed on the date of such financial statements, or, if they obtained
knowledge of any Default or Event of Default, describing the nature
thereof and the length of time such Default or Event of Default
existed;
(e) (i) promptly, and, in any event, within seven (7) Business
Days after any Borrower becomes aware of the occurrence of any Default
pertaining to the Parent, and (ii) within fifteen (15) Business Days
after any Borrower becomes aware of any other Default or Event of
Default, a certificate of a senior financial or accounting officer or
the chief financial officer or the chief accounting officer or the
Treasurer of the Parent setting forth the details thereof and the
action which the Parent is taking or proposes to take with respect
thereto;
(f) promptly upon the mailing thereof to the shareholders of
the Parent generally, copies of all financial statements, reports and
proxy statements so mailed;
(g) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent or any
registration statements relating to employee benefit plans) and annual,
quarterly or monthly reports which the Parent shall have filed with the
Securities and Exchange Commission (other than exhibits thereto);
(h) if and when any member of the Controlled Group (i) gives
or is required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA, a copy of such notice; or (iii) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate
or appoint a trustee to administer any Plan, a copy of such notice; and
(i) from time to time such additional information regarding
the financial position or business of the Parent and the Subsidiaries
as the Agent, at the request of any Bank, may reasonably request.
9.5. NOTICES.
9.5.1. ENVIRONMENTAL EVENTS. The Parent will promptly give
notice to the Agent and each of the Banks (a) of any violation of any
Environmental Requirements that the Parent or any of its Material
Subsidiaries reports in writing or is reportable by such Person in
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writing (or for which any written report supplemental to any oral
report is made) to any federal, state or local environmental agency
that has the potential to have a Materially Adverse Effect and (b) upon
becoming aware thereof, of any inquiry, proceeding, investigation, or
other action, including a notice from any agency of potential
environmental liability, of any federal, state or local environmental
agency or board, that has the potential to have a Material Adverse
Effect.
9.5.2. NOTICE OF LITIGATION AND JUDGMENTS. The Parent will,
and will cause each of its Subsidiaries to, give notice to the Agent
and each of the Banks in writing within twenty-one (21) days (or such
shorter time by which the Parent notifies the Securities and Exchange
Commission) of becoming aware of any litigation or proceedings
threatened in writing or any pending litigation and proceedings
affecting the Parent or any of its Subsidiaries or to which any
Borrower or any of its Subsidiaries is or becomes a party involving an
uninsured claim against the Parent or any of its Subsidiaries that
could reasonably be expected to have a Material Adverse Effect on the
Parent or any of its Subsidiaries and stating the nature and status of
such litigation or proceedings. The Parent will, and will cause each of
its Subsidiaries to, give notice to the Agent and each of the Banks, in
writing, in form and detail satisfactory to the Agent, within ten (10)
days of any judgment not covered by insurance, final or otherwise,
against any Borrower or any of its Subsidiaries in an amount in excess
of $10,000,000.
9.5.3. NOTICE OF CANCELLATION OF FACTORING ARRANGEMENTS. The
Parent will, and will cause each of its Subsidiaries to, give notice to
the Agent and each of the Banks in writing within five (5) Business
Days of becoming aware of any cancellation or other termination event
of any securitization or other factoring arrangements to which the
Parent or any of its Subsidiaries was a party which has any outstanding
advances thereunder on the date of such cancellation or termination.
9.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. Except as
expressly permitted by ss.10, the Parent will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights and franchises and those of its Material Subsidiaries and will not, and
will not cause or permit any of its Material Subsidiaries to, convert to a
limited liability company PROVIDED, that the foregoing shall not prevent the
termination of corporate existence or business of any Borrower other than Parent
if: (a) on the date of termination of such Borrower's corporate existence or
business, such Borrower shall have delivered to the Agent a letter terminating
all rights of such Borrower to obtain borrowings under this Credit Agreement,
and has no Loans outstanding under this Credit Agreement; and (b) in the opinion
of the Parent's Board of Directors, such termination is in the best interests of
the Parent, is not disadvantageous to the Banks and is not otherwise prohibited
by this Credit Agreement. It (a) will cause all of its properties and those of
its Material Subsidiaries used or useful in the conduct of its business or the
business of its Material Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment,
(b) will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Parent may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, and (c) will, and will cause
each of its Material Subsidiaries to, continue to engage primarily in the
businesses now conducted by them and in related businesses; PROVIDED that
nothing in this ss.9.6 shall prevent the Parent from discontinuing the operation
and maintenance of any of its properties or any of those of its Material
Subsidiaries if such discontinuance is, in the judgment of the Parent, desirable
in the conduct of its or their business and that do not in the aggregate have a
Material Adverse Effect.
9.7. INSURANCE. The Parent will, and will cause each of its Material
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and
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business against such casualties and contingencies as shall be in accordance
with the general practices of businesses engaged in similar activities in
similar geographic areas and in amounts, containing such terms, in such forms
and for such periods as may be reasonable and prudent.
9.8. TAXES. The Parent will, and will cause each of its Material
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges (including but not limited to any applicable stamp tax but
other than taxes, assessment and other government charges imposed by foreign
jurisdictions that in the aggregate are not material to the business or assets
of any Borrower on an individual basis or of the Parent and its Subsidiaries on
a consolidated basis) imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; PROVIDED that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Parent or such Material Subsidiary shall have set aside on its books
adequate reserves with respect thereto; and PROVIDED FURTHER that the Parent and
each Material Subsidiary of the Borrower will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor.
9.9. INSPECTION OF PROPERTIES AND BOOKS, ETC. The Parent shall permit
the Banks, through the Agent or any of the Banks' other designated
representatives, (a) at the Agent's or such Bank's expense and upon reasonable
notice prior to the occurrence of a Default and (b) at the Parent's expense
after the occurrence and continuation of a Default, to visit and inspect any of
the properties of the Parent or any of its Material Subsidiaries, to examine the
books of account of the Parent and its Material Subsidiaries (and to make copies
thereof and extracts therefrom), and to discuss the affairs, finances and
accounts of the Parent and its Material Subsidiaries with, and to be advised as
to the same by, its and their officers, all at such reasonable times and
intervals as the Agent or any Bank may reasonably request.
9.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Parent will, and will cause each of its Material Subsidiaries to, comply with
(a) the applicable laws and regulations wherever its business is conducted,
including all Environmental Requirements, except where the failure to so comply
could not reasonably be expected to have a Material Adverse Effect, unless the
Parent or the applicable Subsidiary is contesting such laws or regulations in
good faith and has maintained adequate reserves on its books in accordance with
generally accepted accounting principles applicable thereto (b) the provisions
of its charter documents and by-laws, (c) all agreements and instruments by
which it or any of its properties may be bound except where the failure to so
comply could not reasonably be expected to have a Material Adverse Effect or
where the Parent or the applicable Subsidiary is contesting such compliance in
good faith and has maintained adequate reserves on its books in accordance with
generally accepted accounting principles applicable thereto and (d) all
applicable decrees, orders, and judgments except where the failure to so comply
could not reasonably be expected to have a Material Adverse Effect or where the
Parent or the applicable Subsidiary is contesting such decrees, orders or
judgments in good faith and has maintained adequate reserves on its books in
accordance with generally accepted accounting principles. If any authorization,
consent, approval, permit or license from any officer, agency or instrumentality
of any government shall become necessary or required in order that the Parent or
any of its Material Subsidiaries may fulfill any of its obligations hereunder or
any of the other Loan Documents to which the Parent or such Material Subsidiary
is a party, the Parent will, or (as the case may be) will cause such Material
Subsidiary to, immediately take or cause to be taken all reasonable steps within
the power of the Parent or such Material Subsidiary to obtain such
authorization, consent, approval, permit or license and furnish the Agent and
the Banks with evidence thereof.
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9.11. EMPLOYEE BENEFIT PLANS. The Parent will (a) promptly upon filing
the same with the Department of Labor or Internal Revenue Service upon request
of the Agent, furnish to the Agent a copy of the most recent actuarial statement
required to be submitted under ss.103(d) of ERISA and Annual Report, Form 5500,
with all required attachments, in respect of each Guaranteed Pension Plan and
(b) promptly upon receipt or dispatch, furnish to the Agent any notice, report
or demand sent or received in respect of a Guaranteed Pension Plan under
ss.ss.302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect
of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245 of ERISA.
9.12. USE OF PROCEEDS. The Borrowers will use the proceeds of the Loans
solely for working capital and general corporate purposes. The Borrowers will
obtain Letters of Credit solely for general corporate purposes.
9.13. MATERIAL SUBSIDIARIES. Promptly after the delivery to the Banks
of the financial statements referred to in 9.4(a) and (b), the Parent will
deliver to the Banks a supplement to SCHEDULE 8.8, showing any changes in the
composition of the Material Subsidiaries since the date of the last delivery of
such a notice.
9.14. FURTHER ASSURANCES. The Parent will, and will cause each of its
Subsidiaries to, cooperate with the Banks and the Agent and execute such further
instruments and documents as the Banks or the Agent shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Credit
Agreement and the other Loan Documents.
10. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
Each of the Borrowers covenants and agrees that, so long as any Loan,
Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any
Bank has any obligation to make any Loans or the Agent has any obligations to
issue, extend or renew any Letters of Credit:
10.1. DEBT. The Parent will not, and will not permit any Subsidiary to,
permit to exist, create, assume, incur or otherwise be or become liable for,
directly or indirectly, any Debt other than:
(a) the Notes and the Senior Notes;
(b) Debt of the Parent and its Subsidiaries existing on the
date of the Prior Credit Agreement and described in the attached
SCHEDULE 10.1;
(c) Debt of a Subsidiary owed to the Parent or another
Subsidiary;
(d) Additional Debt, provided that at the time of incurring
such additional Debt and after giving effect thereto and to the
application of the proceeds therefrom, (i) the aggregate principal
amount of all Senior Consolidated Debt then to be outstanding shall not
exceed fifty percent (50%) of Consolidated Total Capitalization and
(ii) the aggregate principal amount of all Consolidated Debt then to be
outstanding shall not exceed fifty-five percent (55%) of Consolidated
Total Capitalization;
(e) Additional Debt of Subsidiaries, provided that at the time
of incurring such additional Debt and after giving effect thereto and
to the application of the proceeds therefrom, (i) such Debt may be
incurred pursuant to paragraph (d) of this ss.10.1 and (ii) the sum
(without duplication) of the aggregate principal amount of outstanding
(A) Debt of Subsidiaries (other than Debt referred to in paragraph (c)
of this ss.10.1), and (B) Debt of the Parent or any Subsidiary (other
than Debt referred to in paragraph (c) of this ss.10.1) secured by
Liens permitted by ss.10.2 (other than secured Debt permitted by
paragraphs (j) and (m) of
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ss.10.2) does not exceed the Applicable Percentage of the maximum
aggregate principal amount of Consolidated Debt permitted to be
outstanding under this ss.10.1; and
(f) Debt of a Person existing at the time it becomes a
Subsidiary, or substantially all of its assets are acquired by the
Parent or a Subsidiary, provided such Debt was not created or incurred
in contemplation of such Person becoming a Subsidiary or such
acquisition and extensions, renewals, refinancing and refundings of
such Debt provided there is no increase in the principal amount of such
Debt at the time thereof.
10.2. LIENS.
The Parent will not, and will not permit any Subsidiary to, permit to
exist, create, assume or incur, directly or indirectly, any Lien on its
properties or assets, whether owned or hereafter acquired, except:
(a) Liens existing on property or assets of the Parent or any
Subsidiary as of the date of the Prior Credit Agreement that are
described in the attached SCHEDULE 10.2;
(b) Liens for taxes, assessments, Governmental charges, levies
or claims not then due and delinquent or the validity of which is being
contested in good faith and as to which the Parent has established
adequate reserves on its books in accordance with generally accepted
accounting principles;
(c) Liens arising in connection with court proceedings
provided the execution of such Liens is effectively stayed, such Liens
are being contested in good faith by appropriate proceedings and the
Parent has established adequate reserves therefor on its books in
accordance with generally accepted accounting principles;
(d) Liens arising in the ordinary course of business or
incidental to the ownership of property or assets and not incurred in
connection with the borrowing of money (including, but not limited to,
encumbrances in the nature of zoning restrictions, easements, rights
and restrictions of record on the use of real property, defects in
title and landlord's, lessor's mechanics' and materialmen's liens) that
in the aggregate do not materially interfere with the conduct of the
business of the Parent and its Subsidiaries taken as a whole or
materially impair the value of the property or assets subject thereto;
(e) Liens in connection with workers' compensation,
unemployment insurance or other social security obligations;
(f) Liens securing the performance of bids, tenders,
contracts, surety and appeal bonds;
(g) Liens to secure progress or partial payments on contracts,
surety and appeal bonds;
(h) Unexercised rights of set-off, bankers' liens and other
rights arising solely by operation of law and not created to secure
Debt;
(i) To the extent considered a Lien on assets of the Parent or
any Subsidiary, Liens arising in connection with the sale of factoring
of leases, receivables or other accounts in the ordinary course of
business;
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(j) liens on properties or assets of a Person existing at the
time such Person becomes a Subsidiary or is merged or consolidated with
or into the Parent or any Subsidiary and not created in contemplation
of such event;
(k) to the extent considered a Lien on assets of the Parent or
any Subsidiary, the interest of the lessee or purchaser in assets of
the Parent or any Subsidiary leased to such lessee under a lease or
sold to such purchaser under the terms of a conditional sale
arrangement;
(l) liens securing Debt of a Subsidiary to the Parent or to
another Wholly-Owned Subsidiary;
(m) Liens (i) existing on property at the time of its
acquisition by the Parent or a Subsidiary and not created in
contemplation thereof, provided the Debt secured by such Lien is
assumed by the Parent or a Subsidiary; or (ii) on property created
substantially contemporaneously with the date of acquisition or within
twelve (12) months of the acquisition or completion of construction
thereof to secure or provide for all or a portion of the purchase price
or cost of construction of such property; provided in the case of
clauses (i) and (ii) that such Liens do not extend to other property of
the Parent or any Subsidiary, that the aggregate principal amount of
Debt secured by each such Lien does not exceed 100% of the lesser of
the cost or fair market value at the time of acquisition of the
property or completion of construction subject thereto and that the
Debt secured by such Liens could be incurred pursuant to ss.10.1; and
(n) Liens not otherwise permitted by paragraphs (a) through
(m) above incurred subsequent to the Note Agreement Closing Date to
secure Debt, provided that at the time of incurring such additional
Debt and after giving effect thereto and to the application of the
proceeds therefrom, (i) such Debt can be incurred pursuant to
ss.10.1(d) and, if of a Subsidiary, ss.10.1(e) , and (ii) the sum
(without duplication) of the aggregate principal amount of outstanding
(A) Debt of Subsidiaries (other than Debt referred to in paragraph (c)
of ss.10.1) and (B) Debt of the Parent or any Subsidiary (other than
Debt referred to in paragraph (c) of ss.10.1) secured by Liens
permitted by this ss.10.2 (other than secured Debt permitted by
paragraphs (j) and (m) above) does not exceed twenty percent (20%) of
the maximum aggregate principal amount of Consolidated Debt permitted
to be outstanding under ss.10.1.
10.3. RESTRICTED PAYMENTS. The Parent will not, except as hereinafter
provided:
(a) declare or pay any dividends, either in cash or property,
on any shares of its capital stock of any class (except dividends or
other distributions payable solely in shares of common stock of the
Parent);
(b) directly or indirectly, or through any Subsidiary,
purchase, redeem, retire or otherwise acquire any shares of its capital
stock of any class or any warrants, rights or options to purchase or
acquire any shares of its capital stock;
(c) make any other payment or distribution, either directly or
indirectly, or through any Subsidiary, in respect of its capital stock;
or
(d) make any payment (which shall not be deemed to include a
conversion), other than a scheduled mandatory prepayment or payment, on
any Subordinated Consolidated Debt;
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(all such nonpermitted declarations, payments, purchases, redemptions,
retirements, acquisitions or distributions being hereinafter referred to as
"Restricted Payments") unless, after giving effect thereto, (i) the aggregate
amount of Restricted Payments made after December 31, 1992 to and including the
date of making the Restricted Payment in questions would not exceed the sum of:
(w) $25,000,000; (x) fifty percent (50%) of Consolidated Net Income for the
period from January 1, 1993 to June 30, 1993 (less 100%; thereof in case of a
deficit); (y) fifty percent (50%) of Cumulative Consolidated Net Income for each
Fiscal Year ending after June 30, 1993 (less 100% thereof in case of a deficit);
and (z) the net cash proceeds received by the Parent from the sale of common
stock subsequent to the Note Agreement Closing Date or the net cash proceeds
received by the Parent from the sale of securities convertible into common stock
of the Parent upon conversion thereof subsequent to the Note Agreement Closing
Date; (ii) no Default or Event of Default would exist; and (iii) the Parent
could incur at least $1.00 of additional Debt under ss.10.1.
10.4. MERGER OR CONSOLIDATION. The Parent will not, and will not permit
any Subsidiary to, merge or consolidate with, or sell all or substantially all
of its assets to, any Person, except that:
(a) The Parent may merge into or consolidate with, or sell all
or substantially all of its assets to, any Person or permit any Person
to merge into it, provided that immediately after giving effect
thereto,
(i) The Parent is the successor corporation;
(ii) There shall exist no Default or Event of
Default; and
(iii) The Parent could incur at least $1.00 of
additional Debt under ss.10.1; and
(b) So long as no Default or Event of Default has occurred and
is continuing, any Subsidiary may merge with any other Person,
PROVIDED, HOWEVER, if such Person is not the Parent or another
Borrowing Subsidiary, and such Subsidiary is a Borrower, all
Obligations of such Subsidiary to the Agent and the Banks shall be
indefeasibly repaid in full in cash and such Subsidiary shall cease
being a Borrower hereunder prior to giving effect to such merger.
10.5. SALE OF ASSETS.
(a) The Parent will not, and will not permit any Subsidiary
to, (other than in the ordinary course of business, including sales of
receivables, leases and rental equipment, and other than as permitted
by clause (ii) of ss.10.4(b)), sell lease, transfer or otherwise
(including by way of merger) dispose of (collectively a "Disposition")
any assets, including capital stock of Subsidiaries, in one or a series
of transactions, to any Person, (i) if in any Fiscal Year, after giving
effect to such Disposition, the aggregate net book value of assets
subject to Dispositions during such Fiscal Year would exceed fifteen
percent (15%) of Consolidated Total Assets as of the immediately
preceding Fiscal Year or (ii) if, after giving effect to such
Disposition and all prior Dispositions since the Note Agreement Closing
Date, the aggregate net book value of assets subject to Dispositions
would exceed, on a cumulative basis, thirty percent (30%) of
Consolidated Total Assets as of the end of the immediately preceding
Fiscal Year or (iii) if a Default or Event of Default exists or (iv) if
the Parent cannot incur at least $1.00 of additional Debt pursuant to
ss.10.1.
(b) Notwithstanding the foregoing limitations in paragraph (a)
of this ss.10.5, the Parent or a Subsidiary may make a Disposition and
the net book value of the assets subject to such Disposition and shall
not be subject to or included in the foregoing limitations and
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computations (i) if the proceeds (net of taxes and related expenses)
from such Disposition are either (A) reinvested, within twelve months
after such Disposition, in productive assets of the Parent or its
Subsidiaries (including capital stock of Subsidiaries other than
Wholly-Owned Subsidiaries) or (B) the Parent, by written notice mailed
to each holder of outstanding Senior Consolidated Debt not less than
thirty (30) days prior to the date fixed by the Parent for the
prepayment or purchase referred to below (which notice shall state that
it is given pursuant to this ss.10.5 and that any holder that elects to
accept such offer must do so by notice given to Parent not less than
ten (10) days prior to such date of prepayment or purchase) shall have
offered, pursuant to a pro-rata offer made concurrently to all holders
of then outstanding Senior Consolidated Debt, to apply an amount equal
to such proceeds to the prepayment or purchase, on the date specified
in such notice (which date shall be not later than thirty (30) days
following such Disposition) of Senior Consolidated Debt (at a
prepayment or purchase price equal to the principal amount thereof and
accrued interest thereon to the date of such prepayment or purchase) or
(ii) if such Disposition is of assets of a Subsidiary within twelve
(12) months of the date of such Disposition and the proceeds (net of
taxes and related expenses) from such Disposition are applied
contemporaneously to the repayment of Debt associated therewith or
(iii) if such Disposition is to the Parent or a Wholly-Owned
Subsidiary.
10.6. ENVIRONMENTAL MATTERS. The Borrowers will not, and will not
knowingly permit any Third Party to, use, produce, manufacture, process, treat,
recycle, generate, store, dispose of, manage at, or otherwise handle, or ship or
transport to or from the Properties any Hazardous Materials except for Hazardous
Materials such as cleaning solvents, pesticides and other similar materials
used, produced, manufactured, processed, treated, recycled, generated, stored,
disposed, managed, or otherwise handled in minimal amounts in the ordinary
course of business or of management or maintenance of the Properties in material
compliance with all applicable Environmental Requirements.
10.7. ENVIRONMENTAL RELEASE. Each Borrower agrees that upon its
becoming aware of the occurrence of an Environmental Release, except for any
Environmental Release which occurred in substantial compliance with all
Environmental Requirements, at or on any of the Properties owned or operated by
it will act promptly to determine the extent of, and to take appropriate
remedial action to eliminate, any such Environmental directed to do so by any
Environmental Authority, except to the extent that failure to take remedial
action would not have a Material Adverse Effect.
10.8. TRANSACTIONS WITH AFFILIATES. Neither any Borrower nor any of the
Subsidiaries shall enter into, or be a party to any transaction with any
Affiliate of any of the Borrowers or any Subsidiary (which Affiliate is not a
Borrower or a Subsidiary, other than a Person in which such Borrower or
Subsidiary owns less than a majority interest and which, if it were a
Subsidiary, would not be a Material Subsidiary), except as permitted by law and
in the ordinary course of business and pursuant to reasonable terms which are no
less favorable to such Borrower or such Subsidiary than would be obtained in a
comparable arm's length transaction with a Person which is not an Affiliate;
PROVIDED, that the foregoing shall not affect the ability of the Parent, any
other Borrower or any Subsidiary from determining, in its sole discretion, the
amount or form of executive or directors compensation from time to time.
10.9. SALE AND LEASEBACK. The Parent will not, and will not permit any
of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Parent or any Subsidiary of the Parent shall sell or transfer any
property owned by it in order then or thereafter to lease such property or lease
other property that the Parent or any Subsidiary of the Parent intends to use
for substantially the same purpose as the property being sold or transferred;
PROVIDED, HOWEVER, so long as no Default or Event of Default has occurred and is
continuing or would exist as a result of such
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a transaction, the Parent and its Subsidiaries shall be permitted to enter into
such sale and leaseback transaction so long as (a) the aggregate net cash
proceeds received for all such sales or dispositions does not exceed $5,000,000
during the term of this Credit Agreement; and (b) the purchase price shall be no
less than the fair market value of the applicable asset at the time of the sale.
10.10. SUBORDINATED DEBT AND SENIOR NOTES. The Parent will not, and
will not permit any of its Subsidiaries to, amend, supplement or otherwise
modify the terms of any of the Subordinated Consolidated Debt or Senior Notes or
voluntarily prepay, redeem or repurchase any of the Subordinated Consolidated
Debt or Senior Notes; PROVIDED, HOWEVER, (a) the Parent or such Subsidiary may
amend, supplement or otherwise modify the terms of any of the Subordinated
Consolidated Debt or Senior Notes if after giving effect to such amendment,
supplement or modification, the terms of such Subordinated Consolidated Debt or
Senior Notes are no less favorable to the Parent, such Subsidiary or the Banks
than the terms of such Debt prior to such modification and, as to the
Subordinated Consolidated Debt, such amendment, supplement or modification does
not affect the subordination provisions in any manner which is materially
adverse to the Agent or any of the Banks; and (b) the Parent or any of its
Subsidiaries shall be permitted to convert such Debt into equity (and make any
necessary cash payments associated with such conversion for fractional shares)
or refinance such Subordinated Consolidated Debt or Senior Notes with other Debt
so long as (i) in the case of a refinancing of Subordinated Consolidated Debt or
the Senior Notes, no Default or Event of Default has occurred and is continuing
or would exist as a result thereof and (ii) the terms and conditions of such
Debt (including, without limitation, the principal amount of such Debt, the
interest rate, the maturity, covenants and defaults) are no less favorable to
the Parent or such Subsidiary as the terms and conditions contained in the Debt
being refinanced; and PROVIDED, FURTHER, the Parent or such Subsidiary shall be
permitted to make prepayments on such Subordinated Consolidated Debt or Senior
Notes to the extent such Person is contractually obligated to make or offer to
make such prepayments as a result of a Change in Control or similar event.
10.11. EMPLOYEE BENEFIT PLANS. Neither the Parent nor any ERISA
Affiliate will
(a) engage in any "prohibited transaction" within the meaning
of ss.406 of ERISA or ss.4975 of the Code which could result in a
material liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an
"accumulated funding deficiency", as such term is defined in ss.302 of
ERISA, whether or not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could result in the imposition of a lien or encumbrance on the
assets of the Borrower or any of its Subsidiaries pursuant to ss.302(f)
or ss.4068 of ERISA; or
(d) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of ss.4001 of ERISA) of
all Guaranteed Pension Plans exceeding the value of the aggregate
assets of such Plans, disregarding for this purpose the benefit
liabilities and assets of any such Plan with assets in excess of
benefit liabilities.
10.12. DISSOLUTION. Neither any Borrower nor any Material Subsidiary
shall be permitted to be dissolved or liquidated, except through corporate
reorganization to the extent permitted by ss.10.4; PROVIDED, that any Borrower
other than Parent, and any Material Subsidiary, may be dissolved if: (a) on the
date of liquidation or dissolution of such Borrower, such Borrower shall have
delivered to the
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Agent a letter terminating all rights of such Borrower to obtain borrowings
under this Credit Agreement, and has no Loans outstanding under this Credit
Agreement; and (b) in the opinion of the Parent's Board of Directors, such
dissolution is in the best interests of the Parent, is not disadvantageous to
the Banks and is not otherwise prohibited by this Credit Agreement.
10.13. USE OF PROCEEDS. No portion of the proceeds of the Loans will be
used by any Borrower (a) in connection with, whether directly or indirectly, any
tender offer for, or other acquisition of, stock of any corporation with a view
towards obtaining control of such other corporation, except in a negotiated,
consensual transaction, (b) directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin Stock,
or (c) for any purpose in violation of any applicable law or regulation.
10.14. RESTRICTIONS ON INVESTMENTS. The Parent will not and will not
permit any of the other Borrowing Subsidiaries, directly or indirectly through
one or more Subsidiaries, to make additional cash Investments after the date of
the Prior Credit Agreement in its Subsidiaries, whether in the form of
intercompany debt or in the form of contributions to the stockholder's equity of
such Subsidiaries, except to the extent that the aggregate net increase in such
intercompany Debt and stockholder's equity after the date of the Prior Credit
Agreement as a result of such cash Investments does not exceed (a) for the
period from the date of the Prior Credit Agreement to and including September
30, 1997, an amount equal to the sum of (i) $125,000,000 PLUS (ii) the aggregate
amount of all cash dividends paid by the Subsidiaries and received by the Parent
or such Borrowing Subsidiary, as the case may be, during such period, and (b)
for all periods after September 30, 1997, an amount equal to the sum of (i) the
maximum amount permitted in clause (a) above LESS $50,000,000, PLUS (ii) the
aggregate amount of all cash dividends paid by the Subsidiaries and received by
the Parent or such Borrowing Subsidiary, as the case may be, after September 30,
1997.
11. FINANCIAL COVENANTS OF THE BORROWERS.
Each of the Borrowers covenants and agrees that, so long as any Loan,
Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any
Bank has any obligation to make any Loans or the Agent has any obligation to
issue, extend or renew any Letters of Credit:
11.1. NET WORTH. The Parent will not permit at any time its
Consolidated Net Worth to be less than $730,000,000 plus (a) fifty (50%) of
Consolidated Net Income (without reduction for any net losses) for the period
from April 1, 1996 to June 30, 1996, plus (b) the cumulative sum of fifty
percent (50%) of Consolidated Net Income (without reduction for any net losses)
for each completed fiscal year ending after June 30, 1996 and on or before the
date 120 days prior to the date of determination, plus (c) for the then current
fiscal year, the cumulative sum of fifty percent (50%) of Consolidated Net
Income (without reduction for any net losses) from the beginning of such year to
the last day of the Fiscal Quarter of the Parent most recently ended as of the
date sixty (60) days prior to the date of determination. For purposes of
calculating compliance with this ss.11.1, the Parent will include as a debit
(without duplication of any amounts which already may be reflected in the
financial statements of the Parent or its Subsidiaries with respect to such
amounts) the Net Cash Amount of any judgment or settlement in respect of any
litigation described in Form 10-K, Form 10-Q or Form K (as defined in ss.8.4(b)
hereof) or any other actions, suits or proceedings based primarily on
allegations similar to those contained in such proceedings, in the case of a
judgment, upon the entry of such judgment by the court (unless such judgment is
being appealed and execution of such judgment is stayed) and, in the case of a
settlement, upon the approval of such settlement by the court (or, if such
settlement is not to be approved by the court, upon payment of such settlement).
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11.2. SENIOR DEBT/TOTAL CAPITALIZATION. The Parent will not permit at
any time the principal amount of all Senior Consolidated Debt then outstanding
to exceed fifty percent (50%) of Consolidated Total Capitalization at such time.
11.3. TOTAL INDEBTEDNESS/TOTAL CAPITALIZATION. The Parent will not
permit at any time the aggregate principal amount of all Consolidated Debt then
outstanding to exceed fifty-five percent (55%) of Consolidated Total
Capitalization at such time.
12. CLOSING CONDITIONS.
The obligations of the Banks to make the initial Revolving Credit Loans
and of the Agent to issue any initial Letters of Credit shall be subject to the
satisfaction of the following conditions precedent:
12.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully executed copy of each such document.
12.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall
have received from the Parent and each other Borrower a copy, certified by a
duly authorized officer of such Person to be true and complete as of December
16, 1996, of each of (a) its charter or other incorporation documents as in
effect on such date of certification, and (b) its by-laws as in effect on such
date.
12.3. CORPORATE, ACTION. All corporate action necessary for the valid
execution, delivery and performance by the Parent and each other Borrower of
this Credit Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.
12.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have received
from the Parent and each other Borrower an incumbency certificate, dated as of
December 16, 1996, signed by a duly authorized officer of the Parent or such
Borrower, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
each of the Parent of such Borrower, each of the Loan Documents to which the
Parent or such Borrower is or is to become a party; (b) to make Loan Requests,
Conversion Requests, Competitive Bid Requests and to apply for Letters of
Credit; and (c) to give notices and to take other action on its behalf under the
Loan Documents.
12.5. UCC SEARCH RESULTS. The Agent shall have received from each of
the Parent and each of the Borrower the results of UCC searches, indicating no
liens other than Permitted Liens and otherwise in form and substance
satisfactory to the Agent.
12.6. CERTIFICATES OF INSURANCE. The Agent shall have received a
certificate of insurance from an independent insurance broker dated as of a
recent date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance carried by the Parent and
its Subsidiaries.
12.7. SOLVENCY CERTIFICATE. Each of the Banks shall have received an
officer's certificate of the Parent dated as of December 16, 1996 as to the
solvency of the Parent and its Subsidiaries following the consummation of the
transactions contemplated herein and in form and substance satisfactory to the
Banks.
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12.8. OPINION OF COUNSEL. Each of the Banks and the Agent shall have
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of December 16, 1996, in form and substance satisfactory to the Banks and the
Agent, from:
(a) Christy & Viener, counsel to the Parent and its
Subsidiaries; and
(b) In-house counsel to the Parent and its Subsidiaries as
applicable.
12.9. PAYMENT OF FEES. The Borrower shall have paid to the Banks or the
Agent, as appropriate, the fees required to be paid pursuant to ss.ss.7.1 and
7.2.
13. CONDITIONS TO ALL BORROWINGS.
The obligations of the Banks to make any Loan, including the initial
Revolving Credit Loan, and of the Agent to issue, extend or renew any Letter of
Credit, in each case whether on or after the Closing Date, shall also be subject
to the satisfaction of the following conditions precedent:
13.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of the Parent and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true at and as of the time of the making of such Loan or the issuance,
extension or renewal of such Letter of Credit, with the same effect as if made
at and as of that time (except to the extent that such representations and
warranties relate expressly to an earlier date) and no Default or Event of
Default shall have occurred and be continuing.
13.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Bank would make it illegal for such Bank to make such Loan or to
participate in the issuance, extension or renewal of such Letter of Credit or in
the reasonable opinion of the Agent would make it illegal for the Agent to
issue, extend or renew such Letter of Credit.
13.3. GOVERNMENTAL REGULATION. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall reasonably require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
14. EVENTS OF DEFAULT; ACCELERATION; ETC.
14.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(a) the Borrowers shall fail to pay any principal of the Loans
or any Reimbursement Obligation when the same shall become due and
payable, whether at the stated date of maturity or any accelerated date
of maturity or at any other date fixed for payment;
(b) the Borrowers shall fail to pay any interest on the Loans,
the facility fee, any Letter of Credit Fee, the Agent's fee, or other
sums due hereunder or under any of the other Loan Documents, within
three (3) Business Days after the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of
maturity or at any other date fixed for payment;
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(c) the Borrowers shall fail to comply with any of its
covenants contained in ss.ss.9.4(e), 9.6 as it pertains to the
corporate existence of the Parent), 9.9, 9.12, 10.1-10.5, 10.14 and
ss.11;
(d) the Parent or any of its Subsidiaries shall fail to
perform any term, covenant or agreement contained in ss.9.4(a)-(d), (f)
and (g) for twenty (20) days after written notice of such failure has
been given to the Parent by the Agent or the Parent or any of its
Subsidiaries shall fail to perform any term, covenant or agreement
contained herein or in any of the other Loan Documents (other than
those specified elsewhere in this ss.14.1) for thirty (30) days after
written notice of such failure has been given to the Parent by the
Agent;
(e) any representation or warranty of the Parent or any of its
Subsidiaries in this Credit Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to
or in connection with this Credit Agreement shall prove to have been
false in any material respect upon the date when made or deemed to have
been made or repeated;
(f) any Borrower or any Material Subsidiary shall fail to make
any payment in respect of Debt outstanding in an aggregate principal
amount equal to or greater than $10,000,000 (other than the Notes)
after the expiry of any applicable grace period; or
(g) the Parent or any of its Material Subsidiaries shall make
an assignment for the benefit of creditors, or admit in writing its
inability to pay or generally fail to pay its debts as they mature or
become due, or shall petition or apply for the appointment of a trustee
or other custodian, liquidator or receiver of the Parent or any of its
Material Subsidiaries or of any substantial part of the assets of the
Parent or any of its Material Subsidiaries or shall commence any case
or other proceeding relating to the Parent or any of its Material
Subsidiaries under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law of any jurisdiction, now or hereafter in effect, or shall take any
action to authorize or in furtherance of any of the foregoing, or if
any such petition or application shall be filed or any such case or
other proceeding shall be commenced against the Parent or any of its
Material Subsidiaries and the Parent or any of its Material
Subsidiaries shall indicate its approval thereof, consent thereto or
acquiescence therein or such petition or application shall not have
been dismissed within sixty (60) days following the filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Parent or any of
its Material Subsidiaries bankrupt or insolvent, or approving a
petition in any such case or other proceeding, or a decree or order for
relief is entered in respect of the Parent or any Material Subsidiary
of the Parent in an involuntary case under federal bankruptcy laws as
now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any
judgment against the Parent or any of its Material Subsidiaries that,
with other outstanding final judgments, undischarged, against the
Parent or any of its Material Subsidiaries exceeds in the aggregate
$10,000,000;
(j) any event or condition (other than a Change in Control or
similar event as provided for any loan agreement or other Debt
instrument or agreement for the securitization or other sale of Term
Receivables or Trade Receivables) shall occur which (i) has resulted in
the acceleration of the maturity of Debt outstanding of any Borrower or
any Material Subsidiary in an aggregate principal amount equal to or
greater than $10,000,000 (including, without limitation, any required
mandatory prepayment or "put" of such Debt to any
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Borrower or any Material Subsidiary) or which resulted in the
involuntary termination of commitments to purchase receivables under
any agreement for the securitization or other sale of receivables of
any Borrower or any Material Subsidiary in an aggregate facility amount
in excess of $10,000,000 other than a termination under any agreement
to purchase Term Receivables where (1) such termination was not as a
result of any default or event of default on behalf of the Parent or
any Material Subsidiary, as the case may be or (2) the recourse to the
Parent or such Material Subsidiary associated with all such
terminations is not in excess of $5,000,000 in the aggregate for any
period consisting of twelve (12) consecutive calendar months (or such
shorter number of months as has elapsed from December 16, 1996) from
the date of such termination (a "Term Receivables Event") or (ii)
enables (and any required notice of default or termination, as the case
may be, has been given and any applicable cure or grace period has
expired) the holders of such Debt or the purchasers of such
receivables, as the case may be, or any Person acting on such holders'
or purchasers' behalf to accelerate the maturity thereof or to
terminate the commitments to purchase under such securitization
facility (including, without limitation, any required mandatory
prepayment or "put" of such Debt to any Borrower or any Material
Subsidiary), other than a Term Receivables Event or a termination of
the commitment on the maturity thereof as set forth in such facility or
the termination of the commitment by the Borrower or any Material
Subisidary, as the case may be, at its option PROVIDED that at the time
of such optional termination no default or event of default has
occurred and is continuing under such facility, including, without
limitation, any default or similar event which, after the lapse of the
grace periods provided for therein would permit the Purchaser to
terminate or cancel such facility;
(k) if any of the Loan Documents shall be cancelled,
terminated, revoked or rescinded, in each case otherwise than in
accordance with the terms thereof or with the express prior written
agreement, consent or approval of the Banks, or any action at law, suit
or in equity or other legal proceeding to cancel, revoke or rescind any
of the Loan Documents shall be commenced by or on behalf of the Parent
or any of its Subsidiaries party thereto or any of their respective
stockholders, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents is illegal, invalid
or unenforceable in accordance with the terms thereof;
(l) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Majority Banks shall have
determined in their reasonable discretion that such event reasonably
could be expected to result in liability of the Borrower or any of its
Subsidiaries to the PBGC or such Guaranteed Pension Plan in an
aggregate amount exceeding $10,000,000 and such event in the
circumstances occurring reasonably could constitute grounds for the
termination of such Guaranteed Pension Plan by the PBGC or for the
appointment by the appropriate United States District Court of a
trustee to administer such Guaranteed Pension Plan; or a trustee shall
have been appointed by the United States District Court to administer
such Plan; or the PBGC shall have instituted proceedings to terminate
such Guaranteed Pension Plan; and
(m) the Parent or any of its Material Subsidiaries shall be
enjoined, restrained or in any way prevented by the order of any court
or any administrative or regulatory agency from conducting any material
part of its business and such order shall continue in effect for more
than thirty (30) days and such injunction, restraint or prevention
could reasonably be expected to have a Material Adverse Effect.
then, and in any such event, so long as the same may be continuing, the Agent
may with the consent of the Majority Banks, and upon the request of the Majority
Banks shall, by notice in writing to the
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Parent declare all amounts owing with respect to this Credit Agreement, the
Notes and the other Loan Documents and all Reimbursement Obligations to be, and
they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Parent; PROVIDED that in the event of any Event
of Default specified in ss.ss.14.1(g) or 14.1(h), all such amounts shall become
immediately due and payable automatically and without any requirement of notice
from the Agent or any Bank.
14.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of
Default specified in ss.14.1(g) or ss.14.1(h) shall occur, any unused portion of
the Commitments hereunder shall forthwith terminate and each of the Banks shall
be relieved of all further obligations to make Loans to any Borrower and the
Agent shall be relieved of all further obligations to issue, extend or renew
Letters of Credit. If any other Event of Default shall have occurred and be
continuing, the Agent may with the consent of the Majority Banks and, upon the
request of the Majority Banks, shall, by notice to the Parent, terminate the
unused portion of the credit hereunder, and upon such notice being given such
unused portion of the credit hereunder shall terminate immediately and each of
the Banks shall be relieved of all further obligations to make Loans and the
Agent shall be relieved of all further obligations to issue, extend or renew
Letters of Credit. No termination of the credit hereunder shall relieve the
Parent or any of its Subsidiaries of any of the Obligations.
14.3. REMEDIES. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to ss.14.1, each Bank, if owed
any amount with respect to the Loans or the Reimbursement Obligations, may
proceed to protect and enforce its rights by suit in equity, action at law or
other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Credit Agreement and the other Loan
Documents or any instrument pursuant to which the Obligations to such Bank are
evidenced, including as permitted by applicable law the obtaining of the EX
PARTE appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Bank. No remedy herein conferred upon any Bank
or the Agent or the holder of any Note or purchaser of any Letter of Credit
Participation is intended to be exclusive of any other remedy and each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or any
other provision of law.
14.4. DISTRIBUTION OF PROCEEDS. In the event that, following the
occurrence or during the continuance of any Default or Event of Default, the
Agent or any Bank, as the case may be, receives any monies in connection with
the enforcement of any the Loan Documents, or otherwise with respect to the
realization upon any collateral, such monies shall be distributed for
application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent in connection with the collection of such monies
by the Agent, for the exercise, protection or enforcement by the Agent
of all or any of the rights, remedies, powers and privileges of the
Agent under this Credit Agreement or any of the other Loan Documents or
in respect of the collateral or in support of any provision of adequate
indemnity to the Agent against any taxes or liens which by law shall
have, or may have, priority over the rights of the Agent to such
monies;
(b) Second, to all other Obligations then due in such order or
preference as the Majority Banks may determine; PROVIDED, HOWEVER, that
distributions in respect of such obligations shall be made (i) PARI
PASSU among Obligations with respect to the Agent's fee payable
pursuant to ss.6.2 and all other Obligations and (ii) Obligations owing
to the Banks with respect to each type of Obligation such as interest,
principal, fees and expenses, shall be
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made among the Banks PRO RATA; and PROVIDED, FURTHER, that the Agent
may in its discretion make proper allowance to take into account any
Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Banks and the Agent
of all of the Obligations, to the payment of any obligations required
to be paid pursuant to a court order; and
(d) Fourth, the excess, if any, shall be returned to the
Borrowers or to such other Persons as are entitled thereto.
14.5. EXCHANGE RATE. If, for the purpose of obtaining judgment in any
court or obtaining an order enforcing a judgment, it becomes necessary to
convert any amount due under this Credit Agreement in Dollars or in any other
currency (hereinafter in this ss.14.5 called the "first currency") into any
other currency (hereinafter in this ss.14.5 called the "second currency"), then
the conversion shall be made at the Agent's spot rate of exchange for buying the
first currency with the second currency prevailing at the Agent's close of
business on the Business Day next preceding the day on which the judgment is
given or (as the case may be) the order is made. Any payment made to the Agent
pursuant to this Credit Agreement in the second currency shall constitute a
discharge of the obligations of the respective Borrower to pay to the Agent or
any Bank any amount originally due to the Agent or any Bank in the first
currency under this Credit Agreement only to the extent of the amount of the
first currency which the Agent or any Bank is able, on the date of the receipt
by it of such payment in any second currency, to purchase, in accordance with
the Agent's or such Bank's normal banking procedures, the amount of such second
currency so received. If the amount of the first currency falls short of the
amount originally due to the Agent or any Bank in the first currency under this
Credit Agreement, the Borrowers hereby agree that they will indemnify the Agent
and the Banks against and save the Agent and the Banks harmless from any
shortfall so arising. This indemnity shall constitute an obligation of such
Borrower separate and independent from the other obligations contained in this
Credit Agreement, shall give rise to a separate and independent cause of action
and shall continue in full force and effect notwithstanding any judgment or
order for a liquidated sum or sums in respect of amounts due to the Agent and
the Banks under this Credit Agreement or under any such judgment or order. Any
such shortfall shall be deemed to constitute a loss suffered by the Agent and
the Banks and the Borrowers shall not be entitled to require any proof or
evidence of any actual loss. The covenant contained in this ss.14.5 shall
survive the payment in full of all of the other obligations of the Borrowers
under this Credit Agreement.
15. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, the Borrowers acknowledge that by operation of applicable
law any deposits or other sums credited by or due from any of the Banks to a
Borrower and any securities or other property of a Borrower in the possession of
such Bank or any affiliate may be applied to or set off by such Bank against the
payment of Obligations and any and all other liabilities, direct, or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
of a Borrower to such Bank. Each of the Banks agrees with each other Bank that
if such Bank shall receive from a Borrower, whether by voluntary payment,
exercise of the right of setoff, counterclaim, cross action, enforcement of the
claim evidenced by the Notes held by, or constituting Reimbursement Obligations
owed to, such Bank, by proceedings against a Borrower at law or in equity or by
proof thereof in bankruptcy, reorganization, liquidation, receivership or
similar proceedings, or otherwise, and shall retain and apply to the payment of
the Note or Notes held by, or Reimbursement Obligations owed to, such Bank any
amount in excess of its ratable portion of the payments received by all of the
Banks with respect to the Notes held by, and Reimbursement Obligations owed to,
all of the Banks, such Bank will make such disposition and arrangements with the
other Banks with respect to such excess, either by way of distribution, PRO
TANTO assignment of claims, subrogation or otherwise as
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shall result in each Bank receiving in respect of the Notes held by it or
Reimbursement Obligations owed it, its proportionate payment as contemplated by
this Credit Agreement; PROVIDED that if all or any part of such excess payment
is thereafter recovered from such Bank, such disposition and arrangements shall
be rescinded and the amount restored to the extent of such recovery, but without
interest.
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16. THE AGENT.
16.1. AUTHORIZATION.
(a) The Agent is authorized to take such action on behalf of
each of the Banks and to exercise all such powers as are hereunder and
under any of the other Loan Documents and any related documents
delegated to the Agent, together with such powers as are reasonably
incident thereto, PROVIDED that no duties or responsibilities not
expressly assumed herein or therein shall be implied to have been
assumed by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement unless it shall first
have received such advice or concurrence of the Majority Banks as it
reasonably deems appropriate or it shall first be indemnified to its
reasonable satisfaction by the Banks against any and all liability and
expense which may be incurred by it by reason of taking or continuing
to take any such action.
(b) The relationship between the Agent and each of the Banks
is that of an independent contractor. The use of the term "Agent" is
for convenience only and is used to describe, as a form of convention,
the independent contractual relationship between the Agent and each of
the Banks. Nothing contained in this Credit Agreement nor the other
Loan Documents shall be construed to create an agency, trust or other
fiduciary relationship between the Agent and any of the Banks.
(c) As an independent contractor empowered by the Banks to
exercise certain rights and perform certain duties and responsibilities
hereunder and under the other Loan Documents, the Agent is nevertheless
a "representative" of the Banks, as that term is defined in Article 1
of the Uniform Commercial Code, for purposes of actions for the benefit
of the Banks and the Agent with respect to all collateral security and
guaranties contemplated by the Loan Documents. Such actions include the
designation of the Agent as "secured party", "mortgagee" or the like on
all financing statements and other documents and instruments, whether
recorded or otherwise, relating to the attachment, perfection, priority
or enforcement of any security interests, mortgages or deeds of trust
in collateral security intended to secure the payment or performance of
any of the Obligations, all for the benefit of the Banks and the Agent.
16.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and
execute its duties by or through employees or agents and shall be entitled to
take, and to rely on, advice of counsel concerning all matters pertaining to its
rights and duties under this Credit Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent in its sole
discretion may reasonably determine, and all reasonable fees and expenses of any
such Persons shall be paid by the Borrower.
16.3. NO LIABILITY. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
16.4. NO REPRESENTATIONS. The Agent shall not be responsible for the
execution or validity or enforceability of this Credit Agreement, the Notes, the
Letters of Credit, any of the other Loan Documents or any instrument at any time
constituting, or intended to constitute, collateral security for the Notes, or
for the value of any such collateral security or for the validity,
enforceability or
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collectability of any such amounts owing with respect to the Notes, or for any
recitals or statements, warranties or representations made herein or in any of
the other Loan Documents or in any certificate or instrument hereafter furnished
to it by or on behalf of the Parent or any of its Subsidiaries, or be bound to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, covenants or agreements herein or in any instrument at any time
constituting, or intended to constitute, collateral security for the Notes or to
inspect any of the properties, books or records of the Borrower or any of its
Subsidiaries. The Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by a Borrower or any holder of any of
the Notes shall have been duly authorized or is true, accurate and complete. The
Agent has not made nor does it now make any representations or warranties,
express or implied, nor does it assume any liability to the Banks, with respect
to the credit worthiness or financial conditions of the Parent or any of its
Subsidiaries. Each Bank acknowledges that it has, independently and without
reliance upon the Agent or any other Bank, and based upon such information and
documents as it has deemed appropriate, made its own credit analysis and
decision to enter into this Credit Agreement.
16.5. PAYMENTS.
16.5.1. PAYMENTS TO AGENT. A payment by a Borrower to the
Agent hereunder or any of the other Loan Documents for the account of
any Bank shall constitute a payment to such Bank. The Agent agrees
promptly to distribute to each Bank such Bank's PRO RATA share of
payments received by the Agent for the account of the Banks except as
otherwise expressly provided herein or in any of the other Loan
Documents.
16.5.2. DISTRIBUTION BY AGENT. If in the opinion of the Agent
the distribution of any amount received by it in such capacity
hereunder, under the Notes or under any of the other Loan Documents
might involve it in liability, it may refrain from making distribution
until its right to make distribution shall have been adjudicated by a
court of competent jurisdiction. If a court of competent jurisdiction
shall adjudge that any amount received and distributed by the Agent is
to be repaid, each Person to whom any such distribution shall have been
made shall either repay to the Agent its proportionate share of the
amount so adjudged to be repaid or shall pay over the same in such
manner and to such Persons as shall be determined by such court.
16.5.3. DELINQUENT BANKS. Notwithstanding anything to the
contrary contained in this Credit Agreement or any of the other Loan
Documents, any Bank that fails (a) to make available to the Agent its
PRO RATA share of any Loan or to purchase any Letter of Credit
Participation or (b) to comply with the provisions of ss.15 with
respect to making dispositions and arrangements with the other Banks,
where such Bank's share of any payment received, whether by setoff or
otherwise, is in excess of its PRO RATA share of such payments due and
payable to all of the Banks, in each case as, when and to the full
extent required by the provisions of this Credit Agreement, shall be
deemed delinquent (a "Delinquent Bank") and shall be deemed a
Delinquent Bank until such time as such delinquency is satisfied. A
Delinquent Bank shall be deemed to have assigned any and all payments
due to it from a Borrower, whether on account of outstanding Loans,
Unpaid Reimbursement Obligations, interest, fees or otherwise, to the
remaining nondelinquent Banks for application to, and reduction of,
their respective PRO RATA shares of all outstanding Loans and Unpaid
Reimbursement Obligations. The Delinquent Bank hereby authorizes the
Agent to distribute such payments to the nondelinquent Banks in
proportion to their respective PRO RATA shares of all outstanding Loans
and Unpaid Reimbursement Obligations. A Delinquent Bank shall be deemed
to have satisfied in full a delinquency when and if, as a result of
application of the assigned payments to all outstanding Loans and
Unpaid Reimbursement Obligations of the nondelinquent Banks, the Banks'
respective PRO RATA shares of all outstanding Loans and
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Unpaid Reimbursement Obligations have returned to those in effect
immediately prior to such delinquency and without giving effect to the
nonpayment causing such delinquency.
16.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of any
Note or the purchaser of any Letter of Credit Participation as the absolute
owner or purchaser thereof for all purposes hereof until it shall have been
furnished in writing with a different name by such payee or by a subsequent
holder, assignee or transferee.
16.7. INDEMNITY. The Banks ratably agree hereby to indemnify and hold
harmless the Agent from and against any and all claims, actions and suits
(whether groundless or otherwise), losses, damages, costs, expenses (including
any expenses for which the Agent has not been reimbursed by a Borrower as
required by ss.17), and liabilities of every nature and character arising out of
or related to this Credit Agreement, the Notes, or any of the other Loan
Documents or the transactions contemplated or evidenced hereby or thereby, or
the Agent's actions taken hereunder or thereunder, except to the extent that any
of the same shall be directly caused by the Agent's willful misconduct or gross
negligence.
16.8. AGENT AS BANK. In its individual capacity, FNBB shall have the
same obligations and the same rights, powers and privileges in respect to its
Commitment and the Loans made by it, and as the holder of any of the Notes and
as the purchaser of any Letter of Credit Participations, as it would have were
it not also the Agent.
16.9. RESIGNATION. The Agent may resign at any time by giving sixty
(60) days prior written notice thereof to the Banks and the Parent. Upon any
such resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Parent.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
17. EXPENSES.
The Parent agree to pay (a) the reasonable costs of producing and
reproducing this Credit Agreement, the other Loan Documents and the other
agreements and instruments mentioned herein, (b) without duplication to those
items set forth in ss.7 and ss.20 (and giving effect to the exclusion
therefrom), any taxes (including any interest and penalties in respect thereto)
payable by the Agent or any of the Banks (other than Excluded Taxes) on or with
respect to the transactions contemplated by this Credit Agreement (the Borrower
hereby agreeing to indemnify the Agent and each Bank with respect thereto), (c)
the reasonable fees, expenses and disbursements of the Agent's Special Counsel
or any local counsel to the Agent incurred in connection with the preparation,
administration, syndication or interpretation of the Loan Documents and other
instruments mentioned herein, each closing hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) the fees,
expenses and disbursements of the Agent incurred by the Agent in connection with
the preparation, administration, syndication or interpretation of the Loan
Documents and other instruments mentioned herein, including (e) all reasonable
out-of-pocket expenses
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(including without limitation reasonable attorneys' fees and costs, which
attorneys may be employees of any Bank or the Agent, and reasonable consulting,
accounting, appraisal, investment banking and similar professional fees and
charges) incurred by any Bank or the Agent in connection with (i) the
enforcement of or preservation of rights under any of the Loan Documents against
the Borrower or any of its Subsidiaries or the administration thereof after the
occurrence of a Default or Event of Default, including, without limitation, all
reasonable out-of-pocket expense incurred by the Banks or the Agent in
connection with the enforcement of the Guaranteed Obligations, and (ii) any
litigation, proceeding or dispute whether arising hereunder or otherwise, in any
way related to any Bank's or the Agent's relationship with a Borrower or any of
its Subsidiaries under this Credit Agreement and (f) all reasonable fees,
expenses and disbursements of any Bank or the Agent incurred in connection with
UCC searches performed on or prior to the Closing Date or performed after such
date in the ordinary course of business; PROVIDED, HOWEVER, in the event the
Agent or any Bank is required to pay any Florida documentary stamp tax as a
result of the Agent's or such Bank's election to bring its Note into the State
of Florida for any reason other than for enforcement or the preservation of its
rights hereunder, such tax shall be for the Agent's or such Bank's account. The
covenants of this ss.17 shall survive payment or satisfaction of all other
Obligations.
18. INDEMNIFICATION.
The Borrowers, ratably in accordance with the aggregate principal
amount of their respective Loans, shall indemnify the Agents, the Banks and each
affiliate thereof and their respective directors, officers, employees and agents
from, and hold each of them harmless against, any and all losses, liabilities,
claims or damages to which any of them may become subject, insofar as such
losses, liabilities, claims or damages arise out of or result from any actual or
proposed use by the Borrower of the proceeds of any extension of credit by any
Bank hereunder or breach by any Borrower of this Credit Agreement or any other
Loan Document or from any investigation, litigation (including, without
limitation, any actions taken by the Agents or any of the Banks to enforce this
Credit Agreement or any of the other Loan Document) or other proceeding
(including, without limitation, any threatened investigation or proceeding)
relating to the foregoing, and the Borrowers shall reimburse the Agents and each
Bank, and each affiliate thereof and their respective directors, officers,
employees and agents, upon demand for any expenses (including, without
limitation, legal fees) incurred in connection with any such investigation or
proceeding; but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified. The indemnification provisions (including, without
limitation, provisions for default interest, to the extent that this ss.18 might
be construed as duplicating the Borrowers' obligations to pay interest at the
Default Rate as required elsewhere in this Agreement) set forth in this ss.18
are meant to be without duplication of any other indemnification provisions set
forth in this Credit Agreement and without limiting the generality of the
foregoing, the costs, expenses and other amounts that are provided for in
ss.ss.4.10. 7.3, 7.6, 7.7, 7.8, 7.10 and 17 hereof shall not be covered by this
ss.18, nor shall any costs, expenses or other amounts that are excluded from
those Sections be covered by this ss.18.
If any indemnified party shall have notice of any event or condition
for which indemnification will be sought from the Borrowers hereunder, such
indemnified party shall give prompt and timely notice of such event or condition
to the Parent and shall cooperate fully with the Parent in taking any action
with respect to such event or condition. The Parent shall have the right to
control any proceedings in connection with any event or condition that is the
subject to indemnification hereunder, including, without limitation, the
decision to commence or not to commence such proceeding, to defend or not to
defend, to discontinue or settle such proceeding or to appeal any decision with
respect thereto, so long as the indemnified party is held entirely harmless
pursuant hereto and the Parent is not in default in any of its obligations under
this ss.18; PROVIDED, HOWEVER, that the Parent may not, in connection with the
settlement or disposition thereof, or otherwise, admit or acknowledge liability,
fault or wrongdoing on the part of any indemnified party
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without the express written consent of such indemnified party; PROVIDED,
FURTHER, that any indemnified party shall be entitled to control any aspect of
the proceedings against them as to which an adverse outcome could, in the
reasonable opinion of such indemnified party, subject such indemnified party to
any criminal liability or to any liability, claim or relief not within the scope
of the indemnity of the Parent, provided that the Parent shall only be required
to pay the costs and expenses associated with one counsel for itself and all
parties seeking indemnification hereunder; and PROVIDED, FURTHER, that if the
Majority Banks reasonably object to the selection of counsel in any proceedings
described in this sentence, and such objection is made in a sufficiently timely
manner so as not to pose a material risk of prejudice to the Parent, its
Subsidiaries, the Agent or the Banks with respect to the outcome of the
proceeding, the Parent shall select other or additional counsel acceptable to
the Majority Banks (which acceptance shall not be unreasonably withheld or
delayed).
Upon the payment of any amounts due to the indemnified parties under
this ss.18, the Borrowers shall be subrogated to all of the indemnified party's
rights and claims with respect to the subject of such indemnity payment.
19. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Parent or any of its Subsidiaries
pursuant hereto shall be deemed to have been relied upon by the Banks and the
Agent, notwithstanding any investigation heretofore or hereafter made by any of
them, and shall survive the making by the Banks of any of the Loans and the
issuance, extension or renewal of any Letters of Credit, as herein contemplated,
and shall continue in full force and effect so long as any Letter of Credit or
any amount due under this Credit Agreement or the Notes or any of the other Loan
Documents remains outstanding or any Bank has any obligation to make any Loans
or the Agent has any obligation to issue, extend or renew any Letter of Credit,
and for such further time as may be otherwise expressly specified in this Credit
Agreement. All statements contained in any certificate or other paper delivered
to any Bank or the Agent at any time by or on behalf of the Parent or any of its
Subsidiaries pursuant hereto or in connection with the transactions contemplated
hereby shall constitute representations and warranties by the Parent or such
Subsidiary hereunder.
20. ASSIGNMENT AND PARTICIPATION.
20.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided herein,
each Bank may assign to one or more Eligible Assignees or any of such Bank's
affiliates, which affiliate shall not be required to be an Eligible Assignee,
all or a portion of its interests, rights and obligations under this Credit
Agreement (including all or a portion of its Commitment Percentage and
Commitment and the same portion of the Loans at the time owing to it, the Notes
held by it and its participating interest in the risk relating to any Letters of
Credit); PROVIDED that (a) each of the Agent and, unless a Default or Event of
Default shall have occurred and be continuing or such assignment is being made
by FNBB within six months of December 16, 1996, the Parent shall have given its
prior written consent to such assignment, which consent, in the case of the
Parent, will not be unreasonably withheld; provided, however, in the event of an
assignment by an Bank to its affiliate, the consent of the Agent and the
Borrower shall not be required; (b) each such assignment shall be of a constant,
and not a varying, percentage of all the assigning Bank's rights and obligations
under this Credit Agreement, and (c) each assignment shall be in an amount that
is not less than $10,000,000. The parties to such assignment shall execute and
deliver to the Agent, for recording in the Register (as hereinafter defined), an
Assignment and Acceptance, substantially in the form of EXHIBIT K hereto (an
"Assignment and Acceptance"), together with any Notes subject to such
assignment. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five (5) Business Days after the execution
thereof, (i) the assignee thereunder shall be a party hereto and, to the extent
provided in
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such Assignment and Acceptance, have the rights and obligations of a Bank
hereunder, and (ii) the assigning Bank shall, to the extent provided in such
assignment and upon payment to the Agent of the registration fee referred to in
ss.20.3, be released from its obligations under this Credit Agreement.
20.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS.
By executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Bank makes no
representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan Documents
or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or
mortgage,
(b) the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of
the Parent and its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the
performance or observance by the Parent and its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations of any of their obligations under this Credit Agreement or
any of the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto;
(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial
statements referred to in ss.8.4 and ss.9.4 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance
upon the assigning Bank, the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Credit Agreement;
(e) such assignee represents and warrants that it is an
Eligible Assignee;
(f) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under
this Credit Agreement and the other Loan Documents as are delegated to
the Agent by the terms hereof or thereof, together with such powers as
are reasonably incidental thereto;
(g) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this
Credit Agreement are required to be performed by it as a Bank;
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance;
(i) such assignee acknowledges that it has made arrangements
with the assigning Bank satisfactory to such assignee with respect to
its PRO RATA share of Letter of Credit Fees in respect of outstanding
Letters of Credit; and
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(j) such assignee shall not be entitled to receive any greater
payment which might otherwise be due such assignee under ss.ss.4.10,
7.3, 7.6, 7.7, 7.8 or 7.10 than the assignor would have been entitled
to receive on such date with respect to the rights transferred to the
extent that the circumstances giving rise to such greater payment
existed on the date of such transfer, unless such transfer is made by
reason of the provisions of ss.ss.7.6 and 7.7 requiring such Bank to
designate a different lending office under certain circumstances, and
in any event any costs or expenses associated with an assignment to any
assignee (including, without limitation, the Florida documentary stamp
tax) shall be for the account of such assignee.
20.3. REGISTER. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to and
Letter of Credit Participations purchased by, the Banks from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by the Borrower and
the Banks at any reasonable time and from time to time upon reasonable prior
notice. Upon each such recordation, the assigning Bank agrees to pay to the
Agent a registration fee in the sum of $2,500.
20.4. GENERAL. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, the Agent shall (a) record the
information contained therein in the Register, and (b) give prompt notice
thereof to the Parent and the Banks (other than the assigning Bank).
20.5. PARTICIPATIONS. Each Bank may sell participations to one or more
banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; PROVIDED
that (a) each such participation shall be in an amount of not less than
$10,000,000, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrowers, (c) no participant shall
be entitled to receive any greater payment under this Credit Agreement or any
other Loan Document than the Bank selling such participation would have been
entitled to receive had such participation not existed and (d) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant, reduce
the amount of any commitment fees or Letter of Credit Fees to which such
participant is entitled or extend any regularly scheduled payment date for
principal or interest.
20.6. DISCLOSURE. The Borrowers agree that in addition to disclosures
made in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Credit Agreement to
assignees or participants and potential assignees or participants hereunder;
PROVIDED that such assignees or participants or potential assignees or
participants shall agree (a) to treat in confidence such information unless such
information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.
20.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE PARENT. If any
assignee Bank is an Affiliate of the Parent, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to ss.14.1 or ss.14.2, and
the determination of the
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Majority Banks shall for all purposes of this Agreement and the other Loan
Documents be made without regard to such assignee Bank's interest in any of the
Loans. If any Bank sells a participating interest in any of the Loans or
Reimbursement Obligations to a participant, and such participant is the Parent
or an Affiliate of the Parent, then such transferor Bank shall promptly notify
the Agent of the sale of such participation. A transferor Bank shall have no
right to vote as a Bank hereunder or under any of the other Loan Documents for
purposes of granting consents or waivers or for purposes of agreeing to
amendments or modifications to any of the Loan Documents or for purposes of
making requests to the Agent pursuant to ss.14.1 or ss.14.2 to the extent that
such participation is beneficially owned by the Parent or any Affiliate of the
Parent, and the determination of the Majority Banks shall for all purposes of
this Agreement and the other Loan Documents be made without regard to the
interest of such transferor Bank in the Loans to the extent of such
participation.
20.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall
retain its rights to be indemnified pursuant to ss.17 with respect to any claims
or actions arising prior to the date of such assignment. If any assignee Bank is
not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Parent and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. Anything contained in
this ss.20 to the contrary notwithstanding, any Bank may at any time pledge all
or any portion of its interest and rights under this Credit Agreement (including
all or any portion of its Notes) to any of the twelve Federal Reserve Banks
organized under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341. No such
pledge or the enforcement thereof shall release the pledgor Bank from its
obligations hereunder or under any of the other Loan Documents.
20.9. ASSIGNMENT BY BORROWERS. The Borrowers shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Banks.
21. NOTICES, ETC.
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Notes or any Letter of Credit Applications shall be in
writing and shall be delivered in hand, mailed by United States registered or
certified first class mail, postage prepaid, sent by overnight courier, or sent
by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier
or postal service, addressed as follows:
(a) if to any Borrower, at 951 Yamato Road, Boca Raton,
Florida, Attention: Chief Financial Officer, or at such other address
for notice as the Parent shall last have furnished in writing to the
Person giving the notice;
(b) if to the Agent, at 100 Federal Street, Boston,
Massachusetts 02110, USA, Attention: Jay L. Massimo, Vice President, or
such other address for notice as the Agent shall last have furnished in
writing to the Person giving the notice; and
(c) if to any Bank, at such Bank's address set forth on
SCHEDULE 1 hereto, or such other address for notice as such Bank shall
have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of
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such facsimile and (b) if sent by registered or certified first-class mail,
postage prepaid, on the third Business Day following the mailing thereof.
22. GOVERNING LAW.
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
STATE OF NEW YORK AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SAID STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO
CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE
ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING
THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE
OF PROCESS IN ANY SUCH SUIT BEING MADE UPON A BORROWER BY MAIL AT THE ADDRESS
SPECIFIED IN SS.21. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT ANY OF THEM
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR
THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
23. HEADINGS.
The captions in this Credit Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.
24. COUNTERPARTS.
This Credit Agreement and any amendment hereof may be executed in
several counterparts and by each party on a separate counterpart, each of which
when executed and delivered shall be an original, and all of which together
shall constitute one instrument. In proving this Credit Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
25. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Credit Agreement
nor any term hereof may be changed, waived, discharged or terminated, except as
provided in ss.27.
26. WAIVER OF JURY TRIAL.
The Borrowers hereby waive their right to a jury trial with respect to
any action or claim arising out of any dispute in connection with this Credit
Agreement, the Notes or any of the other Loan Documents, any rights or
obligations hereunder or thereunder or the performance of which rights and
obligations. Except as prohibited by law, the Borrowers hereby waive any right
any of them may have to claim or recover in any litigation referred to in the
preceding sentence any special, exemplary, punitive or consequential damages or
any damages other than, or in addition to, actual damages. The Borrowers (a)
certify that no representative, agent or attorney of any Bank or the Agent has
represented, expressly or otherwise, that such Bank or the Agent would not, in
the event of litigation, seek to enforce the foregoing waivers and (b)
acknowledge that the Agent and the Banks have been induced to enter into this
Credit Agreement, the other Loan Documents to which it is a party by, among
other things, the waivers and certifications contained herein.
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27. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Any consent or approval required or permitted by this Credit Agreement
to be given by all of the Banks may be given, and any term of this Credit
Agreement, the other Loan Documents or any other instrument related hereto or
mentioned herein may be amended, and the performance or observance by the Parent
or any of its Subsidiaries of any terms of this Credit Agreement, the other Loan
Documents or such other instrument or the continuance of any Default or Event of
Default may be waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written consent of the
Borrower and the written consent of the Majority Banks. Notwithstanding the
foregoing, the rate of interest on the Notes, the term of the Notes, the amount
of the Commitments of the Banks, and the amount of facility fee or Letter of
Credit Fees hereunder, any scheduled payment date for principal, interest, fees,
any Reimbursement Obligation, any extension of a Letter of Credit not provided
for in ss.5, the release of the guarantor hereunder, any changes to this ss.27,
waivers of ss.12 hereof or any other provision expressly requiring the consent
of all the Banks may not be changeD without the written consent of the Borrowers
and the written consent of each Bank affected thereby; the definition of
Majority Banks may not be amended without the written consent of all of the
Banks; and the amount of the Agent's Fee or any Letter of Credit Fees payable
for the Agent's account and ss.16 may not be amendeD without the written consent
of the Agent. No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of dealing or delay or
omission on the part of the Agent or any Bank in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or
demand upon a Borrower shall entitle any Borrower to other or further notice or
demand in similar or other circumstances.
28. SEVERABILITY.
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Credit Agreement in any jurisdiction.
29. TRANSITIONAL ARRANGEMENTS.
29.1. ORIGINAL CREDIT AGREEMENT SUPERSEDED. This Credit Agreement shall
on the Closing Date amend and restate the Original Credit Agreement in its
entirety, except as provided in this ss.29. On the Closing Date, thE rights and
obligations of the parties evidenced by the Original Credit Agreement shall be
evidenced by the Credit Agreement and the other Loan Documents, the "Revolving
Credit Loans" as defined in the Original Credit Agreement shall be converted to
Revolving Credit Loans as defined herein (including the Swing Line Loans), all
"Competitive Bid Loans" as defined in the Original Credit Agreement shall be
converted to Competititve Bid Loans as defined herein and all outstanding
letters of credit issued by the Agent for the account of any Borrower prior to
the Closing Date shall, for purposes of this Credit Agreement, be Letters of
Credit.
29.2. RETURN AND CANCELLATION OF NOTES. As soon as reasonably
practicable after its receipt of its Revolving Credit Note, Competitive Bid
Note, if any, and, in the case of FNBB, the Swing Line Note, hereunder on the
Closing Date, the Agent and any Bank holding a Revolving Credit Note,
Competitive Bid Note or Swing Line Note, as the case may be, will promptly
return to the Borrower, marked "Substituted" or "Cancelled" as the case may be,
any notes of any Borrower held by the Banks pursuant to the Original Credit
Agreement.
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29.3. INTEREST AND FEES UNDER SUPERSEDED AGREEMENT. All interest and
fees and expenses, if any, owing or accruing under or in respect of the Original
Credit Agreement through the Closing Date shall be calculated as of the Closing
Date (prorated in the case of any fractional periods), and shall be paid in
accordance with the method, and on the dates, specified in the Original Credit
Agreement, as if the Original Credit Agreement were still in effect. Commencing
on the Closing Date, the facility fee shall be payable by the Borrowers to the
Agent for the account of the Banks in accordance with ss.2.2.
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IN WITNESS WHEREOF, the undersigned have duly executed this Amended and
Restated Multicurrency Revolving Credit Agreement as a sealed instrument as of
the date first set forth above.
SENSORMATIC ELECTRONICS CORPORATION
By:
--------------------------------------
Name:
Title:
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THE FIRST NATIONAL BANK OF BOSTON,
individually and as Agent
By:
--------------------------------------
Name:
Title:
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CITIBANK, N.A.
By:
--------------------------------------
Name:
Title:
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SUN TRUST BANK, SOUTH FLORIDA, N.A.
By:
--------------------------------------
Name:
Title:
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THE FUJI BANK LIMITED, NEW YORK BRANCH
By:
--------------------------------------
Name:
Title:
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NATIONSBANK, N.A.
By:
--------------------------------------
Name:
Title:
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CIBC, INC.
By:
--------------------------------------
Name:
Title:
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<PAGE> 90
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
-84-
<PAGE> 91
LTCB TRUST COMPANY
By:
--------------------------------------
Name:
Title:
-85-
<PAGE> 92
MITSUBISHI TRUST & BANKING
CORPORATION (U.S.A.)
By:
--------------------------------------
Name:
Title:
-86-
<PAGE> 93
THE SUMITOMO BANK, LIMITED
By:
--------------------------------------
Name:
Title:
-87-
<PAGE> 94
THE YASUDA TRUST AND BANKING COMPANY
LIMITED, NEW YORK BRANCH
By:
--------------------------------------
Name:
Title:
-88-
<PAGE> 95
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
ATLANTA AGENCY
By:
--------------------------------------
Name:
Title:
-89-
<PAGE> 96
THE FIRST NATIONAL BANK OF CHICAGO
By:
--------------------------------------
Name:
Title:
-90-
<PAGE> 97
ISTITUTO BANCARIO SAN PAOLO di TORINO SPA
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
-91-
<PAGE> 98
SCHEDULE 1
----------
BANKS; COMMITMENTS; COMMITMENT PERCENTAGES
------ ------------ ----------------------
<TABLE>
<CAPTION>
Revolving Commitment
Credit Loan Percentage of Revolving Credit
Banks Commitment Loans and Letters of Credit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The First National Bank of Boston $30,000,000 12%
DOMESTIC LENDING OFFICE:
100 Federal Street
Boston, Massachusetts 02110
Attn: Joseph L. Massimo, Vice President
EURODOLLAR LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
NationsBank, N.A. $30,000,000 12%
DOMESTIC LENDING OFFICE:
NationsBank Corporate Center
100 North Tryon Street
Charlotte, NC 29255
Attn: Andrew Mike Airheart,
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
LTCB Trust Company $30,000,000 12%
DOMESTIC LENDING OFFICE:
245 Peachtree Center Avenue, N.E.
Suite 2801, Marquis One Tower
Atlanta, GA 30303
Attn: Bill Comey, Vice President
EUROCURRENCY LENDING OFFICe:
Same as above
- -------------------------------------------------------------------------------------------------------------------
CIBC Inc. $20,000,000 8%
DOMESTIC LENDING OFFICE:
Two Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, Georgia 30330
Attn: Richard Popp, Vice President
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 99
Page 2
<TABLE>
<CAPTION>
Revolving Commitment
Credit Loan Percentage of Revolving Credit
Banks Commitment Loans and Letters of Credit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Citibank N.A. $15,000,000 6%
DOMESTIC LENDING OFFICE:
c/o Citicorp USA, Inc'
400 Perimeter Center Terrace, Suite 600
Atlanta, Georgia 30346
Attn: Kirk Lakeman, Vice President
EURODOLLAR LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
The First National Bank of Chicago $15,000,000 6%
DOMESTIC LENDING OFFICE:
One First National Plaza, Suite 0374
Chicago, IL 60670
Attn: Price Chenault, Vice President
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
Union Bank of Switzerland $15,000,000 6%
DOMESTIC LENDING OFFICE:
299 Pak Avenue
New York, New York 10171
Attn: Jan Buettgen, Vice President
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
The Fuji Bank, Limited $15,000,000 6%
New York Branch
DOMESTIC LENDING OFFICE:
Two World Trade Center
New York, New York 10048
Attn: Chigusa Tada, Assistant Vice President
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
The Industrial Bank of Japan, Limited, Atlanta Agency $15,000,000 6%
DOMESTIC LENDING OFFICE:
191 Peachtree Street, N.E., Suite 3600
Atlanta, GA 30303
Attn: Mike Harvey
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 100
Page 3
<TABLE>
<CAPTION>
Revolving Commitment
Credit Loan Percentage of Revolving Credit
Banks Commitment Loans and Letters of Credit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Istituto Bancario San Paolo di Torino SPA $15,000,000 6%
DOMESTIC LENDING OFFICE:
245 Park Avenue
New York, NY 10167
Attn: Robert Wurster
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
The Yusuta Trust and Banking Company Limited, $15,000,000 6%
New York Branch
DOMESTIC LENDING OFFICE:
Suite 2104 - Marquis Two Tower
285 Peachtree Street
Atlanta, GA 30303
Attn: Price Chenault
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
Suntrust Bank $15,000,000 6%
Domestic Lending Office:
501 East Los Olas Blvd.
Fort Lauderdale, Florida 33301
Attn: Russell E. Burnette
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
Mitsubishi Trust & Banking Corporation (U.S.A.) $10,000,000 4%
DOMESTIC LENDING OFFICE:
520 Madison Avenue, 39th Floor
New York, NY 10022
Attn: Gary Maciak
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
The Sumitomo Bank, Limited $10,000,000 4%
DOMESTIC LENDING OFFICE:
Suite 3210 - Georgia Pacific Center
133 Peachtree Street
Atlanta, GA 30303
Attn: Keith Munera
EUROCURRENCY LENDING OFFICE:
Same as above
- -------------------------------------------------------------------------------------------------------------------
TOTALS: $250,000,000 100%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 11
SENSORMATIC ELECTRONICS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income:
Income from continuing operations........................ $(21,460) $(97,674) $ 69,551
Discontinued operations.................................. - - 4,100
-------- -------- --------
Adjusted net income for fully diluted computation........ $(21,460) $(97,674) $ 73,651
======== ======== ========
Common shares:
Weighted average shares outstanding during the year...... 74,098 73,588 70,752
Potential dilutive exercise of stock options and
warrants.............................................. -(1) -(1) 1,227(2)
-------- -------- --------
Shares included in computation or primary earnings per
share................................................. 74,098 73,588 71,979
Maximum dilution of stock options and warrants(3)........ - - 188
-------- -------- --------
Shares included in computation of fully diluted earnings
per share............................................. 74,098 73,588 72,167
======== ======== ========
</TABLE>
- ---------------
(1) Not presented as the effect is anti-dilutive.
(2) Computed under the treasury stock method based on the average price during
each period.
(3) Computed under the treasury stock method based on the stock price at end of
each period if higher than the average price during the period.
<PAGE> 1
EXHIBIT 21
SENSORMATICS ELECTRONICS CORP
Filename:Subslist LIST OF SUBSIDIARIES
6/30/97
<TABLE>
<CAPTION>
PLACE OF INCORPORATION
OPERATING COMPANIES OR ORGANIZATION
- ------------------- ----------------------
<S> <C>
NORTH AMERICA
- -------------
POS Data Products, Inc. Delaware
Sensormatic Canada, Inc. Canada
Sensormatic Electronics Corporation (Puerto Rico) Delaware
Sensormatic, SA de CV Mexico
Sensormatic del Caribe, Inc. Puerto Rico
Sensormatic Security Monitoring, Inc. Delaware
EUROPE
- ------
All Security Systems N.V. Belgium
BAN Sensormatic Security Systems Gmbh Germany
Case Security Limited United Kingdom
Datamast SA France
ICF SARL France
International Engineering SARL France
Knogo Australia Pty. Ltd. Australia
SPD Mons SA Belgium
Knofo Nederland B.V. Netherlands
Robot Consult SA France
Secure Imaging Limited United Kingdom
Sensormatic AB Sweden
Sensormatic A.G. Switzerland
Sensormatic A/S Denmark
Sensormatic AS Norway
Sensormatic Belgium NV Belgium
Sensormatic B.V. Netherlands
Sensormatic CamEra Ltd.. United Kingdom
Sensormatic CamEra S.A.R.L. France
Sensormatic Distribution Inc. Delaware (primary operation in Switz)
Sensormatic E.C., S.A. Spain
Sensormatic E.C., S.R.L. Italy
Sensormatic France SA France
Sensormatic Ges.m.b.h. Austria
Sensormatic G.m.b.H. Germany
Sensormatic Electronics Corporation (Ireland) Limited Ireland
Sensormatic Finance Limited United Kingdom
SEC Investments of Ireland Ireland
Sensormatic Ireland Limited Ireland
Sensormatic International Ltd. United Kingdom
Sensormatic Portugesa Seguranca L.D.A. Portugal
Sensormatic Proteccao Contra O Furto, L.D.A. Portugal
Sensormatic Limited United Kingdom
N.V. Sensormatic S.A. Belgium
Sensormatic OY Finland
Sensormatic Kft. Hungary
Sensormatic Franceservices S.A.R.L. France
Svensk Sakerhetskonsult SAKON AB Sweden
Visual Information Systems Limited United Kingdom
</TABLE>
Page 1
<PAGE> 2
SENSORMATICS ELECTRONICS CORP
Filename:Subslist LIST OF SUBSIDIARIES
6/30/97
<TABLE>
<CAPTION>
PLACE OF INCORPORATION
OPERATING COMPANIES OR ORGANIZATION
- ------------------- ----------------------
<S> <C>
ASIA / PACIFIC
- --------------
Sensormatic Asia/Pacific, Inc. Delaware (primary operations in Sing.)
Sensormatic Australia Pty Limited Australia
Sensormatic Hong Kong Limited Hong Kong
Sensormatic New Zealand Limited New Zealand
OTHERS
- ------
Sensormatic Middle East, Inc. Delaware
Senelco Iberia, Inc. Delaware
International Financing, Inc. Delaware
Sensormatic (Barbados) Export, Inc. Barbados
Sensormatic Cayman Finance Ltd. Cayman Islands
Sensormatic del Peru Peru
Sensormatic Distribution & Holdings B.V. Netherlands
Sensormatic Electronics Corporation (Brazil) Delaware
Sensormatic Holdings Ltd. United Kingdom
Sensormatic International, Inc. Delaware
Senelco Resting, Aps Denmark
Sensormatic International Management Corporation Delaware
Sensormatic Investments Associates B.V. Netherlands
SEC Investments of Canada Ltd. Canada
Sensormatic Investments Ltd. United Kingdom
Sensormatic Holding Ges.m.b.H. Austria
Sensormatic Electronics Corporation (Japan) Japan
Sensormatic S.A. France
Sensormatic (U.K.) Ltd. United Kingdom
Elkinlane Ltd. United Kingdom
BI Merger Corp. Delaware
Kingsclare Investments Ltd. United Kingdom
Knogo Holdings S.A. Belgium
Sensormatic International Distributors, Inc. Delaware
Sensormatic do Brasil Electrnica Ltda. Brazil
Sensormatic Guvenlik Sistemleri Ticaret, A.S. Turkey
Sensormatic Colombia Colombia
Sensormatic Argentina, SA Argentina
Security Tag SA Panama
Sensormatic Norge Norway
Senelbra, Ltda. Brazil
Rivso Comercio E Participacoes Ltd. Brazil
Alarm-Tek Industria O Comercio SA Brazil
Knogo Do Brasil Sisternas De Vigilancia Ltd. Brazil
Knogo Latin America SA Uruguay
</TABLE>
All companies listed herein are wholly-owned by the Company, directly or
indirectly, with the exception of Sensormatic do Brasil Electronica
Ltda., Sensormatic Guvenlik Sistemleri Ticaret A.S. and Sensormatic de
Peru, which are 51% owned.
Page 2
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-19339, 33-26786, 33-38753, 33-54626 and 33-58299) pertaining to
the Incentive and Non-Qualified Stock Option Plans and the Employee Stock
Purchase Plan of Sensormatic Electronics Corporation of our report dated August
14, 1997, with respect to the consolidated financial statements of Sensormatic
Electronics Corporation included in the Annual Report on Form 10-K for the year
ended June 30, 1997.
ERNST & YOUNG LLP
West Palm Beach, Florida
September 29, 1997
<PAGE> 2
EXHIBIT 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-4 No. 33-51957) of Sensormatic Electronics Corporation and in the related
Prospectus of our report dated August 14, 1997, with respect to the consolidated
financial statements of Sensormatic Electronics Corporation included in the
Annual Report on Form 10-K for the year ended June 30, 1997.
ERNST & YOUNG LLP
West Palm Beach, Florida
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 506
<ALLOWANCES> 76
<INVENTORY> 200
<CURRENT-ASSETS> 610
<PP&E> 248
<DEPRECIATION> 102
<TOTAL-ASSETS> 1,644
<CURRENT-LIABILITIES> 329
<BONDS> 501
0
0
<COMMON> 730
<OTHER-SE> 42
<TOTAL-LIABILITY-AND-EQUITY> 1,644
<SALES> 853
<TOTAL-REVENUES> 1,026
<CGS> 539
<TOTAL-COSTS> 560
<OTHER-EXPENSES> 32
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> (30)
<INCOME-TAX> (9)
<INCOME-CONTINUING> (21)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
