UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number:........... 333-53987...................................
JACKSON PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 75-2470881
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(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
2997 Clarkson Road, Chesterfield, Missouri 63017
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(Address of principal executive offices)
(636) 207-2700
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
38,530 shares of Class A Common Stock at February 29, 2000
8,526 shares of Class C Common Stock at February 29, 2000
<PAGE>
TABLE OF CONTENTS PAGE
PART I......................................................................
Item 1 Business....................................................... 2
Item 2. Properties..................................................... 8
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............ 8
PART II.....................................................................
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters........................................................ 8
Item 6. Selected Financial Data........................................ 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 10
Item 7A Quantitative and Qualitative Disclosures about Market Risk..... 14
Item 8. Financial Statements and Supplementary Data.................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 42
PART III....................................................................
Item 10. Directors and Executive Officers............................... 42
Item 11. Executive Compensation......................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and Management. 46
Item 13. Certain Relationships and Related Transactions................. 48
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K Signatures................................................. 48
<PAGE>
ITEM 1. BUSINESS
GENERAL
Jackson Products, Inc. ("JPI" or the "Company") is a leading designer,
manufacturer and distributor of safety products serving a variety of niche
applications within the international personal and highway safety markets,
principally throughout North America and Europe. JPI markets its products under
established, well-known brand names to an extensive network of thousands of
distributors, wholesalers, contractors and government agencies. Management
believes that the Company holds leading market share positions in each of its
primary product lines, reflecting the Company's (i) proprietary technology, (ii)
strong reputation and relationships with its customer base, (iii) breadth of
product lines and (iv) low cost manufacturing operations.
Due to strong industry fundamentals, its solid competitive position and
strategic acquisitions, the Company has achieved significant and consistent
growth under its current management team. The Company capitalizes on the
synergies of the acquired companies to grow externally and internally.
ACQUISITIONS
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During the period 1996 through 1998, the Company made several acquisitions
including OSD Envizion, Inc. on October 22, 1996; Lansec GmbH on October 29,
1997; American Allsafe Company and Silencio/Safety Direct, Inc. on April 22,
1998; Crystaloid Technologies, Inc. on April 23, 1998 and Kedman Company on July
22, 1998. OSD Envizion, Inc. (OSD), provides JPI with a significant share of the
North American auto-darkening welding filter lens market and, management
believes, establishing JPI as the only North American-based manufacturer of
auto-darkening welding filter lenses. The Company formed Lansec Holding GmbH
(GmbH) to acquire several European businesses. The formation of GmbH provides
the Company with in-house European distribution for its auto-darkening product
line as well as an overseas infrastructure platform for the Company's other
welding safety products. The acquisition of American Allsafe Company (Allsafe)
and Silencio/Safety Direct, Inc. (Silencio/Safety Direct) further expands the
range of the Company's personal safety products and enhances the Company's
channels of distribution. The acquisition of Crystaloid Technologies, Inc.
(Crystaloid) and its expertise in liquid crystal technology strengthens the
Company's lead in auto-darkening technology and has allowed for the development
of additional applications in new markets. The acquisition of Kedman Company,
(Kedman) expands the Company's presence in the western United States and widens
the current distribution channels.
On January 25, 1999, the Company acquired certain assets of OK Beads Inc. ("OK
Beads"). OK Beads manufactures reflective glass beads used in highway safety and
industrial applications. On May 17, 1999, the Company, through its wholly owned
subsidiary, TMT-Pathway, L.L.C. ("TMT-Pathway"), acquired the assets of Morton
Traffic Markings, a division of Morton International, Inc. TMT-Pathway
manufactures and distributes traffic coatings and specialized coating
applications equipment for the highway safety industry. The acquisition of
certain assets of OK Beads increases the Company's manufacturing capacity in the
reflective glass bead market. The acquisition of TMT-Pathway further enhances
the Company's position in the highway safety market, providing new resources in
paint and paint application technology, which, management believes, will create
further market opportunities through improved product quality and new product
development.
SEGMENTS
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The Company operates two business segments. The Personal Safety Products segment
("PSP") manufactures and sells thousands of safety products including welding
helmets, auto-darkening welding filter lenses, safety caps, hardhats, face
shields, visors, safety goggles, spectacles and hearing protection products
under its well-known brand names: Jackson, Aden, EQC, Morsafe, American Allsafe
Co., Team Silencio, Huntsman and Lamba. PSP represented approximately 48% of pro
forma net sales in 1999.
The Highway Safety Products segment ("HSP") sells reflective glass beads, cones,
channelizers, pavement tape, flags, vests, roll-up signs, barricades,
high-intensity lights, traffic coatings and specialized coatings applications
equipment under well-known brand names: Flex-O-Lite, Blast-O-Lite, Morline,
Dura-Line, Dura-Stripe, Norline, TMT-Traffic Marking Technologies and
Legend-Build. HSP represented approximately 52% of pro forma net sales in 1999.
2
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PRODUCTS - PERSONAL SAFETY PRODUCTS SEGMENT
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Within PSP, the Company classifies its products in three main categories: head
and face protection, eyewear and other. The Company's personal safety products
are designed to protect workers from various head/eye/face hazards in
manufacturing environments, including flying debris, chemical splashes,
excessive noise, noxious fumes and ultra violet rays.
HEAD AND FACE PROTECTION. The Company's head and face protection products
include welding helmets, auto-darkening welding filter lenses, safety caps, hard
hats, face shields and visors. The Company's line of face shields are designed
to protect against head injuries, liquid splashes and flying particles and are
worn in conjunction with other protective equipment, such as plano wear, which
is defined in the eye protection section below. JPI's Electronic Quick Change
("EQC") product line offers a technologically advanced range of welding helmet
filter lenses featuring the world's fastest auto-darkening switching speed.
Switching speed represents the time required for a lens to switch from a light
to dark state. Auto-darkening technology allows welders to see without lifting
the helmet, therefore improving worker productivity while significantly reducing
repetitive motion and eye injuries. The Company's auto-darkening welding filter
lenses utilize a high speed auto-darkening surface mode device liquid crystal
filter. The aquisition of Crystaloid allows the Company to further its in-house
knowledge base of liquid crystal technology.
EYE PROTECTION. The Company manufactures and sells a complete line of
non-prescription safety spectacles and goggles. Non-prescription protective
spectacles, which are known within the industry as "planos", protect an
individual's eyes from flying objects, sparks and in some cases chemical
splashes in a multitude of industrial and commercial settings. The Company has
historically targeted goggle and plano end-users in the construction,
manufacturing and healthcare industries. Allsafe maintains the highest share of
the U.S. industrial safety goggle market. All of the Company's safety spectacles
have been designed to comply with ANSI Z-87.1-1989, which requires each
spectacle to sustain the impact of a one-quarter inch ball traveling at a
velocity of 150 feet per second and to resist melting at temperatures up to 400
degrees, along with other optical quality tests.
OTHER. The Company produces other personal protection products, which include
safety warning products and hearing protection products. The Company's line of
safety warning products provide visual warnings against hazards and helps
prevent costly falls on slippery surfaces as well as a variety of other
accidents. These products include sign stands and safety cones. Management
believes the Company has the number one market share for hearing protection
products in the shooting sports, mass merchandise and government markets. These
products include earmuffs, earplugs and electronic hearing protection products.
A 1998 study prepared by Frost & Sullivan (the "Frost & Sullivan Report")
estimated that the size of the segment of the personal safety products market in
which the Company competes is approximately $767 million in the U.S. in 1998,
and an additional $960 million within Europe in 1997. Historically, a large
number of relatively small, independent manufacturers with limited product lines
have served the personal safety products market, and the industry remains highly
fragmented. Management believes that manufacturers offering a wide range of
products having a high degree of market acceptance and strong brand names, such
as the Company, benefit from several competitive advantages, including (i)
economies of scale in manufacturing, sales and distribution, (ii) greater appeal
to large industrial distributors and national retailers seeking to rationalize
their sources of supply and (iii) an extensive distribution network for
introducing new product categories and product enhancements.
Management believes several factors are driving growth in the personal safety
products market. Employers are now increasingly aware of savings in insurance
costs and workers' compensation costs that can be achieved through the
consistent use of effective personal safety products. In turn, the heightened
social awareness regarding worker health and safety stimulates legislation
requiring and monitoring the use of safety products in commercial and industrial
environments, as government regulations which mandate the use of personal safety
products are instituted and enforced by agencies like the Occupational Safety
and Health Administration ("OSHA") and the National Institute of Occupational
Safety and Health ("NIOSH"). In addition, improvements in comfort, performance,
and styling have resulted in the increased acceptance of personal safety
products by their users. The market for personal safety products is expanding
beyond the traditional U.S. industrial distributor. Retail home centers and mass
merchandisers are offering a greater variety of personal safety products for the
consumer do-it-yourself market. Also, as manufacturing employment and safety
awareness grow outside of the U.S. and Europe, international demand for personal
safety products could increase.
3
<PAGE>
PRODUCTS - HIGHWAY SAFETY PRODUCTS SEGMENT
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Within HSP, the Company classifies its products in four categories: reflective
glass beads, traffic safety and work zone protection equipment, traffic coatings
and specialized coatings applications equipment. The Company's highway safety
products are designed to make both driving and construction on highways safer by
enhancing driving visibility and marking construction sites.
REFLECTIVE GLASS BEADS. The Company designs, manufactures and distributes
industrial and reflective glass beads, which are used in applications that
require enhanced visibility. Glass beads provide the reflective agent in an
extensive range of applications, such as highway striping, traffic signs, safety
vests and clothing, aviation runways, traffic signs and reflective tape.
Management believes the Company is the only North American manufacturer and
distributor of high index glass beads, which offer a high degree of
reflectivity, required for applications such as reflective sheeting and signage
products. The Blast-O-Lite line of glass beads is a specialized product sold to
the industrial cleaning and polishing market.
TRAFFIC SAFETY AND WORK ZONE PROTECTION EQUIPMENT. Traffic safety and work zone
protection equipment includes traffic cones, delineators, barricades,
channelizers, pavement tape, flags, vests, roll-up signs, sign stands and
barricade lights.
- - The Company believes it is the largest manufacturer of traffic cones in
North America. Cones are available in various colors and sizes and may be
purchased with reflective collars applied to enhance night visibility and a
weighted bottom to prevent "creeping" in high speed traffic areas. A
growing, value added part of the business is silk screening and stenciling
cones with various legends.
- - The Company manufactures a full line of safety flags, vests and roll-up
signs. Management believes the Company has the number one position in the
U.S. market for these products. Most vests and flags are made from
lightweight, vinyl-coated nylon. Reflective tape is typically applied to
the front and back of the vest. Roll-up signs are made from reflective and
non-reflective vinyl and hung from aluminum sign stands providing a
lightweight alternative for temporary construction jobs, utility crews and
various other settings. The signs roll up and the stands collapse making
storage and transport easy.
TRAFFIC MARKINGS. The Company manufactures primarily low volatile organic
content (VOC) solvent based and waterborne coatings for traffic markings. Low
VOC products are sold under trade names Dura-Line, Morline and Dura-Stripe.
Dura-Line 2000, Morline and Norline are examples of conventional traffic
markings manufactured by the Company. Dura-Line, (a thermoplastic plastic
product) and Dura-Stripe (a methyl methacrylate coating) are examples of durable
traffic markings manufactured by the Company. Both Dura-Line and Dura-Stripe
markings are compliant to federal VOC regulations and have been carefully
formulated to out-perform other durable coating types. These two durable systems
can be applied in smooth or profiled configurations and provide outstanding
retroreflectivity performance over time.
SPECIALIZED COATINGS APPLICATION EQUIPMENT. A major portion of the Company's
coatings customers rely on the Company's equipment for application and support.
The quality of the equipment and the level of professional service are
constantly leveraged to increase the sales of coatings. Using precision
engineering and computer-assisted design capabilities, the Company customizes
stripers to specific requirements, including custom designed enclosed cabs and
airless or air spray systems. In addition, numerous guidance systems including
mirrors, booms, camera systems, auxiliary engine power and a complete parts
inventory are maintained for rapid customer response. The equipment is designed
to apply all existing conventional and durable coating systems including solvent
based, waterborne, thermoplastic and plural component liquid systems.
4
<PAGE>
The Company believes that it has a leading market share in North America in the
majority of its primary highway safety categories. Sales of HSP are driven by
the amount of state and federal expenditures on highway construction and
maintenance as well as the increase in regulations governing highway markings.
Management expects such government spending to increase in the future to address
the deteriorating and increasingly congested North American highway
infrastructure. According to the U.S. Department of Transporation's web site
(www.ntweek.org), fifty-nine percent of the nation's major roads are in poor,
mediocre or fair condition. The web site further discusses the investment needed
to maintain current highway conditions is $211 billion over the next four years
and an additional $75 billion over the next four years for improvements. The
Federal Highway Administration estimates it will require $80 billion to
eliminate the backlog of bridge deficiencies and maintain current level repairs.
As a result, management believes the U.S. highway industry is poised to benefit
from expected increases in infrastructure spending.
SALES AND DISTRIBUTION - PERSONAL SAFETY PRODUCTS
- -------------------------------------------------
Primary customers for personal safety products are found in the welding,
construction, janitorial, healthcare, sporting and food service sectors as well
as throughout general industry, including oil, gas and chemical processors,
metal fabricators and auto and aircraft manufacturers. The Company distributes
its personal safety products domestically primarily through a network of
wholesalers and distributors. The Company's sales force directs its efforts at
the distributor and end-user levels to create an effective pull-through of
products to the market. The Company's in-house sales forces are covered by
incentive bonus plans while the Company's manufacturer representatives are
compensated on a varying commission structure. These salespeople and agents are
supported by regionally based sales and technical specialists allowing the
Company to deliver high levels of customer service locally in its significant
markets. Internationally, the Company distributes its products primarily through
Lansec, which operates business divisions in Germany, France, Italy and the
United Kingdom. The Company's products can also be purchased through the
Company's website (www.jackprod.com).
SALES AND DISTRIBUTION -HIGHWAY SAFETY PRODUCTS
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Primary customers for highway safety products include state and local
municipalities, independent contract road stripers, thermoplastic manufacturers,
and highway contractor supply and rental companies. The Company distributes its
highway safety products through direct sales people and catalogs. The Company's
line of reflective and industrial glass beads are sold by salespeople directly
to state and local municipalities, independent contract road stripers,
thermoplastic manufacturers, and highway contracted supply and rental companies.
The Company's other highway safety products are sold through distribution via a
combined effort of in-house sales personnel, manufacturers representatives, a
well-circulated Company catalog, the Company's Web sites (www.servmat.com and
www.flex-o-lite.com) and inclusion in various industrial supply catalogs.
MANUFACTURING
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The Company uses a variety of manufacturing processes to produce products for
the personal and highway safety product industry. Products manufactured from
plastic, polycarbonate, polyvinylchloride ("PVC"), resins and similar raw
materials are produced using injection molding, compression molding, flow
molding and blow molding techniques. Such products include welding helmets,
hardhats, cones, channelizers, safety goggles and face shields.
Crystaloid possesses liquid crystal technology, which it uses to produce liquid
crystal displays for applications within the avionics and industrial and
commercial markets.
Flex-O-Lite produces low index glass beads through a process by which cullet, or
scrap glass, is processed through a pulverizer, screened and stored by size. The
ground cullet is then fed into the bottom of a gas burner, and as the cullet
rises it melts to form spheres, which are cooled and packed. High index glass
beads are produced with virgin raw materials, which are mixed in a hopper then
heated into molten glass. The molten glass is passed through a break-up burner
where it is formed into glass beads. The 1.9x beads are cooled and sorted, the
2.1x beads are passed through another burner, which effectively polishes the
beads to result in the higher refraction.
TMT-Pathway produces conventional traffic markings, which consist of a carrier,
either water or organic solvent, resin, pigment, fillers and additives for
wetting, flow, stability and drying rate. In addition, TMT-Pathway produces
durable traffic markings which are methyl methacrylate-based markings applied by
hand or machine to provide extremely durable marking for traffic control edge
lines, legends and crosswalks.
5
<PAGE>
RAW MATERIALS
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Raw materials used by the Company in the manufacture of its products are
purchased both domestically and internationally. The Company believes that its
supply sources are both well established and reliable. Although the Company has
no long-term supply contracts, it has experienced no significant problems in
supplying its operations. The Company has ongoing relationships with certain
suppliers of raw materials, however, the Company believes that there are a
number of reliable vendors available and it is able to obtain competitive
pricing. Raw material prices fluctuate over time depending on supply, demand and
other factors. Increases in raw material prices may impact the Company's
financial performance.
INTELLECTUAL PROPERTY
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It is the Company's policy to protect its intellectual property through a range
of measures, including trademark registrations, patents and confidentiality
agreements. The Company owns and uses trademarks and brand names to identify
itself as a source of certain goods. The following brand names of certain PSP
products and product lines are registered in the United States: Jackson,
Morsafe, Aden, EQC, American Allsafe Co., Team Silencio, Huntsman and Lamba. The
following brand names of certain HSP products and product lines are registered
in the United States: Flex-O-Lite, Blast-O-Lite, Morline, Dura-Line,
Dura-Stripe, Norline, TMT-Traffic Marking Technologies and Legend-Build.
The Company generally protects its material intellectual property rights through
the filing of applications for and registrations of trademarks and patents. In
addition, the Company requires certain of its employees, consultants and other
suppliers, customers, agents and advisors to execute confidentiality agreements
upon the commencement of employment or other relationships with the Company.
These agreements provide that all confidential information developed by or made
known to the individual or entity during the course of the relationship with the
Company is to be kept confidential and not disclosed to third parties except in
certain circumstances. There can be no assurance, however, that these agreements
will provide meaningful protection for the Company's proprietary information or
adequate remedies in the event of the unauthorized use or disclosure of such
information. The Company also relies upon unpatented trade secrets for the
protection of certain intellectual property rights.
No assurance can be given that others will not independently develop
substantially equivalent proprietary information and technologies, otherwise
gain access to the Company's trade secrets or disclose such technology or that
the Company can meaningfully protect its rights to unpatented trade secrets.
Further, there can be no assurance that infringement or invalidity claims will
not be asserted against the Company in the future. The costs of defending such
claims, or an unfavorable determination with respect to litigation based on such
claims, could have a material adverse effect on the Company's business and
financial condition.
ENVIRONMENTAL MATTERS
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The Company is subject to Federal, state and local environmental laws,
regulations and ordinances that (i) govern activities or operations that may
have adverse environmental effects (such as emissions to air, discharges to
water, and the generation, handling, storage and disposal of solid and hazardous
wastes) or (ii) impose liability for the costs of clean-up or other remediation
of contaminated property, including damages from spills, disposals or other
releases of hazardous substances or wastes, in certain circumstances without
regard to fault. The Company's manufacturing operations routinely involve the
handling of chemicals and wastes, some of which are or may become regulated as
hazardous substances. The Company endeavors to maintain compliance with
applicable environmental laws, but from time to time the Company's operations
may result in noncompliance or liability for clean-up pursuant to such laws.
Based on information reviewed by and available to the Company, the Company
believes it is in compliance with applicable environmental laws in all material
respects. The Company does not believe it will incur material costs in
connection with any compliance or potential liability under applicable
environmental laws, and believes that any such costs will not have a material
adverse effect on its business or financial condition.
6
<PAGE>
COMPETITION
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The personal and highway safety products industries are highly competitive
industries with participants ranging in size from small companies focusing on
single types of safety products, to a few large multinational corporations which
manufacture and supply many types of safety products. The Company's main
competitors vary by region and product. The Company believes that participants
in the personal and highway safety products industries compete primarily on the
basis of price, product characteristics (such as functional performance, design
and style), brand name recognition and service. The Company enjoys certain
economies of scale, which are not available to smaller competitors. Nonetheless,
other large competitors may enjoy similar economies of scale and may possess
greater financial or other resources than the Company. In addition, to maintain
its market position, the Company must be competitive in the area of brand image,
distribution, design, style, customer service, quality and price.
GOVERNMENT REGULATION AND INDUSTRIAL STANDARDS
- ----------------------------------------------
Government regulation mandating the use of personal safety equipment for certain
job classifications and work site environments is the most significant factor in
the creation of demand for personal safety equipment. OSHA generally regulates
the workplace environments in which personal safety equipment must be worn and
specifies the standards which such equipment must meet. The Company believes it
has complied in all material respects with the regulations and standards of
these agencies, and any non-material non-compliance with such regulations and
standards in the past have not had a material adverse effect on its business.
The primary users of the Company's personal safety products are industrial
workers in the United States. As a result, decreases in general employment
levels of industrial workers may have an adverse effect on the Company's sales.
The Company's sales may also be adversely affected by changes in safety
regulations covering industrial workers in the United States and in the level of
enforcement of such regulations. Changes in regulations could reduce the need
for and the utility of certain products manufactured by the Company.
The United States and Canadian regulatory agencies each mandate that the
Company's products meet performance standards established by private groups,
such as the American National Standards Institute ("ANSI") and the Canadian
Standards Association ("CSA"), respectively. The Company's eyewear products are
subject to the latest series of applicable standards, which currently include
ANSI Industrial Standard Z87.1-1989 and CSA Z94.3-1992. These standards require
that protective eyewear be tested for optical performance, high velocity impact,
high mass impact and other integral product performance features. The Company
maintains and operates on-site testing labs at facilities, which are equipped to
perform necessary tests.
EMPLOYEES
- ---------
As of December 31, 1999, the Company had 1,091 employees. The Company has 14
employees represented by a union pursuant to a collective bargaining agreement,
which expired at the end of 1999 for which collective bargaining is ongoing. The
Company has 13 employees in California represented by a union pursuant to a
collective bargaining agreement, which will expire, at the option of either
party, at the end of 2002.
7
<PAGE>
ITEM 2. PROPERTIES
In addition to its executive offices in Chesterfield, Missouri, the Company
operates 24 major facilities in the United States, Canada and Europe with a
total area (including the executive offices) of approximately 864,000 square
feet, of which the Company currently owns approximately 635,000 square feet and
leases approximately 229,000 square feet. These facilities are as follows:
<TABLE>
<CAPTION>
User/ Owned/ Lease
Location Subsidiary Primary Use Square Feet Leased Expiration
<S> <C> <C> <C> <C> <C> <C>
Chesterfield, Missouri Corporate Corporate and Administration 58,030 Leased 9/14/02
Personal Safety Products
- ------------------------
Belmont, Michigan Jackson Manufacturing and Distribution 148,100 Owned --
Tonawonda, New York Allsafe Manufacturing and Distribution 100,000 Owned --
Sparks, Nevada Allsafe or
Silencio Manufacturing and Distribution 2 buildings Leased 12/31/01
20,000 each
Salt Lake City, Utah Allsafe Manufacturing and Distribution 63,370 Owned --
Salt Lake City, Utah Allsafe Manufacturing and Distribution 7,500 Owned --
Salt Lake City, Utah Allsafe Manufacturing and Distribution 3,700 Owned --
Hudson, Ohio Crystaloid Manufacturing and Distribution 36,770 Owned --
Alzenau, Germany Lansec Manufacturing and Distribution 5,895 Leased 10/31/02
Merignac, France Lansec Distribution 2,592 Leased 08/31/01
Apeldoorn, Netherlands Lansec Distribution 2,776 Leased 06/30/02
Worcestershire, U.K. Lansec Distribution 3,900 Leased 12/31/01
Milan, Italy Lansec Sales office 540 Leased Monthly
Highway Safety Products
- -----------------------
Fenton, Missouri SMC Manufacturing and Distribution 84,414 Leased 12/31/00
Fenton, Missouri Flex-O-Lite Manufacturing and Distribution 20,400 Leased 03/31/03
Idabel, Oklahoma Flex-O-Lite Manufacturing and Distribution 24,000 Owned --
Muscatine, Iowa Flex-O-Lite Manufacturing and Distribution 31,903 Owned --
Paris, Texas Flex-O-Lite Manufacturing and Distribution 91,363 Owned --
St. Thomas, Ontario, Canada Flex-O-Lite Manufacturing and Distribution 21,244 Owned --
Belmont, Ontario, Canada Flex-O-Lite Distribution 10,000 Leased Monthly
Los Angeles, California TMT-Pathway Manufacturing and Distribution 24,100 Owned --
Salem, Oregon TMT-Pathway Manufacturing and Distribution 52,500 Owned --
Salem, Oregon TMT-Pathway Manufacturing and Distribution 30,800 Owned --
</TABLE>
The Company's facilities are adequate for its current production requirements.
The Company expects that such facilities will remain adequate for the
foreseeable future; however, the Company may shift operations among existing
facilities in order to maximize production efficiency.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. The Company is not aware of any pending or threatened legal proceeding
which would reasonably be expected to have a material adverse effect on the
Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The only authorized, issued and outstanding classes of capital stock of the
Company is common stock, consisting of the Class A Common Stock and the Class C
Common Stock. There is no established trading market for the Company's common
stock.
The Company has not declared or paid any cash dividends on its common stock
since its formation in August 1995. The Company's financing agreements contain
restrictions on its ability to declare or pay dividends on its common stock.
8
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the summary combined historical financial data of
(i) the Company's predecessor, Jackson Holding Company, for the periods January
1, 1995 to August 16, 1995; (ii) the Company for the periods August 17, 1995 to
December 31, 1995, 1996, 1997, 1998 and 1999; and (iii) the pro forma financial
data for the year ended December 31, 1999. The pro forma financial information
was prepared as if the TMT-Pathway Acquisition had been consummated on the first
day of the period presented for Statement of Operations Data. The pro forma data
is unaudited. The pro forma information does not purport to represent what the
consolidated results of the Company would have been had such transactions
actually occurred at the beginning of 1999 and does not purport to project the
combined results of operations of the Company for the current year or for any
future period. The summary and pro forma financial information set forth below
should be read in conjunction with the historical financial statements and the
related notes thereto included elsewhere in this document.
<TABLE>
<CAPTION>
The
Predecessor
Company The Company
------------ --------------------------------------------------------------
January 1, August 17,
1995 to 1995 to Pro
August 16, December 31 Forma
1995 1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ............................... $ 72,541 $ 37,558 $111,788 $123,417 $165,232 $213,208 $223,795
Cost of sales ........................... 52,416 30,566 80,485 87,466 111,325 145,120 153,289
Selling, general & administrative
Expenses ............................... 9,640 4,965 14,440 15,205 27,566 35,261 36,961
Asset sales ............................. -- -- 1,050 335 576 -- --
Amortization of intangibles ............. 3,009 1,688 18,849 16,378 9,654 15,023 16,842
----- ----- ------ ------ ----- ------ ------
Operating income (loss) ................ 7,476 339 (3,036) 4,033 16,111 17,804 16,703
Other expenses:
Interest expense .................... (5,279) (4,381) (11,306) (12,050) (15,803) (19,347) (20,607)
Amortization of deferred ............ (525) (340) (1,076) (1,261) (1,271) (1,501) (1,501)
financing costs
Other ............................... 14 14 (599) (401) (643) (880) (817)
Sale of company expenses ............ (4,391) -- -- -- -- -- --
----- ----- ------ ------ ----- ------ ------
Loss before income tax provision and...
extraordinary item.................... (2,705) (4,368) (16,017) (9,679) (1,606) (3,924) (6,222)
Income tax expense (benefit) ........... -- -- 429 684 224 (1,172) (1,172)
----- ----- ------ ------ ----- ------ ------
Loss before extraordinary item ......... (2,705) (4,368) (16,446) (10,363) (1,830) (2,752) (5,050)
Extraordinary item:
Loss due to early extinguishment ......
of debt ............................... (7,236) -- -- -- (7,558) -- --
----- ----- ------ ------ ----- ------ ------
Net loss ............................... $ (9,941) $ (4,368) $(16,446) $(10,363) $ (9,338) $ (2,752) $(5,050)
========= ========= ========= ========= ========= ========= ========
Other Data:
EBITDA(1) ........................... $ 13,219 $ 7,209 $ 21,145 $ 24,660 $ 31,111 $ 39,542 $ 40,584
Depreciation and amortization ....... 5,548 3,141 23,131 20,292 15,793 23,239 25,321
Capital expenditures ................ 1,744 465 1,910 3,246 6,670 6,050 6,427
Ratio of earnings to fixed charges(2) -- -- -- -- -- -- --
Cash provided by operating
activities 2,774 7,410 6,833 10,313 15,417 15,144
Cash used in investing
activities ......................... (1,661) (129,154) (14,552) (5,890) (54,267) (45,764)
Cash (used in) provided by...........
financing activities................. (1,113) 121,619 7,719 (3,900) 38,654 30,537
Balance Sheet Data:
Cash $ -- $ -- $ -- $ 523 $ 327 $ 244
Total assets ........................ 108,739 141,525 135,015 125,047 171,239 196,393
Redeemable preferred stock and long-
term debt, including current portion 80,953 122,771 134,194 133,452 190,389 221,027
Total stockholder's equity (deficit) 4,329 1,517 (17,738) (31,277) (47,712) (51,188)
</TABLE>
9
<PAGE>
(1) EBITDA represents net income plus interest, taxes, depreciation,
amortization and certain non-cash charges. EBITDA is not included herein as
operating data and should not be construed as a substitute for operating
income or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with GAAP. The Company has
included EBITDA because the Company understands that it is one measure used
by certain investors to determine the Company's operating cash flow and
historical ability to service its indebtedness and because certain
financial ratios are calculated on a similar basis. EBITDA has not been
reduced by management and directors fees, both of which are subordinated to
the Company's obligations under its financing agreements.
(2) In the computation of the ratio to fixed charges, earnings consist of
income before taxes and extraordinary (loss), plus fixed charges. Fixed
charges consist of interest expense on indebtedness, plus that portion of
lease rental expense representative of the interest factor. Earnings were
insufficient to cover fixed charges by approximately $2,705 for the period
from January 1, 1995 to August 16, 1995; $4,368 for the period from August
17, 1995 to December 31, 1995; $16,017 for 1996; $9,679 for 1997; $1,606
for 1998 and $3,924 for 1999.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis of the Company's financial condition and
results should be read in conjunction with the "Selected Financial Data" and the
consolidated financial statements of the Company, including the notes thereto,
appearing elsewhere in this report. This report contains forward-looking
statements. Such forward-looking statements are identified by use of
forward-looking words such as "anticipate," "believe," "plan," "estimate,"
"expect," and "intent" and other similar expressions. These forward-looking
statements are subject to various assumptions, risks and uncertainties,
including but not limited to, changes in political and economic conditions,
demand for the Company's products, acceptance of new products, developments
affecting the Company's products and to those discussed in the Company's filings
with the Securities and Exchange Commission. Accordingly, actual results could
differ materially from those contemplated by the forward-looking statements.
EBITDA represents net income plus interest, taxes, depreciation, amortization
and certain non-cash charges. EBITDA is not included herein as operating data
and should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with GAAP. The Company has included EBITDA because the
Company understands that it is one measure used by certain investors to
determine the Company's operating cash flow and historical ability to service
its indebtedness and because certain financial ratios are calculated on a
similar basis. EBITDA has not been reduced by management and directors fees,
both of which are subordinated to the Company's obligations under its financial
agreements.
The Company, which was founded in 1932, operated as Jackson Holding Company from
April 1, 1993 to August 16, 1995. On August 16, 1995, the Company was acquired
by members of management and affiliates of The Jordan Company. In October 1996,
the Company acquired OSD, and in October 1997, the Company acquired Lansec.
On April 22, 1998 the Company, through its wholly-owned subsidiary, Jackson
Acquisition, Inc., acquired American Allsafe Company and Silencio/Safety Direct,
Inc. for $29.1 million, as adjusted, (the "Allsafe Acquisition"). On April 23,
1998 the Company, through its wholly-owned subsidiary, Crystaloid Technologies,
Inc., acquired Crystaloid Electronics, Inc., for $6.0 million (the "Crystaloid
Acquisition"). On July 22, 1998, American Allsafe Company acquired all of the
outstanding capital stock of Kedman Company (the "Kedman Acquisition") for $9.2
million. The Allsafe Acquisition, the Crystaloid Acquisition and the Kedman
Acquisition are collectively referred to as the Acquisitions.
On January 25, 1999, the Company acquired certain assets of OK Beads Inc. for
approximately $1.0 million. On May 17, 1999, the Company, through its
wholly-owned subsidiary, TMT-Pathway, L.L.C., acquired the assets of Morton
Traffic Markings, a division of Morton International, Inc. for $36.3 million
(the "TMT-Pathway Acquisition"), net of a $1.7 million purchase price
adjustment.
10
<PAGE>
RESULTS OF OPERATIONS (dollars in thousands unless otherwise noted)
Net Sales 1999 1998 1997
- --------- ---- ---- ----
PSP............................ $107,067 $93,596 $53,327
HSP............................ 106,141 71,636 70,090
------- ------ ------
TOTAL.......................... $213,208 $165,232 $123,417
======== ======== ========
PSP net sales in 1999 increased 14.4% to $107.1 million from $93.6 million in
1998. The increase in net sales for this period is primarily attributed to the
Acquisitions. Had the Acquisitions occurred on January 1, 1998, net sales for
the comparable years would have reflected a decrease of $4.1 million, or 3.7%.
The Company believes that the decline in PSP sales is attributable to soft
economic conditions in the worldwide welding market, the continuing effect of
the strong dollar on the Company's sales within Europe along with a decline in
the Company's avionic sales at its Crystaloid division. HSP net sales in 1999
increased 48.2% to $106.1 million from $71.6 million in 1998. The increase in
net sales for this period is primarily attributable to the TMT-Pathway
Acquisition, which provided $31.9 million in net sales and increased HSP demand
(pro forma increase of 8.5%). Had the Acquisitions and the TMT-Pathway
Acquisition occurred on January 1, 1998, consolidated net sales for 1999 would
have reflected an increase of $5.0 million, or 2.3% over 1998.
PSP net sales in 1998 increased 75.5% to $93.6 million from $53.3 million in
1997. The increase in net sales resulted from the Acquisitions and the Lansec
Acquisition. Had the Acquisitions and the Lansec Acquisition occurred on January
1, 1997, PSP net sales would have declined slightly to $111.2 million in 1998
from $113.1 million in 1997. HSP net sales in 1998 increased 2.2% to $71.6
million from $70.1 million in 1997.
Cost of Sales 1999 1998 1997
- ------------- ---- ---- ----
PSP............................ $67,926 $57,986 $34,706
HSP............................ 77,194 53,339 52,760
------ ------ ------
TOTAL.......................... $145,120 $111,325 $87,466
======== ======== =======
PSP cost of sales increased 17.1% to $67.9 million from $58.0 million in 1998,
primarily as a result of the increase in net sales. PSP cost of sales as a
percentage of sales increased to 63.4% from 62.0%, as lower overhead absorption
occurred at several facilities on lower volume levels and reduced inventories.
HSP cost of sales in 1999 increased 44.7% to $77.2 million from $53.3 million in
1998, primarily as a result of the increase in net sales. HSP cost of sales as a
percentage of sales decreased to 72.7% from 74.5%, as TMT-Pathway provides
favorable gross margins relative to the total HSP gross margin as well as cost
reduction programs within SMC.
PSP cost of sales in 1998 increased 67.1% to $58.0 million from $34.7 million in
1997, primarily as a result of the increase in net sales. PSP cost of sales as a
percentage of sales decreased to 62.0% from 65.1% due to various cost reduction
programs and higher margins associated with the acquired companies. HSP cost of
sales remained essentially flat from 1997 to 1998. HSP cost of sales as a
percentage of net sales decreased slightly to 74.5% from 75.4%.
Selling, General and Administrative 1999 1998 1997
- ----------------------------------- ---- ---- ----
PSP............................ $26,065 $20,965 $8,142
HSP............................ 9,196 6,601 7,063
----- ----- -----
TOTAL.......................... $35,261 $27,566 $15,205
======= ======= =======
PSP selling, general and administrative expenses in 1999 increased to $26.1
million from $21.0 million in 1998 due to the Acquisitions. PSP selling, general
and administrative expenses as a percentage of net sales increased to 24.3% from
22.4% due to a full year of expenses associated with the Acquisitions whose
selling, general and administrative expenses as a percentage of net sales are
slightly higher than those of the original PSP divisions . HSP selling, general
and administrative expenses as a percentage of net sales decreased to 8.7% from
9.2% as TMT-Pathway's expenses are low relative to the other divisions within
HSP.
PSP selling, general and administrative expenses in 1998 increased 157.5% to
$21.0 million from $8.1 million in 1997 due to the Acquisitions and the Lansec
Acquisition. PSP selling, general & administrative expenses as a percentage of
net sales increased to 22.4% from 15.3% due to the acquisition of GmbH whose
expenses as a percentage of sales are high relative to the other divisions. At
the same time, the Company faced increased corporate administrative expenses
associated with the Acquisitions and the requirements of being an SEC
registrant. HSP selling, general and administrative expenses in 1998 decreased
6.5% to $6.6 million from $7.1 million in 1997 due to various cost reduction
programs. HSP selling, general and administrative expenses as a percentage of
net sales decreased to 9.2% from 10.1%.
11
<PAGE>
EBITDA 1999 1998 1997
- ------ ---- ---- ----
PSP............................ $18,650 $18,282 $13,029
HSP............................ 20,892 12,829 11,631
------ ------ ------
TOTAL.......................... $39,542 $31,111 $24,660
======= ======= =======
EBITDA for the year ended December 31, 1999 increased 27.1% to $39.5 million
from $31.1 million during the year ended December 31, 1998. This growth is
primarily attributable to the Acquisitions, the TMT-Pathway Acquisition, and
increased HSP demand offset by a decline in PSP sales. Had the Acquisitions and
the TMT-Pathway Acquisition taken place on January 1, 1998, EBITDA would have
remained consistent.
EBITDA for the year ended December 31, 1998 increased 26.2% to $31.1 million
from $24.7 million for the year ended December 31, 1997. The growth is primarily
attributable to the Acquisitions which provided $6.5 million in EBITDA in 1998
coupled with a 10.3% increase in HSP EBITDA as well as strong demand and cost
reduction programs.
Operating Income 1999 1998 1997
- ---------------- ---- ---- ----
PSP............................ $4,242 $7,784 $(4,887)
HSP............................ 13,562 8,327 8,920
------ ----- -----
TOTAL.......................... $17,804 $16,111 $4,033
======= ======= ======
Consolidated operating income in 1999 increased to $17.8 million from $16.1
million in 1998. As discussed above, this growth is primarily attributable to
the Acquisitions, the TMT-Pathway Acquisition, and increased HSP demand offset
by a decline in PSP sales.
Consolidated operating income in 1998 increased to $16.1 million from $4.0
million in 1997 due to the Acquisitions and a reduction in amortization expenses
as certain intangibles were fully amortized during 1997.
Income Tax 1999 1998 1997
- ---------- ---- ---- ----
Benefit (expense).............. $1,172 ($224) ($684)
====== ===== =====
Income tax benefit in 1999 increased to $1.2 million from ($0.2 million),
primarily due to the realization of $1.8 million in benefits from net operating
loss carryforwards.
Income tax expense in 1998 decreased to $0.2 million from $0.7 million due to a
state tax refund. The Company's effective income tax rate is substantially lower
than the statutory rate for 1998 and 1997 due to the increases in the deferred
tax asset valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities in 1999, 1998 and 1997 was $15.1 million,
$15.4 million and $10.3 million, respectively. Cash provided by operating
activities remained consistent from 1998 to 1999. The increase in 1998 from 1997
is primarily attributable to an increase in operating income associated with the
Acquisitions. Changes in working capital resulted in sources (uses) of cash of
($5.5 million), $0.9 million and ($1.0 million) in 1999, 1998 and 1997,
respectively. The increase in 1999 from 1998 stems from a reduction in payables
associated with lower inventory levels coupled with the recognition of $1.8
million in deferred tax assets. The change in 1998 from 1997 is due to lower
receivables associated with increased collection activities.
Cash used in investing activities in 1999, 1998 and 1997 was $45.8 million,
$54.3 million and $5.9 million respectively. The 1999 period includes $39.9
million expended for the TMT-Pathway Acquisition and certain assets of OK Beads.
The 1998 period includes $47.8 million expended for the Acquisitions. The
Company typically makes capital expenditures related to the maintenance and
improvements of manufacturing facilities and related processing equipment such
as injection molding machines and glass bead furnaces. Net capital expenditures
in 1999, 1998 and 1997 were $5.8 million, $6.7 million and $3.2 million,
respectively.
Net cash provided (used) by financing activities in 1999, 1998 and 1997 was
$30.5 million, $38.7 million and ($3.9 million), respectively. In 1999, the
proceeds were provided by the issuance of long-term debt and used principally to
finance the TMT-Acquisition. During 1998, the proceeds were provided by the
issuance of long-term debt and the Credit Facility (see below) and used to repay
long-term debt, repay the premium of long-term debt and finance the
Acquisitions. In 1997, cash was principally used in financing activities to
repay the long-term debt.
12
<PAGE>
Effective April 22, 1998, the Company entered into a credit agreement (the
"Credit Facility") with BankBoston, N.A. and Mercantile Bank National
Association, which provided for a line of credit in the aggregate amount of
$125.0 million. This credit agreement was amended during the second quarter of
1999 to increase the line of credit to $135.0 million, consisting of an
acquisition line facility in the principal amount of $105.0 million and a
revolving facility in the principal amount of $30.0 million. At December 31,
1999 there was (i) $5.1 million outstanding on the revolving credit facility and
$1.4 million of letters of credit outstanding, resulting in availability of
$23.5 million and (ii) $101.5 million outstanding on the acquisition facility,
resulting in availability of $3.5 million. The average interest rate on
outstanding borrowings under the Credit Facility was 8.4% at December 31, 1999.
On April 16, 1998, the Company offered $115.0 million aggregate principal amount
of Senior Subordinated Notes (the "Notes") due April 15, 2005. The Notes bear
interest at the rate of 9 1/2% per annum, payable semi-annually in arrears on
April 15 and October 15 of each year. The payment of principal, premium,
interest and liquidated damages on the Notes are unconditionally guaranteed,
jointly and severally, by the Company's domestic subsidiaries ("Guarantors").
The Company believes that cash flow from operations together with available
borrowing capacity are sufficient to fund working capital requirements, debt
service requirements, and capital expenditures on a going forward basis. The
Company anticipates that its capital expenditure requirements for 2000 will be
approximately $6.1 million. The Company believes that cash flow from operating
activities and borrowings under the Credit Agreement will be adequate to meet
the Company's short-term and long-term liquidity requirements for the
foreseeable future, although no assurance can be given in this regard.
EURO CONVERSION
- ---------------
On January 1, 1999, eleven of the fifteen member countries of the European union
established fixed conversion rates between their existing sovereign currencies
and the Euro. The participating countries have agreed to adopt the Euro as their
common legal currency as of that date while still utilizing their local currency
until January 1, 2002.
The Company has begun to assess the potential impact to the Company that may
result from the Euro conversion. In addition to tax accounting considerations,
the Company has investigated an upgrade to its current software package that
will accommodate Euro-denominated transactions and is in the process of engaging
a third party vendor to determine the cost of implementation. The Company is
also considering the competitive impact of cross-border price transparency,
which may make it more difficult for businesses to charge different prices for
the same products on a country-by-country basis. While the Company will continue
to assess the impact of the information, management does not believe that the
introduction of the Euro will have a material adverse effect on the Company's
financial condition or results of operation.
NEW ACCOUNTING STANDARDS
- ------------------------
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133) "Accounting for Derivative
Instruments and Hedging Activities". The statement standardizes the accounting
for derivative instruments by requiring that an entity recognize these items as
assets or liabilities in the statement of financial position and measure them at
fair value. SFAS No. 133 was amended in June 1999 by SFAS No. 137, which
deferred the effective date one year. SFAS No. 133, as amended, is effective for
fiscal years beginning after June 15, 2000; however, management does not
anticipate that the adoption of this statement will have a material impact on
the Company's financial statements.
YEAR 2000 COMPLIANCE
- --------------------
To date, no significant issues resulting from Year 2000 have been identified in
any of the Company's facilities or operations. As of the date of this filing,
the Company has not experienced any material problems with any of its key
customers or suppliers. Management will continue to monitor for any impact that
may occur from Year 2000. Maintenance or modification costs associated with Year
2000 have been expensed as incurred, while the costs of new software have been
capitalized and amortized over the software's useful life. The amounts incurred
have not had a material effect on the Company's financial condition, result of
operations or liquidity.
13
<PAGE>
SEASONALITY AND INFLATION
- -------------------------
The Company experiences seasonal fluctuations in its net sales and
profitability, with generally lower net sales and profitability in the first and
fourth quarters and increased working capital requirements in the first half of
its fiscal year. The seasonality of net sales and profitability is primarily due
to the winter slowdown of highway construction and maintenance projects. The
impact of inflation on the Company's operations has not been significant to
date. However, there can be no assurance that a high rate of inflation in the
future would not have an adverse effect on the Company's operating results.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In general, the Company's results of operations are affected by changes in
exchange rates. Subject to market conditions, the Company prices its products in
Europe and Canada in local currency. While many of the Company's selling and
distribution costs are also denominated in these currencies, a large portion of
product costs are U.S. Dollar denominated. As a result, a decline in the value
of the U.S. Dollar relative to other currencies can have a negative effect on
the profitability of the Company. As a result of the acquisition of GmbH, the
Company's operations are also affected by changes in exchange rates relative to
the German Deutsche mark, Italian Lira, British Pound, French Franc,
Netherland's Guilder and the Euro. A decline in the value of any of these
currencies relative to other currencies can have a negative impact on the
profitability of the Company. These exchange rate fluctuations decreased
profitability by $0.7 million for the year ended December 31, 1999.
The Company's market risk exposure is primarily due to possible fluctuations in
interest rates. The Company uses an interest rate cap agreement to manage its
exposure on variable rate debt obligations. The Company uses a balanced mix of
fixed and variable interest rate debt to manage its exposure to interest rate
changes. For additional information of the Company's interest rate cap
agreement, refer to Note 7 in the Consolidated Financial Statements. The
Company's outstanding long-term debt at December 31, 1999 is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal Notional Receive Maturity
Amount Amount Pay Rate Rate Date Fair Value
------ ------ -------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt:
Senior Subordinated Notes ........ $ 114,472 N/A 9.50% N/A April, 2005 $ 105,800
Variable Rate Debt:
Acquisition Facility .............. 101,500 N/A (1) N/A April, 2004 101,500
Revolving Working Capital Facility 5,055 N/A 9.25%(2) N/A April, 2004 5,055
Interest Rate Cap Agreement ...... N/A 50,000 7.00% 7.00% December, 2000 16
</TABLE>
(1) The borrowings under the Acquisition Facility bear interest at the rate per
annum equal to the LIBOR rate (as defined in the credit agreement) plus
2.25%. In order to protect against interest rate risk, the Company engages
in LIBOR contracts. As of December 31, 19 99 the following LIBOR contracts
existed: $50,000 outstanding at 8.29% due May 22, 2000; $39,500 at 8.27%
due May 16, 2000 and $12,000 at 8.42% due June 27, 2000.
(2) The borrowings under the Revolving Working Capital Credit Facility bear
interest at the rate per annum equal to the LIBOR rate (as defined in the
credit agreement) plus 2.25%.
The fixed rate portion of the Company's long-term debt does not bear significant
interest rate risk. The variable rate debt would be affected by interest rate
changes to the extent the debt is not matched with an interest rate cap
agreement or, in the case of the revolving credit agreement, to the extent of
the balances outstanding.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1) Index to Financial Statements
Independent Auditors Report................................................ 4
Consolidated Balance Sheets-December 31, 1999 and 1998..................... 5
Consolidated Statement of Operations-Year Ended December 31, 1999 and 1998 6
Consolidated Statement of Stockholder's Deficit-Years Ended
December 31, 1999, 1998 and 1997........................................... 7
Notes to Consolidated Finacial Statements.................................. 8
15
<PAGE>
Independent Auditors' Report
The Board of Directors
Jackson Products, Inc.:
We have audited the accompanying consolidated balance sheets of Jackson
Products, Inc. and subsidiaries (the Company) as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jackson
Products, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KMPG LLP
February 11, 2000
16
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
(In thousands,
except
share data)
ASSETS
------
<S> <C> <C>
Current assets:
Cash ............................................................................ $ 244 $ 327
Accounts receivable, net of allowance for doubtful accounts of $1,140 and $651 at
December 31, 1999 and 1998, respectively ..................................... 25,593 18,479
Inventories ..................................................................... 34,461 34,275
Deferred tax assets ............................................................. 1,823 --
Prepaid expenses................................................................. 869 746
---------- ----------
Total current assets ....................................................... 62,990 53,827
Property, plant and equipment, net ................................................... 44,521 34,362
Intangibles .......................................................................... 82,816 75,242
Deferred financing costs ............................................................. 6,061 7,372
Other noncurrent assets .............................................................. 5 436
---------- ----------
$ 196,393 $ 171,239
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable ................................................................ $ 12,875 $ 15,313
Other accrued liabilities ....................................................... 6,837 6,056
Accrued interest ................................................................ 3,315 3,044
Accrued taxes ................................................................... 460 1,075
---------- ----------
Total current liabilities .................................................. 23,487 25,488
---------- ----------
Long-term debt ....................................................................... 221,027 190,389
Other noncurrent liabilities ......................................................... 3,067 3,074
Stockholders' deficit:
Class A common stock, $.01 par value; 100,000 shares authorized, 38,530
shares issued and outstanding at December 31, 1999 and 1998 .................. -- --
Class C common stock, $.01 par value; 15,000 shares authorized, 8,526 shares
issued and outstanding at December 31, 1999 and 1998 ......................... -- --
Additional paid-in capital ...................................................... 2,952 2,952
Accumulated other comprehensive (loss) income ................................... (679) 59
Loans due on common stock ....................................................... (329) (343)
Accumulated deficit ............................................................. (53,132) (50,380)
---------- ----------
Total stockholders' deficit ................................................ (51,188) (47,712)
---------- ----------
$ 196,393 $ 171,239
========== ==========
</TABLE>
See accompanying notes to consolidated financial
statements.
17
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net sales................................................... $213,208 $165,232 $123,417
Operating expenses:
Cost of sales.......................................... 145,120 111,325 87,466
Selling, general and administrative.................... 35,261 27,566 15,205
Write-down of assets................................... -- 576 335
Amortization of intangibles............................ 15,023 9,654 16,378
------- ------- -------
Total operating expenses.................................... 195,404 149,121 119,384
------- ------- -------
Operating income............................................ 17,804 16,111 4,033
Other:
Interest expense....................................... (19,347) (15,803) (12,050)
Amortization of deferred financing costs............... (1,501) (1,271) (1,261)
Other.................................................. (880) (643) (401)
------- ------- -------
Loss before income tax (benefit)expense and
extraordinary item....................................... (3,924) (1,606) (9,679)
Income tax (benefit) expense................................ (1,172) 224 684
------- ------- -------
Loss before extraordinary item.............................. (2,752) (1,830) (10,363)
Extraordinary item - loss due to early extinguishment
of debt, net of taxes ................................... -- (7,558) --
------- ------- -------
Net loss.................................................... $ (2,752) $ (9,388) $(10,363)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial
statements.
18
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated Loans
Class A Class C Additional Other Due On
Common Common Paid-In Comprehensive Common Accumulated
Stock Stock Capital Income Stock Deficit Total
----- ----- ------- ------ ----- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $ -- $7,154 $ (22) $ (375) $(24,495) $(17,738)
Comprehensive loss
Net loss -- -- -- -- -- (10,363) (10,363)
Cumulative translation
adjustment -- -- -- (84) -- -- (84)
-------
Comprehensive loss (10,447)
-------
Repurchase of common stock -- -- (52) -- 32 -- (20)
Accrued dividends--preferred
stock -- -- -- -- -- (2,778) (2,778)
Accretion of preferred stock -- -- -- -- -- (294) (294)
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 -- -- 7,102 (106) (343) (37,930) (31,277)
Comprehensive loss
Net loss -- -- -- -- -- (9,388) (9,388)
Cumulative translation
adjustment -- -- -- 165 -- -- 165
-------
Comprehensive loss (9,223)
-------
Repurchase of common stock -- -- (4,150) -- -- -- (4,150)
Accrued dividends-preferred
stock -- -- -- -- -- (2,609) (2,609)
Accretion of preferred stock -- -- -- -- -- (453) (453)
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 -- -- 2,952 59 (343) (50,380) (47,712)
Comprehensive loss
Net loss -- -- -- -- -- (2,752) (2,752)
Cumulative translation
adjustment -- -- -- (738) -- -- (738)
-------
Comprehensive loss (3,490)
-------
Repayment of loans on common
stock -- -- -- -- 14 -- 14
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ -- $ -- $2,952 $(679) $ (329) $(53,132) $(51,188)
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial
statements.
19
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item ..................................... $ (2,752) $ (1,830) $ (10,363)
Adjustments to reconcile loss before extraordinary item to net cash
provided by operating activities:
Depreciation .................................................. 6,715 4,770 3,914
Write-down of assets .......................................... -- 576 335
Net gain on sale of assets .................................... -- -- (298)
Amortization of deferred financing costs, intangibles, and debt
discount .................................................... 16,639 11,023 17,706
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable ...................................... 353 2,826 (409)
Inventories .............................................. 3,142 (2,338) (4,725)
Accounts payable ......................................... (5,794) 855 3,169
Accrued and other liabilities ............................ (42) (478) 611
Accrued interest ......................................... (344) 942 31
Accrued taxes ............................................ (615) (67) 459
Other, net ............................................... (2,158) (862) (117)
------ ------ ------
Net cash provided by operating activities .......................... 15,144 15,417 10,313
------ ------ ------
Cash flows from investing activities:
Acquisition of businesses including transaction costs, net of cash
acquired ......................................................... (39,928) (47,752) (2,461)
Deferral of acquisition price, net of payments ..................... -- (105) (1,695)
Capital expenditures ............................................... (5,836) (6,670) (3,246)
Proceeds from sale of assets ....................................... -- 260 1,512
------ -------- ------
Net cash used in investing activities .............................. (45,764) (54,267) (5,890)
------- ------- ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ........................... 39,491 204,332 --
Repurchase of common stock, net of loan repayments ................. 14 (4,150) (20)
Repurchase of preferred stock ...................................... -- (23,998) --
Financing costs .................................................... -- (8,300) --
Repayment premium of long-term debt ................................ -- (2,210) --
Repayment of long-term debt ........................................ (8,968) (127,020) (3,880)
------ -------- ------
Net cash provided by (used in) financing activities ................ 30,537 38,654 (3,900)
------ ------ ------
(Decrease) increase in cash .......................................... (83) (196) 523
Cash, beginning of year ............................................... 327 523 --
------ -------- ------
Cash, end of year ..................................................... $ 244 $ 327 $ 523
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial
statements.
20
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1999
(In thousands, except share data)
(1) The Company
Jackson Acquisition Corp., a Delaware corporation, was formed on July 27,
1995 for the purpose of acquiring all of the outstanding common stock of Jackson
Holding Company (Holding). On August 16, 1995, Jackson Acquisition Corp.
purchased all of the outstanding stock of Holding for $129,000 (the JPI
Acquisition), with Holding the surviving corporation. Prior to the JPI
Acquisition, Holding owned 100% of the outstanding common stock of Jackson
Products, Inc. Immediately following the JPI Acquisition, Jackson Products, Inc.
was merged into Holding with Holding being the surviving corporation and renamed
Jackson Products, Inc. (the Company).
The Company owns 100% of the outstanding common stock of Flex-O-Lite, Inc.;
OSD Envizion, Inc. (OSD); Lansec Holding GmbH (GmbH); American Allsafe Company
(Allsafe); Silencio Safety Direct, Inc. (Silencio); Crystaloid Technologies Inc.
(Crystaloid); Kedman Company (Kedman); and TMT-Pathway, L.L.C. (TMT-Pathway).
During 1999, OSD was merged into the Company and Kedman was merged into Allsafe.
The Company is engaged in the manufacture, design, and distribution of
safety equipment used primarily in the cutting and welding, construction, and
general industrial markets as well as state and local government agencies. The
Company has two reportable segments, the personal safety segment and the highway
safety segment. The personal safety segment (the Company, OSD, GmbH, Allsafe,
Silencio, Crystaloid, and Kedman) offers consumable products designed to protect
the head, face, and eyes. The highway safety group (Flex-O-Lite and TMT-Pathway)
offering includes reflective glass beads, traffic work zone safety equipment,
traffic coatings, and specialized coating applications equipment.
(2) Acquisitions
On April 22, 1998, the Company, through its wholly-owned subsidiary,
Jackson Acquisition, Inc., acquired all of the outstanding capital stock of
Allsafe and Silencio for $29,100 (the Allsafe Acquisition). On April 23, 1998,
the Company, through its wholly-owned subsidiary, Crystaloid Technologies, Inc.,
acquired all of the outstanding capital stock of Crystaloid Electronics, Inc.,
for $6,000 (the Crystaloid Acquisition). Intangible assets totaling $11,594 and
$4,331 were recorded in connection with the Allsafe Acquisition and Crystaloid
Acquisition, respectively, and are being amortized over 3-15 years.
On July 22, 1998, Allsafe acquired all of the outstanding capital stock of
Kedman Company (the Kedman Acquisition) for a total purchase price of $9,200.
Intangible assets totaling $6,197 were recorded in connection with the Kedman
Acquisition and are being amortized over five years. The Allsafe Acquisition,
the Crystaloid Acquisition and the Kedman Acquisition are hereinafter
collectively referred to as the Acquisitions.
On January 25, 1999, the Company acquired certain of the assets of OK
Beads, Inc. (OK Beads) for approximately $998. OK Beads manufactures reflective
glass beads used in highway safety products such as road markers, signs, paint
and reflective tape. Intangible assets in the amount of $438 were recorded in
connection with the acquisition and are being amortized over fifteen years.
On May 17, 1999, the Company, through its wholly-owned subsidiary,
TMT-Pathway, acquired the assets of Morton Traffic Markings, a division of
Morton International, Inc. for $36,295 (the TMT-Pathway Acquisition), net of a
$1,696 purchase price adjustment. TMT-Pathway manufactures and distributes
traffic coatings and specialized coating applications equipment for the highway
safety industry. Intangible assets in the amount of $22,130 were recorded in
connection with the acquisition and are being amortized over three to five
years.
21
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
All acquisitions were accounted for using the purchase method of
accounting. Accordingly, total purchase cost for these transactions has been
allocated to the assets and liabilities of the companies based on their
respective fair values. The results of operations of the acquired businesses
have been included in the consolidated financial statements since the
acquisition date.
Pro forma consolidated net sales would have been $223,795 and $218,832 for
the years ended December 31, 1999 and 1998, respectively. Pro forma consolidated
net loss would have been $5,050 and $14,867 for the years ended December 31,
1999 and 1998, respectively; the pro forma consolidated net loss before
extraordinary items would have been $5,050 and $7,309, respectively. The
unaudited proforma results of operations of the Company for the years ended
December 31, 1999 and 1998 gives effect to: (i) the Acquisitions, the OK Beads
acquisition and the TMT-Pathway Acquisition and (ii) the refinancing, as
discussed in Note 7, as if each had occurred on January 31, 1998. These amounts
represent unaudited data and, in management's opinion, are not indicative of
actual results had the acquisitions been consummated at the beginning of the
respective fiscal years.
(3) Summary of Significant Accounting Policies
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the reported amounts of
revenues and expenses to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Consolidated Statements of Cash Flows
- -------------------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with initial maturities of
three months or less to be cash equivalents. Interest paid for the years ended
December 31, 1999, 1998 and 1997 totaled $18,889, $14,789 and $11,952,
respectively. Taxes paid for the years ended December 31, 1999, 1998 and 1997
totaled $1,384, $215 and $224, respectively.
Revenue and Accounts Receivable
- -------------------------------
The Company recognizes revenue upon shipment of merchandise to its
customers. The Company's sales are primarily North American, with customers
generally located throughout the United States, Canada, and Europe.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. For the year ended December 31, 1999, the Company had no
customers whose purchases exceeded 10% of net sales, nor did any customers
account receivable balance exceed 10% of total accounts receivable as of
December 31, 1999. For the year ended December 31, 1998, the Company had one
major customer whose purchases exceeded 10% of net sales. The percentage of net
sales to this customer totaled 11%. For the year ended December 31, 1997, the
Company had two major customers whose purchases exceeded 10% of net sales. The
percentage of net sales to these customers represented 12% and 13%,
respectively. The outstanding accounts receivable balance related to those
customers represented 9% and 19% of the accounts receivable balances at December
31, 1998 and 1997, respectively.
22
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method or the average cost method. Elements
of cost in inventory include raw materials, direct labor, and manufacturing
overhead.
Property, Plant, and Equipment
- ------------------------------
Property, plant, and equipment acquired through the purchases of businesses
are recorded at fair value. Subsequent additions and improvements to property,
plant, and equipment are capitalized at cost.
Depreciation is calculated using the straight-line method. The average
estimated lives utilized in calculating depreciation are as follows: buildings
and improvements, 7-40 years; and machinery and equipment, 2-18 years. Leasehold
improvements, which are included in buildings and improvements, are depreciated
over the shorter of the term of the respective lease or the life of the
respective improvement.
Intangibles
- -----------
The excess of cost over the net tangible assets acquired consists of
patents, customer lists, technology-related agreements, and goodwill and is
amortized on a straight-line basis over periods from 2-15 years. The Company
periodically re-evaluates the carrying value of its intangibles and its other
long-term assets based on the expected undiscounted cash flows over the
remaining life of the related assets.
Deferred Financing Costs
- ------------------------
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing, are amortized over the term of the related debt using
the effective interest method. In connection with the refinancing, as discussed
in Note 7, the Company recorded deferred financing fees totaling $8,300.
Related-party Transactions
- --------------------------
In connection with the August 1995 JPI Acquisition, the Company entered
into a Management Services Agreement (Agreement) with The Jordan Company
(Jordan), an affiliate of the Company. In connection with the Acquisitions, the
Company and Jordan agreed to amend the Agreement. The Agreement provides that
the Company shall pay Jordan an annual fee of the higher of (i) $600 or (ii)
2.5% of the Company's annual Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) as defined in the Agreement. For the years ended December
31, 1999, 1998 and 1997, the Company expensed $880, $775 and $699, respectively,
related to the Agreement. These amounts are included in other expense.
In connection with the August 1995 JPI Acquisition, the Company loaned
certain employees $427, of which $329 is outstanding as of December 31, 1999.
All of the loans are due upon the earlier of March 31, 2006, or within 90 days
after a borrower ceases to be an employee of the Company. The loans relate to
the purchase of common stock of the Company, are collateralized by the pledge of
common shares of the Company, may be prepaid in part or in full without notice
or penalty, and are represented by nonrecourse promissory notes which bear
interest at a rate per annum of 7%. The loans have been recorded as an increase
in stockholders' deficit in the consolidated financial statements.
23
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
Financial Instruments
- ---------------------
The fair market value of those long-term obligations, which carry variable
rates, approximates carrying value since the interest rates are periodically
adjusted for changes in market interest rates. The fair market value of the
Company's 9.50% senior subordinated notes is estimated based on quoted market
prices for the same or similar issues with the same remaining maturities and
overall financial condition. The fair value of the notes was $105,800 as of
December 31, 1999 compared to the carrying value of $114,472. As of December 31,
1998, the carrying value approximated the fair value of the notes as the debt
was negotiated late in the year.
The fair market values of the Company's other financial instruments
included in the consolidated balance sheets approximate the carrying values of
the financial instruments.
Income Taxes
- ------------
The Company accounts for income taxes under the asset and liability method.
Accordingly, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The provision for income taxes includes Federal and state income taxes
currently payable and those deferred because of temporary differences between
the financial statements and tax basis of assets and liabilities.
Comprehensive Income
- --------------------
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Comprehensive Income. SFAS No. 130 requires
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The provisions
of the statement, however, need not be applied to immaterial items. The
Company's comprehensive loss is impacted only by foreign currency translation
adjustments, which resulted in a $738 additional loss for the year ended
December 31, 1999.
(4) Inventories
Inventories consist of the following:
1999 1998
---- ----
Raw materials................................... $13,959 $13,319
Work in process................................. 6,030 4,516
Finished goods.................................. 14,472 16,440
------ ------
$34,461 $34,275
======= =======
24
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
(5) Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
1999 1998
---- ----
Land.......................................... $ 3,525 $ 1,418
Buildings and improvements.................... 15,426 12,149
Machinery and equipment....................... 44,366 33,167
------ ------
63,317 46,734
Less accumulated depreciation................. 18,796 12,372
------ ------
$44,521 $34,362
======= =======
Depreciation expense totaled $6,715, $4,770 and $3,914 for the years ended
December 31, 1999, 1998 and 1997, respectively.
(6) Intangibles
Intangibles consist of the following:
1999 1998
---- ----
Goodwill........................................ $113,480 $ 91,404
Customer lists and unpatented technology ....... 15,362 15,362
Patents and other............................... 14,196 14,114
------ ------
143,038 120,880
Less accumulated amortization................... 60,222 45,638
------ ------
$ 82,816 $ 75,242
======= ========
(7) Long-term Debt
Long-term obligations consist of the following:
1999 1998
---- ----
Acquisition facility............................. $101,500 $ 65,800
Revolving working capital facility............... 5,055 10,231
9.50% senior subordinated notes.................. 115,000 115,000
Unamortized debt discount........................ (528) (642)
------- -------
$221,027 $190,389
======== ========
Credit Agreement
- ----------------
In 1998, the Company refinanced its revolving credit facility and term
loans, repurchased a portion of common stock and repurchased all of the issued
and outstanding preferred stock. Additionally, a portion of the refinancing
proceeds was utilized to pay a prepayment premium on its preferred stock. In
conjunction with the Acquisitions, the Company recorded $7,558 of extraordinary
expense for the year ended December 31, 1998 consisting of (i) the write-off of
$5,348 in deferred financing costs and (ii) a $2,210 prepayment premium on its
senior subordinated notes.
25
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
On April 22, 1998, the Company entered into a $125,000 Credit Agreement
with BankBoston, NA, as agent, and Mercantile Bank National Association, as
co-agent, that is comprised of a $30,000 revolving working capital facility and
a $95,000 acquisition facility. This agreement was amended during the second
quarter of 1999 to increase the acquisition facility to $105,000. The revolver
provides that up to $5,000 of such facility may be used for the issuance of
letters of credit and lender guaranties. The Credit Agreement also contains
several financial covenants, which require the Company to maintain certain
financial ratios and restrict the Company's ability to incur indebtedness and
pay dividends. The commitment fee on the unused portion of the revolver is 1/2%
per annum, payable quarterly.
The Credit Agreement is guaranteed by the Company's domestic subsidiaries
and is secured by a perfected first priority security interest in all of the
assets of each domestic subsidiary, the pledge of 100% of the capital stock of
each domestic subsidiary and the pledge of up to a maximum of 66% of the capital
stock of each direct foreign subsidiary.
Mandatory principal payments on the acquisition facility are due in
quarterly installments beginning on June 30, 2001, with the final installment
due on April 22, 2004. For the quarters ending June 30, 2001 through March 31,
2003, the Company is required to pay 3.125% of the acquisition loan outstanding
on April 30, 2001. For the quarters ending April 1, 2003 through March 31, 2004,
the Company is required to pay 18.75% of the outstanding principal balance
outstanding on April 30, 2001 with the unpaid balance due on April 22, 2004. The
entire principal balance outstanding on the revolver is due upon maturity of the
Credit Agreement.
The borrowings under the Credit Agreement bear interest at the option of
the Company, at a rate per annum equal to (i) the Base Rate (as defined in the
Credit Agreement) plus .75%; or (ii) the LIBOR rate (as defined in the Credit
Agreement) plus 2.25% for the working capital facility and the acquisition
facility. For each of the quarters following September 30, 1998, the factor
added to either the base rate or the LIBOR rate will be adjusted based on the
ratio of the Company's Total Debt to EBITDA (as defined by the Credit
Agreement). The average interest rate on the outstanding borrowings was 8.4% as
of December 31, 1999.
The Company is currently in compliance with all of the financial covenants
contained in the Credit Agreement. As of December 31, 1999, there was $5,055
outstanding on the revolving credit facility and $1,385 of letters of credit
outstanding resulting in availability of $23,560.
Senior Subordinated Notes
- -------------------------
On April 16, 1998, the Company offered $115,000 aggregate principal amount
of Senior Subordinated Notes due April 15, 2005 (the Notes). The Notes bear
interest at the rate of 9 1/2% per annum, payable semiannually in arrears on
April 15 and October 15. The payment of principal, premium, interest and
liquidated damages on the Notes are unconditionally guaranteed, jointly and
severally, by the Company's domestic subsidiaries (Guarantors). The Notes are
callable on or after April 15, 2001, in whole or from time to time in part, at
the option of the Company, at a call price of 105% commencing April 15, 2001;
103% commencing April 15, 2002; 102% commencing April 15, 2003; and 100%
commencing April 14, 2004.
The Notes require the Company to maintain certain financial ratios and
restrict the incurrence of additional indebtedness by the Company; the payment
of dividends and other distributions with respect to the Company's capital
stock; the creation of liens on the assets of the Company to secure certain
subordinated debt; and certain mergers, sales of assets, and transactions with
affiliates. The Company was in compliance with these covenants at December 31,
1999.
The net proceeds of the issuance of the Notes totaled $114,273. The
difference between the face value and the net proceeds from issue is being
amortized over the seven-year term of the Notes.
26
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
In 1998, the Company repaid the $34,000 of 12.25% Senior Subordinated Notes
that were issued on August 15, 1995 and due on August 15, 2004. As indicated
previously, with the repayment of these notes, the Company incurred a prepayment
penalty of $2,210.
Interest Rate Cap
- -----------------
The Company utilizes an interest rate cap agreement to reduce the impact of
increases in interest rates on its floating rate debt. The interest rate cap
agreement was purchased on December 1, 1999 and expires December 1, 2000 and
entitles the Company to receive from a counterparty an amount, if any, by which
the three-month LIBOR interest rate exceeds the strike rate stated in the
agreement. The interest rate cap has a notional amount of $50,000 and a strike
rate of 7%. Any amounts received related to the agreement are recorded as
adjustments to interest expense.
(8) Stockholders' Deficit
On July 1, 1996, the Company amended its Certificate of Incorporation to
reflect the 100-to-1 reverse stock split of all authorized and issued common and
preferred stock. Following this stock split, the authorized capital stock of the
Company consists of 100,000 shares of Class A common stock, 45,000 shares of
Class B common stock, 15,000 shares of Class C common stock (collectively the
Common Stock), and 2,000 shares of Series A Cumulative 13.25% Exchangeable
Preferred Stock (the Preferred Stock).
In connection with the financing for the August 1995 JPI Acquisition, the
Company issued, on a post-stock split basis, 40,000 shares of Class A common
stock, 10,000 shares of Class C common stock, and 1,700 shares of Preferred
Stock. On April 22, 1998, in connection with the Acquisitions and the
refinancing, the Company repurchased all of the outstanding Preferred Stock at
$23,998.
Common Stock
- ------------
Dividends are payable equally on shares of all classes of common stock in
amounts as and when declared by the Company's Board of Directors, subject to
legally available funds and restrictions contained in certain agreements.
Holders of Class A and Class C common stock are entitled to one vote per share
on all matters submitted to a vote of stockholders.
Upon the sale of shares of Class B common stock pursuant to a public equity
offering, each share of Class B common stock will be converted into one share of
Class A common stock. In addition, each holder of Class B common stock may, at
their option, convert each share of Class B common stock into Class A common
stock at any time, subject to certain conditions. Upon the sale of Common Stock
pursuant to a public equity offering of Class B common stock, each share of
Class C common stock will be converted into one share of Class A common stock.
In 1998, the Company repurchased $4,150 of Common Stock and warrants from
an institutional holder.
Warrants
- --------
In 1998, the Company issued, on a post-stock split basis, warrants to
purchase 34,482.76 shares of common stock at an exercise price of $100 per
share. These warrants may be exercised at any time prior to their expiration
date of August 15, 2005. The proceeds from the sale of these warrants ($100 per
warrant) have been recorded as additional paid-in capital in the consolidated
financial statements. No warrants have been exercised since their issuance. In
connection with the Acquisitions and the refinancing, the Company repurchased
6,761.53 warrants from an institutional investor.
27
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
Stock Option Plan
- -----------------
In connection with the August 1995 JPI Acquisition, the Company adopted a
nonqualified stock option plan (the Option Plan) for its officers and key
employees. Under the Option Plan, eligible participants may receive incentive
and nonqualified options to purchase shares of the Company's Class C common
stock. Options are exercisable at such time an option is earned and vested.
Generally, options become exercisable at a rate of 20% for each full year of
employment from the date of grant and may be exercised only if the holder is an
employee of the Company. No options have been exercised since the adoption of
the Option Plan. All options currently outstanding have an exercise price of
$100 per share. All options expire on the earlier of (i) 10 years from date of
grant; (ii) 90 days from the employee's termination date; or (iii) one year from
the employee's termination due to death or disability.
The following is a summary of options granted and outstanding:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -------
Beginning of year......................... 3,198.04 $100.00 3,198.04 $100.00 1,704.14 $100.00
Granted................................... -- -- -- -- 1,503.90 100.00
Exercised................................. -- -- -- -- -- --
Cancelled................................. (335.05) 100.00 -- 100.00 (10.00) 100.00
------ ------ ----- ------ ----- ------
End of year............................... 2,862.99 $100.00 3,198.04 $100.00 3,198.04 $100.00
Exercisable at the end of year............ 1,990.41 $100.00 1,488.81 $100.00 849.18 $100.00
======== ======= ======== ======= ====== =======
Weighted average fair value of options
granted................................ $ N/A $ N/A $63.70
====== ====== ======
</TABLE>
The weighted average fair value of options granted is estimated on the date
of grant using the Black-Scholes options pricing model with the following
assumptions for 1997: risk free interest rate of 6.5%; expected dividend yield
of 0%; expected life of 10 years and expected volatility of 0%. The weighted
average contractual life of the options outstanding as of December 31, 1999 was
6.5 years.
The Company has elected to continue to measure compensation cost using the
intrinsic value method as prescribed by Accounting Principles Board (APB)
Opinion No. 25 and has recorded no compensation expense relative to the issuance
of its stock options. Had the Company applied the principles of SFAS No. 123,
Accounting for Stock-Based Compensation, additional compensation expense would
have been recorded of $54 for 1999 and 1998 and $34 for 1997.
(9) Income Taxes
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
---- ---- ----
Current:
Federal ................................ $ 128 $ 216 $ 40
State .................................. 243 221 310
Foreign ................................ 280 (213) 334
--- ---- ---
651 224 684
Deferred ................................. (1,823) --- ---
------ ------- -------
$(1,172) $ 224 $ 684
======= ====== =======
</TABLE>
28
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
Reconciliation between the statutory income tax provision and effective tax
provision is summarized below for the years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate (34%)....................... $(1,334) $(3,116) $(3,291)
Amortization of goodwill and other......... 3,253 1,003 4,778
State income tax (refunds)................. 160 (213) --
Change in valuation allowance.............. (3,251) 2,550 (803)
------ ----- ----
Income tax (benefit) expense............... $(1,172) $ 224 $ 684
======= ====== =====
</TABLE>
The tax effects of significant temporary differences, representing deferred
tax assets and the deferred tax liability, as of December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 7,759 $ 9,839
Receivables.......................................... 282 194
Accrued liabilities.................................. 1,364 1,588
Postretirement benefits.............................. 690 690
Inventory............................................ 1,127 642
Intangibles.......................................... 1,696 1,010
AMT Credits.......................................... 128 --
------ ------
13,046 13,963
Valuation allowance....................................... (9,375) (12,626)
------ ------
Deferred tax assets, net of valuation allowance........... 3,671 1,337
Deferred tax liability - property, plant, and equipment.. (1,848) (1,337)
------ ------
Net deferred tax assets................................... $ 1,823 $ --
====== ======
</TABLE>
The Company establishes valuation allowances and continually reviews the
adequacy of the allowance, recognizing benefits only as reassessment indicates
that it is more likely than not that benefits will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income. Management considers projected future taxable income and tax
planning strategies in assessing the adequacy of the valuation allowance.
The decrease in the valuation allowance during 1999 was a result of
utilizing net operating loss (NOL) carryforwards in 1999 and anticipating using
a portion of the NOL carryforward in 2000. The increase in the valuation
allowance during 1998 was a result of changes in temporary differences and an
increase in the NOL carryforwards. The decrease during 1997 was the result of a
decrease in NOLs resulting from taxable income and changes in temporary
differences.
At December 31, 1999, the Company had net deferred tax assets of $1,823. The
Company will need to generate taxable income of approximately $5,400 prior to
expiration of the net operating loss carryforward to fully realize the benefit
of the deferred tax asset. Based upon the level of taxable income and
projections for future taxable income, management believes it is more likely
than not the Company will realize the benefit of the net deferred tax asset. At
December 31, 1999, the Company had NOL carryforwards of approximately $20,416
for U.S. federal income tax purposes which begin to expire in 2009 to the extent
not previously utilized. Approximately $11,092 of the NOL is restricted in
availability to offset taxable income subject to an annual limitation of
approximately $1,236 under Section 382 of the Internal Revenue Code. The
remaining balance of approximately $9,324 is available without restriction.
29
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
At December 31, 1999, the Company had NOL carryforwards of approximately
$2,345 for foreign income tax purposes which do not expire. The Company
established a valuation reserve allowance for the entire amount of the deferred
tax asset resulting from the foreign NOLs because management does not believe it
is more likely than not that the benefit will be realized. The deferred tax
asset and the related valuation allowance are excluded from the above tables.
(10) Retirement Benefit Plans
Retirement benefits are provided to substantially all employees under a
discretionary profit sharing and contributory retirement plan under Section
401(k) of the Internal Revenue Code.
The Company provides postretirement health care and other benefits to
certain qualifying retirees. As of January 1, 1998, the Company amended the plan
to restrict new participants. The Company does not fund retiree health care
benefits in advance and has the right to modify these benefits in the future.
Net periodic postretirement benefit cost (NPPBC) for the years ended December
31, 1999 and 1998 includes the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost................................... $ 58 $ 108 $ 78
Interest cost.................................. 57 70 58
Amortizations of gain.......................... (91) (50) (57)
--- --- ---
NPPBC.......................................... $ 24 $ 128 $ 79
==== ===== ====
</TABLE>
The Plan's status as of December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Actuarial present value of benefit obligation:
Fully eligible active participants.................... $ 37 $ 98
Other active participants............................. 608 869
Retirees.............................................. 122 40
Unrecognized net gain................................. 1,550 781
Unrecognized prior service cost...................... 21 29
------ ------
Accrued benefit obligation................................ $2,338 $1,817
====== ======
</TABLE>
The benefit obligation was determined by application of the terms of the
Plan, together with relevant actuarial assumptions for active employees. Health
care cost trends are projected at annual rates ranging from 9.0% in 2000 down to
5.5% in 2004 and thereafter. The effect of a 1% annual increase in these assumed
rates would increase the APBO at December 31, 1999 by approximately $152 and the
service and interest cost components of the NPPBC for the years ended December
31, 1999 and 1998 by approximately $26. The assumed discount rate used in
determining the APBO was 7.0%. The APBO is included in other noncurrent
liabilities on the consolidated balance sheets.
30
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(11) Segment Reporting
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information". Under the provisions of SFAS 131, the
Company has two reportable segments, which include the Personal Safety Products
segment ("PSP") and the Highway Safety Products segment ("HSP"). PSP includes
consumable products designed to protect the head, face and eyes. Primary
customers for these products are found in the welding, construction, janitorial,
healthcare, sporting, and food service sectors. HSP's broad product offering
includes reflective glass beads, traffic workzone safety products, traffic
coatings and specialized coating applications equipment. Primary customers for
these products consist of local and government agencies, private contract
stripers and highway safety distributors.
The Company evaluates segment performance based upon a measure of profit
represented by earnings before interest, taxes, depreciation and amortization
(EBITDA). Accounting policies for reportable segments are consistent with the
policies described in Note 3 to the consolidated financial statements.
Presented below is a summary of financial data for the Company's reportable
segments. EBITDA represents net income plus interest, taxes, depreciation,
amortization and certain non-cash charges. EBITDA is not included herein as
operating data and should not be construed as a substitute for operating income
or a better indicator of liquidity than cash flow from operating activities,
which are determined in accordance with GAAP. The Company has included EBITDA
because the Company understands that it is one measure used by certain investors
to determine the Company's operating cash flow and historical ability to service
its indebtedness and because certain financial ratios are calculated on a
similar basis. EBITDA has not been reduced by management and directors fees,
both of which are subordinated to the Company's obligations under the Notes.
Information presented below for total assets exclude intercompany receivables
and investments in wholly-owned subsidiaries.
Net Sales To External Customers By Business Segment
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
PSP.................................. $132,726 $106,371 $ 60,702
HSP.................................. 106,367 71,636 70,090
Eliminations......................... (25,885) (12,775) (7,375)
------- ------- -------
TOTAL................................ $213,208 $165,232 $123,417
======== ======== ========
</TABLE>
EBITDA By Business Segment And Reconciliation To Loss Before Provision
For Income Taxes And Extraordinary Item
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
PSP.................................. $18,650 $18,282 $13,029
HSP.................................. 20,892 12,829 11,631
------ ------ ------
TOTAL................................ 39,542 31,111 24,660
Depreciation and amortization........ 23,239 15,695 21,553
Other 880 1,219 736
Interest, net........................ 19,347 15,803 12,050
------ ------ ------
Loss before provision for
Income taxes and extraordinary item.. $(3,924) $(1,606) $(9,679)
======= ======= =======
</TABLE>
31
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
Depreciation By Business Segment
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
PSP.................................. $4,404 $2,958 $2,176
HSP.................................. 2,311 1,812 1,738
----- ----- -----
TOTAL................................ $6,715 $4,770 $3,914
====== ====== ======
</TABLE>
Capital Expenditures By Business Segment
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
PSP.................................. $4,319 $3,215 $2,346
HSP.................................. 1,517 3,455 900
----- ----- -----
TOTAL................................ $5,836 $6,670 $3,246
====== ====== ======
</TABLE>
Net Sales By Principal Geographic Area
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
United States........................ $225,220 $163,317 $124,920
All Other............................ 13,873 14,690 5,872
------ ------ -----
239,093 178,007 130,792
Eliminations......................... (25,885) (12,775) (7,375)
------- ------- -------
TOTAL................................ $213,208 $165,232 $123,417
======== ======== ========
</TABLE>
Total Assets By Principal Geographic Area
1999 1998
---- ----
United States........................ $187,189 $161,839
All Other............................ 9,204 9,400
----- -----
TOTAL................................ $196,393 $171,239
======== ========
(12) Commitments and Contingencies
The Company is involved in certain legal actions from time to time related
to the normal conduct of its business. Management believes that liabilities, if
any, resulting from litigation will not materially affect the consolidated
financial position or results of operations of the Company.
32
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
Future minimum lease payments under all operating leases with initial or
remaining noncancelable lease terms in excess of one year at December 31, 1999
are as follows:
2000........................................... $1,560
2001........................................... 949
2002........................................... 751
2003........................................... 304
2004 and thereafter............................ 272
==== =====
Rent expense for the years ended December 31, 1999, 1998 and 1997 totaled
$1,977, $1,547 and $1,462, respectively.
(13) Sale of Assets
During 1998, the Company decided to consolidate certain production lines,
thereby closing its Elwood, Indiana facility resulting in a loss of $576. On
December 30, 1998, the Company completed the sale of this facility for $260. The
Company incurred $503 of expenses related to the closure of this facility,
primarily related to severance costs.
During 1999, the Company sold Aden Ophthalmic Product's ("AOP") for
approximately $1,200, which approximated the cost of inventory sold, severance
costs and other disposal expenses.
(14) Condensed Consolidating Financial Information
Financial information regarding the Guarantors for the years ended December
31, 1999, 1998 and 1997 is presented below for purposes of complying with the
reporting requirements of the Guarantor Subsidiaries. The financial information
regarding the Guarantors is being presented through condensed consolidating
financial statements since the guarantees are full and unconditional and are
joint and several. Guarantor financial statements have not been presented
because management does not believe that such financial statements are material
to investors. Morton Traffic Markings was acquired in 1999 and renamed
TMT-Pathway, a limited liability company, formed in May 1999. Kedman was
acquired in 1998 and incorporated by its predecessors in September 1961. In
1999, Kedman was merged into American Allsafe. Silencio was acquired in 1998 and
incorporated by its predecessors in May 1996. Allsafe was acquired in 1998 and
was incorporated in March 1998. Crystaloid was acquired in 1998 and incorporated
in March 1998. OSD was acquired in 1996 and incorporated in October 1996. In
1999, OSD was merged into the Company. Flex-O-Lite was acquired in 1994 by the
Company's predecessor. Disclosures concerning the operations of GmbH, the only
Non-Guarantor Subsidiary, prior to December 31, 1997 have not been presented
because its operations were not material.
33
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1999
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
ASSETS Company Subsidiaries Subsidiary Eliminations Consolidated
------ ---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash $ -- $ -- $ 244 $ -- $ 244
Accounts receivable, net 4,315 19,972 1,306 -- 25,593
Inventories 6,208 27,120 1,650 (517) 34,461
Deferred tax asset 1,823 -- -- -- 1,823
Prepaid expenses 222 543 104 -- 869
---------- ---------- --------- ---------- ----------
Total current assets 12,568 47,635 3,304 (517) 62,990
Property, plant and equipment 11,235 33,012 274 -- 44,521
Intangibles 12,604 67,896 2,316 -- 82,816
Note receivable from subsidiaries 84,613 9,229 -- (93,842) --
Deferred financing costs 6,061 -- -- -- 6,061
Investment in subsidiaries 20,025 -- -- (20,025) --
Other noncurrent assets -- 5 -- -- 5
---------- ---------- --------- ---------- ----------
$ 147,106 $ 157,777 $ 5,894 $(114,384) $ 196,393
========== ========== ========= ========== ==========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
---------------------
Current liabilities:
Notes payable to parent $ -- $ 90,265 $ 3,577 $ (93,842) $ --
Accounts payable 2,482 10,078 315 -- 12,875
Accrued and other liabilities 2,811 3,583 443 -- 6,837
Accrued interest 3,315 -- -- -- 3,315
Accrued taxes 460 -- -- -- 460
---------- ---------- --------- ---------- ----------
Total current liabilities 9,068 103,926 4,335 (93,842) 23,487
Long-term debt 221,027 -- -- -- 221,027
Other noncurrent liabilities 3,067 -- -- -- 3,067
Due to parent (36,062) 31,779 4,283 -- --
Stockholders' deficit:
Common stock -- 1 -- (1) --
Additional paid-in capital 2,951 34,499 -- (34,498) 2,952
Accumulated other comprehensive income -- (204) (475) -- (679)
Loans due on common stock (329) -- -- -- (329)
Accumulated deficit (52,616) (12,224) (2,249) 13,957 (53,132)
---------- ---------- --------- ---------- ----------
Total stockholders' deficit (49,994) 22,072 (2,724) (20,542) (51,188)
---------- ---------- --------- ---------- ----------
$ 147,106 $ 157,777 $ 5,894 $(114,384) $ 196,393
========== ========== ========= ========== ==========
</TABLE>
34
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year ended December 31, 1999
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 54,339 $ 177,364 $ 7,390 $ (25,885) $ 213,208
Operating expenses:
Cost of sales 39,111 127,101 4,620 (25,712) 145,120
Selling, general and administrative 11,084 20,335 3,842 -- 35,261
Amortization of intangibles 1,101 13,755 167 -- 15,023
---------- ---------- --------- ---------- ----------
51,296 161,191 8,629 (25,712) 195,404
---------- ---------- --------- ---------- ----------
Operating income (loss) 3,043 16,173 (1,239) (173) 17,804
Other
Interest expense, net (13,990) (5,357) -- -- (19,347)
Amortization of deferred financing costs (1,501) -- -- -- (1,501)
Intercompany interest and other 12,484 (13,364) -- -- (880)
---------- ---------- --------- ---------- ----------
Income (loss) before income tax expense
and equity in (loss)earnings of subsidiaries 36 (2,548) (1,239) (173) (3,924)
Income tax (benefit) expense (1,452) 295 (15) -- (1,172)
Equity in earnings (loss) of subsidiaries (4,067) -- -- 4,067 --
---------- ---------- --------- ---------- ----------
Net income (loss) $ (2,579) $ (2,843) $ (1,224) $ 3,894 $ (2,752)
========== ========== ========= ========== ==========
</TABLE>
35
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Year ended December 31, 1999
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash (used in) provided by operating
activities: $ (1,394) $ 14,314 $ (1,843) $ 4,067 $ 15,144
---------- ---------- --------- ---------- ----------
Cash flows from investing activities:
Acquisition of businesses, including
transaction costs, net of cash acquired (39,928) -- -- -- (39,928)
Capital expenditures (1,793) (3,848) (195) -- (5,836)
---------- ---------- --------- ---------- ----------
Net cash used in investing activities (41,721) (3,848) (195) -- (45,764)
---------- ---------- --------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 39,491 -- -- -- 39,491
Repayment of loans on common stock 14 -- -- -- 14
Repayment of long-term debt (8,968) -- -- -- (8,968)
---------- ---------- --------- ---------- ----------
Net cash provided by financing activities 30,537 -- -- -- 30,537
---------- ---------- --------- ---------- ----------
Net increase (decrease) in cash $ (12,578) $ 10,466 $ (2,038) $ 4,067 (83)
========== ========== ========= ==========
Cash, beginning of year 327
----------
Cash, end of year $ 244
==========
</TABLE>
36
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1998
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
ASSETS Company Subsidiaries Subsidiary Eliminations Consolidated
------ ---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash $ -- $ -- $ 327 $ -- $ 327
Accounts receivable, net 3,565 13,427 1,487 -- 18,479
Inventories 8,162 25,011 1,444 (342) 34,275
Prepaid expenses 259 407 80 -- 746
---------- ---------- --------- ---------- ----------
Total current assets 11,986 38,845 3,338 (342) 53,827
Property, plant and equipment 11,385 22,779 198 -- 34,362
Intangibles 13,968 58,628 2,646 - 75,242
Note receivable from subsidiaries 48,271 9,229 -- (57,500) --
Deferred financing costs 7,372 -- -- -- 7,372
Investment in subsidiaries 24,094 -- -- (24,094) --
Other noncurrent assets -- 436 -- -- 436
---------- ---------- --------- ---------- ----------
$ 117,076 $ 129,917 $ 6,182 $ (81,936) $ 171,239
========== ========== ========= ========== ==========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to parent $ -- $ 53,971 $ 3,529 $ (57,500) $ --
Accounts payable 3,580 10,932 801 -- 15,313
Accrued and other liabilities 3,717 1,533 806 -- 6,056
Accrued interest 3,044 -- -- -- 3,044
Accrued taxes 1,075 -- -- -- 1,075
---------- ---------- --------- ---------- ----------
Total current liabilities 11,416 66,436 5,136 (57,500) 25,488
Long-term debt 190,389 -- -- -- 190,389
Other noncurrent liabilities 3,074 -- -- -- 3,074
Due to parent (40,374) 38,600 1,774 -- --
Stockholders' deficit:
Common stock -- 1 -- (1) --
Additional paid-in capital 2,951 34,499 -- (34,498) 2,952
Accumulated other comprehensive income -- (238) 297 -- 59
Loans due on common stock (343) -- -- -- (343)
Accumulated deficit (50,037) (9,381) (1,025) 10,063 (50,380)
---------- ---------- --------- ---------- ----------
Total stockholders' deficit (47,429) 24,881 (728) (24,436) (47,712)
---------- ---------- --------- ---------- ----------
$ 117,076 $ 129,917 $ 6,182 $ (81,936) $ 171,239
========== ========== ========= ========== ==========
</TABLE>
37
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 46,876 $ 122,385 $ 8,746 $ (12,775) $ 165,232
Operating expenses:
Cost of sales 30,441 87,654 5,688 (12,458) 111,325
Selling, general and administrative 9,868 13,749 3,949 - 27,566
Write down of assets - 576 - - 576
Amortization of intangibles 1,166 8,272 216 - 9,654
---------- ---------- --------- ---------- ----------
41,475 110,251 9,853 (12,458) 149,121
---------- ---------- --------- ---------- ----------
Operating income (loss) 5,401 12,134 (1,107) (317) 16,111
Other
Interest expense, net (13,516) (2,287) - - (15,803)
Amortization of deferred financing costs (1,271) - - - (1,271)
Intercompany interest and other 8,962 (9,687) 82 - (643)
---------- ---------- --------- ---------- ----------
Income (loss) before income tax expense,
equity in earnings (loss) of subsidiaries
and extraordinary item (424) 160 (1,025) (317) (1,606)
Income tax expense 3 221 - - 224
Equity earnings (loss) in subsidiaries (1,086) - - 1,086 -
Extraordinary item-loss due to early
extinguishment of debts (7,558) - - - (7,558)
---------- ---------- --------- ---------- ----------
Net income (loss) $ (9,071) $ (61) $ (1,025) $ 769 $ (9,388)
========== ========== ========= ========== ==========
</TABLE>
38
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Year ended December 31, 1998
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash (used in) provided by operating activities
$ 8,630 $ 10,246 $ (1,966) $ (1,493) $ 15,417
Cash flows from investing activities: ---------- ---------- --------- ---------- ----------
Acquisition of businesses, including
transaction costs, net of cash acquired (47,752) -- -- -- (47,752)
Deferral of acquisition price, net of payments ... 500 -- (605) -- (105)
Capital expenditures ............................. (1,679) (4,819) (172) -- (6,670)
Proceeds from sale of assets ..................... -- 260 -- -- 260
---------- ---------- --------- ---------- ----------
Net cash used in investing activities ................ (48,931) (4,559) (777) -- (54,267)
---------- ---------- --------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ......... 204,332 -- -- -- 204,332
Repurchase of common stock, net of loan
payment (4,150) -- -- -- (4,150)
Repurchase of preferred stock .................... (23,998) -- -- -- (23,998)
Financing costs .................................. (7,903) (397) -- -- (8,300)
Prepayment premium of long-term debt ............. (2,210) -- -- -- (2,210)
Repayment of long-term debt ...................... (127,020) -- -- -- (127,020)
---------- ---------- --------- ---------- ----------
Net cash provided by (used in) financing activities .. 39,051 (397) -- -- 38,654
---------- ---------- --------- ---------- ----------
Net increase (decrease) in cash ...................... $ (1,250) $ 5,290 $ (2,743) $ (1,493) (196)
========== ========== ========= ==========
Cash, beginning of year .............................. 523
----------
Cash, end of year .................................... $ 327
==========
</TABLE>
39
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 47,759 $ 83,033 $ -- $ (7,375) $ 123,417
Operating expenses:
Cost of sales 32,257 62,594 -- (7,385) 87,466
Selling, general and administrative 8,876 6,329 -- -- 15,205
Write down of assets -- 335 -- -- 335
Amortization of intangibles 13,185 3,193 -- -- 16,378
---------- ---------- --------- ---------- ----------
54,318 72,451 -- (7,385) 119,384
---------- ---------- --------- ---------- ----------
Operating income (loss) (6,559) 10,582 -- 10 4,033
Other
Interest expense, net (12,050) -- -- -- (12,050)
Amortization of deferred financing costs (1,261) -- -- -- (1,261)
Intercompany interest and other 6,996 (7,397) -- -- (401)
---------- ---------- --------- ---------- ----------
Income (loss) before income tax provision and
equity in earnings (loss) of subsidiaries (12,874) 3,185 -- 10 (9,679)
Income tax expense 540 144 -- -- 684
Equity in earnings (loss) of subsidiaries 3,041 -- (3,041) --
---------- ---------- --------- ---------- ----------
Net income (loss) $ (10,373) $ 3,041 $ -- $ (3,031) $ (10,363)
========== ========== ========= ========== ===========
</TABLE>
40
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
Year ended December 31, 1997
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Consolidated
---------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities: $ 1,328 $ 8,985 $ 10,313
---------- ---------- -----------
Cash flows from investing activities:
Acquisition of businesses, including
transaction costs, net of cash acquired (2,461) -- (2,461)
Deferral of acquisition, net of payments (1,695) -- (1,695)
Capital expenditures (2,168) (1,078) (3,246)
Proceeds from the sale of assets 708 804 1,512
---------- ---------- -----------
Net cash used in investing activities (5,616) (274) (5,890)
---------- ---------- -----------
Cash flows from financing activities
Repayment of long-term debt (3,880) -- (3,880)
Repurchase of common stock, net of loan payments (20) -- (20)
---------- ---------- -----------
Net cash used in financing activities (3,900) -- (3,900)
---------- ---------- -----------
Net increase (decrease) in cash $ (8,188) $ 8,711 523
========== ==========
Cash, beginning of year --
-----------
Cash, end of year $ 523
===========
</TABLE>
41
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names and ages of the Company's directors and
certain officers and the positions they hold.
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C> <C>
Robert H. Elkin............54 Director, Chairman and Chief Executive Officer
Christopher T. Paule.......36 President and Chief Operating Officer
Lincoln M. Kennedy 63 Senior Vice President and Chief Operating Officer - PSP Group
Robert J. Currell 61 Senior Vice President and Chief Operating Officer - HSP Group
Mark A. Kolmer.............38 Vice President-Finance
F.H. Joe Gay 43 Vice President-Human Resources
John W. Jordan II..........53 Director
David W. Zalaznick.........46 Director
A. Richard Caputo, Jr......34 Director and Vice President
Jonathan F. Boucher........43 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and certain officers of the Company. The term of office for each
director will last until the next annual shareholder's meeting. Each officer,
other than Messrs. Elkin, Paule, Kennedy and Currell, serves at the pleasure of
the Company's Board of Directors with no set term of office. See
"Employment/Non-Interference Agreements."
Robert H. Elkin. Mr. Elkin has served as the Company's Chairman and Chief
Executive Officer and as a Director since August 1995. Mr. Elkin was appointed
President and Chief Executive Officer of the predecessor to the Company in March
1994. From September 1987 to July 1995, Mr. Elkin served as President and Chief
Operating Officer of Clarke Industries (a division of Thermadyne Industries,
Inc. ( "Thermadyne ").
Christopher T. Paule. Mr. Paule began serving as the Company's President and
Chief Operating Officer in January 2000. From August 1995 to December 1999, Mr.
Paule served as the Company's Vice President, Chief Financial Officer and
Secretary. Mr. Paule was appointed Vice President-Finance of the predecessor to
the Company in January 1994. From 1988 to 1994, he served as Controller at Coyne
Cylinder Company in Huntsville, Alabama (a division of Thermadyne), Controller
of the Cutting and Welding segment of Thermadyne and various other financial and
operating positions.
Lincoln M. Kennedy. Mr. Kennedy has served as the Company's Senior Vice
President and Chief Operating Officer of the PSP Group since May 1999. Mr.
Kennedy was appointed President of American Allsafe in 1981. From 1975 to 1981,
he served as General Manager of the Industrial Division of American Safety
Equipment. From 1964 to 1975, he served as Director of Operations at
Pennsylvania Optical Company, Reading, Pennsylvania.
Robert J. Currell. Mr. Currell has served as the Senior Vice President and Chief
Operating Officer of the HSP Group since September 1999. From 1993 to 1999, Mr.
Currell served as Vice President and General Manager of Traffic Markings
Operations. From 1990 to 1993, Mr. Currell served as Senior Vice President of
the Industrial Coatings Group for Morton International. From 1978 to 1990, he
served in several capacities with the coatings group of Whittaker Corporation.
Mark A. Kolmer. Mr. Kolmer began serving as the Company's Vice President,
Finance in January 2000. From December 1997 to December 1999, Mr. Kolmer served
as Corporate Controller and from March 1996 to November 1997 as Controller of
Flex-O-Lite, Inc. From 1990 to 1995, he served as Controller of Thermadyne's
Coyne Cylinder Company subsidiary and various other financial positions within
Thermadyne.
F.H. Joe Gay. Mr. Gay has served as the Vice President of Human Resources since
January 1999. From 1997 to 1999, Mr. Gay served as Director of Human Resources
for Foamex International. Prior to 1997, Mr. Gay served as Director of Human
Resources for Crain Industries.
John W. Jordan II. Mr. Jordan has served as a Director of the Company since
August 1995. Mr. Jordan is a managing director of The Jordan Company, LLC, a
private merchant banking firm, which he co-founded in 1982. Mr. Jordan is also a
director of Jordan Industries, Inc., Jordan Telecommunication Products, Inc.,
AmeriKing, Inc., Carmike Cinemas, Inc., Rockshox, Inc., GFSI Holdings, Inc.,
GFSI, Inc., Motors and Gears, Inc. and Apparel Ventures, Inc., as well as other
privately held companies.
42
<PAGE>
David W. Zalaznick. Mr. Zalaznick has served as a Director of the Company since
August 1995. Mr. Zalaznick is a managing director of The Jordan Company, LLC,
which he co-founded with Mr. Jordan in 1982. Mr. Zalaznick is also a director of
Jordan Industries, Inc., Jordan Telecommunication Products, Inc., Carmike
Cinemas, Inc., AmeriKing, Inc., Marisa Christina, Inc., Great American Cookie
Company, GFSI Holdings, Inc., GFSI, Inc. Motors and Gears, Inc. and Apparel
Ventures, Inc., as well as other privately held companies.
A. Richard Caputo, Jr. Mr. Caputo has served as a Director of the Company since
August 1995. Mr. Caputo has been a managing director of The Jordan Company, LLC,
since 1990. Mr. Caputo is also a director of AmeriKing, Inc., GFSI Holdings,
Inc. and GFSI, Inc., as well as other privately held companies.
Jonathan F. Boucher. Mr. Boucher has served as a Director of the Company since
August 1995. Mr. Boucher has been a managing director of The Jordan Company,
LLC, since 1983. Mr. Boucher is also a director of Jordan Industries, Inc.,
Jordan Telecommunication Products, Inc. and Motors and Gears, Inc. as well as
other privately held companies.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the aggregate compensation
paid and accrued to the Company's top five executive officers for services
rendered to the Company during each of the three most recent fiscal years. The
executive officers include Robert H. Elkin, Chairman and Chief Executive
Officer, Christopher T. Paule, President and Chief Operating Officer, Lincoln M.
Kennedy, Senior Vice President and Chief Operating Officer - PSP Group, Robert
J. Currell Senior Vice President and Chief Operating Officer - HSP Group and
F.H. Joe Gay, Vice President Human Resources.
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C> <C>
Annual
Fiscal Compensation All other
Position Year Salary Bonus Compensation (1)
- -------- ---- ------ ----- ----------------
Robert H. Elkin............................. 1999 466,754 120,000 20,195
Chairman and Chief Executive Officer........ 1998 401,086 248,400 21,847
1997 347,591 222,507 20,195
Christopher T. Paule........................ 1999 207,323 80,000 10,098
President and Chief Operating Officer....... 1998 167,850 84,480 10,923
1997 126,363 83,151 6,326
Lincoln M. Kennedy (2)...................... 1999 192,915 ----- 56,716
Senior Vice President and Chief Operating... 1998 111,240 50,000 5,309
Officer - PSP Group......................... 1997 ----- ----- -----
Robert J. Currell (3)....................... 1999 103,889 40,833 60,499
Senior Vice President and Chief Operating... 1998 ----- ----- -----
Officer - HSP Group......................... 1997 ----- ----- -----
F.H. Joe Gay (4)............................ 1999 96,058 ----- 61,832
Vice President Human Resources.............. 1998 ----- ----- -----
1997 ----- ----- -----
----------
(1) Other annual compensation consists of car allowance, tax reimbursements for
relocation compensation and defined contribution payments paid by the
Company.
(2) Lincoln M. Kennedy was employed as of April 22, 1998.
(3) Robert J. Currell was employed as of May 17, 1999.
(4) F.H. Joe Gay was employed as of January 18, 1999.
</TABLE>
43
<PAGE>
EMPLOYMENT/NON-INTERFERENCE AGREEMENTS
- --------------------------------------
Elkin Employment Agreement. Mr. Elkin has an employment and non-interference
agreement with the Company which provides for his employment as Chairman and
Chief Executive Officer of the Company. The initial term of the employment
agreement terminates on August 15, 2000, (which was subsequently extended to
December 31, 2001) at which time the term will be automatically extended for
successive one-year periods until either party gives notice of its intention to
not renew 180 days prior to the end of the then current term. The employment
agreement can also be terminated at any time by the Company. On April 22, 1998,
the Company and Mr. Elkin agreed to amend this employment agreement. The amended
agreement provides for a base salary of $414,000 (which was subsequently
increased, as of January 1, 1999, to $450,000) and he may be awarded a bonus, at
the sole discretion of the Board, of up to 75% of Mr. Elkin's annual salary,
which amounts are inclusive of any compensation, fees, salary, bonuses or other
payments to Mr. Elkin by any of the subsidiaries or affiliates of the Company or
affiliates of The Jordan Company. Mr. Elkin's base salary (which is increased
annually based on a CPI formula) was $450,000 for 1999 and he was awarded a
bonus of $120,000. Under the employment agreement, if Mr. Elkin's employment is
terminated for reasons other than voluntary termination, cause, disability or
death, he will be paid a severance payment of varying amounts, depending on the
reason for termination, up to the full amount of his compensation through the
term of the agreement. In addition, Mr. Elkin is entitled to receive an amount
in respect of his vested equity ownership in the Company equal to such vested
equity percentage multiplied by the product of 6.0 times the Company's EBITDA
for the immediately preceding fiscal year (net of indebtedness and transaction
expenses) in the event he is terminated by the Company other than for Cause (as
defined in the employment agreement). If Mr. Elkin's employment is terminated
voluntarily or for reasons of Cause, no severance payment is made. Under the
terms of the employment agreement, Mr. Elkin may not compete with the Company in
the same market for 24 months following the termination of his employment.
Paule Employment Agreement. Mr. Paule has an employment and non-interference
agreement with the Company which provides for Mr. Paule's employment as Chief
Financial Officer of the Company. In 1999, Mr. Paule was promoted to President
and Chief Operating Officer. The initial term of the employment agreement
terminates on August 15, 2000, (which was subsequently extended to December 31,
2001) at which time the term will be automatically extended for successive
one-year periods until either party gives notice of its intention to not renew
180 days prior to the end of the then current term. The employment agreement can
also be terminated at any time by the Company. On April 22, 1998, the Company
and Mr. Paule agreed to amend this employment agreement. The amended agreement
provides for a base salary of $176,000 (which was subsequently increased, as of
January 1, 1999, to $200,000) and he may be awarded a bonus, at the sole
discretion of the Board, of up to 60% of Mr. Paule's annual salary, which
amounts are inclusive of any compensation, fees, salary, bonuses or other
payments to Mr. Paule by any of the subsidiaries or affiliates of the Company or
affiliates of The Jordan Company. Mr. Paule's base salary (which is increased
annually based on a CPI formula) was $200,000 for 1999 and he was awarded a
bonus of $80,000. Under the employment agreement, if Mr. Paule's employment is
terminated for reasons other than voluntary termination, cause, disability or
death, he will be paid a severance payment of varying amounts, depending on the
reason for termination, up to the full amount of his compensation through the
term of the agreement. In addition, Mr. Paule is entitled to receive an amount
in respect of his vested equity ownership in the Company equal to such vested
equity percentage multiplied by the product of 6.0 times the Company's EBITDA
for the immediately preceding fiscal year (net of indebtedness and transaction
expenses) in the event he is terminated by the Company other than for Cause (as
defined in the employment agreement). If Mr. Paule's employment is terminated
voluntarily or for reasons of Cause, no severance payment is made. Under the
terms of the agreement, Mr. Paule may not compete with the Company in the same
market for 24 months following the termination of his employment.
Kennedy Employment Agreement. Mr. Kennedy has an employment and non-interference
agreement with the Company which provides for Mr. Kennedy's employment as
President of Allsafe. In 1999, Mr. Kennedy was promoted to Senior Vice President
and Chief Operating Officer of the PSP Group. The initial term of the employment
agreement terminates on May 6, 2001, at which time the term will be
automatically extended for successive one-year periods until either party gives
notice of its intention to not renew 90 days prior to the end of the then
current term. The employment agreement can also be terminated at any time by the
Company. Mr. Kennedy's base salary was $200,000 for 1999, and he may be awarded
a bonus, at the sole discretion of the Board, which amounts are inclusive of any
compensation, fees, salary, bonuses or other payments to Mr. Kennedy by any of
the subsidiaries or affiliates of the Company or affiliates of The Jordan
Company. Under the employment agreement, if Mr. Kennedy's employment is
terminated for reasons other than voluntary termination, cause, disability or
death, he will be paid a severance payment of varying amounts, depending on the
reason for termination, up to the full amount of his compensation through the
term of the agreement. If Mr. Kennedy's employment is terminated voluntarily or
for reasons of Cause (as defined in the employment agreement), no severance
payment is made. Under the terms of the agreement, Mr. Kennedy may not compete
with the Company in the same market for 24 months following the termination of
his employment.
44
<PAGE>
Currell Employment Agreement. Mr. Currell has an employment and non-interference
agreement with the Company which provides for Mr. Currell's employment as Vice
President and General Manager of TMT-Pathway. In 1999, Mr. Currell was promoted
to Senior Vice President and Chief Operating Officer of the HSP Group. The
initial term of the employment agreement terminates on May 17, 2002, at which
time the term will be automatically extended for successive one-year periods
until either party gives notice of its intention to not renew 90 days prior to
the end of the then current term. The employment agreement can also be
terminated at any time by the Company. Mr. Currell's base salary was $175,000
for 1999 and he received a bonus of $40,833, which may be awarded, at the sole
discretion of the Board, which amounts are inclusive of any compensation, fees,
salary, bonuses or other payments to Mr. Currell by any of the subsidiaries or
affiliates of the Company or affiliates of The Jordan Company. Under the
employment agreement, if Mr. Currell's employment is terminated for reasons
other than voluntary termination, cause, disability or death, he will be paid a
severance payment of varying amounts, depending on the reason for termination,
up to the full amount of his compensation through the term of the agreement. If
Mr. Currell's employment is terminated voluntarily or for reasons of Cause (as
defined in the employment agreement), no severance payment is made. Under the
terms of the agreement, Mr. Currell may not compete with the Company in the same
market for 24 months following the termination of his employment.
INCENTIVE COMPENSATION PLAN
- ---------------------------
The Company has adopted incentive compensation plans for its key management
employees, which provide for annual cash bonuses payable if certain EBITDA, cash
flow and individual performance targets are met.
SAR AGREEMENTS
- --------------
In April 1998 the Company entered into stock appreciation right agreements ("SAR
Agreements") with Messrs. Elkin and Paule providing for an aggregate payment of
up to 3.0% of the Company's equity value upon a sale of the Company above a
specified threshold. The initial term of the SAR Agreements is ten years, at
which time the term will be automatically extended for one-year periods. The
rights of Mr. Paule under the SAR Agreements vest ratably over the three-year
period from April 22, 1998.
STOCK OPTION PLAN
- -----------------
The Company adopted a stock option plan (the "Option Plan") in order to provide
incentives to certain key officers, managers and employees through ownership of
the Company's Common Stock. The shares of Common Stock to be sold or transferred
pursuant to the exercise of options granted under the Option Plan shall be
authorized shares of Common Stock of the Company, and may be newly issued shares
and treasury shares. As of December 31, 1999 options have been granted for
2,863.01 shares of the Class C Common Stock of the Company. These shares vest
over a five-year period, and as of December 31, 1999 1,417.81 shares were
vested. In addition, up to 572.602 shares will vest in 2000, up to 150.00 shares
will vest in 2001 and up to 150.00 shares will vest in 2002.
45
<PAGE>
ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The table below sets forth certain information, as of December 31, 1999,
regarding beneficial ownership of the common stock of the Company held by: (i)
each director of the Company who beneficially owns common stock, (ii) each
executive officer of the Company named in the table below "Management--Executive
Compensation--Summary Compensation Table" who beneficially owns common stock,
(iii) all directors and executive officers of the Company as a group and (iv)
each person known by the Company to own beneficially more than 5% of its common
stock. The Company believes that each individual or entity named has sole
investment and voting power with respect to shares of common stock indicated as
beneficially owned by them, except as otherwise noted. See "Certain
Transactions."
Amount of Beneficial Ownership(1)
---------------------------------
Number of Percentage
Shares Owned
------ -----
Directors and Executive Officers:
Robert H. Elkin (2)............................... 5,164 10.7%
John W. Jordan II (3)(4).......................... 4,631 9.8
David W. Zalaznick (4)............................ 4,631 9.8
Jonathan F. Boucher (4)........................... 3,970 8.4
Christopher T. Paule (5).......................... 1,695 3.6
A. Richard Caputo, Jr. (4)........................ 1,453 3.1
Allan A. Huning (6)............................... 902 1.9
Jack L. Bortle (7)................................ 758 1.6
John L. Garavaglia III (8)........................ 350 *
All directors and executive officers as a group
(11 persons)(2)(3)(4)(5)(6)(7)(8) 23,733 48.4%
Other Principal Stockholders:.....................
Massachusetts Mutual Life Insurance Company (9) 13,168 22.8%
JZ Equity Partners PLC (10)....................... 12,352 21.6
Leucadia Investors, Inc. (11)..................... 7,263 15.4
Northwestern Mutual Life Insurance Company (12)... 8,231 15.3
Safety Partners, L.P. (13)........................ 3,448 7.3
John R. Lowden (4)................................ 2,905 6.2
Adam E. Max (4)................................... 2,905 6.2
- --------
* Indicates beneficial ownership of less than 1% of shares of Common Stock.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
beneficially owned by such person, but not deemed outstanding for the
purpose of calculating the percentage beneficially owned by each other
person listed. As of December 31, 1999, there were 47,056 shares of common
stock of the Company issued and outstanding.
(2) Includes immediately exercisable options to purchase 1,210 shares of common
stock. Mr. Elkin was also granted SARs in connection with the Offering. See
"Management--SAR Agreements." Mr. Elkin's address is 2997 Clarkson Road,
Chesterfield, Missouri 63017.
(3) All shares are held by the John W. Jordan II Revocable Trust, of which Mr.
Jordan is the trustee.
(4) Each of Messrs. Jordan, Zalaznick, Boucher, Lowden, Max and Caputo are
affiliated with The Jordan Company, whose address is 767 Fifth Avenue, New
York, New York 10153.
46
<PAGE>
(5) Includes immediately exercisable options to purchase 421 shares of common
stock. Mr. Paule was also granted SARs in connection with the Offering. See
"Management--SAR Agreements." Mr. Paule's address is 2997 Clarkson Road,
Chesterfield, Missouri 63017.
(6) Includes immediately exercisable options to purchase 28 shares of common
stock. Mr. Huning's address is 2997 Clarkson Road, Chesterfield, Missouri
63017.
(7) Includes immediately exercisable options to purchase 8 shares of common
stock. Mr. Bortle's address is 2997 Clarkson Road, Chesterfield, Missouri
63017.
(8) Includes immediately exercisable options to purchase 100 shares of common
stock. Mr. Garavaglia's address is 2997 Clarkson Road, Chesterfield,
Missouri 63017.
(9) Includes 432 shares of common stock and immediately exercisable warrants to
purchase 1988 shares of common stock held by MassMutual Corporate Value
Partners Limited, 217 shares of common stock and immediately exercisable
warrants to purchase 999 shares of common stock held by MassMutual
Participation Investors and 434 shares of common stock and immediately
exercisable warrants to purchase 1999 shares of common stock held by
MassMutual Corporate Investors, each of which are affiliates of
Massachusetts Mutual Life Insurance Company, and 1,267 shares of common
stock and immediately exercisable warrants to purchase 5,832 shares of
common stock held by Massachusetts Mutual Life Insurance Company. The
principal address of Massachusetts Mutual Life Insurance Company is 1295
State Street, Springfield, Massachusetts 01111.
(10) Includes immediately exercisable warrants to purchase 10,142 shares of
common stock. JZ Equity Partners PLC is a publicly traded U.K. investment
trust advised by an affiliate of The Jordan Company. See "Certain
Relationships and Related Transactions." The principal address of JZ Equity
Partners PLC is c/o Jordan/Zalaznick Capital Company, 767 Fifth Avenue, New
York, New York 10153.
(11) The principal address of Leucadia Investors, Inc. is 315 Park Avenue South,
New York, New York 10010.
(12) Includes immediately exercisable warrants to purchase 6,762 shares of
common stock. The principal address of Northwestern Mutual Life Insurance
Company is 720 East Wisconsin Avenue, 18th Floor, Milwaukee, Wisconsin
53203.
(13) Safety Partners, L.P. is an affiliate of Jefferies & Company, Inc. The
beneficial owners of Safety Partners, L.P. are comprised entirely of
Jefferies & Company, Inc. as the sole general partner and certain employees
and officers of Jefferies & Company, Inc. as the limited partners. The
principal address of Safety Partners, L.P. is 11100 Santa Monica Blvd.,
10th Floor, Los Angeles, California 90025.
STOCKHOLDERS AGREEMENT
- ----------------------
The Stockholders Agreement provides for certain rights and obligations among the
Company and the Current Holders including with respect to the election of
directors, restrictions on transfer, co-sale rights and registration rights.
Pursuant to the Stockholders Agreement, the Current Holders have agreed to vote
their shares for the election of at least four members of the board of directors
designated by affiliates of The Jordan Company, and JZ Equity Partners PLC (the
"Jordan Investors") and one director designated by management stockholders (the
"Management Investors").
The Current Holders may only transfer shares of Common Stock in accordance with
the Stockholders Agreement. The Company and the Current Holders have a right of
first offer to purchase all or any portion of any shares of Common Stock to be
transferred by any Current Holder, subject to certain limited exceptions, on the
same terms put forth for such transfer by the selling holder. The Stockholders
Agreement provides for preferences on the rights of first offer such that the
Management Investors have the first right to purchase shares sold by any other
Management investor and the Jordan Investors have the first right to purchase
shares sold by any other Jordan Investors.
47
<PAGE>
Pursuant to the Stockholders Agreement, Current Holders other than the Jordan
Investors and the Management Investors (the "Institutional Investors") have been
granted demand and incidental registration rights by the Company. All other
Current Holders have been granted incidental registration rights. The Company is
required to bear all registration expenses in connection with each demand and
incidental registration and has agreed to indemnify the holders of demand and
incidental registration rights against, and provide contribution with respect
to, certain liabilities under the Securities Act in connection with the demand
and incidental registrations.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
- ---------- ---------
In connection with its acquisition by the Management Investors and the Jordan
Investors in August 1995, the Company entered into an agreement (the "TJC
Management Agreement") with TJC Management Corporation ("TJMC"), an affiliate of
The Jordan Company. Under the TJC Management Agreement, the Company retains TJMC
to render services to the Company, its financial and business affairs, its
relationships with its lenders and stockholders, and the operation and expansion
of its business. The TJC Management Agreement will expire in 2005, but is
automatically renewed for successive one-year terms, unless either party
provides written notice of termination 60 days prior to the scheduled renewal
date. In connection with the Offering, the Company and TJMC have agreed to amend
the TJC Management Agreement. The TJC Management Agreement, as amended, will
provide an annual consulting fee payable on a quarterly basis equal to at least
$600,000 but in no event greater than 2.5% of EBITDA (as defined in the TJC
Management Agreement). In addition, the TJC Management Agreement provides for
payment to TJMC of (i) an investment banking and sponsorship fee of up to 2% of
the purchase price of certain acquisitions or sales involving the Company and
(ii) a financial consulting fee of up to 1% of any debt, equity or other
financing arranged by the Company with the assistance of TJMC. Such fees are
subject to board of director's approval. The Company believes that the terms of
the TJC Management Agreement are comparable to the terms that it would obtain
from disinterested third parties for comparable services. Pursuant to the terms
of the Indenture, payment of fees to TJMC pursuant to the TJC Management
Agreement is not permitted in the event of a payment or financial covenant
default with respect to the Notes.
EMPLOYEE STOCKHOLDER LOANS
- --------------------------
In 1995, the Company made loans to certain employees, including Messrs. Elkin
and Paule, to be used for the purchase of the Company's stock. The loan to Mr.
Elkin had an original principal amount of $165,553 and is the only loan with a
principal amount in excess of $60,000. As of December 31, 1999 there was
$329,000 outstanding on all stockholder loans, including $165,553 outstanding on
the loan to Mr. Elkin. Each of the loans bears interest at a rate of 7% per
annum and, as of December 31, 1999, payments on all of the loans by the employee
stockholders were current.
DIRECTOR'S INDEMNIFICATION
- --------------------------
The Company has entered into indemnification agreements with each member of the
Board of Directors whereby the Company has agreed, subject to certain
exceptions, to indemnify and hold harmless each director from liabilities
incurred as a result of such person's status as a director of the Company.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(1) Financial Statements
Reference is made to the Index to Consolidated Financial Statements appearing in
Item 8, which is incorporated herein by reference.
(2) Financial Statements Schedule
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are not applicable and therefore have been omitted, or the
information has been included in the consolidated financial statements or is
considered immaterial.
(3) Exhibits
A list of the exhibits included as part of this Form 10-K is set forth below.
48
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
<S> <C> <C>
1 Purchase Agreement, dated as of April 16, 1998, by and among Jackson Products, *
Inc. (the "Company"), Jefferies & Company, Inc. and Goldman, Sachs & Co.
2.1 Stock Purchase Agreement, dated as of March 30, 1998, by and among Jackson *
Acquisition, Inc., NCH Corporation, American Allsafe Company and Silencio/Safety
Direct, Inc.++
2.2 Stock Purchase Agreement, dated as of March 31, 1998, by and among Crystaloid *
Technologies, Inc., the Management Sellers party thereto, Dahl Partners
Incorporated and Crystaloid Electronics Company++
2.3 Stock Purchase Agreement, dated as of June 12, 1998 by and among American Allsafe **
Company, the sellers party thereto and Kedman Company++
2.4 First Amendment to Stock Purchase Agreement, dated as of June 12,
1998 by and ** among American Allsafe Company, the sellers party
thereto and Kedman Company
2.5 Second Amendment to Stock Purchase Agreement, dated as of July
22, 1998 by and ** among American Allsafe Company, the sellers
party thereto and Kedman Company
2.6 Third Amendment to Stock Purchase Agreement, dated as of July 22,
1998 by and ** among American Allsafe Company, the sellers party
thereto and Kedman Company
2.7 Real Property Purchase Agreement, dated as of June 12, 1998 by and among American **
Allsafe Company and certain stockholders of Kedman Company
2.8 Asset Purchase Agreement, dated as of April 20, 1999 by and among TMT-Pathway, ***
L.L.C. and Morton International, Inc.++
2.9 First Amendment to Asset Purchase Agreement, dated as of May 17, 1999 by and among ***
TMT-Pathway, L.L.C. and Morton International, Inc.
3.1 Amended and Restated Certificate of Incorporation of the Company *
3.2 Bylaws of the Company *
4.1 Indenture, dated as of April 22, 1998, between the Company and State Street Bank *
and Trust Company, as Trustee
4.2 Form of Global Series A Senior Note *
4.3 Form of Global Series B Senior Note *
4.4 Registration Rights Agreement, dated as of April 22, 1998, by and among the *
Company, Jefferies & Company, Inc. and Goldman, Sachs & Co.
4.5 Supplemental Indenture, dated as of April 24, 1998, between the Company and State *
Street Bank and Trust Company, as Trustee
4.6 Stockholders Agreement, dated as of August 16, 1995, by and among the Company and *
its stockholders
4.7 First Amendment to Stockholders Agreement, dated as of March 1, 1996, by and among *
the Company and its stockholders
4.8 Second Amendment to Stockholders Agreement, dated as of July 1, 1996, by and among *
the Company and its stockholders
4.9 Third Amendment to Stockholders Agreement, dated as of June 1, 1997, by and among *
the Company and its stockholders
4.10 Jackson Products, Inc. 1995 Management Stock Option Plan, dated as of August 16, *
1995
4.11 First Amendment to 1995 management Stock Option Plan, dated as of June 1, 1997 *
4.12 Form of Stock Option Agreement *
4.13 Jordan Investors Subscription Agreement, dated as of August 16, 1995, by and among *
the Company and certain stockholders named therein
4.14 Advisor Subscription Agreement, dated as of August 16, 1995, between the Company *
and Safety Partners, L.P
4.15 Management Subscription Agreement, dated as of August 16, 1995, by and among the *
Company and certain stockholders named therein
4.16 First Amendment to Management Subscription Agreement, dated March 1, 1996, by and *
among the Company and certain stockholders named therein
4.17 Second Amendment to Management Subscription Agreement, dated as of December 1, *
1996, by and among the Company and certain stockholders named therein
4.18 Form of Non-Recourse Promissory Note between the Company and certain of its *
stockholders
49
<PAGE>
4.19 Form of Stock Pledge Agreement between the Company and certain of its stockholders *
4.20 Securities Purchase Agreement, dated as of August 16, 1995, by and among the *
Company and certain stockholders named therein
4.21 First Amendment to Securities Purchase Agreement, dated as of July 1, 1996, by and *
among the Company and certain stockholders named therein
4.22 Form of Warrant of the Company *
10.1(a) Credit Agreement, dated as of April 22, 1998, by and among the Company, *
BankBoston, N.A., as Agent, Mercantile Bank National Association, as Co-agent, the
other lenders party thereto, and BancBoston Securities, Inc., as Syndication Agent
and Arranger
10.1(b) Amendment No. 1 to Credit Agreement, dated as of June 19, 1998, by and among the
Company, BankBoston, N.A., as Agent, Mercantile Bank National Association, as ****
Co-Agent, the other lenders party thereto, and BancBoston Securities, Inc., as
Syndication Agent and Arranger
10.1(c) Amendment No. 2 to Credit Agreement, dated as of May 17, 1999, by and among the
Company, BankBoston, N.A., as Agent, Mercantile Bank National Association, as
Co-Agent, the other lenders party thereto, and BancBoston Securities, Inc. as
Syndication Agent and Arranger
10.2 Revolving Note in the aggregate principal amount of $19,500,000 *
10.3 Revolving Note in the aggregate principal amount of $10,500,000 *
10.4 Acquisition Note in the aggregate principal amount of $61,750, 000 *
10.5 Acquisition Note in the aggregate principal amount of $33,250,000 *
10.6(a) Guaranty, dated as of April 22, 1998, by and among Flex-O-Lite, Inc., OSD *
Envizion, Inc., Crystaloid Technologies, Inc., Jackson Acquisition, Inc., American
Allsafe Company, Silencio/Safety Direct, Inc. and BankBoston, N.A., as Agent
10.6(b) Guaranty, dated as of May 17, 1999, by and between TMT-Pathway, L.L.C. and
BankBoston, N.A., as Agent
10.7(a) Stock Pledge Agreement, dated as of April 22, 1998, by and between the Company and *
BankBoston, N.A., as Agent
10.7(b) Pledge Agreement, dated as of May 17, 1999, by and between the Company and
BankBoston, N.A., as Agent
10.8 Stock Pledge Agreement (Subsidiaries), dated as of April 22, 1998, by and between *
Flex-O-Lite, Inc. and BankBoston, N.A., as Agent
10.9 Stock Pledge Agreement (Subsidiaries), dated as of April 22, 1998, by and between *
Jackson Acquisition, Inc. and BankBoston, N.A., as Agent
10.10 Security Agreement, dated as of April 22, 1998, by and between the Company and *
BankBoston, N.A., as Agent
10.11(a) Security Agreement (Subsidiaries), dated as of April 22, 1998 by and among *
Flex-O-Lite, Inc., OSD Envizion, Inc., Crystaloid Technologies, Inc., Jackson
Acquisition, Inc., American Allsafe Company, Silencio/Safety Direct, Inc. and
BankBoston, N.A., as Agent
10.11(b) Security Agreement (Subsidiaries), dated as of May 17, 1999, by and between
TMT-Pathway, L.L.C. and BankBoston, N.A., as Agent
10.12 Patent Collateral Assignment and Security Agreement, dated as of April 22, 1998, *
by and between the Company and BankBoston, N.A., as Agent
10.13 Patent Collateral Assignment and Security Agreement, dated as of April 22, 1998, *
by and between Flex-O-Lite, Inc. and BankBoston, N.A., as Agent
10.14 Patent Collateral Assignment and Security Agreement, dated as of April 22, 1998, *
by and between OSD Envizion, Inc. and BankBoston, N.A., as Agent
10.15 Patent Collateral Assignment and Security Agreement, dated as of April 22, 1998, *
by and between American Life Allsafe Company and BankBoston, N.A., as Agent
10.16 Patent Collateral Assignment and Security Agreement, dated as of April 22, 1998, *
by and between Silencio/Safety Direct, Inc. and BankBoston, N.A., as Agent
10.17 Patent Collateral Assignment and Security Agreement, dated as of April 22, 1998, *
by and between Crystaloid Technologies, Inc. and BankBoston, N.A., as Agent
10.18 Trademark Collateral Assignment and Security Agreement, dated as of April 22, *
1998, by and between the Company and BankBoston, N.A., as Agent
10.19 Trademark Collateral Assignment and Security Agreement, dated as of April 22, *
1998, by and between Flex-O-Lite, Inc. and BankBoston, N.A., as Agent
10.20 Trademark Collateral Assignment and Security Agreement, dated as of April 22, *
1998, by and between OSD Envizion, Inc. and BankBoston, N.A., as Agent
10.22 Trademark Collateral Assignment and Security Agreement, dated as of April 22, *
1998, by and between Silencio/Safety Direct, Inc. and BankBoston, N.A., as Agent
50
<PAGE>
10.23(a) Trademark Collateral Assignment and Security Agreement, dated as of April 22, *
1998, by and between Crystaloid Technologies, Inc. and BankBoston, N.A., as Agent
10.23(b) Trademark Collateral Security and Pledge Agreement, dated as of May 17, 1999, by
and between TMT-Pathway, L.L.C. and BankBoston, N.A., as Agent
10.24 Form of Indemnification Agreement, dated as of August 16, 1995, between the *
Company and its directors
10.25(a) TJC Management Consulting Agreement, dated as of August 16, 1995, by and among, *
the Company, Flex-O-Lite, Inc. and TJC Management Corporation
10.25(b) Amended and Restated TJC Management Consulting Agreement, dated as of October 21,
1996, by and among the Company, Flex-O-Lite, Inc. and TJC Management Corporation
10.25(c) Second Amended and Restated TJC Management Consulting Agreement,
dated as of April 22, 1998, by and between the Company and TJC
Management Corporation
10.26 Employment and Non-Interference Agreement, dated as of August 16, 1995, by and *
between the Company and Robert H. Elkin
10.27 Amendment to Employment Agreement, dated as of April 22, 1998, by and between the *
Company and Robert H. Elkin
10.28 Employment and Non-Interference Agreement, dated as of August 16, 1995, by and *
between the Company and Christopher T. Paule
10.29 Amendment to Employment Agreement, dated as of April 22, 1998, by and between the *
Company and Christopher T. Paule
10.30 Employment and Non-Interference Agreement, dated as of August 16, 1995, by and *
between Flex-O-Lite, Inc. and Allan Huning
10.31 Employment and Non-Interference Agreement, dated as of April 22, 1998, by and *
between the Company and Mark R. Hefty
10.32 Employment and Non-Interference Agreement, dated as of April 22, 1998, by and *
between the Company, Crystaloid Technologies, Inc. and Edward D. Surjan, Jr.
10.33 Employment and Non-Interference Agreement, dated as of April 22, 1998, by and *
between the Company, Crystaloid Technologies, Inc. and Edward M. Stiles
10.34 Employment and Non-Interference Agreement, dated as of April 22, 1998, by and *
between the Company, Crystaloid Technologies, Inc. and Michael A. Fout
10.35 Employment and Non-Interference Agreement, dated as of April 22, 1998, by and *
between the Company, Crystaloid Technologies, Inc. and Gregory J. Putman
10.36 Employment and Non-Interference Agreement, dated as of April 22, 1998, by between *
American Allsafe Company and Lincoln M. Kennedy
10.37 Stock Appreciation Rights Agreement, dated as of April 22, 1998, between the *
Company and Robert H. Elkin
10.38 Stock Appreciation Rights Agreement, dated as of April 22, 1998, between the *
Company and Christopher T. Paule
10.39 Stock Appreciation Rights Agreement, dated as of April 22, 1998, between the *
Company and Mark R. Hefty
10.40 Stock Appreciation Rights Agreement, dated as of April 22, 1998, between the *
Company, Crystaloid Technologies, Inc. and Edward D. Surjan, Jr.
10.41 Stock Appreciation Rights Agreement, dated as of April 22, 1998, between the *
Company, Crystaloid Technologies, Inc. and Edward M. Stiles
10.42 Stock Appreciation Rights Agreement, dated as of April 22, 1998, between the *
Company, Crystaloid Technologies, Inc. and Michael A. Fout
10.43(a) Intercompany Management Consulting Agreement, dated as of August 16, 1995, by and *
among the Company and its subsidiaries
10.43(b) Amended and Restated Intercompany Management Consulting Agreement, dated as of
October 21, 1996, by and among the Company and its subsidiaries
12 Statements regarding computation of ratios
21 List of Subsidiaries of the Company
25 Statement on Form T-1 of eligibility of the Trustee under the Trust Indenture Act *
27 Financial Data Schedule
- ---------------
</TABLE>
++ The schedules and exhibits to this agreement have not been filed pursuant
to Item 601(b)(2) of Regulation S-K. Such schedules and exhibits will be
filed supplementary upon the request of the Securities and Exchange
Commission.
* Incorporated by reference to the exhibits filed with the Registration
Statement on Form S-4 of the Company filed with the Securities and Exchange
Commission on September 11, 1998 (Commission File No. 333-53987) and all
supplements thereto.
** Incorporated by reference to the exhibits filed with the Current Report on
Form 8-K of the Company with the Securities and Exchange Commission on
August 6, 1998 (Commission File No. 333-53987) and all supplements thereto.
*** Incorporated by reference to the exhibits filed with the Current Report on
Form 8-K of the Company with the Securities and Exchange Commission on May
21, 1999 (Commission File No. 333-53987) and all supplements thereto.
**** Incorporated by reference to the exhibits filed with the Annual Report on
Form 10-K of the Company with the Securities and Exchange Commission on
March 26, 1999 (Commission File No. 333-53987) and all supplements thereto.
51
<PAGE>
Exhibit 10.1(c)
AMENDMENT AGREEMENT NO. 2
to that certain
REVOLVING CREDIT AND ACQUISITION LOAN AGREEMENT
This AMENDMENT AGREEMENT NO. 2 (this "Amendment") dated as of May 17, 1999, is
by and among (a) Jackson Products, Inc. (the "Borrower"), (b) the Domestic
Subsidiaries (as defined in the Credit Agreement, as hereinafter defined), (c)
BankBoston, N.A. and the other lending institutions listed on Schedule 1 to the
Credit Agreement (as hereinafter defined) (collectively, the "Banks"), (d)
BankBoston, N.A. as agent (the "Agent") for itself and the other Banks, and (e)
Mercantile Bank National Association, as co-agent (the "Co-Agent").
WHEREAS, the Borrower, the Banks, the Agent and the Co-Agent are parties to that
certain Revolving Credit and Acquisition Loan Agreement, dated as of April 22,
1998 (as amended and in effect from time to time, the "Credit Agreement"),
pursuant to which the Banks, upon certain terms and conditions, have agreed to
make loans to, and issue letters of credit for the benefit of, the Borrower; and
WHEREAS, the Borrower has requested that the Agent, the Co-Agent and the Banks
agree, and the Agent, the Co-Agent and the Banks have agreed, on the terms and
subject to the conditions set forth herein, to amend certain of the terms and
provisions of the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ss.1.Defined Terms. Capitalized terms which are used herein without
definition and which are defined in the Credit Agreement shall
have the same meanings herein as in the Credit Agreement.
ss.2.Amendments to the Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Amendment to ss.1.1 of the Credit Agreement. Section 1.1 of
the Credit Agreement is hereby amended by inserting the
following new definition in the order required by
alphabetical order:
"Second Amendment Effective Date. May 17, 1999."
(b) Amendment to ss.4.4 of the Credit Agreement. Section 4.4 of
the Credit Agreement is hereby amended by deleting the first
sentence thereof and substituting in lieu thereof the
following sentence:
"The Acquisition Loan shall be evidenced by separate
restated promissory notes of the Borrower in substantially
the form of Exhibit D hereto (each an "Acquisition Note"),
dated as of April 22, 1998 and amended and restated as of
the Second Amendment Effective Date, if applicable, and
completed with appropriate insertions."
(c) Schedule 1 to the Credit Agreement is hereby deleted and
replaced with the Schedule 1 attached hereto.
(d) Schedule 8.3 to the Credit Agreement is hereby deleted and
replaced with the Schedule 8.3 attached hereto.
(e) Schedule 8.6 to the Credit Agreement is hereby deleted and
replaced with the Schedule 8.6 attached hereto.
(f) Schedule 8.18 to the Credit Agreement is hereby deleted and
replaced with the Schedule 8.18 attached hereto.
(g) Schedule 8.19 to the Credit Agreement is hereby deleted and
replaced with Schedule 8.19 attached hereto.
(h) Schedule 9.13 to the Credit Agreement is hereby deleted and
replaced with the Schedule 9.13 attached hereto.
52
<PAGE>
ss.3.Consent to Acquisition. Subject to the conditions,
representations, acknowledgments and affirmations set forth in
this Amendment, the Banks hereby consent to the acquisition of
the Morton Traffic Markings Division ("MTM") of Morton
International, Inc. by TMT-Pathway, L.L.C. ("TMT"), a
wholly-owned subsidiary of the Borrower (the "Proposed
Acquisition"), pursuant to the Asset Purchase Agreement, dated as
of April 20, 1999, by and between Morton International, Inc. and
TMT and in the form delivered to the Agent and the Co-Agent prior
to the date hereof (the "Purchase Agreement"), and waive
ss.10.5.1(c)(ix) of the Credit Agreement with respect to the
Proposed Acquisition, provided that the aggregate purchase price
of the Proposed Acquisition shall not exceed $38,000,000. The
Banks' consent given herein is limited strictly to its terms and
shall apply only to the specific provisions described herein. The
consent contained herein shall not extend to or affect any other
obligations of the Borrower or its Subsidiaries contained in the
Credit Agreement or any other Loan Documents and shall not impair
or prejudice any rights consequent thereon.
ss.4.Affirmation and Acknowledgment of the Borrower and the Domestic
Subsidiaries. The Borrower and each of the Domestic Subsidiaries
hereby affirm and acknowledge to the Banks as follows:
(a) The Borrower hereby ratifies and confirms all of its
Obligations to the Banks, including, without limitation, the
Loans, and the Borrower hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans, the
Reimbursement Obligations, and all other amounts due under
the Credit Agreement as amended hereby. The Borrower hereby
confirms that the Obligations are and remain secured
pursuant to the Security Documents and pursuant to all other
instruments and documents executed and delivered by the
Borrower as security for the Obligations.
(b) Each of the Domestic Subsidiaries hereby acknowledges the
provisions of this Amendment and hereby reaffirms its
absolute and unconditional guaranty of the Borrower's
payment and performance of the Obligations as more fully
described in the Guaranty to which it is a party. Each of
the Domestic Subsidiaries hereby confirms that its
obligations under the Guaranty are and remain secured
pursuant to the Security Documents to which it is a party.
ss.5.Representations and Warranties. The Borrower hereby represents
and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower and each Domestic
Subsidiary of this Amendment, and the performance by the
Borrower and each Domestic Subsidiary of its obligations and
agreements under this Amendment and the Credit Agreement as
amended hereby, are within the corporate authority of the
Borrower and each Domestic Subsidiary, have been duly
authorized by all necessary corporate proceedings on behalf
of the Borrower and each Domestic Subsidiary, and do not and
will not contravene any provision of law, statute, rule or
regulation to which the Borrower and each Domestic
Subsidiary is subject or any of the Borrower's and each
Domestic Subsidiary's charter, other incorporation papers,
by-laws or any stock provision or any amendment thereof or
of any agreement or other instrument binding upon the
Borrower and each Domestic Subsidiary.
(b) This Amendment and the Credit Agreement as amended hereby
constitute legal, valid and binding obligations of the
Borrower and each Domestic Subsidiary, enforceable in
accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting generally the enforcement of
creditors' rights and except to the extent that availability
of the remedy of specific performance or injunctive relief
is subject to the discretion of the court before which any
proceeding therefor may be brought.
(c) Other than approvals or consents which have been obtained,
no approval or consent of, or filing with, any governmental
agency or authority is required to make valid and legally
binding the execution, delivery or performance by the
Borrower or any Domestic Subsidiary of this Amendment or the
Credit Agreement as amended hereby.
53
<PAGE>
(d) The representations and warranties contained in ss.8 of the
Credit Agreement are true and correct at and as of the date
made and as of the date hereof, except to the extent of
changes resulting from transactions contemplated or
permitted by this Credit Agreement and the other Loan
Documents and changes occurring in the ordinary course of
business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and
warranties relate expressly to an earlier date.
(e) The Borrower and each Domestic Subsidiary has performed and
complied in all material respects with all terms and
conditions herein required to be performed or complied with
by it prior to or at the time hereof, and as of the date
hereof, after giving effect to the provisions hereof, there
exists no Event of Default or Default.
ss.6.Effectiveness. This Amendment shall be deemed to be effective as
of May 14, 1999, subject to:
(a) the delivery to the Agent, the Co-Agent and the Banks by (or
on behalf of) the Borrower and the Domestic Subsidiaries,
contemporaneously with the execution hereof, of the
following documents, each in form and substance satisfactory
to the Agent, the Co-Agent and the Banks:
(i) this Amendment signed by the Borrower, the Domestic
Subsidiaries, the Agent, the Co-Agent and each of the
Banks;
(ii) Amended and Restated Acquisition Notes executed and
delivered by the Borrower in favor of each of
BankBoston, N.A., Mercantile Bank National Association,
Antares Leveraged Capital Corp., Comerica Bank, Key
Corporate Capital, Inc. and Deutsche Financial Services
Corporation;
(iii)certificates of an appropriate officer of the Borrower
and each of the Domestic Subsidiaries, dated as of the
date hereof, (i) certifying that the charter documents
and by-laws have not been amended since April 22, 1998
(or attaching the same if amended), (ii) and attaching
the corporate actions authorizing the execution,
delivery, and performance of this Amendment, the
Amended and Restated Acquisition Notes and the other
Loan Documents, as applicable, and (iii) certifying the
incumbency and signatures of the officers of the
Borrower and each Domestic Subsidiary authorized to
sign this Amendment on behalf of such entity;
(iv) legal existence and good standing certificates issued
by the appropriate public officials as to the Borrower
and each Domestic Subsidiary, and such other
certificates, documents, or instruments with respect to
this Amendment and the other Loan Documents as the
Agent, the Co-Agent or the Banks may reasonably
request;
(v) a legal opinion from Mayer, Brown & Platt, in form and
substance satisfactory to the Agent and the Co-Agent,
issued in connection with this Amendment and the other
Loan Documents as the Agent, the Co-Agent and the Banks
may reasonably request;
(vi) a Guaranty, dated the date hereof, duly executed by TMT
in favor of the Agent, pursuant to which TMT guaranties
to the Banks, the Agent and the Co-Agent the payment
and the performance of the Obligations;
(vii)a Security Agreement, dated the date hereof, duly
executed by TMT in favor of the Agent, pursuant to
which TMT grants to the Banks, the Agent and the
Co-Agent a security interest in all of the assets of
TMT, whether now owned or hereafter acquired;
(viii) a Pledge Agreement, dated the date hereof, duly
executed by the Borrower in favor of the Agent,
pursuant to which the Borrower pledges, grants and
assigns to the Agent all of its right, title and
interest in and to its membership interests in TMT;
54
<PAGE>
(ix) a Trademark Assignment, dated the date hereof, duly
executed by TMT in favor of the Agent, pursuant to
which TMT grants to the Banks, the Agent and the
Co-Agent a security interest in all of the Pledged
Trademarks (as defined in the Trademark Assignment);
(x) a Collateral Assignment of Acquisition Documents, dated
the date hereof, duly executed by TMT in favor of the
Agent, pursuant to which TMT pledges, assigns and
grants to the Agent a security interest in all of its
right, title and interest in the Purchase Agreement and
all agreements and documents required to be executed or
delivered in connection therewith;
(xi) a Perfection Certificate, dated the date hereof, duly
executed by TMT and all other documentation required to
grant the Agent a first priority perfected lien in all
of the assets acquired pursuant to the Proposed
Acquisition, each in form and substance satisfactory to
the Agent and the Banks;
(xii)evidence, in form and substance satisfactory to the
Agent and the Co-Agent, that all consents and approvals
necessary to complete the Proposed Acquisition and the
transactions contemplated hereby, including but not
limited to all consents and approvals contemplated by
ss.7.5 of the Purchase Agreement, have been obtained;
(xiii) a Solvency Certificate, dated the date hereof, from
each of the Borrower and TMT;
(xiv)a Borrowing Base Report, dated the date hereof, from
the Borrower;
(xv) an executed copy of the Purchase Agreement and all
agreements and documents required to be executed or
delivered in connection therewith; and
(xvi)the Borrower shall have paid a fee pursuant to a
letter agreement dated as of the Second Amendment
Effective Date.
(b) the completion of the following acts:
(i) within five (5) days after the completion of the
Proposed Acquisition, the delivery of certificates of
insurance with the Agent and the Co-Agent listed as
Additional Insured and Loss Payee from an independent
insurance broker, identifying insurers, types of
insurance, insurance limits, and policy terms, and
otherwise describing the insurance obtained in
accordance with the provisions of the TMT Security
Agreement and sound business practices, and certified
copies of all policies evidencing such insurance (or
certificates therefor signed by the insurer or an agent
authorized to bind the insurer);
(ii) TMT shall deliver to the Agent and the Co-Agent within
sixty (60) days after the closing of the Proposed
Acquisition, a Mortgage for any Real Estate acquired
pursuant to the Purchase Agreement together with the
legal opinion of Gallop, Johnson & Neuman, L.C. as to
such Mortgaged Property and any local counsel opinions
as are reasonably requested by the Agent and the
Co-Agent; and
(iii)TMT shall use its best efforts to deliver to the Agent
and the Co-Agent within sixty (60) days after the
closing of the Proposed Acquisition, Landlord Waivers
for 2490 Ewald Avenue SE, Salem, Oregon and 1044
Richmond Street, Los Angeles, California; and
(iv) TMT shall, within ten (10) days after the closing of
the Proposed Acquisition, take all such steps, in each
case, as shall be reasonably necessary or advisable, in
the reasonable opinion of the Agent, to grant to the
Agent, for the benefit of the Banks and the Agent, a
first priority perfected security interest in each item
of Collateral which is subject to a certificate of
title registration.
55
<PAGE>
ss.7. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment,
all of the terms, conditions and provisions of the Credit
Agreement shall remain the same. It is declared and agreed
by each of the parties hereto that the Credit Agreement, as
amended hereby, shall continue in full force and effect, and
that this Amendment and the Credit Agreement shall be read
and construed as one instrument.
(b) This Amendment is intended to take effect as an agreement
under seal and shall be construed according to and governed
by the laws of the Commonwealth of Massachusetts.
(c) This Amendment may be executed in any number of
counterparts, but all such counterparts shall together
constitute but one instrument. In making proof of this
Amendment it shall not be necessary to produce or account
for more than one counterpart signed by each party hereto by
and against which enforcement hereof is sought.
(d) The Borrower hereby agrees to pay to the Agent, on demand by
the Agent, all reasonable out-of-pocket costs and expenses
incurred or sustained by the Agent in connection with the
preparation of this Amendment (including reasonable legal
fees).
[Remainder of Page Left Intentionally Blank]
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first written above.
JACKSON PRODUCTS, INC.
By:_______________________
Title:
FLEX-O-LITE, INC.
By:_______________________
Title:
TMT-PATHWAY, L.L.C.
By:_______________________
Title:
OSD ENVIZION, INC.
By:_______________________
Title:
CRYSTALOID TECHNOLOGIES,
INC.
By:_______________________
Title:
AMERICAN ALLSAFE COMPANY
By:_______________________
Title:
SILENCIO/SAFETY DIRECT,
INC.
By:_______________________
Title:
KEDMAN COMPANY
By:_______________________
Title:
BANKBOSTON, N.A.,
individually and as Agent
By:_______________________
Title:
MERCANTILE BANK NATIONAL
ASSOCIATION, individually
and as Co-Agent
By:_______________________
Title:
FLEET CAPITAL CORPORATION
(f/k/a Sanwa Business
Credit Corp.)
By:_______________________
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:_______________________
Title:
ANTARES LEVERAGED CAPITAL
CORP.
57
<PAGE>
By:_______________________
Title:
COMERICA BANK
By:_______________________
Title:
FLEET NATIONAL BANK
By:_______________________
Title:
PARIBAS
By:_______________________
Title:
By:_______________________
Title:
FIRST SOURCE FINANCIAL LLP
by First Source Financial
Inc.,as Agent/Manager
By:_______________________
Title:
KEY CORPORATE CAPITAL INC.
By:_______________________
Title:
DEUTSCHE FINANCIAL
SERVICES CORPORATION
By:_______________________
Title:
58
<PAGE>
Exhibit 10.6(b)
GUARANTY
GUARANTY, dated as of May 17, 1999, by TMT-Pathway, l.l.c., a Delaware limited
liability company (the "Guarantor") in favor of (a) BANKBOSTON, N.A., a national
banking association, as agent (hereinafter, in such capacity, the "Agent") for
itself and the other lending institutions (hereinafter, collectively, the
"Banks") which are or may become parties to the Revolving Credit and Acquisition
Loan Agreement dated as of April 22, 1998 (as amended and in effect from time to
time, the "Credit Agreement"), among JACKSON PRODUCTS, INC., a Delaware
corporation (the "Borrower"), the Banks, the Agent and MERCANTILE BANK NATIONAL
ASSOCIATION as Co-Agent and (b) each of the Banks.
WHEREAS, the Borrower and the Guarantor are members of a group of related
corporations, the success of any one of which is dependent in part on the
success of the other members of such group;
WHEREAS, the Borrower has requested that the Agent and the Banks amend certain
provisions of the Credit Agreement;
WHEREAS, upon the terms and subject to the conditions contained in Amendment
Agreement No. 2 dated as of May 17, 1999 (the "Second Amendment"), among the
Borrower, the Domestic Subsidiaries (as defined in the Credit Agreement), the
Banks, the Agent and the Co-Agent, the Agent, the Co-Agent and the Banks are
willing to amend such provisions of the Credit Agreement;
WHEREAS, the Guarantor expects to receive substantial direct and indirect
benefits from further extensions of credit to the Borrower by the Banks pursuant
to the Credit Agreement (which benefits are hereby acknowledged);
WHEREAS, it is a condition precedent to the Banks entering into the Second
Amendment that TMT execute and deliver to the Agent, for the benefit of the
Banks and the Agent, a guaranty substantially in the form hereof; and
WHEREAS, the Guarantor wishes to guaranty the Borrower's Obligations to the
Banks and the Agent under or in respect of the Credit Agreement as provided
herein;
NOW, THEREFORE, the Guarantor hereby agrees with the Banks and the Agent as
follows:
1. Definitions. The term "Obligations" and all other capitalized terms
used herein without definition shall have the respective meanings
provided therefor in the Credit Agreement.
2. Guaranty of Payment and Performance. The Guarantor hereby guarantees
to the Banks and the Agent the full and punctual payment when due
(whether at stated maturity, by required prepayment, by acceleration
or otherwise), as well as the performance, of all of the Obligations
including all such which would become due but for the operation of the
automatic stay pursuant to ss.362(a) of the Federal Bankruptcy Code
and the operation of ss.ss.502(b) and 506(b) of the Federal Bankruptcy
Code. This Guaranty is an absolute, unconditional and continuing
guaranty by the Guarantor of the full and punctual payment and
performance of all of the Obligations and not of their collectibility
only and is in no way conditioned upon any requirement that the Agent
or any Bank first attempt to collect any of the Obligations from the
Borrower or resort to any collateral security or other means of
obtaining payment. Should the Borrower default in the payment or
performance of any of the Obligations, the obligations of the
Guarantor hereunder with respect to such Obligations in default shall,
upon demand by the Agent, become immediately due and payable to the
Agent, for the benefit of the Banks and the Agent, without demand or
notice of any nature, all of which are expressly waived by the
Guarantor. Payments by the Guarantor hereunder may be required by the
Agent on any number of occasions. All payments by the Guarantor
hereunder shall be made to the Agent, in the manner and at the place
of payment specified therefor in the Credit Agreement, for the account
of the Banks and the Agent and 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 the United States or any
jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Guarantor is compelled by law to make
such deduction or withholding.
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3. Guarantor's Agreement to Pay Enforcement Costs, etc. The Guarantor
further agrees, as the principal obligor and not as a guarantor only,
to pay to the Agent, on demand, all costs and expenses (including
court costs and reasonable legal expenses) incurred or expended by the
Agent or any Bank in connection with the Obligations, this Guaranty
and the enforcement thereof, together with interest on amounts
recoverable under this ss.3 from the time when such amounts become due
until payment, whether before or after judgment, at the rate of
interest for overdue principal set forth in the Credit Agreement,
provided that if such interest exceeds the maximum amount permitted to
be paid under applicable law, then such interest shall be reduced to
such maximum permitted amount.
4. Waivers by Guarantor; Bank's Freedom to Act. The Guarantor agrees that
the Obligations will be paid and performed strictly in accordance with
their respective terms, 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 Agent or any Bank with respect thereto. The
Guarantor waives promptness, diligences, presentment, demand, protest,
notice of acceptance, notice of any Obligations incurred and all other
notices of any kind, all defenses which may be available by virtue of
any valuation, stay, moratorium law or other similar law now or
hereafter in effect, any right to require the marshalling of assets of
the Borrower or any other entity or other person primarily or
secondarily liable with respect to any of the Obligations, and all
suretyship defenses generally. Without limiting the generality of the
foregoing, the Guarantor agrees to the provisions of any instrument
evidencing, securing or otherwise executed in connection with any
Obligation and agrees that the obligations of the Guarantor hereunder
shall not be released or discharged, in whole or in part, or otherwise
affected by (a) the failure of the Agent or any Bank to assert any
claim or demand or to enforce any right or remedy against the Borrower
or any other entity or other person primarily or secondarily liable
with respect to any of the Obligations; (b) any extensions,
compromise, refinancing, consolidation or renewals of any Obligation;
(c) any change in the time, place or manner of payment of any of the
Obligations or any rescissions, waivers, compromise, refinancing,
consolidation or other amendments or modifications of any of the terms
or provisions of the Credit Agreement, the Notes, the other Loan
Documents or any other agreement evidencing, securing or otherwise
executed in connection with any of the Obligations, (d) the addition,
substitution or release of any entity or other person primarily or
secondarily liable for any Obligation; (e) the adequacy of any rights
which the Agent or any Bank may have against any collateral security
or other means of obtaining repayment of any of the Obligations; (f)
the impairment of any collateral securing any of the Obligations,
including without limitation the failure to perfect or preserve any
rights which the Agent or any Bank might have in such collateral
security or the substitution, exchange, surrender, release, loss or
destruction of any such collateral security; or (g) any other act or
omission which might in any manner or to any extent vary the risk of
the Guarantor or otherwise operate as a release or discharge of the
Guarantor, all of which may be done without notice to the Guarantor.
To the fullest extent permitted by law, the Guarantor hereby expressly
waives any and all rights or defenses arising by reason of (i) any
"one action" or "anti-deficiency" law which would otherwise prevent
the Agent or any Bank from bringing any action, including any claim
for a deficiency, or exercising any other right or remedy (including
any right of set-off), against the Guarantor before or after the
Agent's or such Bank's commencement or completion of any foreclosure
action, whether judicially, by exercise of power of sale or otherwise,
or (ii) any other law which in any other way would otherwise require
any election of remedies by the Agent or any Bank.
5. Unenforceability of Obligations Against Borrower. If for any reason
the Borrower has no legal existence or is under no legal obligation to
discharge any of the Obligations, or if any of the Obligations have
become irrecoverable from the Borrower by reason of the Borrower's
insolvency, Bankruptcy or reorganization or by other operation of law
or for any other reason, this Guaranty shall nevertheless be binding
on the Guarantor to the same extent as if the Guarantor at all times
had been the principal obligor on all such Obligations. In the event
that acceleration of the time for payment of any of the Obligations is
stayed upon the insolvency, Bankruptcy or reorganization of the
Borrower, or for any other reason, all such amounts otherwise subject
to acceleration under the terms of the Credit Agreement, the Notes,
the other Loan Documents or any other agreement evidencing, securing
or otherwise executed in connection with any Obligation shall be
immediately due and payable by the Guarantor.
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6. Subrogation; Subordination.
6.1. Waiver of Rights Against Borrower. Until the final payment and
performance in full of all of the Obligations, the Guarantor
shall not exercise and the Guarantor hereby waives any rights
against the Borrower arising as a result of payment by the
Guarantor hereunder, by way of subrogation, reimbursement,
restitution, indemnification, contribution or otherwise
(including without limitation, all rights and defenses that are
or may become available to the Guarantor by reason of Sections
2787 to 2855, inclusive, of the California Civil Code), 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 Guarantor
will not claim any setoff, recoupment or counterclaim against the
Borrower in respect of any liability of the Guarantor to the
Borrower; and the Guarantor waives any benefit of and any right
to participate in any collateral security which may be held by
the Agent or any Bank.
6.2. Additional Waiver of Rights. The Guarantor waives all rights and
defenses that it may have because the Obligations are now, or
hereinafter will be, secured by real property. This means, among
other things, that (a) the Agent may collect from the Guarantor
without first foreclosing on any real or personal property
collateral pledged by the Borrower, and (b) if the Agent
forecloses on any real property collateral pledged by the
Borrower to secure the Obligations, (i) the amount of the
outstanding Obligations may be reduced only by the price for
which such real property collateral is sold at the foreclosure
sale, even if such real property collateral is worth more than
the sale price, and (ii) the Agent may collect from the Guarantor
even if the Agent, by foreclosing on the real property
collateral, has destroyed any right the Guarantor may have to
collect from the Borrower. This is an unconditional and
irrevocable waiver of any rights and defenses the Guarantor may
have because the Obligations are secured by real property. These
rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure. The Guarantor waives all
rights and defenses arising out of an election of remedies by the
Agent, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed the Guarantor's rights of subrogation
and reimbursement against the Borrower by the operation of
Section 580d of the California Code of Civil Procedure or
otherwise.
6.3. Subordination. The payment of any amounts due with respect to any
indebtedness of the Borrower for money borrowed or credit
received now or hereafter owed to the Guarantor is hereby
subordinated to the prior payment in full of all of the
Obligations. The Guarantor agrees that, after the occurrence of
any default in the payment or performance of any of the
Obligations, the Guarantor will not demand, sue for or otherwise
attempt to collect any such indebtedness of the Borrower to the
Guarantor until all of the Obligations shall have been paid in
full. If, notwithstanding the foregoing sentence, the Guarantor
shall collect, enforce or receive any amounts in respect of such
indebtedness while any Obligations are still outstanding, such
amounts shall be collected, enforced and received by the
Guarantor as trustee for the Banks and the Agent and be paid over
to the Agent, for the benefit of the Banks and the Agent, on
account of the Obligations without affecting in any manner the
liability of the Guarantor under the other provisions of this
Guaranty.
6.4. Provisions Supplemental. The provisions of this ss.6 shall be
supplemental to and not in derogation of any rights and remedies
of the Banks and the Agent under any separate subordination
agreement which the Agent may at any time and from time to time
enter into with the Guarantor for the benefit of the Banks and
the Agent.
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7. Security; Setoff. The Guarantor grants to each of the Agent and the
Banks, as security for the full and punctual payment and performance
of all of the Guarantor's obligations hereunder, a continuing lien on
and security interest in all securities or other property belonging to
the Guarantor now or hereafter held by the Agent or such Bank and in
all deposits (general or special, time or demand, provisional or
final) and other sums credited by or due from the Agent or such Bank
to the Guarantor or subject to withdrawal by the Guarantor. Regardless
of the adequacy of any collateral security or other means of obtaining
payment of any of the Obligations, each of the Agent and the Banks is
hereby authorized at any time and from time to time, without notice to
the Guarantor (any such notice being expressly waived by the
Guarantor) and to the fullest extent permitted by law, to set off and
apply such deposits and other sums against the obligations of the
Guarantor under this Guaranty, whether or not the Agent or such Bank
shall have made any demand under this Guaranty and although such
obligations may be contingent or unmatured.
8. Further Assurances. The Guarantor agrees that it will from time to
time, at the request of the Agent, do all such things and execute all
such documents as the Agent may consider necessary or desirable to
give full effect to this Guaranty and to perfect and preserve the
rights and powers of the Banks and the Agent hereunder. The Guarantor
acknowledges and confirms that the Guarantor itself has established
its own adequate means of obtaining from the Borrower on a continuing
basis all information desired by the Guarantor concerning the
financial condition of the Borrower and that the Guarantor will look
to the Borrower and not to the Agent or any Bank in order for the
Guarantor to keep adequately informed of changes in the Borrower's
financial condition.
9. Termination; Reinstatement. This Guaranty shall remain in full force
and effect until the Agent is given written notice of the Guarantor's
intention to discontinue this Guaranty, notwithstanding any
intermediate or temporary payment or settlement of the whole or any
part of the Obligations. No such notice shall be effective unless
received and acknowledged by an officer of the Agent at the address of
the Agent for notices set forth in ss.21 of the Credit Agreement. No
such notice shall affect any rights of the Agent or any Bank
hereunder, including without limitation the rights set forth in
ss.ss.4 and 6, with respect to any Obligations incurred or accrued
prior to the receipt of such notice or any Obligations incurred or
accrued pursuant to any contract or commitment in existence prior to
such receipt, including, without limitation the Credit Agreement and
the Notes. This Guaranty shall continue to be effective or be
reinstated, notwithstanding any such notice, if at any time any
payment made or value received with respect to any Obligation is
rescinded or must otherwise be returned by the Agent or any Bank upon
the insolvency, Bankruptcy or reorganization of the Borrower, or
otherwise, all as though such payment had not been made or value
received.
10. Successors and Assigns. This Guaranty shall be binding upon the
Guarantor, its successors and assigns, and shall inure to the benefit
of the Agent and the Banks and their respective successors,
transferees and assigns. Without limiting the generality of the
foregoing sentence, each Bank may assign or otherwise transfer the
Credit Agreement, the Notes, the other Loan Documents or any other
agreement or note held by it evidencing, securing or otherwise
executed in connection with the Obligations, or sell participations in
any interest therein, to any other entity or other person, and such
other entity or other person shall thereupon become vested, to the
extent set forth in the agreement evidencing such assignment, transfer
or participation, with all the rights in respect thereof granted to
such Bank herein, all in accordance with ss.20 of the Credit
Agreement. The Guarantor may not assign any of its obligations
hereunder.
11. Amendments and Waivers. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor therefrom
shall be effective unless the same shall be in writing and signed by
the Agent. No failure on the part of the Agent or any Bank to
exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise
of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right.
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12. Notices. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided
herein, shall be deemed to have been duly made or given when delivered
by hand or mailed first class, postage prepaid, or, in the case of
telegraphic or telexed notice, when transmitted, answer back received,
addressed as follows: if to a Guarantor, at the address set forth
beneath its signature hereto, and if to the Agent, at the address for
notices to the Agent set forth in ss.20 of the Credit Agreement, or at
such address as either party may designate in writing to the other.
13. Governing Law; Consent to Jurisdiction. THE GUARANTY IS INTENDED TO
TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS. The Guarantor agrees that any suit for the enforcement
of this Guaranty may be brought in the courts of The Commonwealth of
Massachusetts or any federal court sitting therein and consents to the
nonexclusive jurisdiction of such court and to service of process in
any such suit being made upon the Guarantor by mail at the address
specified by reference in ss.12. The Guarantor hereby waives any
objection that it may now or hereafter have to the venue of any such
suit or any such court or that such suit was brought in an
inconvenient court.
14. Waiver of Jury Trial. THE GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE
IN CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER
OR THE PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS. Except as
prohibited by law, the Guarantor hereby waives any right which it 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 Guarantor (a) certifies that neither the Agent or any Bank nor any
representative, agent or attorney of the Agent or any Bank has
represented, expressly or otherwise, that the Agent or any Bank would
not, in the event of litigation, seek to enforce the foregoing waivers
and (b) acknowledges that, in entering into the Credit Agreement and
the other Loan Documents to which the Agent or any Bank is a party,
the Agent and the Banks are relying upon, among other things, the
waivers and certifications contained in this ss.14.
15. Miscellaneous. This Guaranty constitutes the entire agreement of the
Guarantor with respect to the matters set forth herein. The rights and
remedies herein provided are cumulative and not exclusive of any
remedies provided by law or any other agreement, and this Guaranty
shall be in addition to any other guaranty of or collateral security
for any of the Obligations. The invalidity or unenforceability of any
one or more sections of this Guaranty shall not affect the validity or
enforceability of its remaining provisions. Captions are for the ease
of reference only and shall not affect the meaning of the relevant
provisions. The meanings of all defined terms used in this Guaranty
shall be equally applicable to the singular and plural forms of the
terms defined.
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IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed and
delivered as of the date first above written.
TMT-PATHWAY, L.L.C.
By: ______________________
Name:
Title:
Address:
______________________
______________________
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Exhibit 10.7(c)
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement"), dated as of May 17, 1999, between JACKSON
PRODUCTS, INC. a Delaware corporation (the "Pledgor") in favor of BANKBOSTON,
N.A., a national banking association, as agent (hereinafter, in such capacity,
the "Agent") for itself and the other lending institutions (hereinafter,
collectively, the "Banks") which are or may become parties to a Revolving Credit
and Acquisition Loan Agreement dated as of April 22, 1998 (as amended and in
effect from time to time, the "Credit Agreement"), among the Pledgor, the Banks
and the Agent.
WHEREAS, the Pledgor is the legal and beneficial owner of certain units of the
outstanding membership interests in TMT-Pathway, L.L.C. (the "Company");
WHEREAS, pursuant to the terms of the Credit Agreement, the Banks have, upon the
terms and subject to the conditions contained therein, agreed to make loans to
the Pledgor; and
WHEREAS, it is a condition precedent to the Banks making any further loans to
the Pledgor under the Credit Agreement that the Pledgor execute and deliver to
the Agent, for the benefit of the Banks and the Agent, a pledge agreement in
substantially the form hereof;
NOW, THEREFORE, in consideration of the premises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
All capitalized terms used herein without definitions shall have the
respective meanings provided therefor in the Credit Agreement. All
terms defined in the Uniform Commercial Code of the Commonwealth of
Massachusetts and used herein shall have the same definitions herein
as specified therein. The following terms shall have the following
meanings herein:
Agent. See preamble.
Banks. See preamble.
Cash Collateral. Seess.4.2.
Cash Collateral Account. Seess.4.2.
Collateral. The Pledged Interests, the Cash Collateral, the Cash
Collateral Account, and all other property now or hereafter
pledged or assigned to the Agent by the Pledgor hereunder, and
all income therefrom, increases therein and proceeds thereof.
Company. See preamble.
Credit Agreement. See preamble.
Event of Default. Seess.5.
Operating Agreement. The Limited Liability Company Agreement of
TMT-Pathway, L.L.C. dated as of February 11, 1999 (the "Operating
Agreement").
Pledged Interests. Seess.2.1 hereof.
Pledgor. See preamble.
Time Deposits. Seess.4.2.
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2. PLEDGE OF MEMBERSHIP INTERESTS.
2.1. Grant of Security Interest. The Pledgor hereby pledges, grants a
security interest in, mortgages, and collaterally assigns and
transfers to the Agent, for the benefit of the Banks and the
Agent, as security for the payment and performance in full when
due of all of the Obligations, all the right, title and interest
of the Pledgor in and to the Pledgor's membership interests in
the Company, wherever located and whether now owned or hereafter
acquired or arising, including, without limitation, (i) all
payments or distributions, whether in cash, property or
otherwise, at any time owing or payable to the Pledgor on account
of its interest as a member in the Company or in the nature of a
management, investment banking or other fee paid or payable by
the Company to the Pledgor, (ii) all of the Pledgor's rights and
interests under the Operating Agreement, including all voting and
management rights and all rights to grant or withhold consents or
approvals, (iii) all rights of access and inspection to and use
of all books and records, including computer software and
computer software programs, of the Company, (iv) all other
rights, interests, property or claims to which the Pledgor may be
entitled in its capacity as a member of the Company, and (v) all
proceeds and products of any of the foregoing (all of the
foregoing rights, title and interest described in the foregoing
clauses (i) through (v) being herein referred to collectively as
the "Pledged Interests").
2.2. Pledge of Cash Collateral Account. The Pledgor also hereby
pledges and assigns to the Agent, for the benefit of the Banks
and the Agent, and grants to the Agent, for the benefit of the
Banks and the Agent, a security interest in, the Cash Collateral
Account and all of the Cash Collateral, subject to the terms of
this Agreement.
2.3. Waiver of Certain Operating Agreement Provisions. The Pledgor
irrevocably waives any and all provisions of the Operating
Agreement that (i) prohibit, restrict, condition or otherwise
affect the grant hereunder of any lien, security interest or
encumbrance on any of the Collateral or any enforcement action
which may be taken in respect of any such lien, security interest
or encumbrance, or (ii) otherwise conflict with the terms of this
Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR.
3.1. Representations and Warranties. The Pledgor hereby represents and
warrants to, Agent, for the benefit of the Banks and the Agent,
as follows:
(a) The Operating Agreement is in full force and effect; the
Pledgor is a duly constituted member of the Company pursuant
to the Operating Agreement; the persons and entities listed
as members in the Operating Agreement are the only members
of the Company as of the date hereof; and the Pledged
Interests are validly issued, non-assessable and fully paid
membership interests in the Company.
(b) The Pledgor has full right, power and authority to make this
Agreement (including the provisions enabling the Agent or
its nominee, upon the occurrence of an Event of Default, to
exercise the voting or other rights provided for herein),
under the Operating Agreement and under applicable law,
without the consent, approval or authorization of, or notice
to, any other person, including any regulatory authority or
any person having any interest in the Company, other than
any consents to this Agreement required to be given by the
other members under the Operating Agreement, which consents,
if any, have been duly received.
(c) The execution, delivery, and performance of this Agreement
and the transactions contemplated hereby (i) have been duly
authorized by all necessary membership or other proceedings
on behalf of the Pledgor, (ii) do not conflict with or
result in any breach or contravention of any applicable law,
regulation, judicial order or decree to which such Pledgor
is subject, (iii) do not conflict with or violate any
provision of the operating agreement of the Pledgor or other
organizational document of the Pledgor, and (iv) do not
violate, conflict with, constitute a default or event of
default under, or result in any rights to accelerate or
modify any obligations under any agreement, instrument,
lease, mortgage or indenture to which such Pledgor is party
or subject, or to which any of its assets are subject.
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(d) This Agreement has been duly executed and delivered by the
Pledgor and is the legal, valid, and binding obligation of
the Pledgor enforceable against it in accordance with the
terms hereof except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium, or other
laws relating to or affecting generally the enforcement of
creditors' rights and except to the extent that availability
of the remedy of specific performance or injunctive relief
is subject to the discretion of the court before which any
case or proceeding therefor may be brought.
(e) The Pledgor is the sole, direct, legal and beneficial owner
of all Pledged Interests, which Pledged Interests consist of
all membership interests, and has good and marketable title
thereto, free and clear of any lien, security interest,
mortgage or other encumbrance, other than the liens and
security interest granted to the Agent, for the benefit of
the Banks and the Agent, hereunder; and the liens and
security interests hereunder constitute valid and perfected
first priority liens and security interests.
(f) The Pledgor's principal place of business, chief executive
office, and the place where its records concerning the
Collateral are kept are located at those places identified
in ss.20 of the Credit Agreement.
(g) The Pledgor has no obligation outstanding as of the date of
this Agreement to make any contribution, capital call or
other payment to the Company with respect to the Pledged
Interests.
(h) The copy of the Operating Agreement attached hereto as
Exhibit A is a true, correct, and complete copy thereof, and
the Operating Agreement has not been amended or modified in
any respect, except for such amendments or modifications as
are attached to the copy thereof delivered to the Agent.
(i) The membership interest of the Pledgor in the Company is not
evidenced by any certificate issued by the Company.
3.2. Covenants. The Pledgor covenants to the Agent as follows:
(a) The Pledgor will not permit or agree to any amendment or
modification of the Operating Agreement as in effect on the
date hereof (or other governing document with respect to the
Pledged Interests), or waive any rights or benefits under
the Operating Agreement (or such other governing document),
without the prior written consent of the Majority Banks;
provided, that, subject to the provisions of this Agreement
and each of the other Loan Documents, so long as 100% of the
issued and outstanding membership or other equity interests
of the Company shall be pledged in favor of the Agent, for
the benefit of the Banks and the Agent, and so long as no
Event of Default shall have occurred and be continuing or
would result after giving effect thereto, the Pledgor may
agree to amend the Operating Agreement solely to the extent
necessary to provide for the issuance by the Company of
additional membership interests.
(b) Without the prior written consent of the Majority Banks, and
except as expressly permitted pursuant to the Credit
Agreement, the Pledgor will not sell, dispose of or assign,
beneficially or of record, or grant, create, permit or
suffer any lien or encumbrance on, any of the Pledged
Interests, or withdraw as a member of the Company.
(c) Without the prior written consent of the Majority Banks, the
Pledgor shall not cast any vote or give or grant any
consent, waiver or ratification or take any other action
which could reasonably be expected to (i) have the result of
materially and adversely affecting any of the Agent's or the
Banks' rights under this Agreement or under any of the other
Loan Documents, (ii) violate the terms of this Agreement or
any of the other Loan Documents, which violation could
reasonably be expected to have a Material Adverse Effect,
(iii) have the effect of impairing the validity, perfection
or priority of the security interest of the Agent, for the
benefit of the Banks and the Agent, in any manner
whatsoever, or (iv) cause an Event of Default.
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(d) The Pledgor will comply with all laws, regulations, judicial
orders or decrees applicable to the Collateral or any
portion thereof, and perform and observe its duties under
the Operating Agreement or other governing documents with
respect to the Pledged Interests.
(e) The Pledgor will (i) keep and maintain at its own cost and
expense at its principal place of business satisfactory and
complete records of the Collateral including a record of all
payments received and all other dealings of a material
nature with the Collateral, and (ii) mark its books and
records pertaining to the Collateral and its books and
records kept in its jurisdiction of organization to evidence
this Agreement and the liens and security interests granted
hereby.
(f) The Pledgor will pay promptly when due any taxes,
assessments, and governmental charges or levies imposed upon
the Collateral or in respect of its income or profits
therefrom, as well as all claims of any kind, in the manner
set forth in the Credit Agreement.
(g) The Pledgor will advise the Agent promptly, in reasonable
detail, and in the manner set forth in the Credit Agreement,
of (i) any lien, charge, claim or other encumbrance made or
asserted against any of the Collateral; (ii) any material
change in the composition of the Collateral; (iii) the
occurrence of any other event or condition which to its
knowledge would have a material effect on the validity,
perfection or priority of the liens and security interests
granted hereunder; and (iv) any bankruptcy or litigation
case or proceeding relating to any of the Collateral.
(h) The Pledgor will not (i) change its principal place of
business or chief executive office or the location of the
records concerning the Collateral without giving prior
written notice to the Agent and taking such actions as may
be necessary or appropriate in the reasonable opinion of the
Agent duly to perfect and continue the perfection of the
Agent's first priority lien and security interest, for the
benefit of the Banks and the Agent, in the Collateral
pursuant to the laws of any jurisdiction into which such
place of business, chief executive office, or records is or
are transferred, and (ii) change its name, identity, or
organizational structure in any matter that might make any
financing statement filed hereunder misleading or invalid
unless the Pledgor shall have notified the Agent thereof and
taken all such actions as may be necessary or appropriate in
the reasonable opinion of the Agent to make any financing
statement filed in favor of the Agent not misleading or
invalid.
(i) The Pledgor shall do or cause to be done all things
necessary to preserve, renew and keep in full force and
effect its legal existence, the power and authority of the
Pledgor to own its property and carry on its business, the
qualification of the Pledgor to do business in its
jurisdiction of organization, and the qualification of the
Pledgor to do business in each other jurisdiction where such
qualification is necessary except where the failure so to
qualify would not have a material adverse effect on the
rights and interests of the Agent or any of the Banks
hereunder.
4. RIGHTS OF AGENT.
4.1. Agent Appointed Attorney-in-Fact. The Pledgor hereby irrevocably
constitutes and appoints the Agent, its successors and assigns,
its true and lawful attorney-in-fact, with full power and
authority and with full power of substitution, at the expense of
the Pledgor, either in the Agent's own name or in the name of the
Pledgor, at any time and from time to time, in each case as the
Agent in its sole discretion may determine (i) to execute,
deliver and file financing statements with respect hereof and to
execute, deliver and file amendments to and continuations of such
financing statements as the Agent may deem necessary or
appropriate, and (ii) upon the occurrence and during the
continuance of an Event of Default:
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(A) to take any action and execute any instruments that such
attorney-in-fact may deem necessary or advisable to
accomplish the purposes hereof;
(B) to ask, demand, collect, receive, receipt for, sue for,
compound, and give acquittance for any and all sums or
properties that may be or become due, payable, or
distributable in respect of the Collateral or that
constitute a part thereof, with full power to settle,
adjust, or compromise any claim thereunder or therefor as
fully as the Pledgor could do;
(C) to endorse or sign the name of the Pledgor on all
instruments given in payment or in part payment thereof and
all documents of satisfaction, discharge, or receipt
required or requested in connection therewith; and
(D) to file or take any action or institute any case or
proceeding that the Agent may deem necessary or appropriate
to collect or otherwise realize upon any or all of the
Collateral, or effect a transfer thereof, or that may be
necessary or appropriate to protect and preserve the right,
title, and interest of the Agent, for the benefit of the
Banks and the Agent, in and to the Collateral and the
security intended to be afforded hereby.
4.2. Cash Collateral Account. Unless applied by the Agent to
Obligations then due and payable, all sums of money that are paid
to the Agent pursuant to this Agreement shall be deposited into
an interest bearing account with the Agent or another financial
institution selected by the Agent in its sole discretion (the
"Cash Collateral Account"). Some or all of the funds from time to
time in the Cash Collateral Account may be invested in time
deposits, including certificates of deposit issued by the Agent
or another financial institution selected by the Agent in its
sole discretion (such certificates of deposit or other time
deposits being hereinafter referred to, collectively, as "Time
Deposits") that are satisfactory to the Agent, provided, in any
such case, arrangements satisfactory to the Agent are made to
perfect, and to ensure the first priority of, its lien and
security interest in such Time Deposits. Interest earned on the
Cash Collateral Account and on the Time Deposits, and the
principal of the Time Deposits at maturity that is not invested
in new Time Deposits, shall be deposited in the Cash Collateral
Account. The Cash Collateral Account, all sums from time to time
standing to the credit of the Cash Collateral Account, any and
all Time Deposits, any and all instruments or other writings
evidencing Time Deposits, and any and all proceeds of any thereof
are hereinafter referred to as the "Cash Collateral."
4.3. Distributions, Conversion, Voting, etc. So long as no Event of
Default shall have occurred and be continuing and to the extent
permitted under the Credit Agreement, the Pledgor shall be
entitled to
(i) receive all cash and other distributions paid in respect of
the Pledged Interests not made in violation of the Credit
Agreement;
(ii) exercise any management or voting rights relating to the
Pledged Interests; and
(iii)give consents, waivers, approvals, and ratifications in
respect of the Pledged Interests.
All such rights of the Pledgor to receive cash and other
distributions shall cease if an Event of Default shall have
occurred and be continuing, and in each such case the Pledgor
shall (A) at the request of the Agent, issue appropriate
instructions that any such distributions be paid directly to the
Agent or to such account as the Agent may designate, and (B) hold
in trust for the Agent and immediately pay over to the Agent any
such distributions received by the Pledgor. All such rights of
the Pledgor referred to in clauses (ii) and (iii) shall, at the
Agent's sole option, as evidenced by the Agent's notifying the
Pledgor in writing of its exercise of such option, cease in case
an Event of Default shall have occurred and be continuing.
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4.4. No Assignment of Duties. This Agreement constitutes a collateral
assignment of the Pledged Interests and the other Collateral only
and not an assignment of any duties or obligations of the Pledgor
with respect thereto, and by its acceptance hereof and whether or
not the Agent shall have exercised any of its rights or remedies
hereunder, none of the Agent or the Banks undertakes to perform
or discharge, and none of the Agent or the Banks shall be
responsible or liable for the performance or discharge of, any
such duties or responsibilities, including, without limitation,
for capital calls. The Pledgor agrees that, notwithstanding the
exercise by the Agent of any of its rights hereunder, the Pledgor
shall remain liable for the full and prompt performance of all of
the Pledgor's obligations and liabilities under the Operating
Agreement. Under no circumstances shall the Agent, any of the
Banks or any holder of any of the Obligations as such be deemed
to be a member of the Company by virtue of the provisions of this
Agreement unless expressly agreed to in writing by the Agent or
such Bank or holder. Without limiting the generality of the
foregoing, none of the Agent or the Banks shall have any
fiduciary duty to the Pledgor, whether by virtue of the security
interests and liens hereunder, or any enforcement action in
respect of such security interests and liens, unless and until
the Agent or such Bank is admitted to the Company as a substitute
member after exercising enforcement rights under ss.9-504 or
ss.9-505 of the Uniform Commercial Code in effect in the
Commonwealth of Massachusetts, or otherwise.
5. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an "Event of
Default" hereunder:
(a) The Pledgor shall fail to comply with, observe or perform any
obligation, covenant or term of this Agreement;
(c) The Pledgor shall fail to perform any of its obligations under
the Operating Agreement; or
(d) The occurrence of any "Event of Default" under the Credit
Agreement or any of the other Loan Documents.
6. REMEDIES.
6.1. Remedies. During the continuance of an Event of Default, the
Agent shall have, in addition to the rights, powers and
authorizations to collect the sums assigned hereunder, all rights
and remedies of a secured party under the Uniform Commercial Code
and under other applicable law with respect to the Pledged
Interests and any other Collateral hereunder, including, without
limitation, the following rights and remedies:
(a) if the Agent so elects and gives written notice of such
election to the Pledgor, the Agent may, in its sole
discretion, (i) exercise any management or voting rights
relating to the Pledged Interests (whether or not the same
shall have been transferred into its name or the name of its
nominee or nominees) for any lawful purpose, including for
the amendment or modification of the Operating Agreement or
other governing documents or the liquidation of the assets
of the Company, (ii) give all consents, waivers, approvals,
and ratifications in respect of such Pledged Interests, and
(iii) otherwise act with respect thereto as though it were
the outright owner thereof (the Pledgor hereby irrevocably
constituting and appointing the Agent the proxy and
attorney-in-fact of the Pledgor, with full power and
authority of substitution, to do so);
(b) the Agent may, in its sole discretion, demand, sue for,
collect, compromise, or settle any rights or claims in
respect of any Collateral, as attorney-in-fact pursuant to
ss.4(a) or otherwise;
(c) the Agent may, in its sole discretion, sell, resell, assign,
deliver, or otherwise dispose of any or all of the
Collateral, for cash or credit or both and upon such terms,
in such manner, at such place or places, at such time or
times, and to such persons or entities as the Agent thinks
expedient, all without demand for performance by the Pledgor
or any notice or advertisement whatsoever except as
expressly provided herein or as may otherwise be required by
applicable law;
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(d) the Agent may, in its sole discretion, cause all or any part
of the Pledged Interests held by it to be transferred into
its name or the name of its nominee or nominees; and
(e) the Agent may, in its sole discretion, set off against the
Obligations or place an administrative hold or freeze on any
and all sums deposited with it or held by it, including any
sums standing to the credit of the Cash Collateral Account
and any Time Deposits issued by the Agent, with any
withdrawal penalty relating to Time Deposits being an
expense of collection.
6.2. Remedies Not Exclusive. No single or partial exercise by the
Agent of any right, power or remedy hereunder shall preclude any
other or further exercise thereof or the exercise of any other
right, power or remedy. Each right, power and remedy herein
specifically granted to the Agent or otherwise available to it
shall be cumulative, and shall be in addition to every other
right, power, and remedy herein specifically given or now or
hereafter existing at law, in equity, or otherwise. Each such
right, power and remedy, whether specifically granted herein or
otherwise existing, may be exercised at any time and from time to
time and as often and in such order as may be deemed expedient by
the Agent in its sole discretion.
6.3. Public Sale. In the event of any disposition of the Collateral as
provided in ss.6.1(c), the Agent shall give to the Pledgor at
least five (5) Business Days prior written notice of the time and
place of any public sale of the Collateral or of the time after
which any private sale or any other intended disposition is to be
made. The Pledgor hereby acknowledges that five (5) Business Days
prior written notice of such sale or sales shall be reasonable
notice. The Agent may enforce its rights hereunder without any
other notice and without compliance with any other condition
precedent now or hereafter imposed by law, regulation, judicial
order or decree or otherwise (all of which are hereby expressly
waived by the Pledgor, to the fullest extent permitted by law).
The Agent may buy any part or all of the Collateral at any public
sale and if any part or all of the Collateral is of a type
customarily sold in a recognized market or is of a type which is
the subject of widely-distributed standard price quotations, the
Agent may buy at private sale and may make payments thereof by
any means. The Agent may apply the cash proceeds actually
received from any sale or other disposition to the reasonable
expenses of retaking, holding, preparing for sale, selling, and
the like, to reasonable attorneys' fees, travel, and all other
expenses which may be incurred by the Agent in attempting to
collect the Obligations or to enforce this Agreement or in the
prosecution or defense of any case or proceeding related to this
Agreement, and then to the Obligations in accordance with the
requirements of the Credit Agreement. To the extent that any of
the Obligations are to be paid or performed by a person or entity
other than the Pledgor, to the extent permitted by applicable
law, the Pledgor waives and agrees not to assert any rights or
privileges which it may have under ss.9-112 of the Uniform
Commercial Code of the Commonwealth of Massachusetts.
6.4. Private Sale. The Pledgor recognizes that the Agent may be unable
to effect a public sale of the Collateral by reason of the lack
of a ready market for the Collateral, of the limited number of
potential buyers of the Collateral or of certain prohibitions
contained in the Securities Act of 1933, state securities laws,
federal banking laws, and other applicable laws, and that the
Agent may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers. The Pledgor agrees
that any such private sales may be at prices and other terms less
favorable to the seller than if sold at public sales and that
such private sales shall not solely by reason thereof be deemed
not to have been made in a commercially reasonable manner. The
Agent shall be under no obligation hereunder or otherwise (except
as provided by applicable law) to delay a sale of any of the
Collateral for the period of time necessary to permit the
registration of such securities for public sale under the
Securities Act of 1933 and applicable state securities laws. Any
such sale of all or a portion of the Collateral may be for cash
or on credit or for future delivery and may be conducted at a
private sale where the Agent or any other person or entity may be
the purchaser of all or part of the Pledged Interests so sold.
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The Pledgor agrees that to the extent notice of sale shall be
required by law, at least five (5) Business Days prior notice to
the Pledgor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute
reasonable notification. Subject to the foregoing, the Agent
agrees that any sale of the Pledged Interests shall be made in a
commercially reasonable manner. The Agent shall incur no
liability as a result of the sale of any of the Collateral, or
any part thereof, at any private sale which complies with the
requirements of this ss.6.4. The Pledgor hereby waives, to the
extent permitted by applicable law, any claims against the Agent
arising by reason of the fact that the price at which any of the
Collateral, or any part thereof, may have been sold at such
private sale was less than the price that might have been
obtained at a public sale, even if the Agent accepts the first
offer deemed by the Agent in good faith deemed to be commercially
reasonable under the circumstances and does not offer any of the
Collateral to more than one offeree.
6.5. No Further Action. Nothing contained in this Agreement shall be
construed to require the Agent to take any action with respect to
the Pledged Interests, whether by way of foreclosure or otherwise
and except as required by the Operating Agreement, in order to
permit the Agent to become a substitute member of the Company
under the Operating Agreement.
7. ASSIGNMENT NOT AFFECTED BY OTHER ACTS; WAIVERS BY PLEDGOR.
The Pledgor acknowledges and agrees that the security interests and
collateral assignments herein provided for shall remain in full force
and effect and shall not be impaired by any acceptance by the Agent of
any other collateral security for or guaranty of any of the
Obligations, or by any failure or neglect or omission on the part of
the Agent to realize upon, collect or protect any Obligations or any
Collateral. The security interests and collateral assignments herein
provided for shall not in any manner be affected or impaired by any
renewal, extension, modification, amendment, waiver, or restatement of
any of the Obligations or of any collateral security therefor, or of
any guaranty thereof. In order to sell, dispose or otherwise realize
upon the security interests and assignments herein granted and
provided for, and exercise the rights granted the Agent hereunder and
under applicable law, there shall be no obligation on the part of the
Agent at any time to first resort for payment to any guarantors of the
Obligations or any part thereof or to resort to any other collateral
security, property, liens or other rights or remedies whatsoever, and
the Agent shall have the right to enforce the security interests and
collateral assignments herein provided for irrespective of whether or
not other proceedings are pending for realization upon or from any of
the foregoing. Except to the extent required by applicable law or by
the Credit Agreement, the Pledgor waives promptness, diligences,
presentment, demand, protest, notice of acceptance, notice of any
Obligations incurred and all other notices of any kind, all defenses
which may be available by virtue of any valuation, stay, moratorium
law or other similar law now or hereafter in effect, any right to
require the marshalling of assets of the Company or any other entity
or other person primarily or secondarily liable with respect to any of
the Obligations, and all suretyship defenses generally. Without
limiting the generality of the foregoing, the Pledgor agrees to the
provisions of any instrument evidencing, securing or otherwise
executed in connection with any Obligation and agrees that the
obligations of the Pledgor hereunder shall not be released or
discharged, in whole or in part, or otherwise affected by (i) the
failure of the Agent or any Bank to assert any claim or demand or to
enforce any right or remedy against the Company or any other entity or
other person primarily or secondarily liable with respect to any of
the Obligations; (ii) any extensions, compromise, refinancing,
consolidation or renewals of any Obligation; (iii) any change in the
time, place or manner of payment of any of the Obligations or any
rescissions, waivers, compromise, refinancing, consolidation or other
amendments or modifications of any of the terms or provisions of the
Credit Agreement, the other Loan Documents or any other agreement
evidencing, securing or otherwise executed in connection with any of
the Obligation, (iv) the addition, substitution or release of any
entity or other person primarily or secondarily liable for any
Obligation; (v) the adequacy of any rights which the Agent or any Bank
may have against any collateral security or other means of obtaining
repayment of any of the Obligations; (vi) the impairment of any
collateral securing any of the Obligations, including without
limitation the failure to perfect or preserve any rights which the
Agent or any Bank might have in such collateral security or the
substitution, exchange, surrender, release, loss or destruction of any
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such collateral security; or (vii) any other act or omission which
might in any manner or to any extent vary the risk of the Pledgor or
otherwise operate as a release or discharge of the Pledgor, all of
which may be done without notice to the Pledgor. To the fullest extent
permitted by law, the Pledgor hereby expressly waives any and all
rights or defenses arising by reason of (A) any "one action" or
"anti-deficiency" law which would otherwise prevent the Agent or any
Bank from bringing any action or exercising any other right or remedy
against the Pledgor before or after the Agent's or such Bank's
commencement or completion of any foreclosure action, whether
judicially, by exercise of power of sale or otherwise, or (B) any
other law which in any other way would otherwise require any election
of remedies by the Agent or any Bank.
8. REGISTRATION AND FILING.
The Pledgor (i) has caused the Company to duly register the security
interests granted hereby on the books of the Company and has furnished
the Agent with evidence thereof, (ii) has duly executed and caused any
financing statements with respect to the Pledged Interests to be filed
in such a manner and in such places as may be required by law in order
to fully protect the rights of the Agent and the Banks hereunder, and
(iii) will cause any financing statements with respect to the Pledged
Interests at all times to be kept recorded and filed at the Company's
expense in such a manner and in such places as may be required by law
in order to fully perfect the interests and protect the rights of the
Agent and the Banks hereunder; provided, that the sole recourse of the
Agent and the Banks as against the Pledgor as a result of any breach
by the Pledgor of the provisions of this ss.8 shall be to the
Collateral in accordance with the provisions of this Agreement.
9. MISCELLANEOUS.
9.1. Additional Instruments and Assurances. The Pledgor hereby agrees,
at its own expense, to execute and deliver, from time to time,
any and all further, or other, instruments, and to perform such
acts, as the Agent may reasonably request to effect the purposes
of this Agreement and to secure to the Agent the benefits of all
rights and remedies conferred upon the Agent by the terms of this
Agreement.
9.2. Release. If and only if all of the Obligations shall have been
indefeasibly paid, performed, and discharged in full in cash, any
commitments to lend under the Credit Agreement shall have been
canceled, the Agent shall, upon demand and at the sole expense of
the Pledgor, release this Agreement and the lien hereof by proper
instrument or instruments, at the request and expense of the
Pledgor.
9.3. Agent's Exoneration. Under no circumstances shall the Agent be
deemed to assume any responsibility for or obligation or duty
with respect to any part or all of the Collateral of any nature
or kind or any matter or proceeding arising out of or relating
thereto, other than (i) to exercise reasonable care in the
physical custody of the Collateral and (ii) if an Event of
Default shall have occurred and be continuing, to act in a
commercially reasonable manner in exercising its rights and
remedies with respect to the Collateral. Subject to the
foregoing, the Agent shall not be required to take any action of
any kind to collect, preserve or protect its or the Pledgor's
rights in the Collateral.
9.4. No Waiver, etc. Any term of this Agreement may be amended or
modified with, but only with, the written consent of the Agent,
with the consent of the Majority Banks, and the Pledgor. Any term
of this Agreement may be waived by a writing executed by the
party to be charged with such waiver. No act, failure, or delay
by the Agent shall constitute a waiver of its rights and remedies
hereunder or otherwise. No single or partial waiver by the Agent
of any default, right, or remedy that it may have shall operate
as a waiver of any other default, right, or remedy or of the same
default, right, or remedy on a future occasion.
9.5. Waiver By Pledgor. The Pledgor hereby waives presentment, notice
of dishonor, and protest of all instruments included in or
evidencing any of the Obligations or the Collateral, and any and
all other notices and demands whatsoever (except as expressly
provided herein or in the Credit Agreement or for notices
required in connection with judicial proceedings).
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9.6. Notice, etc. All notices, requests, and other communications
hereunder shall be made and effective in the manner set forth in
ss.20 of the Credit Agreement, in the case of the Agent, at the
address set forth in such section of the Credit Agreement, and in
the case of the Pledgor, at the address set forth in ss.3.1(f)
hereof, or at such other address as may be set forth or in a
notice from the notifying party to the other parties hereto.
9.7. Overdue Amounts. Until paid, all amounts due and payable by the
Pledgor hereunder shall be a debt secured by the Collateral and
shall bear, whether before or after judgment, interest at the
rate of interest for overdue principal set forth in the Credit
Agreement.
9.8. Governing Law; Consent to Jurisdiction. This Agreement is
intended to take effect as a sealed instrument and shall be
governed by, and construed in accordance with, the laws of the
Commonwealth of Massachusetts. The Pledgor agrees that any
proceeding for the enforcement of this Agreement may be brought
in the courts of the Commonwealth of Massachusetts or any federal
court sitting therein and consents to the non-exclusive
jurisdiction of such court and to service of process in any such
proceeding being made upon the Pledgor by mail at the address
specified in ss.3.1(f). The Pledgor hereby waives any objection
that it may now or hereafter have to the venue of any such
proceeding or any such court or that such proceeding is brought
in an inconvenient court.
9.9. Waiver of Jury Trial. THE PLEDGOR HEREBY WAIVES ITS RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY PROCEEDING ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR
OBLIGATIONS HEREUNDER, OR THE PERFORMANCE OF ANY SUCH RIGHTS OR
OBLIGATIONS.
9.10.Limitation of Liability. Except as prohibited by applicable law,
the Pledgor waives any right which it may have to claim or
recover in any proceeding 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
Pledgor (i) certifies that neither the Agent or any Bank nor any
representative, agent, or attorney of the Agent or any Bank has
represented, expressly or otherwise, that the Agent or such Bank
would not, in the event of any proceeding, seek to enforce the
foregoing waivers and (ii) acknowledges that, in entering into
the Credit Agreement and the other Loan Documents to which any of
the Agent and the Banks is a party, the Agent and the Banks are
relying upon, among other things, the waivers and certifications
contained in this ss.9.10.
9.11.Severability and Enforceability. All provisions hereof are
severable and the invalidity or unenforceability of any of such
provisions shall in no manner affect or impair the validity and
enforceability of the remaining provisions hereof.
9.12.Successors and Assigns. This Agreement shall be binding upon the
Pledgor and upon the legal representatives, successors and
assigns of the Pledgor and shall inure to the benefit of the
Agent, the Banks and their respective successors and assigns.
9.13.Counterparts. This Agreement may be executed in any number of
counterparts, each constituting an original, but all together one
and the same instrument.
9.14.Entire Agreement. This Agreement and the Loan Documents and any
other document executed in connection herewith or therewith
express the entire understanding of the parties with respect to
the transactions contemplated hereby. Neither this Agreement nor
any terms hereof may be changed, waived or terminated except by a
writing signed by each party hereto.
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IN WITNESS WHEREOF, the Pledgor and the Agent have executed this
Agreement as of the date first above written, as an instrument under
seal.
PLEDGOR: JACKSON PRODUCTS,
INC.
By:_______________________
Name:
Title:
AGENT: BANKBOSTON, N.A.,
as Agent
By:_______________________
Name:
Title:
The undersigned hereby consent to the transactions contemplated by the above
Agreement.
TMT-PATHWAY L.L.C.
By: Jackson Products, Inc.,
its sole managing member
By:_______________________
Name:
Title:
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EXHIBIT A
Operating Agreement
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Exhibit 10.11(B)
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of May 17, 1999, among TMT-Pathway, L.L.C., a
Delaware limited liability company ("TMT") and BANKBOSTON, N.A., a national
banking association, as agent (hereinafter, in such capacity, the "Agent") for
itself and the other lending institutions (hereinafter, collectively, the
"Banks") which are or may become parties to the Credit Agreement (as hereinafter
defined).
WHEREAS, Jackson Products, Inc., a Delaware corporation (the "Borrower"), has
entered into a Revolving Credit and Acquisition Loan Agreement, dated as of
April 22, 1998 (as amended and in effect from time to time, the "Credit
Agreement"), with the Banks, the Agent and Mercantile Bank National Association,
as Co-Agent, pursuant to which the Banks, subject to the terms and conditions
contained therein, provide certain financial accommodations to the Borrower;
WHEREAS, the Borrower has requested that the Agent and the Banks amend certain
provisions of the Credit Agreement;
WHEREAS, upon the terms and subject to the conditions contained in Amendment
Agreement No. 2 dated as of May 17, 1999 (the "Second Amendment"), among the
Borrower, the Domestic Subsidiaries (as defined in the Credit Agreement), the
Banks, the Agent and the Co-Agent, the Agent, the Co-Agent and the Banks are
willing to amend such provisions of the Credit Agreement;
WHEREAS, TMT has executed and delivered to the Agent, for the benefit of the
Banks and the Agent, a Guaranty dated as of the date hereof (as amended and in
effect from time to time, the "Guaranty"), pursuant to which TMT guaranteed to
the Agent and the Banks the payment and performance of the Borrower's
Obligations to the Banks and the Agent under or in respect of the Credit
Agreement;
WHEREAS, it is a condition precedent to the Banks entering into the Second
Amendment that TMT execute and deliver to the Agent, for the benefit of the
Banks and the Agent, a security agreement in substantially the form hereof; and
WHEREAS, TMT wishes to grant security interests in favor of the Agent for the
benefit of the Banks and the Agent, as herein provided;
NOW, THEREFORE, in consideration of the promises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms used herein without definitions
shall have the respective meanings provided therefor in the Credit
Agreement. All terms defined in the Uniform Commercial Code of The
Commonwealth of Massachusetts and used herein shall have the same
definitions herein as specified therein; provided, however, that the
term "instrument" shall be such term is defined in Article 9 of the
Uniform Commercial Code of such jurisdiction rather than Article 3.
2. Grant of Security Interest.
2.1. Collateral Granted. TMT hereby grants to the Agent, for the
benefit of the Banks and the Agent, to secure the payment and
performance in full of all of the Obligations (as defined in the
Credit Agreement), including all of TMT's Obligations under the
Guaranty (collectively, the "Obligations"), a security interest
in and so pledges and assigns to the Agent, for the benefit of
the Banks and the Agent, the following properties, assets and
rights of TMT, wherever located, whether now owned or hereafter
acquired or arising, and all proceeds and products thereof (all
of the same being hereinafter called the "Collateral"):
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All personal and fixture property of every kind and nature
including without limitation all furniture, fixtures, equipment,
raw materials, inventory, other goods, accounts, contract rights,
rights to the payment of money, insurance refund claims and all
other insurance claims and proceeds, tort claims, chattel paper,
documents, instruments, securities and other investment property,
deposit accounts, rights to proceeds of letters of credit and all
general intangibles including, without limitation, all tax refund
claims, license fees, patents, patent applications, trademarks,
trademark applications, trade names, copyrights, copyright
applications, rights to sue and recover for past infringement of
patents, trademarks and copyrights, computer programs, computer
software, engineering drawings, service marks, customer lists,
goodwill, and all licenses, permits, agreements of any kind or
nature pursuant to which TMT possesses, uses or has authority to
possess or use property (whether tangible or intangible) of
others or others possess, use or have authority to possess or use
property (whether tangible or intangible) of TMT, and all
recorded data of any kind or nature, regardless of the medium of
recording including, without limitation, all software, writings,
plans, specifications and schematics.
2.2. Delivery of Instruments, etc.
(a) Pursuant to the terms hereof, TMT has endorsed, assigned and
delivered to the Agent all negotiable or non-negotiable
instruments, certificated securities and chattel paper
pledged by it hereunder, together with instruments of
transfer or assignment duly executed in blank as the Agent
may have specified. In the event that TMT shall, after the
date of this Agreement, acquire any other negotiable or
non-negotiable instruments, certificated securities or
chattel paper to be pledged by it hereunder, TMT shall
forthwith endorse, assign and deliver the same to the Agent,
accompanied by such instruments of transfer or assignment
duly executed in blank as the Agent may from time to time
specify.
(b) To the extent that any securities now or hereafter acquired
by TMT are uncertificated and are issued to TMT or its
nominee directly by the issuer thereof, TMT shall cause the
issuer to note on its books the security interest of the
Agent in such securities and shall cause the issuer,
pursuant to an agreement in form and substance satisfactory
to the Agent, to agree to comply with instructions from the
Agent as to such securities, without further consent of TMT
or such nominee. To the extent that any securities, whether
certificated or uncertificated, or other financial assets
now or hereafter acquired by TMT are held by TMT or its
nominee through a securities intermediary, TMT shall use
reasonable efforts to (i) cause such securities intermediary
to note on its books the security interest of the Agent in
such securities or other financial assets and to confirm
such notation promptly to the Agent and (ii), at the request
of the Agent, cause such securities intermediary, pursuant
to an agreement in form and substance satisfactory to the
Agent, to agree to comply with entitlement orders or other
instructions from the Agent as to such securities or other
financial assets, without further consent of TMT or such
nominee. The Agent agrees with TMT that the Agent shall not
give any such entitlement orders or instructions to any such
issuer or securities intermediary unless an Event of Default
has occurred and is continuing and the Agent has elected to
exercise its rights and remedies as contemplated by ss.14.
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(c) To the extent that TMT is a beneficiary under any written
letter of credit now or hereafter issued in favor of TMT,
TMT shall deliver such letter of credit to the Agent. The
Agent shall from time to time, at the request and expense of
TMT, make such arrangements with TMT as are in the Agent's
reasonable judgment necessary and appropriate so that TMT
may make any drawing to which TMT is entitled under such
letter of credit, without impairment of the Agent's
perfected security interest in TMT's rights to proceeds of
such letter of credit or in the actual proceeds of such
drawing. At the Agent's request, TMT shall, for any letter
of credit, whether or not written, now or hereafter issued
in favor of TMT as beneficiary, execute and deliver to the
issuer and any confirmer of such letter of credit an
assignment of proceeds form, in favor of the Agent and
satisfactory to the Agent and such issuer or (as the case
may be) such confirmer, requiring the proceeds of any
drawing under such letter of credit to be paid directly to
the Agent for application as provided in the Credit
Agreement.
2.3. Excluded Collateral. Notwithstanding the foregoing provisions of
this ss.2, such grant of security interest shall not extend to,
and the term "Collateral" shall not include, any chattel paper
and general intangibles which are now or hereafter held by TMT as
licensee, lessee or otherwise, to the extent that (a) such
chattel paper and general intangibles are not assignable or
capable of being encumbered as a matter of law or under the terms
of the license, lease or other agreement applicable thereto (but
solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the
licensor or lessor thereof or other applicable party thereto and
(b) such consent has not been obtained; provided, however, that
the foregoing grant of security interest shall extend to, and the
term "Collateral" shall include, (i) any and all proceeds of such
chattel paper and general intangibles to the extent that the
assignment or encumbering of such proceeds is not so restricted
and (ii) upon any such licensor, lessor or other applicable party
consent with respect to any such otherwise excluded chattel paper
or general intangibles being obtained, thereafter such chattel
paper or general intangibles as well as any and all proceeds
thereof that might have theretofore have been excluded from such
grant of a security interest and the term "Collateral".
2.4. Trademark Assignments. Concurrently herewith TMT is also
executing and delivering to the Agent, for the benefit of the
Banks and the Agent, the Trademark Assignment pursuant to which
TMT is assigning to the Agent, for the benefit of the Banks and
the Agent, certain Collateral consisting trademarks, service
marks and trademark and service mark rights, together with the
goodwill appurtenant thereto. The provisions of the Trademark
Assignment are supplemental to the provisions of this Agreement,
and nothing contained in the Trademark Assignment shall derogate
from any of the rights or remedies of the Agent or any of the
Banks hereunder. Nor shall anything contained in the Trademark
Assignment be deemed to prevent or extend the time of attachment
or perfection of any security interest in such Collateral created
hereby.
3. Title to Collateral, etc. TMT is the owner of the Collateral free from
any adverse lien, security interest or other encumbrance, except for
the security interest created by this Agreement and other liens
permitted by the Credit Agreement. TMT has received a certificate of
title, or the equivalent thereof, for each piece of Collateral that is
required to be titled under any state or federal statute. Within ten
(10) days of the Second Amendment Effective Date (as defined in the
Second Amendment) TMT shall, for each piece of Collateral that is
covered by a certificate of title under any state or federal statute,
request from (and in accordance with the requirements of) the
appropriate state or federal agency a new certificate of title, or the
equivalent thereof, that identifies the Agent's security interest, for
the benefit of the Banks and the Agent, in the Collateral. None of the
Collateral constitutes, or is the proceeds of, "farm products" as
defined in ss.9-109(3) of the Uniform Commercial Code of The
Commonwealth of Massachusetts. None of the account debtors in respect
of any accounts, chattel paper or general intangibles and none of the
obligors in respect of any instruments included in the Collateral is a
governmental authority subject to the Federal Assignment of Claims
Act.
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4. Continuous Perfection. TMT's place of business or, if more than one,
chief executive office is indicated on the Perfection Certificate
delivered to the Agent by TMT herewith (collectively, the "Perfection
Certificate"). TMT will not change the same, or the name, identity or
corporate structure of TMT in any manner, without providing at least
thirty (30) days prior written notice to the Agent. The Collateral, to
the extent not delivered to the Agent pursuant to ss.2.2, will be kept
at those locations listed on the Perfection Certificate and TMT will
not remove the Collateral from such locations, without providing at
least thirty (30) days prior written notice to the Agent.
5. No Liens. Except for the security interest herein granted and liens
permitted by the Credit Agreement, TMT shall be the owner of its
respective Collateral free from any lien, security interest or other
encumbrance, and TMT shall defend the same against all claims and
demands of all persons at any time claiming the same or any interests
therein adverse to the Agent or any of the Banks. TMT shall not
pledge, mortgage or create, or suffer to exist a security interest in
the Collateral in favor of any person other than the Agent, for the
benefit of the Banks and the Agent, except for liens permitted by the
Credit Agreement.
6. No Transfers. TMT will not sell or offer to sell or otherwise transfer
the Collateral or any interest therein except as permitted by
ss.10.5.2 of the Credit Agreement.
7. Insurance.
7.1. Maintenance of Insurance. TMT will maintain with financially
sound and reputable insurers insurance with respect to its
properties and business against such casualties and contingencies
as shall be in accordance with general practices of businesses
engaged in similar activities in similar geographic areas. Such
insurance shall be in such minimum amounts that TMT will not be
deemed a co-insurer under applicable insurance laws, regulations
and policies and otherwise shall be in such amounts, contain such
terms, be in such forms and be for such periods as may be
reasonably satisfactory to the Agent. In addition, all such
insurance shall be payable to the Agent as loss payee under a
"standard" or "New York" loss payee clause for the benefit of the
Banks and the Agent. Without limiting the foregoing, TMT will (a)
keep all of its physical property insured with casualty or
physical hazard insurance on an "all risks" basis, with broad
form flood and earthquake coverages and electronic data
processing coverage, with a full replacement cost endorsement and
an "agreed amount" clause in an amount equal to 100% of the full
replacement cost of such property, (b) maintain all such workers'
compensation or similar insurance as may be required by law and
(c) maintain, in amounts and with deductibles equal to those
generally maintained by businesses engaged in similar activities
in similar geographic areas, general public liability insurance
against claims of bodily injury, death or property damage
occurring, on, in or about the properties of TMT; business
interruption insurance; and product liability insurance.
7.2. Insurance Proceeds. The proceeds of any casualty insurance in
respect of any casualty loss of any of the Collateral shall,
subject to the rights, if any, of other parties with a prior
interest in the property covered thereby, (a) so long as no Event
of Default has occurred and is continuing, be disbursed to TMT
for direct application by TMT in accordance with ss.10.5.2 of the
Credit Agreement and (b) in all other circumstances, be held by
the Agent as cash collateral for the Obligations. The Agent may,
at its sole option, disburse from time to time all or any part of
such proceeds so held as cash collateral, upon such terms and
conditions as the Agent may reasonably prescribe, for direct
application by TMT solely to the repair or replacement of TMT's
property so damaged or destroyed, or the Agent may apply all or
any part of such proceeds to the Obligations with the Total
Commitment (if not then terminated) being reduced by the amount
so applied to the Obligations.
7.3. Notice of Cancellation, etc. All policies of insurance shall
provide for at least thirty (30) days prior written cancellation
notice to the Agent. In the event of failure by TMT to provide
and maintain insurance as herein provided, the Agent may, at its
option, provide such insurance and charge the amount thereof to
TMT. TMT shall furnish the Agent with certificates of insurance
and policies evidencing compliance with the foregoing insurance
provision.
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8. Maintenance of Collateral; Compliance with Law. TMT will keep the
Collateral in good order and repair and will not use the same in
violation of law or any policy of insurance thereon. The Agent, or its
designee, may inspect the Collateral at any reasonable time, wherever
located. TMT will pay promptly when due all taxes, assessments,
governmental charges and levies upon the Collateral or incurred in
connection with the use or operation of such Collateral or incurred in
connection with this Agreement, (other than such items contested in
good faith in accordance with ss.9.8 of the Credit Agreement). TMT has
at all times operated, and TMT will continue to operate, its business
in compliance with all applicable provisions of the federal Fair Labor
Standards Act, as amended, and with all applicable provisions of
federal, state and local statutes and ordinances dealing with the
control, shipment, storage or disposal of hazardous materials or
substances.
9. Collateral Protection Expenses; Preservation of Collateral.
9.1. Expenses Incurred by Agent. In its discretion, the Agent may
discharge taxes and other encumbrances at any time levied or
placed on any of the Collateral (other than any taxes or
encumbrances contested in good faith and in accordance with
ss.9.8 of the Credit Agreement), make repairs thereto (after any
Event of Default has occurred and is continuing or if TMT's
failure to make such repairs will result in an Event of Default)
and pay any necessary filing fees. TMT agrees to reimburse the
Agent on demand for any and all expenditures so made. The Agent
shall have no obligation to TMT to make any such expenditures,
nor shall the making thereof relieve TMT of any default.
9.2. Agent's Obligations and Duties. Anything herein to the contrary
notwithstanding, TMT shall remain liable under each contract or
agreement comprised in the Collateral to be observed or performed by
TMT thereunder. Neither the Agent nor any Bank shall have any
obligation or liability under any such contract or agreement by reason
of or arising out of this Agreement or the receipt by the Agent or any
Bank of any payment relating to any of the Collateral, nor shall the
Agent or any Bank be obligated in any manner to perform any of the
obligations of TMT under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any
payment received by the Agent or any Bank in respect of the Collateral
or as to the sufficiency of any performance by any party under any
such contract or agreement, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Agent or to which the
Agent or any Bank may be entitled at any time or times. The Agent's
sole duty with respect to the custody, safe keeping and physical
preservation of the Collateral in its possession, under ss.9-207 of
the Uniform Commercial Code of The Commonwealth of Massachusetts or
otherwise, shall be to deal with such Collateral in the same manner as
the Agent deals with similar property for its own account.
10. Securities and Deposits. The Agent may at any time, at its option,
transfer to itself or any nominee any securities constituting
Collateral, receive any income thereon and hold such income as
additional Collateral or apply it to the Obligations. Whether or not
any Obligations are due, the Agent may demand, sue for, collect, or
make any settlement or compromise which it deems desirable with
respect to the Collateral. Regardless of the adequacy of Collateral or
any other security for the Obligations, any deposits or other sums at
any time credited by or due from the Agent or any Bank to TMT may at
any time be applied to or set off against any of the Obligations.
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11. Notification to Account Debtors and Other Obligors. If a Default or an
Event of Default shall have occurred and be continuing, TMT shall, at
the request of the Agent, notify account debtors on accounts, chattel
paper and general intangibles of TMT and obligors on instruments for
which TMT is an obligee of the security interest of the Agent in any
account, chattel paper, general intangible or instrument and that
payment thereof is to be made directly to the Agent or to any
financial institution designated by the Agent as the Agent's agent
therefor, and the Agent may itself, if a Default or an Event of
Default shall have occurred and be continuing, without notice to or
demand upon TMT, so notify account debtors and obligors. After the
making of such a request or the giving of any such notification, TMT
shall hold any proceeds of collection of accounts, chattel paper,
general intangibles and instruments received by TMT as trustee for the
Agent, for the benefit of the Banks and the Agent, without commingling
the same with other funds of TMT and shall turn the same over to the
Agent in the identical form received, together with any necessary
endorsements or assignments. The Agent shall apply the proceeds of
collection of accounts, chattel paper, general intangibles and
instruments received by the Agent to the Obligations, such proceeds to
be immediately entered after final payment in cash or solvent credits
of the items giving rise to them.
12. Further Assurances. TMT, at its own expense, shall do, make, execute
and deliver all such additional and further acts, things, deeds,
assurances and instruments as the Agent may reasonably require more
completely to vest in and assure to the Agent and the Banks their
respective rights hereunder or in any of the Collateral, including,
without limitation, (a) executing, delivering and, where appropriate,
filing financing statements and continuation statements under the
Uniform Commercial Code, (b) obtaining governmental and other third
party consents and approvals, including without limitation any consent
of any licensor, lessor or other applicable party referred to in
ss.2.3, (c) obtaining waivers from mortgagees and landlords and (d)
taking all actions required by Sections 8-313 and 8-321 of the Uniform
Commercial Code, as applicable in each relevant jurisdiction, with
respect to certificated and uncertificated securities.
13. Power of Attorney.
13.1.Appointment and Powers of Agent. TMT hereby irrevocably
constitutes and appoints the Agent and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorneys-in-fact with full irrevocable power and authority in
the place and stead of TMT or in the Agent's own name, for the
purpose of carrying out the terms of this Agreement, to take any
and all appropriate action and to execute any and all documents
and instruments that may be necessary or desirable to accomplish
the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby gives said attorneys the
power and right, on behalf of TMT, without notice to or assent by
TMT, to do the following:
(a) upon the occurrence and during the continuance of an Event
of Default, generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the
Collateral in such manner as is consistent with the Uniform
Commercial Code of The Commonwealth of Massachusetts and as
fully and completely as though the Agent were the absolute
owner thereof for all purposes, and to do at TMT's expense,
at any time, or from time to time, all acts and things which
the Agent deems necessary to protect, preserve or realize
upon the Collateral and the Agent's security interest
therein, in order to effect the intent of this Agreement,
all as fully and effectively as TMT might do, including,
without limitation, (i) the filing and prosecuting of
registration and transfer applications with the appropriate
federal or local agencies or authorities with respect to
trademarks, copyrights and patentable inventions and
processes, (ii) upon written notice to TMT, the exercise of
voting rights with respect to voting securities, which
rights may be exercised, if the Agent so elects, with a view
to causing the liquidation in a commercially reasonable
manner of assets of the issuer of any such securities and
(iii) the execution, delivery and recording, in connection
with any sale or other disposition of any Collateral, of the
endorsements, assignments or other instruments of conveyance
or transfer with respect to such Collateral; and
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(b) to file such financing statements with respect hereto, with
or without TMT's signature, or a photocopy of this Agreement
in substitution for a financing statement, as the Agent may
deem appropriate and to execute in TMT's name such financing
statements and amendments thereto and continuation
statements which may require TMT's signature.
13.2.Ratification by TMT. To the extent permitted by law, TMT hereby
ratifies all that said attorneys shall lawfully do or cause to be
done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
13.3.No Duty on Agent. The powers conferred on the Agent hereunder are
solely to protect the interests of the Agent and the Banks in the
Collateral and shall not impose any duty upon the Agent to
exercise any such powers. The Agent shall be accountable only for
the amounts that it actually receives as a result of the exercise
of such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to TMT for any act or
failure to act, except for the Agent's own gross negligence or
willful misconduct.
14. Remedies. If an Event of Default shall have occurred and be
continuing, the Agent may, without notice to or demand upon TMT,
declare this Agreement to be in default, and the Agent shall
thereafter have in any jurisdiction in which enforcement hereof is
sought, in addition to all other rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code,
including, without limitation, the right to take possession of the
Collateral, and for that purpose the Agent may, so far as TMT can give
authority therefor, enter upon any premises on which the Collateral
may be situated and remove the same therefrom. The Agent may in its
discretion require TMT to assemble all or any part of the Collateral
at such location or locations within the state(s) of TMT's principal
office(s) or at such other locations as the Agent may designate.
Unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, the
Agent shall give to TMT at least five (5) Business Days prior written
notice of the time and place of any public sale of Collateral or of
the time after which any private sale or any other intended
disposition is to be made. TMT hereby acknowledges that five (5)
Business Days prior written notice of such sale or sales shall be
reasonable notice. In addition, TMT waives any and all rights that it
may have to a judicial hearing in advance of the enforcement of any of
the Agent's rights hereunder, including, without limitation, its right
following an Event of Default to take immediate possession of the
Collateral and to exercise its rights with respect thereto. To the
extent that any of the Obligations are to be paid or performed by a
person other than TMT, TMT waives and agrees not to assert any rights
or privileges which it may have under ss.9-112 of the Uniform
Commercial Code of The Commonwealth of Massachusetts.
15. No Waiver, etc. TMT waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended,
Collateral received or delivered or other action taken in reliance
hereon and all other demands and notices of any description. With
respect to both the Obligations and the Collateral, TMT assents to any
extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of or failure to
perfect any security interest in any Collateral, to the addition or
release of any party or person primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement, compromising
or adjusting of any thereof, all in such manner and at such time or
times as the Agent may deem advisable. The Agent shall have no duty as
to the collection or protection of the Collateral or any income
thereon, nor as to the preservation of rights against prior parties,
nor as to the preservation of any rights pertaining thereto beyond the
safe custody thereof as set forth in ss.9.2. The Agent shall not be
deemed to have waived any of its rights upon or under the Obligations
or the Collateral unless such waiver shall be in writing and signed by
the Agent with the consent of the Majority Banks. No delay or omission
on the part of the Agent in exercising any right shall operate as a
waiver of such right or any other right. A waiver on any one occasion
shall not be construed as a bar to or waiver of any right on any
future occasion. All rights and remedies of the Agent with respect to
the Obligations or the Collateral, whether evidenced hereby or by any
other instrument or papers, shall be cumulative and may be exercised
singularly, alternatively, successively or concurrently at such time
or at such times as the Agent deems expedient.
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16. Marshalling. Neither the Agent nor any Bank shall be required to
marshal any present or future collateral security (including but not
limited to this Agreement and the Collateral) for, or other assurances
of payment of, the Obligations or any of them or to resort to such
collateral security or other assurances of payment in any particular
order, and all of the rights of the Agent hereunder and of the Agent
or any Bank in respect of such collateral security and other
assurances of payment shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that it lawfully
may, TMT hereby agrees that it will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the
enforcement of the Agent's rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or
under which any of the Obligations is outstanding or by which any of
the Obligations is secured or payment thereof is otherwise assured,
and, to the extent that it lawfully may, TMT hereby irrevocably waives
the benefits of all such laws.
17. Proceeds of Dispositions; Expenses. TMT shall pay to the Agent on
demand any and all reasonable expenses, including reasonable
attorneys' fees and disbursements, incurred or paid by the Agent in
protecting, preserving or enforcing the Agent's rights under or in
respect of any of the Obligations or any of the Collateral. After
deducting all of said expenses, the residue of any proceeds of
collection or sale of the Obligations or Collateral shall, to the
extent actually received in cash, be applied to the payment of the
Obligations in such order or preference as is provided in the Credit
Agreement, proper allowance and provision being made for any
Obligations not then due. Upon the final payment and satisfaction in
full of all of the Obligations and after making any payments required
by Section 9-504(1)(c) of the Uniform Commercial Code of The
Commonwealth of Massachusetts, any excess shall be returned to TMT.
TMT shall remain liable for any deficiency in the payment of the
Obligations after all proceeds of Collateral have been applied.
18. Overdue Amounts. Until paid, all amounts due and payable by TMT
hereunder shall be a debt secured by the Collateral and shall bear,
whether before or after judgment, interest at the rate of interest for
overdue principal set forth in the Credit Agreement.
19. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED TO
TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS. TMT agrees that any suit for the enforcement of this
Agreement may be brought in the courts of The Commonwealth of
Massachusetts or any federal court sitting therein and consents to the
non-exclusive jurisdiction of such court and to service of process in
any such suit being made upon TMT by mail at the address set forth
below its signature hereto or at such other address as TMT may
designate in writing to the Agent. TMT hereby waives any objection
that it 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.
20. Waiver of Jury Trial. TMT WAIVES ITS RIGHT TO A JURY TRIAL WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THE PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS. Except as
prohibited by law, TMT waives any right which it 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. TMT (a) certifies that
neither the Agent or any Bank nor any representative, agent or
attorney of the Agent or any Bank has represented, expressly or
otherwise, that the Agent or any Bank would not, in the event of
litigation, seek to enforce the foregoing waivers and (b) acknowledges
that, in entering into the Credit Agreement and the other Loan
Documents to which the Agent or any Bank is a party, the Agent and the
Banks are relying upon, among other things, the waivers and
certifications contained in this ss.20.
21. Concerning Revised Article 9 of the Uniform Commercial Code. The
parties acknowledge and agree to the following provisions of this
Agreement in anticipation of the possible application, in one or more
jurisdictions to the transactions contemplated hereby, of the revised
Article 9 of the Uniform Commercial Code in the form or substantially
in the form approved in 1998 by the American Law Institute and the
National Conference of Commissioners on Uniform State Law ("Revised
Article 9").
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21.1.Attachment. In applying the law of any jurisdiction in which
Revised Article 9 is in effect, the Collateral is all assets of
TMT, whether or not within the scope of Revised Article 9. The
Collateral shall include, without limitation, the following
categories of assets as defined in Revised Article 9: goods
(including inventory, equipment and any accessions thereto),
instruments (including promissory notes), documents, accounts
(including health-care-insurance receivables), chattel paper
(whether tangible or electronic), deposit accounts,
letter-of-credit rights (whether or not the letter of credit is
evidenced by a writing), commercial tort claims, securities and
all other investment property, general intangibles (including
payment intangibles and software), supporting obligations and any
and all proceeds of any thereof, wherever located, whether now
owned and hereafter acquired. If TMT shall at any time, whether
or not Revised Article 9 is in effect in any particular
jurisdiction, acquire a commercial tort claim, as defined in
Revised Article 9, TMT shall immediately notify the Agent in a
writing signed by TMT of the brief details thereof and grant to
the Agent in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such
writing to be in form and substance satisfactory to the Agent.
21.2.Perfection by Filing. The Agent may at any time and from time to
time, pursuant to the provisions of ss.13, file financing
statements, continuation statements and amendments thereto that
describe the Collateral as all assets of TMT or words of similar
effect and which contain any other information required by Part 5
of Revised Article 9 for the sufficiency or filing office
acceptance of any financing statement, continuation statement or
amendment, including whether TMT is an organization, the type of
organization and any organization identification number issued to
TMT. TMT agrees to furnish any such information to the Agent
promptly upon request. Any such financing statements,
continuation statements or amendments may be signed by the Agent
on behalf of TMT, as provided in ss.13, and may be filed at any
time in any jurisdiction whether or not Revised Article 9 is then
in effect in that jurisdiction.
21.3.Other Perfection, etc. TMT shall at any time and from time to
time, whether or not Revised Article 9 is in effect in any
particular jurisdiction, take such steps as the Agent may
reasonably request for the Agent (a) to obtain an
acknowledgement, in form and substance satisfactory to the Agent,
of any bailee having possession of any of the Collateral that the
bailee holds such Collateral for the Agent, (b) to obtain
"control" of any investment property, deposit accounts,
letter-of-credit rights or electronic chattel paper (as such
terms are defined in Revised Article 9 with corresponding
provisions in Rev. ss.ss. 9-104, 9-105, 9-106 and 9-107 relating
to what constitutes "control" for such items of Collateral), with
any agreements establishing control to be in form and substance
satisfactory to the Agent, and (c) otherwise to insure the
continued perfection and priority of the Agent's security
interest in any of the Collateral and of the preservation of its
rights therein, whether in anticipation and following the
effectiveness of Revised Article 9 in any jurisdiction.
21.4.Other Provisions. In applying the law of any jurisdiction in
which Revised Article 9 is in effect, the following references to
sections in this Agreement to existing Article 9 of that
jurisdiction shall be to the Revised Article 9 Section of that
jurisdiction indicated below:
-------------------- --------------------------- -----------------------------
Agreement Section Existing Article 9 Revised Article 9
-------------------- --------------------------- -----------------------------
3 ss. 9-103(3) Rev.ss.9-102(a)(34)
-------------------- --------------------------- -----------------------------
-------------------- --------------------------- -----------------------------
9.2 ss. 9-207 Rev.ss.9-207
-------------------- --------------------------- -----------------------------
-------------------- --------------------------- -----------------------------
12 ss.ss.8-106 and 9-115 (1994)Rev.ss.ss.8-106 and 9-106
-------------------- --------------------------- -----------------------------
-------------------- --------------------------- -----------------------------
17 ss. 9-504(1)(c) Rev.ss.ss.9-608(a)(1)(C) and
9-615(a)(3)
-------------------- --------------------------- -----------------------------
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21.5.Savings Clause. Nothing contained in this ss.21 shall be
construed to narrow the scope of the Agent's security interest in
any of the Collateral or the perfection or priority thereof or to
impair or otherwise limit any of the rights, powers, privileges
or remedies of the Agent or any Bank hereunder except (and then
only to the extent) mandated by Revised Article 9 to the extent
then applicable.
22. Miscellaneous. The headings of each section of this Agreement are for
convenience only and shall not define or limit the provisions thereof.
This Agreement and all rights and obligations hereunder shall be
binding upon TMT and its respective successors and assigns, and shall
inure to the benefit of the Agent, the Banks and their respective
successors and assigns. If any term of this Agreement shall be held to
be invalid, illegal or unenforceable, the validity of all other terms
hereof shall in no way be affected thereby, and this Agreement shall
be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein. TMT acknowledges
receipt of a copy of this Agreement.
[Remainder of Page Left Intentionally Blank]
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IN WITNESS WHEREOF, intending to be legally bound, TMT has caused this Agreement
to be duly executed as of the date first above written.
TMT-PATHWAY, L.L.C.
By:_______________________
Name:
Title:
Address:
_______________________
_______________________
Accepted:
BANKBOSTON, N.A.,
as Agent
By:________________________________________
Peter van der Horst
Vice President
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CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF ______________________________________________)
) ss.
COUNTY OF _____________________________________________________________)
Before me, the undersigned, a Notary Public in and for the county aforesaid, on
this __ day of May, 1999, personally appeared _______________ to me known
personally, and who, being by me duly sworn, deposes and says that he is the
__________ of TMT-Pathway, L.L.C., and that said instrument was signed and
sealed on behalf of said corporation by authority of its Board of Directors, and
said __________ acknowledged said instrument to be the free act and deed of said
corporation.
--------------------------
Notary Public
My commission expires:
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF ______________________________________________)
) ss.
COUNTY OF _____________________________________________________________)
Before me, the undersigned, a Notary Public in and for the county aforesaid, on
this __ day of May, 1999, personally appeared Peter van der Horst, to me known
personally, and who, being by me duly sworn, deposes and says that he is a Vice
President of BankBoston, N.A. (the "Agent"), and that said instrument was signed
and sealed on behalf of said Agent by authority of its Board of Directors, and
said Peter van der Horst acknowledged said instrument to be the free act and
deed of the Agent.
--------------------------
Notary Public
My commission expires:
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Exhibit 10.23(b)
TRADEMARK COLLATERAL
SECURITY AND PLEDGE AGREEMENT
TRADEMARK COLLATERAL SECURITY AND PLEDGE AGREEMENT, dated as of May 17, 1999,
between TMT-PATHWAY, L.L.C., a Delaware limited liability company having its
principal place of business at 2997 Clarkson Road, Chesterfield, Missouri 63017
(the "Assignor"), and BANKBOSTON, N.A., as agent (hereinafter, in such capacity,
the "Agent") for itself and other lending institutions (hereinafter,
collectively, the "Banks") which are, or may in the future become, parties to a
Revolving Credit and Acquisition Loan Agreement dated as of April 22, 1998 (as
amended and in effect from time to time, the "Credit Agreement"), among Jackson
Products, Inc. (the "Borrower"), the Banks, the Agent and Mercantile Bank
National Association, as Co-Agent.
WHEREAS, the Borrower has requested that the Agent and the Banks amend certain
provisions of the Credit Agreement;
WHEREAS, upon the terms and subject to the conditions contained in Amendment
Agreement No. 2 dated as of May 17, 1999 (the "Second Amendment"), among the
Borrower, the Domestic Subsidiaries (as defined in the Credit Agreement), the
Banks, the Agent and the Co-Agent, the Agent, the Co-Agent and the Banks are
willing to amend such provisions of the Credit Agreement;
WHEREAS, the Assignor has executed and delivered to the Agent, for the benefit
of the Banks and the Agent, a Security Agreement (as defined in the Credit
Agreement), pursuant to which the Assignor has granted to the Agent, for the
benefit of the Banks and the Agent, a security interest in all of the Assignor's
personal property and fixture assets, including, without limitation, the
trademarks, service marks, trademark and service mark registrations, and
trademark and service mark registration applications listed on Schedule A
attached hereto, all to secure the payment and performance of the Obligations
(as defined in the Credit Agreement);
WHEREAS, it is a condition precedent to the Banks entering into the Second
Amendment that TMT execute and deliver to the Agent, for the benefit of the
Banks and the Agent, a trademark agreement in substantially the form hereof;
WHEREAS, the Assignor wishes to grant to the Agent, for the benefit of the Banks
and the Agent, security interests in the Pledged Trademarks (as defined below)
in order to secure the Obligations under and with respect to the Credit
Agreement; and
WHEREAS, this Trademark Agreement is supplemental to the provisions contained in
the Security Agreement;
NOW, THEREFORE, in consideration of the premises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ss.1.DEFINITIONS. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings provided therefor in the
Credit Agreement and the Security Agreement. In addition, the
following terms shall have the meanings set forth in this ss.1 or
elsewhere in this Trademark Agreement referred to below:
Assignment of Marks. Seess.2.1 hereof.
Associated Goodwill. All goodwill of the Assignor and its
business, products and services appurtenant to, associated with
or symbolized by the Trademarks and the use thereof.
Pledged Trademarks. All of the Assignor's right, title and
interest in and to all of the Trademarks, the Trademark
Registrations, the Trademark License Rights, the Trademark
Rights, the Associated Goodwill, the Related Assets, and all
accessions to, substitutions for, replacements of, and all
products and proceeds of any and all of the foregoing.
PTO. The United States Patent and Trademark Office.
Related Assets. All assets, rights and interests of the Assignor
that uniquely reflect or embody the Associated Goodwill,
including the following:
(a) all patents, inventions, copyrights, trade secrets, confidential
information, formulae, methods or processes, compounds, recipes,
know-how, methods and operating systems, drawings, descriptions,
formulations, manufacturing and production and delivery
procedures, quality control procedures, product and service
specifications, catalogs, price lists, and advertising materials,
relating to the manufacture, production, delivery, provision and
sale of goods or services under or in association with any of the
Trademarks; and
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(b) the following documents and things in the possession or under the
control of the Assignor, or subject to its demand for possession
or control, related to the production, delivery, provision and
sale by the Assignor, or any affiliate, franchisee, licensee or
contractor, of products or services sold by or under the
authority of the Assignor in connection with the Trademarks or
Trademark Rights, whether prior to, on or subsequent to the date
hereof:
(i) all lists, contracts, ancillary documents and other
information that identify, describe or provide information
with respect to any customers, dealers or distributors of
the Assignor, its affiliates or franchisees or licensees or
contractors, for products or services sold under or in
connection with the Trademarks or Trademark Rights,
including all lists and documents containing information
regarding each customer's, dealer's or distributor's name
and address, credit, payment, discount, delivery and other
sale terms, and history, pattern and total of purchases by
brand, product, style, size and quantity;
(ii) all agreements (including franchise agreements), product and
service specification documents and operating, production
and quality control manuals relating to or used in the
design, manufacture, production, delivery, provision and
sale of products or services under or in connection with the
Trademarks or Trademark Rights;
(iii)all documents and agreements relating to the identity and
locations of all sources of supply, all terms of purchase
and delivery, for all materials, components, raw materials
and other supplies and services used in the manufacture,
production, provision, delivery and sale of products or
services under or in connection with the Trademarks or
Trademark Rights; and
(iv) all agreements and documents constituting or concerning the
present or future, current or proposed advertising and
promotion by the Assignor (or any of its affiliates,
franchisees, licensees or contractors) of products or
services sold under or in connection with the Trademarks or
Trademark Rights.
Trademark Agreement. This Trademark Collateral Security and
Pledge Agreement, as amended and in effect from time to time.
Trademark License Rights. Any and all past, present or future
rights and interests of the Assignor pursuant to any and all
past, present and future franchising or licensing agreements in
favor of the Assignor, or to which the Assignor is a party,
pertaining to any Trademarks, Trademark Registrations, or
Trademark Rights owned or used by third parties in the past,
present or future, including the right (but not the obligation)
in the name of the Assignor or the Agent to enforce, and sue and
recover for, any breach or violation of any such agreement to
which the Assignor is a party.
Trademark Registrations. All past, present or future federal,
state, local and foreign registrations of the Trademarks, all
past, present and future applications for any such registrations
(and any such registrations thereof upon approval of such
applications), together with the right (but not the obligation)
to apply for such registrations (and prosecute such applications)
in the name of the Assignor or the Agent, and to take any and all
actions necessary or appropriate to maintain such registrations
in effect and renew and extend such registrations.
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Trademark Rights. Any and all past, present or future rights in,
to and associated with the Trademarks throughout the world,
whether arising under federal law, state law, common law, foreign
law or otherwise, including the following: all such rights
arising out of or associated with the Trademark Registrations;
the right (but not the obligation) to register claims under any
state, federal or foreign trademark law or regulation; the right
(but not the obligation) to sue or bring opposition or
cancellation proceedings in the name of the Assignor or the Agent
for any and all past, present and future infringements or
dilution of or any other damages or injury to the Trademarks, the
Trademark Rights, or the Associated Goodwill, and the rights to
damages or profits due or accrued arising out of or in connection
with any such past, present or future infringement, dilution,
damage or injury; and the Trademark License Rights.
Trademarks. All of the trademarks, service marks, designs, logos,
indicia, trade names, corporate names, company names, business
names, fictitious business names, trade styles, elements of
package or trade dress, and other source and product or service
identifiers, used or associated with or appurtenant to the
products, services and businesses of the Assignor, that (i) are
set forth on Schedule A hereto, or (ii) have been adopted,
acquired, owned, held or used by the Assignor or are now owned,
held or used by the Assignor, in the Assignor's business, or with
the Assignor's products and services, or in which the Assignor
has any right, title or interest, or (iii) are in the future
adopted, acquired, owned, held and used by the Assignor in the
Assignor's business or with the Assignor's products and services,
or in which the Assignor in the future acquires any right, title
or interest.
use. With respect to any Trademark, all uses of such Trademark
by, for or in connection with the Assignor or its business or for
the direct or indirect benefit of the Assignor or its business,
including all such uses by the Assignor itself, by any of the
affiliates of the Assignor, or by any franchisee, licensee or
contractor of the Assignor.
Unless otherwise provided herein, the rules of interpretation set
forth in ss.1.2 of the Credit Agreement shall be applicable to
this Trademark Agreement.
ss.2. GRANT OF SECURITY INTEREST.
ss.2.1. Security Interest; Assignment of Marks. As collateral security
for the payment and performance in full of all of the
Obligations, the Assignor hereby unconditionally grants to the
Agent, for the benefit of the Banks and the Agent, a continuing
security interest in and first priority lien on the Pledged
Trademarks, and pledges and mortgages (but does not transfer
title to) the Pledged Trademarks to the Agent for the benefit of
the Banks and the Agent. In addition, the Assignor has executed
in blank and delivered to the Agent an assignment of federally
registered trademarks in substantially the form of Exhibit 1
attached hereto (the "Assignment of Marks"). The Assignor hereby
authorizes the Agent to complete as assignee and record with the
PTO the Assignment of Marks upon the occurrence and during the
continuance of an Event of Default and the proper exercise of the
Agent's remedies under this Trademark Agreement and the Security
Agreement.
ss.2.2. Conditional Assignment. In addition to, and not by way of
limitation of, the grant, pledge and mortgage of the Pledged
Trademarks provided in ss.2.1 hereof, the Assignor grants,
assigns, transfers, conveys and sets over to the Agent, for the
benefit of the Banks and the Agent, the Assignor's entire right,
title and interest in and to the Pledged Trademarks; provided
that such grant, assignment, transfer and conveyance shall be and
become of force and effect only (i) upon or after the occurrence
and during the continuance of an Event of Default and (ii) either
(A) upon the written demand of the Agent at any time during such
continuance or (B) immediately and automatically (without notice
or action of any kind by the Agent) upon an Event of Default for
which acceleration of the Loans is automatic under the Credit
Agreement or upon the sale or other disposition of or foreclosure
upon the Collateral pursuant to the Security Agreement and
applicable law (including the transfer or other disposition of
the Collateral by the Assignor to the Agent or its nominee in
lieu of foreclosure).
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ss.2.3. Supplemental to Security Agreement. Pursuant to the Security
Agreement the Assignor has granted to the Agent, for the benefit
of the Banks and the Agent, a continuing security interest in and
lien on the Collateral (including the Pledged Trademarks). The
Security Agreement, and all rights and interests of the Agent in
and to the Collateral (including the Pledged Trademarks)
thereunder, are hereby ratified and confirmed in all respects. In
no event shall this Trademark Agreement, the grant, assignment,
transfer and conveyance of the Pledged Trademarks hereunder, or
the recordation of this Trademark Agreement (or any document
hereunder) with the PTO, adversely affect or impair, in any way
or to any extent, the Security Agreement, the security interest
of the Agent in the Collateral (including the Pledged Trademarks)
pursuant to the Security Agreement and this Trademark Agreement,
the attachment and perfection of such security interest under the
Uniform Commercial Code (including the security interest in the
Pledged Trademarks), or any present or future rights and
interests of the Agent in and to the Collateral under or in
connection with the Security Agreement, this Trademark Agreement
or the Uniform Commercial Code. Any and all rights and interests
of the Agent in and to the Pledged Trademarks (and any and all
obligations of the Assignor with respect to the Pledged
Trademarks) provided herein, or arising hereunder or in
connection herewith, shall only supplement and be cumulative and
in addition to the rights and interests of the Agent (and the
obligations of the Assignor) in, to or with respect to the
Collateral (including the Pledged Trademarks) provided in or
arising under or in connection with the Security Agreement and
shall not be in derogation thereof.
ss.3.REPRESENTATIONS, WARRANTIES AND COVENANTS. The Assignor represents,
warrants and covenants that:
(a) to the best of the Assignor's knowledge, Schedule A attached
hereto sets forth a true and complete list of all Trademarks and
Trademark Registrations now owned, licensed, controlled or used
by the Assignor;
(b) to the best of the Assignor's knowledge, the Trademarks and
Trademark Registrations are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part, and there is no
litigation or proceeding pending concerning the validity or
enforceability of the Trademarks or Trademark Registrations;
(c) to the best of the Assignor's knowledge, each of the Trademarks
and Trademark Registrations is valid and enforceable;
(d) to the best of the Assignor's knowledge, there is no infringement
by others of the Trademarks, Trademark Registrations or Trademark
Rights;
(e) to the best of the Assignor's knowledge, no claim has been made
that the use of any of the Trademarks does or may violate the
rights of any third person, and there is no infringement by the
Assignor of the trademark rights of others;
(f) the Assignor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the
Trademarks (other than ownership and other rights reserved by
third party owners with respect to Trademarks that the Assignor
is licensed to use), free and clear of any liens, charges,
encumbrances and adverse claims, including pledges, assignments,
licenses, registered user agreements and covenants by the
Assignor not to sue third persons, other than the security
interest and assignment created by the Security Agreement and
this Trademark Agreement;
(g) the Assignor has the unqualified right to enter into this
Trademark Agreement and to perform its terms and will comply with
the covenants herein contained;
(h) the Assignor has used, and will continue to use, proper statutory
and other appropriate proprietary notices in connection with its
use of the Trademarks;
(i) the Assignor has used, and will continue to use for the duration
of this Trademark Agreement, consistent standards of quality in
its manufacture and provision of products and services sold or
provided under the Trademarks;
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(j) this Trademark Agreement, together with the Security Agreement,
will create in favor of the Agent a valid and perfected first
priority security interest in the Pledged Trademarks upon making
the filings referred to in clause (k) of this ss.3; and
(k) except for the filing of financing statements under the Uniform
Commercial Code and the recording of this Trademark Agreement
with the PTO, no authorization, approval or other action by, and
no notice to or filing with, any governmental or regulatory
authority, agency or office is required either (A) for the grant
by the Assignor or the effectiveness of the security interest and
assignment granted hereby or for the execution, delivery and
performance of this Trademark Agreement by the Assignor, or (B)
for the perfection of or the exercise by the Agent of any of its
rights and remedies hereunder.
ss.4.INSPECTION RIGHTS. The Assignor hereby grants to each of the Agent and
the Banks and its employees and agents the right to visit the
Assignor's plants and facilities that manufacture, inspect or store
products sold under any of the Trademarks, and to inspect the products
and quality control records relating thereto at reasonable times
during regular business hours.
ss.5.NO TRANSFER OR INCONSISTENT AGREEMENTS. Without the Agent's prior
written consent, the Assignor will not (a) mortgage, pledge, assign,
encumber, grant a security interest in, transfer, license or alienate
any of the Pledged Trademarks, or (b) enter into any agreement (for
example, a license agreement) that is inconsistent with the Assignor's
obligations under this Trademark Agreement or the Security Agreement.
ss.6. AFTER-ACQUIRED TRADEMARKS, ETC.
ss.6.1. After-acquired Trademarks. If, before the Obligations shall
have been finally paid and satisfied in full, the Assignor shall
obtain any right, title or interest in or to any other or new
Trademarks, Trademark Registrations or Trademark Rights, the
provisions of this Trademark Agreement shall automatically apply
thereto and the Assignor shall promptly provide to the Agent
notice thereof in writing and execute and deliver to the Agent
such documents or instruments as the Agent may reasonably request
further to implement, preserve or evidence the Agent's interest
therein.
ss.6.2. Amendment to Schedule. The Assignor authorizes the Agent to
modify this Trademark Agreement and the Assignment of Marks,
without the necessity of the Assignor's further approval or
signature, by amending Exhibit A attached hereto and the Annex to
the Assignment of Marks to include any future or other
Trademarks, Trademark Registrations or Trademark Rights under
ss.ss.2 or 6 hereof.
ss.7. TRADEMARK PROSECUTION.
ss.7.1. Assignor Responsible. The Assignor shall assume full and
complete responsibility for the prosecution, defense, enforcement
or any other necessary or desirable actions in connection with
the Pledged Trademarks, and shall hold each of the Agent and the
Banks harmless from any and all costs, damages, liabilities and
expenses that may be incurred by the Agent or any Bank in
connection with the Agent's interest in the Pledged Trademarks or
any other action or failure to act in connection with this
Trademark Agreement or the transactions contemplated hereby. In
respect of such responsibility, the Assignor shall retain
trademark counsel reasonably acceptable to the Agent.
ss.7.2. Assignor's Duties, Etc. The Assignor shall have the right and
the duty, through trademark counsel reasonably acceptable to the
Agent, to prosecute diligently any trademark registration
applications of the Trademarks pending as of the date of this
Trademark Agreement or thereafter, to preserve and maintain all
rights in the Trademarks and Trademark Registrations, including
the filing of appropriate renewal applications and other
instruments to maintain in effect the Trademark Registrations and
the payment when due of all registration renewal fees and other
fees, taxes and other expenses that shall be incurred or that
shall accrue with respect to any of the Trademarks or Trademark
Registrations. Any expenses incurred in connection with such
applications and actions shall be borne by the Assignor. The
Assignor shall not abandon any filed trademark registration
application, or any Trademark Registration or Trademark, without
the consent of the Agent, which consent shall not be unreasonably
withheld.
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ss.7.3. Assignor's Enforcement Rights. The Assignor shall have the
right and the duty to bring suit or other action in the
Assignor's own name to maintain and enforce the Trademarks, the
Trademark Registrations and the Trademark Rights. The Assignor
may require the Agent to join in such suit or action as necessary
to assure the Assignor's ability to bring and maintain any such
suit or action in any proper forum if (but only if) the Agent is
completely satisfied that such joinder will not subject the Agent
or any Bank to any risk of liability. The Assignor shall
promptly, upon demand, reimburse and indemnify the Agent for all
damages, costs and expenses, including legal fees, incurred by
the Agent pursuant to this ss.7.3.
ss.7.4. Protection of Trademarks, Etc. In general, the Assignor shall
take any and all such actions (including institution and
maintenance of suits, proceedings or actions) as may be necessary
or appropriate to properly maintain, protect, preserve, care for
and enforce the Pledged Trademarks. The Assignor shall not take
or fail to take any action, nor permit any action to be taken or
not taken by others under its control, that would adversely
affect the validity, grant or enforcement of the Pledged
Trademarks.
ss.7.5. Notification by Assignor. Promptly upon obtaining knowledge
thereof, the Assignor will notify the Agent in writing of the
institution of, or any final adverse determination in, any
proceeding in the PTO or any similar office or agency of the
United States or any foreign country, or any court, regarding the
validity of any of the Trademarks or Trademark Registrations or
the Assignor's rights, title or interests in and to the Pledged
Trademarks, and of any event that does or reasonably could
materially adversely affect the value of any of the Pledged
Trademarks, the ability of the Assignor or the Agent to dispose
of any of the Pledged Trademarks or the rights and remedies of
the Agent in relation thereto (including but not limited to the
levy of any legal process against any of the Pledged Trademarks).
ss.8.REMEDIES. Upon the occurrence and during the continuance of an Event
of Default, the Agent shall have, in addition to all other rights and
remedies given it by this Trademark Agreement (including, without
limitation, those set forth in ss.2.2 hereof, the Credit Agreement,
the Security Agreement and the other Loan Documents), those allowed by
law and the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in the Commonwealth of Massachusetts, and,
without limiting the generality of the foregoing, the Agent may
immediately, without demand of performance and without other notice
(except as set forth next below) or demand whatsoever to the Assignor,
all of which are hereby expressly waived, sell or license at public or
private sale or otherwise realize upon the whole or from time to time
any part of the Pledged Trademarks, or any interest that the Assignor
may have therein, and after deducting from the proceeds of sale or
other disposition of the Pledged Trademarks all expenses incurred by
the Agent in attempting to enforce this Trademark Agreement (including
all reasonable expenses for broker's fees and legal services), shall
apply the residue of such proceeds toward the payment of the
Obligations as set forth in or by reference in the Security Agreement.
Notice of any sale, license or other disposition of the Pledged
Trademarks shall be given to the Assignor at least fifteen (15) days
before the time that any intended public sale or other public
disposition of the Pledged Trademarks is to be made or after which any
private sale or other private disposition of the Pledged Trademarks
may be made, which the Assignor hereby agrees shall be reasonable
notice of such public or private sale or other disposition. At any
such sale or other disposition, the Agent may, to the extent permitted
under applicable law, purchase or license the whole or any part of the
Pledged Trademarks or interests therein sold, licensed or otherwise
disposed of.
ss.9.COLLATERAL PROTECTION. If the Assignor shall fail to do any act that
it has covenanted to do hereunder, or if any representation or
warranty of the Assignor shall be breached, the Agent, in its own name
or that of the Assignor (in the sole discretion of the Agent), may
(but shall not be obligated to) do such act or remedy such breach (or
cause such act to be done or such breach to be remedied), and the
Assignor agrees promptly to reimburse the Agent for any cost or
expense incurred by the Agent in so doing.
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ss.10. POWER OF ATTORNEY. If any Event of Default shall have occurred and
be continuing, the Assignor does hereby make, constitute and appoint
the Agent (and any officer or agent of the Agent as the Agent may
select in its exclusive discretion) as the Assignor's true and lawful
attorney-in-fact, with full power of substitution and with the power
to endorse the Assignor's name on all applications, documents, papers
and instruments necessary for the Agent to use the Pledged Trademarks,
or to grant or issue any exclusive or nonexclusive license of any of
the Pledged Trademarks to any third person, or to take any and all
actions necessary for the Agent to assign, pledge, convey or otherwise
transfer title in or dispose of any of the Pledged Trademarks or any
interest of the Assignor therein to any third person, and, in general,
to execute and deliver any instruments or documents and do all other
acts that the Assignor is obligated to execute and do hereunder. The
Assignor hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof and releases each of the Agent and
the Banks from any claims, liabilities, causes of action or demands
arising out of or in connection with any action taken or omitted to be
taken by the Agent under this power of attorney (except for the
Agent's gross negligence or willful misconduct). This power of
attorney is coupled with an interest and shall be irrevocable for the
duration of this Trademark Agreement.
ss.11. FURTHER ASSURANCES. The Assignor shall, at any time and from time to
time, and at its expense, make, execute, acknowledge and deliver, and
file and record as necessary or appropriate with governmental or
regulatory authorities, agencies or offices, such agreements,
assignments, documents and instruments, and do such other and further
acts and things (including, without limitation, obtaining consents of
third parties), as the Agent may request or as may be necessary or
appropriate in order to implement and effect fully the intentions,
purposes and provisions of this Trademark Agreement, or to assure and
confirm to the Agent the grant, perfection and priority of the Agent's
security interest in the Pledged Trademarks.
ss.12. TERMINATION. At such time as all of the Obligations have been
finally paid and satisfied in full, this Trademark Agreement shall
terminate and the Agent shall, upon the written request and at the
expense of the Assignor, execute and deliver to the Assignor all
deeds, assignments and other instruments as may be necessary or proper
to reassign and reconvey to and re-vest in the Assignor the entire
right, title and interest to the Pledged Trademarks previously
granted, assigned, transferred and conveyed to the Agent by the
Assignor pursuant to this Trademark Agreement, as fully as if this
Trademark Agreement had not been made, subject to any disposition of
all or any part thereof that may have been made by the Agent pursuant
hereto or the Security Agreement.
ss.13. COURSE OF DEALING. No course of dealing between the Assignor and the
Agent, nor any failure to exercise, nor any delay in exercising, on
the part of the Agent, any right, power or privilege hereunder or
under the Security Agreement or any other agreement shall operate as a
waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.
ss.14. EXPENSES. Any and all fees, costs and expenses, of whatever kind or
nature, including the reasonable attorneys' fees and expenses incurred
by the Agent in connection with the preparation of this Trademark
Agreement and all other documents relating hereto, the consummation of
the transactions contemplated hereby or the enforcement hereof, the
filing or recording of any documents (including all taxes in
connection therewith) in public offices, the payment or discharge of
any taxes, counsel fees, maintenance or renewal fees, encumbrances, or
otherwise protecting, maintaining or preserving the Pledged
Trademarks, or in defending or prosecuting any actions or proceedings
arising out of or related to the Pledged Trademarks, shall be borne
and paid by the Assignor.
ss.15. OVERDUE AMOUNTS. Until paid, all amounts due and payable by the
Assignor hereunder shall be a debt secured by the Pledged Trademarks
and other Collateral and shall bear, whether before or after judgment,
interest at the rate of interest for overdue principal set forth in
the Credit Agreement.
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ss.16. NO ASSUMPTION OF LIABILITY; INDEMNIFICATION. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED HEREIN, NEITHER THE AGENT NOR ANY
BANK ASSUMES ANY LIABILITIES OF THE ASSIGNOR WITH RESPECT TO ANY CLAIM
OR CLAIMS REGARDING THE ASSIGNOR'S OWNERSHIP OR PURPORTED OWNERSHIP
OF, OR RIGHTS OR PURPORTED RIGHTS ARISING FROM, ANY OF THE PLEDGED
TRADEMARKS OR ANY USE, LICENSE OR SUBLICENSE THEREOF, WHETHER ARISING
OUT OF ANY PAST, CURRENT OR FUTURE EVENT, CIRCUMSTANCE, ACT OR
OMISSION OR OTHERWISE. ALL OF SUCH LIABILITIES SHALL BE EXCLUSIVELY
THE RESPONSIBILITY OF THE ASSIGNOR, AND THE ASSIGNOR SHALL INDEMNIFY
THE AGENT AND THE BANKS FOR ANY AND ALL COSTS, EXPENSES, DAMAGES AND
CLAIMS, INCLUDING LEGAL FEES, INCURRED BY THE AGENT OR ANY BANK WITH
RESPECT TO SUCH LIABILITIES.
ss.17. NOTICES. All notices and other communications made or required to be
given pursuant to this Trademark Agreement shall be in writing and
shall be delivered in hand, mailed by United States registered or
certified first-class mail, postage prepaid, or sent by telegraph,
telecopy or telex and confirmed by delivery via courier or postal
service, addressed as set forth in ss.20 of the Credit Agreement. 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 to a responsible
officer of the party to which it is directed, at the time of the
receipt thereof by such officer, (b) if sent by registered or
certified first-class mail, postage prepaid, two (2) Business Days
after the posting thereof, and (c) if sent by telegraph, telecopy, or
telex, at the time of the dispatch thereof, if in normal business
hours in the country of receipt, or otherwise at the opening of
business on the following Business Day.
ss.18. AMENDMENT AND WAIVER. This Trademark Agreement is subject to
modification only by a writing signed by the Agent (with the consent
of the Banks or Majority Banks as provided in the Credit Agreement)
and the Assignor, except as provided in ss.6.2 hereof. The Agent shall
not be deemed to have waived any right hereunder unless such waiver
shall be in writing and signed by the Agent and the Banks or Majority
Banks as provided in the Credit Agreement. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right on
any future occasion.
ss.19. GOVERNING LAW; CONSENT TO JURISDICTION. THIS TRADEMARK AGREEMENT IS
INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS. The Assignor agrees that any suit for the enforcement
of this Trademark Agreement may be brought in the courts of the
Commonwealth of Massachusetts or any federal court sitting therein and
consents to the non-exclusive jurisdiction of such court and to
service of process in any such suit being made upon the Assignor by
mail at the address specified in ss.17 hereof. The Assignor hereby
waives any objection that it 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.
ss.20. WAIVER OF JURY TRIAL. THE ASSIGNOR WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS TRADEMARK AGREEMENT, ANY RIGHTS OR OBLIGATIONS
HEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS. Except
as prohibited by law, the Assignor waives any right which it 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
Assignor (a) certifies that neither the Agent or any Bank nor any
representative, agent or attorney of the Agent or any Bank has
represented, expressly or otherwise, that the Agent or any Bank would
not, in the event of litigation, seek to enforce the foregoing
waivers, and (b) acknowledges that, in entering into the Credit
Agreement and the other Loan Documents to which the Agent or any Bank
is a party, the Agent and the Banks are relying upon, among other
things, the waivers and certifications contained in this ss.20.
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ss.21. MISCELLANEOUS. The headings of each section of this Trademark
Agreement are for convenience only and shall not define or limit the
provisions thereof. This Trademark Agreement and all rights and
obligations hereunder shall be binding upon the Assignor and its
respective successors and assigns, and shall inure to the benefit of
the Agent, the Banks and their respective successors and assigns. In
the event of any irreconcilable conflict between the provisions of
this Trademark Agreement and the Credit Agreement, or between this
Trademark Agreement and the Security Agreement, the provisions of the
Credit Agreement or the Security Agreement, as the case may be, shall
control. If any term of this Trademark Agreement shall be held to be
invalid, illegal or unenforceable, the validity of all other terms
hereof shall in no way be affected thereby, and this Trademark
Agreement shall be construed and be enforceable as if such invalid,
illegal or unenforceable term had not been included herein. The
Assignor acknowledges receipt of a copy of this Trademark Agreement.
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IN WITNESS WHEREOF, this Trademark Collateral Security and Pledge
Agreement has been executed as of the day and year first above
written.
TMT-PATHWAY, L.L.C.
By:_______________________
Title:
BANKBOSTON, N.A., as Agent
By:_______________________
Peter van der Horst
Vice President
98
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CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF ______________________________________________)
__________________ ) ss.
COUNTY OF _____________________________________________________________)
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this ____ day of May, 1999, personally appeared
______________________ to me known personally, and who, being by me duly sworn,
deposes and says that he is the _______________________ of TMT-Pathway, L.L.C.,
and that said instrument was signed and sealed on behalf of said corporation by
authority of its Board of Directors, and said _________________________
acknowledged said instrument to be the free act and deed of said corporation.
--------------------------
Notary Public
My commission expires:
99
<PAGE>
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF ______________________________________________)
__________________ ) ss.
COUNTY OF _____________________________________________________________)
Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this ____ day of May, 1999, personally appeared Peter van der
Horst to me known personally, and who, being by me duly sworn, deposes and says
that he is a Vice President of BankBoston, N.A. (the "Agent"), and that said
instrument was signed and sealed on behalf of said Agent by authority of its
Board of Directors, and said Peter van derHorst acknowledged said instrument to
be the free act and deed of said Agent.
--------------------------
Notary Public
My commission expires:
100
<PAGE>
UNITED STATES
Trademarks and Trademark Registrations
Trademark Registrations --
or United States Patent and Trademark Office
Service Mark Registration No. Registration Date
------------ ---------------- -----------------
MORLINE 2038597 2/18/97
DURA-STRIPE SYSTEM 1904836 7/11/95
DURA-LINE 1700076 7/14/92
MORLINE 1711016 9/01/92
TMT 1565503 11/14/89
DURA-STRIPE 1508744 10/18/88
Trademark Pending Applications --
or United States Patent and Trademark Office
Service Mark Serial No. Filing Date
STORM-LINE --- 5/04/99
LEGEND-BUILD 75/559,289 9/24/98
FOREIGN
Trademarks and Trademark Regulations
REGISTRATIONS
-------------
TRADEMARK OR
COUNTRY SERVICE MARK REGISTRATION NO REGISTRATION DATE
------- ------------ --------------- -----------------
Canada MORLINE 414038 6/25/93
Mexico DURA-LINE 425041 11/9/92
Pending Applications
Trademark or Service Mark
Country Mark Application No. Filing Date
------- ---- --------------- -----------
Canada DURA-LINE 699652 2/25/92
Unregistered Trademarks
TMT-5D
TMT-25D
TMT-63P
TMT-127P
TMT-201T
TMT-257D
TMT-707P
TMT-1003T
Dura-Line 2000
The "Traffic Marking" Logo
101
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EXHIBIT 1
ASSIGNMENT OF TRADEMARKS AND SERVICE MARKS (U.S.)
WHEREAS, TMT-PATHWAY, L.L.C., a company organized and existing under the laws of
the State of Delaware, having a place of business at ____________________ (the
"Assignor"), has adopted and used and is using the trademarks and service marks
(the "Marks") identified on the Annex attached hereto, and is the owner of the
registrations of and pending registration applications for such Marks in the
United States Patent and Trademark Office identified on such Annex; and
WHEREAS, _________________, a __________________ organized and existing under
the laws of the _________________ of ________________, having a place of
business at ______________________ (the "Assignee"), is desirous of acquiring
the Marks and the registrations thereof and registration applications therefor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, the Assignor does hereby assign, sell and transfer unto the
Assignee all right, title and interest in and to the Marks, together with (a)
the registrations of and registration applications for the Marks, (b) the
goodwill of the business symbolized by and associated with the Marks and the
registrations thereof, and (c) the right to sue and recover for, and the right
to profits or damages due or accrued arising out of or in connection with, any
and all past, present or future infringements or dilution of or damage or injury
to the Marks or the registrations thereof or such associated goodwill.
This Assignment of Trademarks and Service Marks (U.S.) is intended to and shall
take effect as a sealed instrument at such time as the Assignee shall complete
this instrument by inserting its name in the second paragraph above and signing
its acceptance of this Assignment of Trademarks and Service Marks (U.S.) below.
IN WITNESS WHEREOF, the Assignor, by its duly authorized officer, has executed
this assignment, as an instrument under seal, as of the __ day of ___,
- ----.
TMT-PATHWAY, L.L.C.
By:_______________________
Title:
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The foregoing assignment of the Marks and the registrations thereof and
registration applications therefor by the Assignor to the Assignee is hereby
accepted as of the ___ day of ___________________, ___.
By:_______________________
Title:
103
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CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF ______________________________________________)
) ss.
COUNTY OF _____________________________________________________________)
On this the ____ day of May, 1999, before me appeared
__________________, the person who signed this instrument, who acknowledged that
he is the ______________________ of TMT-Pathway, L.L.C. and that being duly
authorized (s)he signed such instrument as a free act on behalf of corporation.
---------------------------
Notary Public
[Seal]
My commission expires:
104
<PAGE>
ANNEX
Trademarks and Trademark Registrations
Trademark Registrations --
or United States Patent and Trademark Office
Service Mark Registration No. Registration Date
Trademark Pending Applications --
or United States Patent and Trademark Office
Service Mark Serial No. Filing Date
105
<PAGE>
Exhibit 10.25(b)
AMENDED AND RESTATED MANAGEMENT CONSULTING AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT CONSULTING AGREEMENT ("Agreement"), is
executed as of the ____ day of October, 1996, by and among TJC MANAGEMENT
CORPORATION, a Delaware corporation (the "Consultant") and JACKSON PRODUCTS,
INC., a Delaware corporation ("Jackson"), FLEX-O-LITE, INC. ("Flex-O-Lite"), OSD
HOLDINGS, INC., a Delaware corporation ("Holdings"), and OSD ENVIZION, INC., a
Delaware corporation ("Envizion") (together with Jackson, Flex-O-Lite and
Holdings the "Company"). Flex-O- Lite, Holdings and Envizion are also herein
referred to as the Subsidiaries.
W I T N E S S E T H:
WHEREAS, the Consultant, Jackson and Flex-O-Lite are parties to a management
consulting agreement, dated August 16, 1995 (the "Prior Consulting Agreement");
WHEREAS, the Company and Consultant desire to terminate the Prior Consulting
Agreement in its entirety simultaneously with execution of this Agreement; and
WHEREAS, the Consultant continues to have and/or have access to personnel who
are highly skilled in the field of rendering advice to businesses and financial
advice;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein set forth, the parties hereto do hereby agree as follows:
1. The Company hereby retains the Consultant, through the
Consultant's own personnel or through personnel available to the
Consultant, to render consulting services from time to time to
the Company and its Subsidiaries (whether now existing or
hereafter acquired), in connection with their financial and
business affairs, their relationships with their lenders,
stockholders and other third-party associates or affiliates, and
the expansion of their businesses. The term of this Agreement
shall commence the date hereof and continue until December 31,
2005, unless extended, or sooner terminated, as provided in
paragraph 3 below. The Consultant's personnel shall be reasonably
available to the Company's managers, auditors and other personnel
for consultation and advice, subject to Consultant's reasonable
convenience and scheduling. Services may be rendered at the
Consultant's offices or at such other locations selected by the
Consultant as the Company and the Consultant shall from time to
time agree.
2. (a) The Company shall pay the Consultant a management fee
equal to, on a per annum basis, the higher of (i) $550,000
or (ii) 2.5% of the Company's EBITDA (as defined in the
Second Amended and Restated Credit Agreement, dated as of
August 16, 1995, among Jackson Products, Inc., Jackson
Holding Company, the Lenders named therein and Heller
Financial, Inc. as Agent, as in effect on the date hereof;
the "Credit Agreement") for the fiscal year. The Company
shall pay the Consultant such management fee in quarterly
installments equal to the higher of (i) $137,500 or (ii)
0.625% of EBITDA for such quarter on each of March 31, June
30, September 30 and December 31 of each year, commencing
September 30, 1995, provided that the amount of such fee
payable on September 30, 1995 shall accrue from the date of
this Agreement at the annual rate of $550,000 per annum. The
management fee will be recalculated, as set forth in clauses
(i) and (ii) above, promptly and as soon as practicable, as
of the beginning of each fiscal quarter.
(b) In addition to the above quarterly payments, the Company
shall pay to the Consultant, (i) an investment banking and
sponsorship fee of up to two percent (2%) of the aggregate
consideration paid (including assumed or refinanced
indebtedness, non-competition, earnout, contingent purchase
price, incentive arrangements and similar payments) (A) by
the Company in connection with the acquisition by the
Company of all or substantially all of the outstanding
capital stock, warrants, options or other rights to acquire
or sell capital stock, or all or substantially all of the
business or assets of another individual, corporation,
partnership or other business entity or (B) to the Company
in connection with the sale by the Company of all or
substantially all of the Company's outstanding capital
stock, warrants, options, or other rights to acquire or sell
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stock, or all or substantially all of the business or assets
of the Company or one of its Subsidiaries (each of the
transactions described in clauses (A) and (B), a
"Transaction"), including, but not limited to, any
Transaction negotiated for the Company involving any
affiliate of the Company or the Consultant, including, but
not limited to, any Transaction involving, The Jordan
Company, Jordan/Zalaznick Capital Company or any affiliates
of any of the foregoing (collectively, the "Jordan
Affiliates"); and (ii) a financial consulting fee of up to
one percent (1%) of the amount obtained or made available
pursuant to any debt, equity or other financing (including
without limitation, any refinancing) by the Company with the
assistance of Consultant, including, but not limited to, any
financing obtained for the Company from one or more of the
Jordan Affiliates, provided, that in no event shall a fee be
payable under Section 2(b)(ii) hereunder (x) with respect to
borrowings under the Credit Agreement or (y) with respect to
financings referred to in Section 2(b)(ii) made in
connection with the consummation of a Transaction. In
addition, prior to paying any fee pursuant to this paragraph
(b) the Board of Directors of the Company (including the
disinterested directors) must approve the applicable
Transaction or financing and in payment of such fee as in
the best interests of the Corporation.
(c) In addition, the Company shall have paid to the Consultant a
closing fee of $2.75 million upon the consummation of the
merger of Jackson Acquisition Corp. and Jackson Holding
Company in lieu of any fee otherwise payable under Section
2(a) and Section 2(b).
3. The Company shall reimburse Consultant for reasonable
out-of-pocket expenses and any reasonable, direct, allocable
costs incurred by the Consultant and its personnel in
performing services hereunder to the Company and its
Subsidiaries upon the Consultant's rendering of a statement
therefor, together with supporting data as the Company shall
reasonably require.
4. Notwithstanding the foregoing, the Company shall not pay the
fees under Section 2 and such fees shall accrue pursuant to
the second sentence of this Section 4, (a) if any payment or
financial covenant default under either (i) the Credit
Agreement or (ii) the Note Agreement of even date herewith
by and among the Company and the other parties listed on the
signature pages thereto, has occurred and is continuing
(regardless of whether such Agreements are then in effect),
(b) if and to the extent expressly prohibited by the
provisions of any credit, stock, financing or other
agreements or instruments binding upon the Company, its
Subsidiaries or properties, (c) if the Company has not paid
interest on any interest payment date or has postponed or
not made any principal payments with respect to any of their
indebtedness on any scheduled payment dates, or (d) if the
Company has not paid dividends on any dividend payment date
as set forth in its certificate of incorporation or as
declared by its Board of Directors, or has postponed or not
made any redemptions on any redemption date as set forth in
its certificate of incorporation or any certificate of
designation with respect to its preferred stock, if any. Any
payments otherwise owed hereunder, which are not made for
any of the above-mentioned reasons, shall not be cancelled
but rather shall accrue, without interest, and shall be
payable by the Company promptly when, and to the extent,
that the Company is no longer prohibited from making such
payments and when the Company has become current with
respect to such principal or interest payments, has become
current with respect to such dividends and has made such
redemptions with respect to such preferred stock, if any.
This Section 4 will not, in any event, restrict or limit the
Company's obligations under Section 3, 8 and 9, which will
be absolute and not subject to set-off.
5. This Agreement shall be automatically renewed for successive
one-year terms starting December 31, 2005 unless either
party hereto, within sixty (60) days prior to the scheduled
renewal date, notifies the other party as to its election to
terminate this Agreement. Notwithstanding the foregoing,
this Agreement may be terminated by not less than ninety
107
<PAGE>
(90) days' prior written notice from the Company to the
Consultant at any time after (a) substantially all of the
stock or substantially all of the assets of the Company are
sold to any entity unaffiliated with the Consultant and/or a
majority of the Company's stockholders immediately prior to
such sale or (b) the Company is merged or consolidated into
another entity unaffiliated with the Consultant and/or a
majority of the Company's stockholders immediately prior to
such merger and the Company is not the survivor of such
transaction.
6. The Consultant shall have no liability to the Company on
account of (a) any advice which it renders to the Company,
provided the Consultant believed in good faith that such
advice was useful or beneficial to the Company at the time
it was rendered, or (b) the Consultant's inability to obtain
financing or achieve other results desired by the Company or
Consultant's failure to render services to the Company at
any particular time or from time to time, or (c) the failure
of any transaction to meet the financial, operating or other
expectations of the Company. The Company's sole remedy for
any claim under this Agreement shall be termination of this
Agreement.
7. Notwithstanding anything contained in this Agreement to the
contrary, the Company agrees and acknowledges that the
Consultant, the Jordan Affiliates and their shareholders,
employees, directors and affiliates intend to engage and
participate in acquisitions and business transactions
outside of the scope of the relationship created by this
Agreement and neither the Consultant, any of the Jordan
Affiliates nor any of their shareholders, employees,
directors or affiliates shall be under any obligation
whatsoever (except to the extent that fiduciary duty
principles under Delaware corporate law may be applicable to
individual directors and officers of the Company) to make
such acquisitions, business transactions or other
opportunities through the Company or offer such
acquisitions, business transactions or other opportunities
to the Company.
8. The Company will, to the fullest extent permitted by
applicable law, indemnify and hold harmless the Consultant,
its affiliates and associates, each of the Jordan
Affiliates, and each of the respective owners, partners,
officers, directors, employees and agents of each of the
foregoing, from and against any loss, liability, damage,
claim or expenses (including the fees and expenses of
counsel) arising as a result or in connection with this
Agreement or the Consultant's services hereunder.
9. Any payments paid by the Company under this Agreement shall
not be subject to set-off and shall be increased by the
amount, if any, of any taxes (other than income taxes) or
other governmental charges levied in respect of such
payments, so that the Consultant is made whole for such
taxes or charges.
10. This Agreement sets forth the entire understanding of the
parties with respect to the Consultant's rendering of
services to the Company. This Agreement may not be modified,
waived, terminated or amended except expressly by an
instrument in writing signed by the Consultant and the
Company.
(1) This Agreement may be assigned by either party hereto
without the consent of the other party, provided,
however, such assignment shall not relieve such party
from its obligations hereunder. Any assignment of this
Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors
and assigns.
(2) In the event that any provision of this Agreement shall
be held to be void or unenforceable in whole or in
part, the remaining provisions of this Agreement and
the remaining portion of any provision held void or
unenforceable in part shall continue in full force and
effect.
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(3) Except as otherwise specifically provided herein,
notice given hereunder shall be deemed sufficient if
delivered personally or sent by registered or certified
mail to the address of the party for whom intended at
the principal executive offices of such party, or at
such other address as such party may hereinafter
specify by written notice to the other party.
(4) Subsidiaries will be jointly and severally liable and
obligated hereunder with respect to each obligation,
responsibility and liability of the Company, as if a
direct obligation of the Subsidiaries.
(5) No waiver by either party of any breach of any
provision of this Agreement shall be deemed a
continuing waiver or a waiver of any preceding or
succeeding breach of such provision or of any other
provision herein contained.
(6) The Consultant and its personnel shall, for purposes of
this Agreement, be independent contractors with respect
to the Company.
(7) This Agreement shall be governed by the internal laws
(and not the law of conflicts) of the State of New
York.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TJC MANAGEMENT CORPORATION
By:__________________________
Name:
Title:
JACKSON PRODUCTS, INC.
By:__________________________
Name:
Title:
FLEX-O-LITE, INC.
By:__________________________
Name:
Title:
OSD HOLDINGS, INC.
By:__________________________
Name:
Title:
OSD ENVIZION, INC.
By:__________________________
Name:
Title:
110
<PAGE>
Exhibit 10.25(c)
SECOND AMENDED AND RESTATED MANAGEMENT CONSULTING AGREEMENT
THIS SECOND AMENDED AND RESTATED MANAGEMENT CONSULTING AGREEMENT ("Agreement"),
is executed as of the 22nd day of April, 1998, between TJC MANAGEMENT
CORPORATION, a Delaware corporation (the "Consultant") and JACKSON PRODUCTS,
INC., a Delaware corporation ("Jackson" and, together with all of its
subsidiaries, whether now or hereafter acquired, the "Company").
W I T N E S S E T H:
WHEREAS, the Consultant and the Company entered into a management consulting
agreement, dated as of August 16, 1995 (the "Original Consulting Agreement");
WHEREAS, the Consultant and the Company entered into an amended and restated
management consulting agreement, dated as of October 21, 1996 (the "Prior
Consulting Agreement") which amended and restated the Original Consulting
Agreement; and
WHEREAS, the Company and Consultant desire to amend and restate the Prior
Consulting Agreement in its entirety; and
WHEREAS, the Consultant continues to have and/or have access to personnel who
are highly skilled in the field of rendering advice to businesses and financial
advice;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein set forth, the parties hereto do hereby agree as follows:
1. The Company hereby retains the Consultant, through the Consultant's
own personnel or through personnel available to the Consultant, to
render consulting services from time to time to the Company, in
connection with its financial and business affairs, its relationships
with its lenders, stockholders and other third-party associates or
affiliates, and the expansion of its businesses. The term of this
Agreement commenced on August 16, 1995 and shall continue until
December 31, 2005, unless extended, or sooner terminated, as provided
in Section 5 below. The Consultant's personnel shall be reasonably
available to the Company's managers, auditors and other personnel for
consultation and advice, subject to Consultant's reasonable
convenience and scheduling. Services may be rendered at the
Consultant's offices or at such other locations selected by the
Consultant as the Company and the Consultant shall from time to time
agree.
2. (a) The Company shall pay the Consultant a management fee equal
to, on a per annum basis, the higher of (i) $600,000 or (ii) 2.5%
of the Company's EBITDA (as defined in the Revolving Credit and
Acquisition Loan Agreement, dated as of April 22, 1998, among
Jackson, the Lenders named therein and BankBoston, N.A. as Agent,
as in effect on the date hereof; the "Credit Agreement") for the
fiscal year. The Company shall pay the Consultant such management
fee in quarterly installments equal to the higher of (i) $150,000
or (ii) 0.625% of EBITDA for such quarter on each of March 31,
June 30, September 30 and December 31 of each year, commencing
June 30, 1998, provided that the amount of such fee payable on
June 30, 1998 shall accrue from the date of this Agreement at the
annual rate of $600,000 per annum. The management fee will be
recalculated, as set forth in clauses (i) and (ii) above,
promptly and as soon as practicable, as of the beginning of each
fiscal quarter.
(b) In addition to the above quarterly payments, the Company shall
pay to the Consultant, (i) an investment banking and sponsorship
fee of up to two percent (2%) of the aggregate consideration paid
(including assumed or refinanced indebtedness, non- competition,
earnout, contingent purchase price, incentive arrangements and
similar payments) (A) by the Company in connection with the
acquisition by the Company of all or substantially all of the
outstanding capital stock, warrants, options or other rights to
acquire or sell capital stock, or all or substantially all of the
business or assets of another individual, corporation,
partnership or other business entity or (B) to the Company in
connection with the sale by the Company of all or substantially
all of the Company's outstanding capital stock, warrants,
options, or other rights to acquire or sell stock, or all or
substantially all of the business or assets of the Company (each
of the transactions described in clauses (A) and (B), a
"Transaction"), including, but not limited to, any Transaction
111
<PAGE>
negotiated for the Company involving any affiliate of the Company
or the Consultant, including, but not limited to, any Transaction
involving, The Jordan Company, Jordan/Zalaznick Capital Company
or any affiliates of any of the foregoing (collectively, the
"Jordan Affiliates"); and (ii) a financial consulting fee of up
to one percent (1%) of the amount obtained or made available
pursuant to any debt, equity or other financing (including
without limitation, any refinancing) by the Company with the
assistance of Consultant, including, but not limited to, any
financing obtained for the Company from one or more of the Jordan
Affiliates, provided, that in no event shall a fee be payable
under Section 2(b)(ii) hereunder (x) with respect to borrowings
under the Credit Agreement or (y) with respect to financings
referred to in Section 2(b)(ii) made in connection with the
consummation of a Transaction. In addition, prior to paying any
fee pursuant to this paragraph (b) the Board of Directors of the
Company (including the disinterested directors) must approve the
applicable Transaction or financing and in payment of such fee as
in the best interests of the Corporation.
(c) In addition, the Company shall have paid to the Consultant a closing
fee of $1.65 million upon the consummation of the acquisitions of
American Allsafe Company, Silencio/Safety Direct, Inc. and Crystaloid
Electronics Company the execution and delivery of the Credit Agreement
and the offering by Jackson of its 9 1/2% Senior Subordinated Notes
due 2005 in lieu of any fee otherwise payable under Section 2(a) and
Section 2(b).
3. The Company shall reimburse Consultant for reasonable out-of- pocket
expenses and any reasonable, direct, allocable costs incurred by the
Consultant and its personnel in performing services hereunder to the
Company and its Subsidiaries upon the Consultant's rendering of a
statement therefor, together with supporting data as the Company shall
reasonably require.
4. Notwithstanding the foregoing, the Company shall not pay the fees
under Section 2 (without limiting the fees, reimbursements and
payments provided under Sections 3, 8, and 9 of this Agreement which
shall be due and payable in all events) and such fees shall accrue
pursuant to the second sentence of this Section 4, (a) if and to the
extent expressly prohibited by the provisions of any credit, stock,
financing or other agreements or instruments binding upon the Company
or its properties, (b) if the Company has not paid interest on any
interest payment date or has postponed or not made any principal
payments with respect to any of its indebtedness on any scheduled
payment dates, or (c) if the Company has not paid dividends on any
dividend payment date as set forth in its certificate of incorporation
(unless such dividends are accrued) or as declared by its Board of
Directors, or has postponed or not made any redemptions on any
redemption date as set forth in its certificate of incorporation or
any certificate of designation with respect to its preferred stock, if
any. Any payments otherwise owed hereunder, which are not made for any
of the above-mentioned reasons, shall not be canceled but rather shall
accrue, without interest, and shall be payable by the Company promptly
when, and to the extent, that the Company is no longer prohibited from
making such payments, the Company has become current with respect to
such principal or interest payments, the Company has become current
with respect to such dividends and has made such redemptions with
respect to such preferred stock, if any. Any payment required
hereunder which is not paid when due shall bear interest at the rate
of seven percent (7.0%) per annum.
5. This Agreement shall be automatically renewed for successive one- year
terms starting December 31, 2005 unless either party hereto, within
sixty (60) days prior to the scheduled renewal date, notifies the
other party as to its election to terminate this Agreement.
Notwithstanding the foregoing, this Agreement may be terminated by not
less than ninety (90) days' prior written notice from the Company to
the Consultant at any time after (a) substantially all of the stock or
substantially all of the assets of the Company are sold to any entity
unaffiliated with the Consultant and/or a majority of the Company's
stockholders immediately prior to such sale or (b) the Company is
merged or consolidated into another entity unaffiliated with the
Consultant and/or a majority of the Company's stockholders immediately
prior to such merger and the Company is not the survivor of such
transaction.
112
<PAGE>
6. The Consultant shall have no liability to the Company on account of
(a) any advice which it renders to the Company, provided the
Consultant believed in good faith that such advice was useful or
beneficial to the Company at the time it was rendered, or (b) the
Consultant's inability to obtain financing or achieve other results
desired by the Company or Consultant's failure to render services to
the Company at any particular time or from time to time, or (c) the
failure of any transaction to meet the financial, operating or other
expectations of the Company. The Company's sole remedy for any claim
under this Agreement shall be termination of this Agreement.
7. Notwithstanding anything contained in this Agreement to the contrary,
the Company agrees and acknowledges that the Consultant, the Jordan
Affiliates and their shareholders, employees, directors and affiliates
intend to engage and participate in acquisitions and business
transactions outside of the scope of the relationship created by this
Agreement and neither the Consultant, any of the Jordan Affiliates nor
any of their shareholders, employees, directors or affiliates shall be
under any obligation whatsoever (except to the extent that fiduciary
duty principles under Delaware corporate law may be applicable to
individual directors and officers of the Company) to make such
acquisitions, business transactions or other opportunities through the
Company or offer such acquisitions, business transactions or other
opportunities to the Company.
8. The Company will, to the fullest extent permitted by applicable law,
indemnify and hold harmless the Consultant, its affiliates and
associates, each of the Jordan Affiliates, and each of the respective
owners, partners, officers, directors, employees and agents of each of
the foregoing, from and against any loss, liability, damage, claim or
expenses (including the fees and expenses of counsel) (collectively
"Damages") arising as a result or in connection with this Agreement or
the Consultant's services hereunder or other activities on behalf of
the Company, unless such Damages resulted from Consultant's lack of
good faith at the time it rendered any advice to the Company.
9. Any payments paid by the Company under this Agreement shall not be
subject to set-off and shall be increased by the amount, if any, of
any taxes (other than income taxes) or other governmental charges
levied in respect of such payments, so that the Consultant is made
whole for such taxes or charges.
10. (a) This Agreement sets forth the entire understanding of the parties
with respect to the Consultant's rendering of services to the Company.
This Agreement may not be modified, waived, terminated or amended
except expressly by an instrument in writing signed by the Consultant
and the Company.
(b) This Agreement may be assigned by either party hereto without the
consent of the other party, provided, however, such assignment
shall not relieve such party from its obligations hereunder. Any
assignment of this Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and
assigns.
(c) In the event that any provision of this Agreement shall be held
to be void or unenforceable in whole or in part, the remaining
provisions of this Agreement and the remaining portion of any
provision held void or unenforceable in part shall continue in
full force and effect.
(d) Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if delivered personally or
sent by registered or certified mail to the address of the party
for whom intended at the principal executive offices of such
party, or at such other address as such party may hereinafter
specify by written notice to the other party.
(e) No waiver by either party of any breach of any provision of this
Agreement shall be deemed a continuing waiver or a waiver of any
preceding or succeeding breach of such provision or of any other
provision herein contained.
(f) The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the
Company.
(g) This Agreement shall be governed by the internal laws (and not
the law of conflicts) of the State of New York.
113
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TJC MANAGEMENT CORPORATION
By:__________________________
Name:
Title:
JACKSON PRODUCTS, INC.
By:__________________________
Name: Christopher T. Paule
Title: Vice President
114
<PAGE>
Exhibit 10.43(b)
AMENDED AND RESTATED
INTERCOMPANY MANAGEMENT CONSULTING AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT CONSULTING AGREEMENT ("Agreement"), is
executed as of the _____ day of October, 1996, between FLEX-O-LITE, INC.
("Flex-O-Lite"), a Delaware corporation, OSD HOLDINGS, INC. ("Holdings"), a
Delaware corporation, and OSD ENVIZION, Inc. ("Envizion"), a Delaware
corporation (collectivley, Flex-O-Lite, Holdings and Envizion are herein
referred to as the "Company"), and JACKSON PRODUCTS, INC., a Delaware
corporation ("Consultant").
W I T N E S S E T H:
WHEREAS, the Consultant and Flex-O-Lite are parties to a management consulting
agreement, dated August 16, 1995 (the "Prior Consulting Agreement"); and
WHEREAS, the Company and Consultant desire to terminate the Prior Consulting
Agreement in its entirety simultaneously with execution of this Agreement; and
WHEREAS, the Consultant continues to have and/or have access to personnel who
are highly skilled in the field of rendering advice to businesses and financial
advice;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein set forth, the parties hereto do hereby agree as follows:
1. The Company hereby retains the Consultant, through the Consultant's
own personnel or through personnel available to the Consultant, to
render consulting services from time to time to the Company and its
subsidiaries (whether now existing or hereafter acquired), in
connection with their financial and business affairs, their
relationships with their lenders, stockholders and other third-party
associates or affiliates, and the expansion of their businesses. The
term of this Agreement shall commence the date hereof and continue
until August 16, 2005, unless extended, or sooner terminated, as
provided in paragraph 4 below. The Consultant's personnel shall be
reasonably available to the Company's managers, auditors and other
personnel for consultation and advice, subject to Consultant's
reasonable convenience and scheduling. Services may be rendered at the
Consultant's offices or at such other locations selected by the
Consultant as the Company and the Consultant shall from time to time
agree.
2. The Company shall pay the Consultant an annual fee as shall be agreed
to by the parties (and, in the event of no agreement by the parties,
the amount paid in the immediately preceding year), in each case
payable in quarterly installments on the 30th day of March, June,
September and December of each year, starting September 30, 1995.
3. Out-of-pocket expenses (including, without limitation, an allocable
amount of the Consultant's overhead expenses, as determined by the
Consultant in its sole discretion) incurred by the Consultant and its
personnel in performing services hereunder to the Company and its
subsidiaries shall be promptly reimbursed to it by the Company upon
the Consultant's rendering of a statement therefor, together with
supporting data as the Company shall reasonably require.
4. Notwithstanding the foregoing, the Company shall not be required to
pay the fees under Section 3 (without limiting the obligation for
payment of the fees, reimbursements and payments provided under
Sections 7 and 8 of this Agreement which shall be due and payable in
all events), (a) if and to the extent expressly prohibited by the
provisions of any credit, stock, financing or other agreements or
instruments binding upon the Company, its subsidiaries or properties,
(b) if the Company, or any of its subsidiaries, has not paid interest
on any interest payment date or has postponed or not made any
principal payments with respect to any of their indebtedness on any
scheduled payment dates, or (c) if the Company has not paid dividends
on any dividend payment date as set forth in its certificate of
incorporation or as declared by its Board of Directors, or has
postponed or not made any redemptions on any redemption date as set
forth in its certificate of incorporation or any certificate of
designation with respect to its preferred stock, if any. Any payments
otherwise owed hereunder, which are not made for any of the
above-mentioned reasons, shall not be cancelled but rather shall
accrue, and shall be payable by the Company promptly when, and to the
extent, that the Company is no longer prohibited from making such
payments and when the Company has become current with respect to such
principal or interest payments, has become current with respect to
115
<PAGE>
such dividends and has made such redemptions with respect to such
preferred stock, if any. Any payment required hereunder which is not
paid when due shall bear interest at the rate of ten percent (10%) per
annum.
5. This Agreement shall be automatically renewed for successive one-year
terms starting August 16, 2005 unless either party hereto, within
sixty (60) days prior to the scheduled renewal date, notifies the
other party as to its election to terminate this Agreement.
Notwithstanding the foregoing, this Agreement may be terminated by not
less than ninety (90) days' prior written notice from the Company to
the Consultant at any time after (i) substantially all of the stock or
substantially all of the assets of the Company are sold to any entity
unaffiliated with the Consultant and/or a majority of the Company's
stockholders immediately prior to such sale, or (ii) the Company is
merged or consolidated into another entity unaffiliated with the
Consultant and/or a majority of the Company's stockholders immediately
prior to such merger and the Company is not the survivor of such
transaction.
6. The Consultant shall have no liability to the Company on account of
(i) any advice which it renders to the Company, provided the
Consultant believed in good faith that such advice was useful or
beneficial to the Company at the time it was rendered, or (ii) the
Consultant's inability to obtain financing or achieve other results
desired by the Company or Consultant's failure to render services to
the Company at any particular time or from time to time, or (iii) the
failure of any transaction to meet the financial, operating or other
expectations of the Company. The Company's sole remedy for any claim
under this Agreement shall be termination of this Agreement.
7. The Company will, to the fullest extent permitted by applicable law,
indemnify and hold harmless the Consultant, its affiliates and
associates, and each of the respective owners, partners, officers,
directors, employees and agents of each of the foregoing, from and
against any loss, liability, damage, claim or expenses (including the
fees and expenses of counsel) arising as a result or in connection
with this Agreement, the Consultant's services hereunder or other
activities on behalf of the Company and its subsidiaries.
8. The amount of any payments paid by the Company under this Agreement
shall be increased by the amount, if any, of any taxes (other than
income taxes) or other governmental charges levied in respect of such
payments, so that the Consultant is made whole for such taxes or
charges.
9. a. This Agreement sets forth the entire understanding of the parties
with respect to the Consultant's rendering of services to the Company.
This Agreement may not be modified, waived, terminated or amended
except expressly by an instrument in writing signed by the Consultant
and the Company.
b. This Agreement may not be assigned by the Company without the consent
of the Consultant, but may be assigned by the Consultant to any
affiliate of the Consultant, as the term "affiliate" is used in the
federal securities laws, and may be assigned or pledged by the
Consultant to any financial institution or other lender. Any permitted
assignment of this Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
c. In the event that any provision of this Agreement shall be held to be
void or unenforceable in whole or in part, the remaining provisions of
this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect.
d. Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if delivered personally or sent
by registered or certified mail to the address of the party for whom
intended at the principal executive offices of such party, or at such
other address as such party may hereinafter specify by written notice
to the other party.
e. No waiver by any party of any breach of any provision of this
Agreement shall be deemed a continuing waiver or a waiver of any
preceding or succeeding breach of such provision or of any other
provision herein contained.
f. The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
g. This Agreement shall be governed by the internal laws (and not the law
of conflicts) of the State of New York.
116
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
FLEX-O-LITE, INC.
By
Name:
Title:
OSD HOLDINGS, INC.
By
Name:
Title:
OSD ENVIZION, INC.
By
Name:
Title:
JACKSON PRODUCTS, INC.
By
Name:
Title:
117
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES OF THE COMPANY
Personal Safety Products Group
- --------------------------------
American Allsafe Company
Silencio/Safety Direct, Inc.
Crystaloid Technologies, Inc.
Lansec Holding GmbH
Highway Safety Products Group
- -------------------------------
Flex-O-Lite, Inc.
TMT-Pathway, L.L.C.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACKSON PRODUCTS, INC.
(Registrant)
By:/s/ Christopher T. Paule
---------------------------
Christopher T. Paule
President and Chief Operating Officer
Date: 3/16/00
By:/s/ Mark A. Kolmer
---------------------
Mark A. Kolmer
Vice President - Finance
118
<PAGE>
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