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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number: 1-13606
SOLA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3189941
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2420 SAND HILL ROAD, SUITE 200, MENLO PARK, CA 94025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 324-6868
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
Common Stock, Par Value $0.01 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of May 29, 1998, the aggregate market value of Common Stock held by
non-affiliates was approximately $965,050,713. For purposes of this computation,
shares held by directors and executive officers of the registrant have been
excluded. Such exclusion of shares held by directors and executive officers is
not intended, nor shall it be deemed, to be an admission that such persons are
affiliates of the registrant.
As of May 29, 1998, 24,738,165 shares of the registrant's common stock, par
value $0.01 per share, which is the only class of common stock of the
registrant, were outstanding. The Company's stock is traded on the New York
Stock Exchange under the symbol SOL.
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<PAGE>
SOLA INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Page
PART I
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 8
Item 3. Legal Proceedings............................................. 9
Item 4. Submission of Matters to a Vote of Security Holders........... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters...................................... 11
Item 6. Selected Financial Data....................................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 13
Item 8. Financial Statements and Supplementary Data................... 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant............ 21
Item 11. Executive Compensation........................................ 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 23
Item 13. Certain Relationships and Related Transactions................ 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................. 24
2
<PAGE>
PART I
Item 1. BUSINESS
General
Sola International Inc., a Delaware corporation, designs, manufactures and
distributes a broad range of plastic and glass eyeglass lenses. Sola's business
commenced operations in 1960. Sola International Inc. acquired the Sola business
unit (the "Predecessor Business") of Pilkington plc ("Pilkington") on December
1, 1993 (the "Acquisition"). In March 1995, Sola completed its initial public
offering (the "IPO"). On June 19, 1996 Sola acquired substantially all of the
worldwide ophthalmic business (the "AO" and "AO Acquisition") of American
Optical Corporation ("AOC"). On July 2, 1996 the Company acquired Neolens, Inc.
("Neolens"), a manufacturer of polycarbonate eyeglass lenses. Sola has
manufacturing and distribution sites in three major regions -- North America,
Europe, and Rest of World (comprising primarily Australia, Asia and South
America). Unless the context otherwise requires, all references to the "Company"
or "Sola" herein refer to Sola International Inc. and its consolidated
subsidiaries. The Company's fiscal year ends on March 31 of each year. The
fiscal years ended March 31, 1998, March 31, 1997 and March 31, 1996 are
referred to herein as "fiscal 1998", "fiscal 1997" and "fiscal 1996",
respectively.
Products
The Company produces plastic and glass eyeglass lenses. The Company's lens
products are differentiated by type of vision correction, lens design, lens
material and coatings applied to the lens. The Company's lenses include single
vision lenses (lenses which have a constant corrective power at all points);
multifocal lenses (lenses which have more than one corrective power, including
bifocal lenses, which have two distinct areas of different corrective power, and
progressive lenses, which have a continuous gradient of different corrective
power); and plano lenses (lenses which have no corrective power and are
primarily used for sunglasses).
Although the Company's lenses are manufactured in both glass and plastic,
plastic lenses currently account for approximately 90% of the Company's net lens
sales. Approximately 52% of ophthalmic lens sales generated by plastic lenses
are accounted for by conventional hard resin plastics, with the remainder
derived from advanced lens materials such as thinner and lighter plastics and
plastic photochromics. These more advanced materials have accounted for a
growing percentage of the Company's sales both by volume and revenue. Sola
manufactures and markets several advanced thinner and lighter plastic lens
materials, including Spectralite(R), Finalite 1.6(TM) and polycarbonate.
Spectralite(R) and Finalite 1.6(TM) are proprietary materials developed by
Sola's research and development operation. Raw materials used in the manufacture
of these products are available from a number of chemical suppliers.
Polycarbonate is another thin and light material with greater impact resistance.
To further improve the thinness and lightness of its lenses, the Company has
increasingly employed aspheric and atoric designs (i.e., lenses that achieve
comparable optical performance with a thinner cross section). The Company also
sells plastic photochromic lenses, which require processing by a third party.
The technology for such processing is currently proprietary to such third party.
The Company also manufactures and sells glass lenses, primarily in North
America and Europe. These lenses are manufactured in plants located in the
United States, Mexico and France. The Company's strategy for the glass lens
market is to focus on high value-added product categories, such as glass
progressive and higher index glass lenses. Since the Company is primarily
focused on plastic lenses, glass lenses represent a small and decreasing portion
of the Company's sales. The Company sells virtually no glass lenses in South
America and non-Japan Asia, markets where glass is still the predominant
material for eyeglass lenses.
The Company produces a variety of lens coatings, which primarily provide
scratch resistance and anti-reflection properties. The penetration of coated
lenses varies significantly from market to market.
3
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The Company has recently introduced a number of new products and has a
number of products in development that are intended to maintain and increase the
Company's operating margins. For example, the Company has developed and
successfully marketed proprietary progressive lenses (including Percepta(R) and
VIP Gold(R)), which incorporate more complex design features than standard
products and therefore attract an above average gross profit per pair. During
fiscal 1998 Sola's proprietary Matrix(R) delivery system was installed at an
increasing number of sites in the U.S. and foreign locations. This system, which
creates finished prescriptions by bonding together thin lens wafers in a desktop
laminating console, allows the rapid delivery of lenses with anti-reflective
coating and potentially other high margin add-ons. The Company from time to time
may also market products or technologies of third parties to broaden its product
range pursuant to contractual relationships with such third parties.
Marketing and Sales
The Company develops and manages its marketing strategy on a decentralized
basis and has sales offices in 20 countries across its three regions. The
Company differentiates its products from those of its competitors through lens
design, lens materials and coatings formulations. In response to customer
demand, the Company's strategy is focused on providing a wide range of quality
products on short notice. In developing markets, particularly in non-Japan Asia
and Latin America, the Company seeks to expand its market share by increasing
local production, attempting to develop brand recognition for its products and
marketing to customers the advantage of higher value-added products, all of
which are intended to help the Company compete on the basis of quality and
service rather than price.
Distribution
In order to meet customer demand for delivery of a broad range of products
within a short time, the Company has established a widespread distribution
network, which is managed on a regional basis. The Company operates 52 major
distribution centers located in 20 countries, covering all of its three regions.
The Company utilizes three primary distribution channels for its products.
Lenses with corrective power are distributed (i) through a wholesale channel to
wholesale distributors or to independent processing laboratories that process
the Company's lenses and then resell them to retail outlets and practitioners
for resale to consumers, (ii) through a retail channel to chains, superoptical
retail stores (retail outlets with on-site lens processing capability) and other
retailers (including "buying groups" consisting of a number of retailers acting
together to purchase lenses) who sell the lenses to consumers and (iii) in
certain markets in Asia and Europe, direct to eyecare practitioners through the
Company's processing laboratories. Plano lenses are sold primarily to
manufacturers of sunglasses. In English speaking markets (the United States,
Australia and the United Kingdom), a significant percentage of the Company's
sales is to large retail chains and superoptical retail stores. In most other
markets, those retail-oriented channels are less significant, hence, the
Company's sales are primarily oriented toward independent wholesale processing
laboratories, as well as eyecare practitioners served by Company-owned labs.
Customers
During fiscal 1998, the Company's ten largest customers accounted for
approximately 19.6% of net sales and the Company's largest customer accounted
for 5.7% of net sales. During fiscal 1998, 7 of the Company's 10 largest
customers were located in North America and accounted for approximately 15.7% of
net sales in the aggregate.
One of the company's largest competitors, Essilor International, is
extensively vertically integrated into wholesale laboratories, both in the
United States and other parts of the world. Sola has sold and continues to sell
its products to these Essilor laboratories.
4
<PAGE>
International Operations
The Company operates manufacturing and distribution sites in all major
regions of the world--North America (including Mexico), Europe, and Rest of
World (comprising primarily Australia, Asia and South America)--and derived
approximately half of its net sales in fiscal 1998 from the sale of products
outside the United States. See Note 15 of Notes to Consolidated Financial
Statements included elsewhere herein. As a result, a significant portion of the
Company's sales and operations are subject to certain risks, including adverse
developments in the foreign political and economic environment, exchange rates,
tariffs and other trade barriers, staffing and managing foreign operations and
potentially adverse tax consequences. Although the Company and its predecessors
have been successfully conducting business outside of the United States since
its inception in 1960, there can be no assurance that any of these factors will
not have a material adverse effect on the Company's financial condition or
results of operations in the future.
Manufacturing Operations
The Company has 20 manufacturing facilities located in its three major
regions, including 18 lens manufacturing facilities. The Company has sought to
make each operating region self-sufficient in the production of core products,
while manufacturing both high-volume plano lenses and newer, low-volume and more
complex products in fewer locations. More centralized manufacturing is pursued
where appropriate in order to maximize production efficiencies or maintain
strict quality controls and research and development support. For the location
and principal operations of these facilities, see "Properties".
The principal materials used by the Company in the production of eyeglass
lenses are hard resins (a commodity plastic used in most plastic lenses), glass,
specialized chemicals used in many higher index plastic lenses and monomers
mixed by the Company in the production of Spectralite(R). The Company believes
that these materials are currently available from a variety of sources and that
the materials necessary to produce the Company's coatings are readily available
from a number of potential sources. In order to reduce materials costs, the
Company coordinates centrally the purchasing of new materals (including
monomers) and has negotiated more favorable purchasing arrangements with its
principal suppliers on an annual basis.
Research and Development
The Company has invested and continues to invest heavily in research and
development in order to continually develop new and innovative products and to
improve the efficiency of its manufacturing process. At March 31, 1998, there
were approximately 184 employees involved in the Company's research and
development efforts. The Company's research and development expenditures for
fiscal 1998, 1997 and 1996 were $18.3 million, $17.5 million (excluding the
non-recurring $9.5 million in-process research and development non-cash charge
associated with the AO Acquisition in fiscal 1997) and $13.3 million,
respectively, representing 3.3%, 3.6% and 3.4% of net sales for each of those
years. The Company has its own research and development centers in Petaluma,
California, Southbridge, Massachusetts, and Adelaide, Australia. A small process
automation group is attached to the manufacturing operation in Wexford, Ireland.
The Company's research and development focuses on the design and development of
innovative, value-added products, on new materials with superior
characteristics, on technology that will deliver products to the market more
efficiently, and on technologies to improve productivity in the manufacture of
existing products. Recent research and development programs include the
successful development of the Spectralite(R) thin and light lens material, the
development of Spectralite(R) with photochromic capabilities, Percepta(R)
progressive design, Access and Continurim enhanced near vision lens designs, and
ultra tough multi coat ("UTMC") and other coatings. Sola's proprietary Matrix(R)
delivery system which creates finished prescriptions by bonding together thin
lens wafers in a desktop laminating console, allows the rapid delivery of lenses
with anti-reflection coating and potentially other high margin add-ons. This
system is being installed at an increasing number of sites in the U.S. and
foreign locations.
5
<PAGE>
Competition
The eyeglass lens and coating industry is highly competitive. The Company
competes principally on the basis of customer service, the quality and breadth
of product offerings, and price. The Company believes that among its largest
global competitors are Essilor International and Hoya Corporation. The eyeglass
lens and coating industry is characterized by price competition, which can be
severe in certain markets, particularly for high volume, standard products. Sola
attempts, to the extent possible, to counter competition on the basis of price
by focusing on providing a rapid response to orders, maintaining high fill
rates, developing differentiated new products, and educating processing
laboratories and eyecare practitioners on the benefits of Sola lenses and
coatings. There can be no assurance, however, that the Company's competitors
will not develop products or services that are more effective or less expensive
than the Company's products or which could render certain of the Company's
products less competitive. Since recently-developed products comprise a
substantial portion of the Company's sales, the Company's performance is
dependent upon its continuing ability to develop and market new products. Some
of the Company's competitors have significantly greater financial resources than
the Company to fund expansion and research and development. Within a particular
market, certain of the Company's competitors may enjoy a "home-country"
advantage over foreign competition. In addition, in certain markets (primarily
Europe), the Company also faces competition from a number of its principal
competitors which are vertically integrated with processing centers to a greater
extent than the Company, enabling them to customize prescription lenses. This
limits the number of independent lens processing customers to which the Company
can market its products.
In addition to direct competition with other manufacturers of eyeglass
lenses, the Company competes indirectly with manufacturers of contact lenses and
providers of medical procedures for the correction of visual impairment. Contact
lenses and eyeglasses are not, however, perfect substitutes because of the
difficulty of developing progressive or bifocal contact lenses for presbyopia
and the tendency of contact lens wearers to also own eyeglasses. Current medical
vision corrective procedures also are ineffective in correcting presbyopia and
many patients who have undergone medical vision correction still require
eyeglasses, although the prescription required may be weaker. The Company
therefore believes that such indirect competition will not have a material
adverse effect on the Company's business in the foreseeable future.
Patents, Trademarks & Licenses
The Company seeks to protect its intellectual property throughout the
world. As of March 31, 1998, the Company had filed (or applied for) patents for
54 discrete inventions or technologies. Many of the Company's patents have been
filed in multiple countries, and they include 46 patents (or patent
applications) filed in the United States. The Company has been granted 250
trademarks in various countries, representing rights to 65 discrete names. These
include 47 trademarks granted in the United States. A further 25 tradenames are
under application. The Company does not believe that it is dependent on any
particular patent, trade secret or similar intellectual property and, in light
of its manufacturing, marketing and distribution strengths, believes that the
loss of any individual trademark, trade secret or patent would not have a
material adverse effect on its results of operations or financial condition.
As a result of the AO Acquisition and the ongoing research and development
within that company, Sola acquired an additional portfolio of patents and patent
applications. Upon consolidation within the overall portfolio and after taking
account of the expiration of older patents, intellectual property protection
will be maintained over an additional 16 discrete inventions and technologies,
within the United States and multiple other countries. An additional trademark
portfolio was similarly acquired. This includes a total of 66 discrete names,
representing a total of 313 trademarks in multiple countries of which 66 are
granted in the United States.
6
<PAGE>
Employees
As of March 31, 1998, the Company had approximately 7,800 employees
throughout the world. The majority of the Company's employees are not
represented by labor unions. Labor relations are considered to be good and there
have been no significant labor disputes in the past ten years.
Environmental Matters
The Company (together with the industry in which it operates) is subject to
United States and foreign environmental laws and regulations concerning
emissions to the air, waste water discharges and the generation, handling,
storage, transportation and disposal of hazardous wastes, and to other federal,
state and foreign laws and regulations. The Company believes that it possesses
all material permits and licenses necessary for the continuing operation of its
business and believes that its operations are in substantial compliance with the
terms of all applicable environmental laws. It is impossible to predict
accurately what effect these laws and regulations will have on the Company in
the future.
Environmental laws and regulations vary among countries in which the
Company operates. During fiscal 1992, the Company adopted an environmental
policy which includes an environmental auditing process designed to evaluate and
assist operating regions in their environmental compliance efforts.
The Company's manufacturing processes generally utilize non-hazardous
chemicals where feasible. Certain processes, including those for cleaning lenses
and mold assemblies, and abrasion resistant and anti-reflection coating of
lenses, use a variety of volatile and other hazardous substances. Company
developments in manufacturing methods, alternative non-solvent cleaning
processes and waste reduction have been successful in reducing the use of these
chemicals and/or emissions and environmental damage from these processes.
Programs to eliminate use of chlorinated hydrocarbons and chlorofluorocarbons
("CFC's") in manufacturing processes have also been developed and the current
use of these substances in the Company's North American operations is minimal.
Since 1988 the Company has operated a ground water remediation system at
its Petaluma, California manufacturing facility in accordance with a consent
order issued by the U.S. Environmental Protection Agency ("EPA") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980.
The system is designed to remediate a pre-1982 release of hazardous substances.
Analytical results indicate that contamination levels have decreased
significantly over the past few years. In March 1997 the EPA consented to the
Company curtailing clean-up activities for a six month period which ended in
September. The Company continued to monitor contamination levels during the
curtailment period. During the quarter ended December 31, 1997 a report on
contamination levels, and the impact of curtailed activities, was submitted to
the EPA, and such report is currently under review. The report indicates no
significant impact on the site from the curtailed activities, and the EPA has
consented to continued curtailment of activities until such time as they have
concluded their review of the report. The Company expects continued reduction of
clean-up activities due to relatively low levels of contamination existing at
the site.
Late in fiscal 1996, the Company was requested by the Missouri Department
of Natural Resources ("MDNR") to conduct a removal action at a disposal site
near Eldon, Missouri known as the Coburn Optical Industries Dump site, which was
allegedly used by a predecessor to the Company for disposal of waste water
sludge containing lead from 1974 to 1986. The MDNR has indicated that it
considers the removal action at this site to be a low priority. Nonetheless, the
Company agreed to undertake the requested removal action pursuant to the MDNR's
Voluntary Cleanup Program. The Company completed its clean-up program during
fiscal 1998 and the MDNR issued a no further action letter in March 1998.
It is possible that the Company may be involved in other similar
investigations and actions under state, federal or foreign law in the future.
Based on currently available information, the Company does
7
<PAGE>
not believe that its share of costs, either at the existing sites or at any
future sites, is likely to result in a liability that will have a material
adverse effect on its results of operations or financial condition.
It is the Company's policy to meet or exceed all applicable environmental,
health and safety laws and regulations. The complexity and continuing evolution
of environmental regulation (including certain programs for which implementing
regulations have not yet been finalized) preclude precise estimation of future
environmental expenditures.
In connection with the Acquisition, Pilkington has agreed to indemnify the
Company with respect to environmental losses based upon or resulting from
certain existing facts, events, conditions, matters or issues, for (i) 50% of
such losses to the extent such losses exceed $1 million but are less than or
equal to $5 million, and (ii) 100% of such losses in excess of $5 million.
See Note 14 of Notes to Consolidated Financial Statements included
elsewhere herein.
Item 2. PROPERTIES
<TABLE>
The following table sets forth certain information relating to the
Company's principal facilities. The Company operates other smaller domestic and
foreign manufacturing facilities, distribution facilities and sales offices
which are omitted from this table.
<CAPTION>
Region and Location Principal Operations Leased/Owned
------------------- -------------------- ------------
<S> <C> <C>
North America
Menlo Park, California......... Headquarters Leased
Petaluma, California........... Manufactures plastic lenses; marketing and distribution Part owned,
center; research and development facility; administrative part leased
offices for North American operations
Eldon, Missouri................ Manufactures multifocal glass lenses, manufactures molds Owned
San Diego, California.......... Headquarters for American Optical Leased
Southbridge, Massachusetts..... Distribution center Leased
Miami, Florida................. One site manufacturing finished polycarbonate lenses; the Leased
other site houses tinting and coating operations for plano
lenses, and the Sunlens divisional head office
Tijuana, Mexico................ Four sites manufacturing plastic and glass lenses, Part owned,
manufactures molds; distribution center part leased
Europe
Goetzenbruck, France........... Manufactures glass lenses; marketing and distribution center Owned
Fougeres, France............... Prescription processing laboratory with anti-reflection Leased
coating capability
Wexford, Ireland............... Manufactures plastic lenses; prescription processing Owned
laboratory; distribution center
Varese, Italy................ Tinting operations; prescription processing laboratory with Leased
anti-reflection coating capability; marketing and
distribution center
Birmingham, United
Kingdom...................... Prescription processing laboratory with anti-reflection Leased
coating capability; marketing and distribution center
8
<PAGE>
Region and Location Principal Operations Leased/Owned
------------------- -------------------- ------------
Rest of World
Asia
Xian, China.................... Site owned by a joint venture managed by the Company in Leased
which the Company holds a 50% ownership interest;
manufactures hard resin lenses
Hong Kong...................... Prescription processing laboratory with anti-reflection Leased
coating capability; marketing and distribution center
Guangzhou, China............... Two sites; China head office and second China manufacturing Part owned,
site for hard resin lenses part leased
Osaka, Japan................... Prescription processing laboratory with anti-reflection Leased
coating capability; marketing and distribution center
Chung Li, Taiwan............... Manufactures hard resin lenses; marketing and distribution Leased
center
Singapore...................... Manufactures glass molds; marketing and distribution Leased
center; prescription processing facility with
anti-reflection coating capability
South America
Petropolis, Brazil............. Manufactures hard resin ophthalmic and plano lenses; Owned
regional administration office
Villa de Cura, Venezuela....... Manufactures hard resin lenses; distribution center Owned
Australia
Lonsdale, Australia............ Manufactures plastic lenses; manufactures molds; Owned
research and development center; prescription
processing laboratory with anti-reflection coating
facility; marketing and distribution center; regional
administrative offices for Australia and Asian regions
</TABLE>
A portion of the Company's research and development activities, its
corporate headquarters and certain manufacturing and distribution operations are
located near major earthquake faults. The ultimate impact on the Company is
unknown, but operating results could be materially affected in the event of a
major earthquake. The Company is predominantly self-insured for losses and
interruptions caused by earthquakes.
For further information concerning the Company's leased properties, see
Note 13 of Notes to Consolidated Financial Statements included elsewhere herein.
The Company's operating leases have expirations ranging from 1998 to 2012. The
Company does not anticipate any difficulties in renewing or replacing such
leases as they expire; however, there can be no assurances that the Company will
be able to renew or replace such leases. The Company believes that its
manufacturing capacity is sufficient for its current needs.
Item 3. LEGAL PROCEEDINGS
In addition to the proceedings described under "Business - Environmental
Matters", the Company is involved in routine litigation incidental to its
business, none of which it believes will have a material adverse effect on its
results of operations or financial condition. See Note 14 of Notes to
Consolidated Financial Statements included elsewhere herein.
9
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the last quarter of fiscal 1998.
10
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
<TABLE>
The Company's Common Stock has been listed on the New York Stock Exchange
since February 23, 1995 under the symbol "SOL". The following table sets forth
on a per share basis the closing high and low sales prices for consolidated
trading in the Common Stock as reported on the New York Stock Exchange Composite
Tape for the fiscal quarters indicated.
<CAPTION>
Common Stock
Price Rang
---------------------
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended March 31, 1997:
First Quarter ended June 30, 1996...................................... $34 5/8 $27 3/4
Second Quarter ended September 30, 1996................................ $37 5/8 $28 1/4
Third Quarter ended December 31, 1996.................................. $38 $33
Fourth Quarter ended March 31, 1997.................................... $38 $21 7/8
Fiscal Year Ended March 31, 1998:
First Quarter ended June 30, 1997...................................... $33 1/2 $21 7/8
Second Quarter ended September 30, 1997................................ $34 1/2 $30 1/8
Third Quarter ended December 31, 1997.................................. $36 1/4 $29 1/2
Fourth Quarter ended March 31, 1998.................................... $41 7/16 $30 3/16
</TABLE>
On May 29, 1998, the closing price per share of the Company's Common Stock
on the New York Stock Exchange was $39 9/16. As of May 29, 1998, there were 408
holders of record of the Company's Common Stock, which excludes beneficial
owners of Common Stock held in "street name".
Since the Acquisition, the Company has not declared or paid any cash
dividends on its Common Stock. The Company's credit agreement, among the
Company, the lenders named therein and The Bank of America National Trust and
Savings Association, for itself and as agent for a syndicate of other financial
institutions, dated June 1996 as amended (the "Amended Agreement"), generally
restricts, subject to certain exceptions, the payment of dividends,
distributions and other payments. The Company does not anticipate paying any
cash dividends in the foreseeable future and intends to retain future earnings
for the development and expansion of its business. Subject to such restrictions,
any future determination to pay dividends will be at the discretion of the
Company's Board of Directors and subject to certain limitations under the
General Corporation Law of the State of Delaware and will depend upon the
Company's results of operations, financial condition, other contractual
restrictions and factors deemed relevant by the Board of Directors.
11
<PAGE>
<TABLE>
Item 6. SELECTED FINANCIAL DATA
<CAPTION>
Presecessor
Sola Internation Inc. Business
------------------------------------------------------------------------ ---------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Four Months Eight Months
Ended Ended Ended Ended Ended Ended
March 31, March 31, March 31, March 31, March 31, November 30,
1998 1997 (3) 1996 1995 1994 (1) 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data
(in thousands, except per share data)
Net sales ............................ $ 547,735 $ 488,689 $ 387,709 $ 345,631 $ 106,030 $ 200,025
========= ========= ========= ========= ========= =========
Income (loss) before
extraordinary item ................. $ 51,092 $ 30,897 $ 34,588 $ 13,640 $ (61,394) $ 10,749
Extraordinary item, net of
taxes ............................. (5,939)(4) -- (912)(4) (3,915)(2) -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) .................... $ 45,153 $ 30,897 $ 33,676 $ 9,725(2) $ (61,394) $ 10,749
========= ========= ========= ========= ========= =========
Earnings (Loss) Per Share
Data basic (5)........................
Income (loss) before extraordinary
item............................. $ 2.09 $ 1.31 $ 1.59 $ 0.82 $ (3.75)
Extraordinary item................. (0.24) -- (0.04) (0.23) --
--------- --------- --------- --------- ---------
Net income (loss).................. $ 1.85 $ 1.31 $ 1.55 $ 0.59 $ (3.75)
========= ========= ========= ========= =========
Weighted average common
shares outstanding............... 24,400 23,561 21,785 16,710 16,353
========= ========= ========= ========= =========
Earnings (Loss) Per Share Data
diluted (6)...........................
Income (loss) before extraordinary
item............................. $ 2.00 $ 1.24 $ 1.51 $ 0.78 $ (3.75)
Extraordinary item................. (0.23) -- (0.04) (0.22) --
--------- --------- --------- --------- ---------
Net income (loss).................. $ 1.77 $ 1.24 $ 1.47 $ 0.56 $ (3.75)
========= ========= ========= ========= =========
Weighted average common and
dilutive securities outstanding.. 25,547 24,859 22,944 17,516 16,353
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Sola International Inc
----------------------------------------------------------------------------
As of March 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets .................................. $684,058 $605,508 $416,849 $383,457 $360,631
Long-term debt ................................ 196,386 162,797 97,890 107,407 186,740
Total shareholders' equity .................... 327,022 284,298 192,241 159,443 63,495
<FN>
- ---------------------------
(1) For the four months ended March 31, 1994, the Company recorded two
non-recurring, non-cash charges associated with the Acquisition: (i) a
$32.9 million charge for the amortization associated with an inventory
write-up to fair value that was reflected in cost of sales; and (ii) a
$40.0 million charge for the write-off of in-process research and
development that was reflected in in-process research and development
expense.
(2) For fiscal 1995, the Company recorded two non-recurring charges in
connection with the IPO: (i) a $3.0 million charge for the termination of
the AEA Investors Inc. management agreement with the Company that was
reflected in general and administrative expenses; and (ii) a $3.9 million
write-off of debt issuance costs, that was reflected in the historical
financial statements as an extraordinary item.
(3) For fiscal 1997, the Company recorded two non-recurring charges in
connection with the AO Acquisition: (i) a $7.2 million charge for the
amortization associated with an inventory write-up to fair value that was
reflected in cost of sales; and (ii) a $9.5 million charge for the
write-off of in-process research and development that was reflected in
in-process research and development expense.
(4) For fiscal 1998 and fiscal 1996, the extraordinary items comprise losses
due to the repurchases of senior subordinated notes, net of tax.
(5) Earnings per share, as restated for the adoption of FAS 128, are computed
using the weighted average number of common shares outstanding during the
period, for fiscal 1998, 1997, 1996, 1995, and 1994, after giving effect to
the IPO.
(6) Earnings per share, as restated for the adoption of FAS 128, are computed
using the weighted average number of common shares and dilutive securities
outstanding during the period, for fiscal 1998, 1997, 1996, 1995, and 1994,
after giving effect to the IPO.
</FN>
</TABLE>
12
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Form 10-K. The
financial statements for the year ended March 31, 1997 reflect the consolidated
operations of the Company after accounting for the acquisition ("AO
Acquisition") of substantially all of the worldwide ophthalmic business ("AO")
of American Optical Corporation ("AOC") on June 19, 1996 (see Note 1 of Notes to
Consolidated Financial Statements), using the purchase method of accounting.
Operating results for fiscal 1997 subsequent to the AO Acquisition include
non-recurring, non-cash charges relating to the write-off of in-process research
and development projects ($9.5 million) and amortization associated with an
inventory write-up to fair value ($7.2 million), both of which were recorded in
connection with the AO Acquisition. The years ended March 31, 1998, 1997 and
1996 are referred to herein as fiscal 1998, fiscal 1997 and fiscal 1996,
respectively.
<TABLE>
The following table reflects the results of operations for the three fiscal
years 1998, 1997 and 1996. The adjustment column in fiscal 1997 reflects
adjustments to present results of operations on a more comparable basis
adjusting for the non-recurring, non-cash charges, and tax effects thereof in
connection with the AO Acquisition, noted above.
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------------------------------------------------------
Adjusted
(In thousands) 1998 1997 Adjustments 1997 1996
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales ..................................... $ 547,735 $ 488,689 $ 488,689 $ 387,709
Cost of sales ................................. 289,677 264,535 $ (7,216) 257,319 201,991
--------- --------- --------- --------- ---------
Gross profit ................................ 258,058 224,154 7,216 231,370 185,718
--------- --------- --------- --------- ---------
Research and development
expenses .................................... 18,303 17,539 17,539 13,329
Selling and marketing expenses ................ 93,993 92,387 92,387 66,345
General and administrative
expenses (including goodwill
amortization) ............................... 53,056 47,381 47,381 45,291
In-process research and
development expenses ........................ -- 9,500 (9,500) -- --
--------- --------- --------- --------- ---------
Operating expenses .......................... 165,352 166,807 (9,500) 157,307 124,965
--------- --------- --------- --------- ---------
Operating income ............................ 92,706 57,347 16,716 74,063 60,753
Interest expense, net ......................... (16,754) (15,961) (15,961) (12,141)
--------- --------- --------- --------- ---------
Income before provision for
income taxes, minority interest
and extraordinary item .................... 75,952 41,386 16,716 58,102 48,612
Provision for income taxes .................... (25,369) (10,737) (5,851) (16,588) (13,623)
Minority interest ............................. 509 248 248 (401)
--------- --------- --------- --------- ---------
Income before extraordinary
item ........................................ 51,092 30,897 10,865 41,762 34,588
Extraordinary item, loss on
repurchase of senior subordinated
notes, net of tax ........................... (5,939) -- -- (912)
--------- --------- --------- --------- ---------
Net income .................................. $ 45,153 $ 30,897 $ 10,865 $ 41,762 $ 33,676
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
Results of Operations
<TABLE>
The following table sets forth, for the fiscal years indicated, the
Company's results and adjusted results of operations as a percentage of net
sales. Management's discussion of results of operations for the year ended March
31, 1997 is based on the adjusted results of operations and the related
percentages of net sales, because, in the opinion of the Company, a comparison
of the historical results of operations for fiscal 1997 is not meaningful due to
the effects of certain transactions and non-recurring charges as noted above.
<CAPTION>
Fiscal year ended March 31,
---------------------------------
1998 1997 1996
----- ----- -----
% % %
<S> <C> <C> <C>
Net sales......................................... 100.0 100.0 100.0
Cost of sales..................................... 52.9 52.7 52.1
----- ----- -----
Gross profit.................................... 47.1 47.3 47.9
----- ----- -----
Research and development expenses................. 3.3 3.6 3.4
Selling and marketing expenses.................... 17.2 18.9 17.1
General and administrative expenses............... 9.7 9.7 11.7
----- ----- -----
Operating expenses.............................. 30.2 32.2 32.2
----- ----- -----
Operating income ............................. 16.9 15.1 15.7
Interest expense, net............................. (3.1) (3.2) (3.1)
Income before provision for income taxes,
minority interest and extraordinary item...... 13.8 11.9 12.6
Provision for income taxes........................ (4.6) (3.4) (3.6)
Minority interest................................. 0.0 0.0 (0.1)
Extraordinary item................................ (1.0) 0.0 (0.2)
----- ----- -----
Net income ..................................... 8.2 8.5 8.7
===== ===== =====
</TABLE>
Net Sales
Net sales were $547.7 million in fiscal 1998, $488.7 million in fiscal
1997, and $387.7 million in fiscal 1996, reflecting a growth of 12.1% from
fiscal 1997 to fiscal 1998 and 26.0% from fiscal 1996 to fiscal 1997. Using
constant exchange rates, the percentage increase from fiscal 1997 to fiscal 1998
was 16.6%, and from fiscal 1996 to fiscal 1997 was 25.6%. The AO Acquisition,
with nine months of AO net sales, amounting to $64.4 million, included in fiscal
1997 net sales, had a significant impact on the net sales growth from fiscal
1996 to fiscal 1997. Higher priced product growth has contributed to the
Company's net sales growth in fiscal 1997 and fiscal 1998, led by the growth of
Spectralite(R), plastic photochromic and polycarbonate products, offset in part
by price and volume erosion in net sales of lower priced products. Higher priced
products accounted for approximately 66% of net lens sales in fiscal 1998
compared to 61% in fiscal 1997 and 57% in fiscal 1996. Increased marketing and
customer service efforts have also contributed to the growth in other higher
priced products. Net sales increases by region from fiscal 1997 to 1998 were as
follows: North America 20.1%, Europe 7.1% and Rest of World 1.3%. Net sales
increases in major market areas from fiscal 1996 to 1997 were as follows: North
America 22.7%, Europe 40.6% and Rest of World 15.9%. At constant exchange rates,
net sales increases from fiscal 1997 to fiscal 1998 were: North America 20.1%,
Europe 16.0% and Rest of World 6.8%, and from fiscal 1996 to fiscal 1997 were:
North America 22.9%, Europe 42.2% and Rest of World 12.1%.
Gross Profit and Gross Margin
Gross profit totaled $258.1 million in fiscal 1998, $231.4 million, as
adjusted, in fiscal 1997 and $185.7 million in fiscal 1996, reflecting growths
of 11.5% from fiscal 1997 to fiscal 1998 and 24.6% from fiscal 1996 to fiscal
1997. Gross profit as a percentage of net sales ("gross margin") in fiscal 1998,
fiscal 1997, as adjusted and fiscal 1996, were 47.1%, 47.3%, and 47.9%,
respectively. The gross margin has decreased in fiscal 1998 and fiscal 1997, as
AO traditionally operates at lower gross margins than Sola on a stand alone
basis. In addition, the Company continues to incur manufacturing start up costs
in its
14
<PAGE>
new finished polycarbonate manufacturing operation acquired when the Company
purchased Neolens, Inc. in July 1996, and ramp up costs associated with new
product offerings, such as Matrix, the Company's new anti-reflective coating
delivery system. Offsetting in part the aforementioned reductions, has been a
continued shift towards higher value added products, and continued benefits from
the Company's cost reduction program. During fiscal 1996 the Company benefited
from reduced manufacturing costs at its Mexican facility arising from the
weakness of the Mexican Peso, and from the Company's cost reduction program. The
Company continues to experience price competition, which can be severe in
certain markets, particularly for standard products.
Operating Expenses
Operating expenses totaled $165.4 million in fiscal 1998, $157.3 million,
as adjusted, in fiscal 1997 and $125.0 million in fiscal 1996 reflecting
increases of 5.1% from fiscal 1997 to fiscal 1998 and 25.9% from fiscal 1996 to
fiscal 1997. Research and development expenses for fiscal 1998, 1997 and 1996
represent 3.3%, 3.6% and 3.4%, respectively, of annual net sales, reflecting the
Company's continued commitment to research and development of new products,
materials and processes. Because research and development expenditure in AO as a
percentage of net sales is lower than that of Sola on a stand alone basis, the
current lower ratio of research and development expenses to net sales can be
expected for the combined company in the future. The lower charge to research
and development expenses in fiscal 1996 arose primarily from the transfer of a
new product out of research and development and into production. Selling and
marketing expenses were 17.2%, 18.9% and 17.1% of net sales in fiscal 1998, 1997
and 1996, respectively. During the fourth quarter of fiscal 1997 the Company
introduced a new progressive lens design, Percepta(R), with a worldwide launch.
Significant marketing expenditures associated with this launch were incurred
primarily in the last two quarters of the 1997 fiscal year resulting in higher
sales and marketing expenses as a percentage of net sales in fiscal 1997. As a
percentage of net sales, general and administrative expenses in fiscal 1998,
fiscal 1997 and fiscal 1996 were 9.7%, 9.7% and 11.7%, respectively. The higher
percentage in fiscal 1996 compared to fiscal 1998 and fiscal 1997 was primarily
due to higher performance based management bonuses in fiscal 1996 and higher
provisions for doubtful accounts in South America and Asia.
Operating Income
Operating income for fiscal 1998 totaled $92.7 million, an increase of
$18.6 million over fiscal 1997 operating income, as adjusted, of $74.1 million,
or 25.2%. Operating income for fiscal 1997 totaled $74.1 million, as adjusted,
an increase of $13.3 million over fiscal 1996 operating income of $60.8 million,
or 21.9%.
Net Interest Expense
Net interest expense totaled $16.8 million for fiscal 1998, $15.9 million
for fiscal 1997 and $12.1 million for fiscal 1996. Interest expense was higher
in fiscal 1998 than fiscal 1997, primarily due to a full year of higher
indebtedness to fund the acquisitions of AO and Neolens in June and July of
1996, offset in part by lower interest rates on the Company's revolving line of
credit, and the repurchase of its 9 5/8% senior subordinated notes in December
1997. Interest expense was higher in fiscal 1997 than fiscal 1996 also due to
the AO and Neolens acquisitions, offset by the lower interest rate under the
Company's new bank credit facility and the reduction of debt from the proceeds
of the equity public offering. Simultaneously with the AO Acquisition, the
Company entered into a new bank credit facility with The Bank of America
National Trust and Savings Association, for itself and as agent for a syndicate
of other financial institutions (see "--Liquidity and Capital Resources"). In
July 1996, the Company issued 2.32 million shares of common stock in a public
offering for which it received net proceeds of approximately $62.8 million.
Provision for Income Taxes
The Company's combined state, federal and foreign tax rate was
approximately 33.4% for fiscal 1998 compared to 28.5% for fiscal 1997, as
adjusted, and 28.0% for fiscal 1996. The utilization of
15
<PAGE>
United States valuation allowances, arising in fiscal 1994, were the primary
reasons for the lower income tax rates in fiscal 1997 and fiscal 1996. The
Company has deferred tax assets on its balance sheet as of March 31, 1998
amounting to approximately $16.0 million. The ultimate utilization of these
deferred tax assets is dependent on the Company's ability to generate taxable
income in the future.
Extraordinary Item
During fiscal 1998 the Company repurchased all of its remaining 9 5/8%
Senior Subordinated Notes due 2003, and during fiscal 1996 the Company
repurchased approximately $19.9 million principal amount at maturity of the
Senior Subordinated notes. As a result of the repurchases the Company recorded
extraordinary charges of $5.9 million for fiscal 1998, and $0.9 million for
fiscal 1996, in each case resulting from the write-off of unamortized debt
issuance costs and premium over accreted value, net of tax. The 1998 repurchase
was funded by borrowings under the Company's credit agreement and the 1996
repurchase was partly funded by borrowings under the Company's prior credit
agreement and partly from cash arising from the IPO.
Net Income
Net income for fiscal 1998 totaled $45.2 million compared to $41.8 million,
as adjusted, for fiscal 1997 and $33.6 million for fiscal 1996, increases of
$3.4 million and $8.2 million, respectively. The growth in net income from
fiscal 1997, as adjusted, to fiscal 1998 was 8.1% and from fiscal 1996 to fiscal
1997, as adjusted, was 24.0%. If the extraordinary items in fiscal 1998 and
fiscal 1996 are excluded, the growth from fiscal 1997, as adjusted, to fiscal
1998, and from fiscal 1996 to fiscal 1997, as adjusted, would have been 22.3%
and 20.7%, respectively.
Liquidity and Capital Resources
The following analysis of the Company's cash flow statement reflects the
historical results of the Company which have not been adjusted for the AO
Acquisition.
Operating activities generated $20.9 million in cash in fiscal 1998
compared with $32.4 million in fiscal 1997 and $30.8 million in fiscal 1996.
Significantly improved net income in fiscal 1998 was more than offset by
increases in inventories and accounts receivable. During fiscal 1998 the Company
decided to take advantage of prompt pay discounts offered by suppliers in the
United States resulting in accounts payable not increasing in line with the
increases in the business. Improved net income in fiscal 1997, after adding back
one time non-recurring non-cash charges associated with the AO Acquisition, was
offset in part by increases in inventories and accounts receivable. Accounts
payable in fiscal 1997 increased in line with inventory growth.
During fiscal 1998 inventories as a percentage of net sales grew to 31.0%
from 28.4% in the prior year. The increase in inventories is primarily a result
of building inventories to support new product launches, growth in higher priced
products as a percentage of net sales and therefore of inventories, and the
projected overall increase in the business. During fiscal 1997 inventories as a
percentage of net sales grew to 28.4% (27.2% if a full year's net sales for AO
are used) from 26.0% in the prior year. The growth in inventory levels resulted
from the introduction and regional spread of new products, resulting in both
finished goods inventory growth and increased mold inventory requirements. The
primary increase was caused by increases in inventories and molds to support the
worldwide launch of a new progressive lens design, Percepta(R), in the fourth
quarter of fiscal 1997. Accounts receivable as a percentage of net sales
increased to 22.0% in fiscal 1998 compared to 21.5% a year ago. Accounts
receivable as a percentage of net sales increased to 21.5% (20.5% if a full
year's net sales for AO are used) in fiscal 1997 compared to 19.3% for fiscal
1996.
During fiscal 1998 net cash expended on investing activities amounted to
$41.2 million, primarily being capital expenditures. The most significant
capital expenditures, primarily on additional production capacity, were made in
the United States, Mexico, Brazil, China, Venezuela and Australia. During fiscal
1997 net cash expended on investing activities amounted to $154.8 million. On
June 19, 1996, the
16
<PAGE>
Company acquired substantially all of the worldwide ophthalmic business of AOC
for cash consideration of $103.6 million (together with the assumption of
certain liabilities) (the "AO Acquisition"). The AO Acquisition was funded
primarily through borrowings under the Company's then existing credit agreement,
which borrowings were subsequently repaid in part with the proceeds from the
equity public offering during July 1996. On July 2, 1996 the Company acquired
Neolens, Inc. ("Neolens"), a Florida corporation for cash consideration of
approximately $15.5 million, including the assumption of Neolens debt ("Neolens
Acquisition"). The Neolens Acquisition was funded through borrowings under the
Company's then existing credit agreement. During fiscal 1997, the Company spent
approximately $30.0 million on capital expenditures primarily in the United
States, Mexico, China and Brazil. The capital expenditures in fiscal 1997 were
primarily to add production capacity. During fiscal 1996 net cash expended on
investing activities was primarily for capital expenditures and increasing the
Company's investment in its Venezuela joint venture. The capital expenditures in
fiscal 1996 related mainly to expansion of production capacity to accommodate
higher volumes and the introduction of new products. During fiscal 1996 the
Company increased its investment in its Venezuela joint venture, Sola de
Venezuela Industria Optica, C.A. ("Sola Venezuela"), from 45% to 100%. The
purchase price amounted to approximately $3.6 million and was paid in cash.
Management anticipates capital expenditures of $40 million to $45 million
annually over the next several years, of which approximately $5 million annually
is viewed as discretionary.
Financing activities generated $32.3 million in fiscal 1998, primarily from
additional borrowings under the Amended Agreement and exercise of stock options
by employees. In the third quarter of fiscal 1998 the Company repurchased all of
its remaining 9 5/8% Senior Subordinated Notes due 2003. The notes repurchase
was funded by borrowings under the Amended Agreement. In conjunction with the
repurchase of its Senior Subordinated Notes the Company amended its bank credit
agreement with The Bank of America National Trust and Savings Association, for
itself and as agent for a syndicate of other financial institutions ("Amended
Agreement"). The Amended Agreement increased the Company's multicurrency
revolving facility from $180 million to $300 million. Borrowings are divided
into two tranches. Tranche A permits borrowings up to $30 million in either U.S.
dollars or foreign currencies, to be used for working capital and consummating
certain permitted acquisitions. Tranche B permits borrowings of up to $270
million and can be used for working capital purposes, refinancing the term loans
under the existing bank credit agreement, repurchasing the Company's Senior
Subordinated Notes, and consummating certain permitted acquisitions. The Tranche
A Facility matures on October 31, 2000 and the Tranche B Facility matures on May
31, 2001. Among other things the Amended Agreement changed certain financial
covenants, removed the requirement for foreign subsidiary guarantees under the
Tranche A facility, increased the basket for incurring other unsecured
indebtedness to $150 million, and deleted the term facility portion.
Borrowings under the Tranche A and Tranche B revolvers (other than swing
line loans, which may only be Base Rate loans) may be made as Base Rate Loans or
LIBO Rate Loans. Base Rate Loans bear interest at rates per annum equal to the
higher of (a) 0.50% per annum above the latest Federal Funds Rate, or (b) the
Bank of America Reference Rate. LIBO Rate Loans bear interest at a rate per
annum equal to the sum of the LIBO Rate and a margin varying from 0.450% to
0.750% based on the Company's leverage ratio. Fixed rate borrowings in foreign
currencies bear interest at rates per annum equal to the referenced currency's
local IBOR plus a margin varying from 0.450% to 0.750% based on the Company's
leverage ratio. Local currency Base Rate Loans are also available at a spread
similar to US Base Rate Loans described above.
During the fourth quarter of fiscal 1998 the Company issued 6 7/8% Senior
Notes ("Notes") due 2008, for which the Company received approximately $98.5
million net proceeds, after discounts and issuance expenses. Net proceeds were
used to pay down borrowings under the Amended Agreement. The Notes are unsecured
senior obligations of the Company, limited to $100 million aggregate principal
amount at maturity, and will mature on March 15, 2008. The Notes will be
redeemable, as a whole or from time to time in part, at the option of the
Company on any date at a redemption price equal to the aggregate principal
amount plus a make whole premium.
17
<PAGE>
Financing activities generated $125.3 million in fiscal 1997. During July
1996 the Company sold 2,320,000 additional shares of common stock at $28.625 per
share through a public offering. The net proceeds from this offer, were
approximately $62.8 million. The Company used such net proceeds to repay
indebtedness which it incurred under its then existing bank credit agreement.
Simultaneously with the closing of the AO Acquisition, the Company entered into
a bank credit agreement with The Bank of America National Trust and Savings
Association, for itself and as agent for a syndicate of other financial
institutions, covering an aggregate amount of $180 million.
Financing activities were an outflow of $4.7 million in fiscal 1996. During
the three months ended June 1995 the Company repurchased approximately $19.9
million principal amount at maturity of its 9 5/8% Senior Subordinated Notes due
2003. The repurchase was partly funded by borrowings under the prior credit
agreement and partly from excess cash arising from the IPO.
The Company's foreign subsidiaries maintain local credit facilities to
provide credit for overdraft, working capital and some fixed asset investment
purposes. As of March 31, 1998, the Company's total credit available under such
facilities was approximately $29.9 million, of which $10.1 million had been
utilized.
The Company continues to have significant liquidity requirements. In
addition to working capital needs and capital expenditures, the Company has
substantial cash requirements for debt service. The Company expects that the
Amended Agreement and other overseas credit facilities, together with cash on
hand and internally generated funds, if available as anticipated, will provide
sufficient capital resources to finance the Company's operations, fund
anticipated capital expenditures, and meet interest requirements on its debt,
including the Notes, for the foreseeable future. As the Company's debt matures,
the Company may need to refinance such debt. There can be no assurance that such
debt can be refinanced on terms acceptable to the Company.
Currency Exchange Rates
As a result of the Company's worldwide operations, currency exchange rate
fluctuations tend to affect the Company's results of operations and financial
position. The two principal effects of currency exchange rates on the Company's
results of operations and financial position are (i) translation adjustments for
subsidiaries where the local currency is the functional currency and (ii)
translation adjustments for subsidiaries in hyper-inflationary countries.
Translation adjustments for functional local currencies have been made to
shareholders' equity. For the fiscal years ended March 31, 1998, 1997 and 1996
such translation adjustments were approximately $(10.0) million, $(3.8) million,
$(1.6) million, respectively.
During fiscal 1996 the Company benefited from reduced manufacturing costs
at its Mexican facility arising from the weakness of the Mexican Peso. For
translation adjustments of the Company's subsidiaries operating in
hyper-inflationary countries, until recently primarily Brazil, the functional
currency is determined to be the U.S. dollar, and therefore all translation
adjustments are reflected in the Company's Statements of Operations. Commencing
with the fourth quarter of fiscal 1997 the Company's operations in Mexico have
been accounted for as hyper-inflationary economies. In hyper-inflationary
environments, the Company generally protects margins by methods which include
increasing prices monthly at a rate appropriate to cover anticipated inflation,
compounding interest charges on sales invoices daily and holding cash balances
in U.S. dollar denominated accounts where possible.
Because a majority of the Company's debt is U.S. dollar denominated, the
Company may hedge against certain currency fluctuations by entering into
currency swaps (however certain currencies, such as the Brazilian Real, cannot
be hedged), although no such swaps had been entered into as of March 31, 1998.
As of March 31, 1998 certain of the Company's foreign subsidiaries had entered
into forward contracts for intercompany purchase commitments in amounts other
than their home currency. The carrying amount of the forward contracts
approximates fair value, which has been estimated based on current exchange
rates. For further financial data of the Company's performance by region, see
Note 15 of Notes to Consolidated Financial Statements.
18
<PAGE>
Seasonality
The Company's business is somewhat seasonal, with third quarter results
generally weaker than the other three quarters as a result of lower sales during
the holiday season, and fourth quarter results generally the strongest.
Inflation
Inflation continues to affect the cost of the goods and services used by
the Company. The competitive environment in many markets limits the Company's
ability to recover higher costs through increased selling prices, and the
Company is subject to price erosion in many of its standard product lines. The
Company seeks to mitigate the adverse effects of inflation through cost
containment and productivity and manufacturing process improvements. For a
description of the effects of inflation on the Company's reported revenues and
profits and the measures taken by the Company in response to inflationary
conditions, see--"Currency Exchange Rates" above.
Year 2000
The Company has developed preliminary plans to address the possible
exposures related to the impact on its computer systems of the Year 2000. Key
financial, information and operational systems have been assessed and plans have
been developed to address systems modifications required by December 31, 1999.
Based on work to date, and assuming that project plans, which continue to
evolve, can be implemented as planned, management believes the financial impact
of making the required systems changes will not be material to the Company's
consolidated financial position, results of operations or cash flows.
The Company is also in the preliminary stages of assessing the possible
effects on the Company's operations of the Year 2000 readiness of key suppliers
and customers. The Company's reliance on suppliers and customers and therefore
on the proper functioning of their information systems and software, means that
failure to address Year 2000 issues could have a material impact on the
Company's operations and financial results; however, the potential impact and
related costs are not known at this time.
Information Relating to Forward-Looking Statements
This Form 10-K of the Company includes forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, including
statements regarding, among other items, (i) the Company's development of new
products, including, among others, Percepta, Spectralite, Access and Matrix,
(ii) the availability of raw materials for the Company's products, the costs of
product introductions, and trends in sales growth (including growth related to
new products), (iii) anticipated trends in the Company's business environment,
including competitive and pricing pressures, (iv) the Company's ability to
continue to control costs and maintain adequate standards of customer service
and product quality (v) future income tax rates and capital expenditures and
working capital requirements and (vi) statements regarding the adequacy of the
Company's planning for the Year 2000 computer programming issues. These forward
looking statements reflect the Company's current views with respect to future
events and financial performance. The words "believe", "expect", "anticipate"
and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Actual results could differ materially
from the forward-looking statements as a result of various factors including the
"Factors Affecting Future Operating Results" included in Exhibit 99.1 of the
Company's Form 10-K for the fiscal year ended March 31, 1998 and the factors
described in "Business--Environmental Matters."
19
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages F-1,
and F3 through F-27 and the related financial statement schedule is set forth on
page S-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
20
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
The following table sets forth the names, ages and positions of the
Company's directors and executive officers. All directors hold office until the
annual meeting of stockholders of the Company following their election or until
their successors are duly elected and qualified. Officers are appointed by, and
serve at the discretion of, the Board of Directors.
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Irving S. Shapiro.............................. 81 Chairman of the Board
Douglas D. Danforth............................ 75 Director
Hamish Maxwell................................. 71 Director
Maurice J. Cunniffe............................ 65 Director
Jackson L. Schultz............................. 72 Director
A. William Hamill.............................. 50 Director
John E. Heine.................................. 54 President and Chief Executive Officer,
Director
James H. Cox................................... 49 Executive Vice President, Assistant
Secretary and Assistant Treasurer;
President, Sola Optical USA
Steven M. Neil................................. 45 Executive Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer
Stephen J. Lee................................. 45 Vice President, Human Resources
Barry J. Packham............................... 51 Vice President, Manufacturing
Development
John J. Bastian................................ 46 Vice President, Regional Director, Australia
Theodore Gioia................................. 40 Vice President, Strategic Planning
Adrian Walker.................................. 45 Vice President, Regional Director, Asia
Mark T. Mackenzie.............................. 48 Vice President, Regional Director, Europe
Alan S. Vaughan................................ 54 Vice President, Worldwide Rx Operations
</TABLE>
The principal occupations and positions for at least the past five years of
each of the directors and executive officers of the Company are as follows
(references to the Company include its predecessors):
Irving S. Shapiro has been Chairman of the Board of the Company since
December 1994. Mr. Shapiro is Of Counsel to Skadden, Arps, Slate, Meagher & Flom
LLP. He was Chairman and Chief Executive Officer of E.I. du Pont de Nemours and
Company from 1974 to 1981. He is Chairman of the Board of Marvin & Palmer
Associates, Inc., and is a director of J.P. Morgan Florida Federal Savings Bank,
Pediatric Services of America Inc., and Gliatech, Inc.
Douglas D. Danforth has been a director of the Company since December 1994.
He was Chairman and Chief Executive Officer of Westinghouse Electric Corporation
from 1983 to 1987. He is a director of Daltile Inc.
Hamish Maxwell has been a director of the Company since December 1994. Mr.
Maxwell was Chairman of the Executive Committee of the Board of Directors of
Philip Morris Companies Inc. from September 1991 through April 1995 and was
Chairman and Chief Executive Officer of such company from 1984 to 1991. He is a
director of Bankers Trust Company, Bankers Trust New York Corporation and
Chairman of WPP Group plc.
21
<PAGE>
Maurice J. Cunniffe has been a director of the Company since December,
1996. He is Chairman and Chief Executive Officer of American Optical
Corporation, a company of which he has been sole shareholder since 1982.
Jackson L. Schultz has been a director of the Company since November 1995.
Mr. Schultz joined Wells Fargo Bank in 1970, retiring in 1990 as Senior Vice
President responsible for Public and Governmental Affairs.
A. William Hamill has been a director of the Company since December, 1996.
Mr. Hamill is Executive Vice President and Chief Financial Officer of Union Camp
Corporation, which he joined in 1996. From 1993 through 1996, he was a partner
in SCI Investors Inc. and a director of Custom Papers Group Inc. From 1991 to
1993, he was Senior Vice President and Chief Financial Officer of Specialty
Coatings International Inc.. From 1975 through 1990, Mr. Hamill was with Morgan
Stanley & Co. Incorporated, where he was a Managing Director.
John E. Heine has served as Chief Executive Officer and President of the
Company since November 1981 and served as Chairman of the Board of the Company
from September 1993 to December 1994. Mr. Heine joined the Company in 1981 as
Managing Director of Sola International Holdings, Ltd. and previously held
general management positions with Southern Farmers Holdings, Ltd. in Adelaide
and H.J. Heinz in Melbourne, Australia.
James H. Cox was appointed Executive Vice President in December 1996,
Assistant Secretary and Assistant Treasurer of the Company in September 1993 and
President of Sola Optical USA, the Company's North American eyeglass lens
business in 1991. He joined the Company as Vice President, Manufacturing in
1985. Mr. Cox was formerly Executive Vice President of Operations with Bausch &
Lomb's Consumer Products Division.
Steven M. Neil was appointed Executive Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer in October 1997. Prior to joining
Sola, Mr. Neil was Vice President-Finance, Treasurer and Chief Financial Officer
of Perrigo Company from May 1995 to September 1997. He also served as President
of Perrigo International, Inc. from July 1996. Mr. Neil served as Vice
President-Controller of Perrigo Company from January 1993 to May 1995. Prior to
that time he served as Controller and Chief Accounting Officer with Applied
Magnetics Corporation, where he also served in other positions of increasing
responsibility since 1983. He is a member of the Board of Directors of
Intelligent Solutions, Inc.
Stephen J. Lee was appointed Vice President, Human Resources of the Company
in 1988 and was formerly Director of Personnel for Pilkington's Ophthalmic and
Insulation Divisions. Mr. Lee joined the Pilkington Group in 1974.
Barry J. Packham joined the Company as Vice President, Manufacturing
Development in February 1993. Mr. Packham was Managing Director of Ceramic Fuel
Cells Ltd., a research and development joint venture consortium in Melbourne,
Australia, from 1991 to 1993 and formerly held manufacturing and general
management positions with Kodak and Leigh-Mardon Pty. Ltd.
John J. Bastian has served as Regional Director, Australia since 1987. Mr.
Bastian joined the Company in 1983 as Group General Manager, Marketing in Sola
International Holdings, South Australia following a six-year career with PA
Management Consultants.
Theodore Gioia has served as Vice President, Strategic Planning since 1992.
Mr. Gioia joined the Company as Director of Strategic Planning in 1989, having
sold the start-up recording company he founded in 1987. Mr. Gioia was previously
a consultant with McKinsey & Company and the Boston Consulting Group.
22
<PAGE>
Adrian P. Walker joined the Company as Regional Director, Asia in November
1996. Mr. Walker held a number of general management positions with subsidiaries
of BTR plc. from March 1980 to November 1996. He was most recently General
Manager of ACI Laminates and Insulations, based in Melbourne, Australia from
July 1995 to October 1996. From August 1992 to July 1995 he was Managing
Director of Dunlop Slazenger (Far East), in Malaysia, and from April 1985 to
July 1992 was General Manager, Serck Services (Gulf) Ltd., in the United Arab
Emirates.
Mark T. Mackenzie was appointed Regional Director, Europe in April 1994.
Mr. Mackenzie served as Group Marketing Director of Tarkett Pegulan AG, and as
General Manager of the Residential Flooring Division, based in Germany. He
formerly held marketing and sales positions with Gillette, L'Oreal and Cadbury
Schweppes.
Alan S. Vaughan was appointed Vice President, Worldwide Rx Operations in
June 1994, having previously served as European Manufacturing and Technical
Director. Mr. Vaughan joined the Company in 1978 as Managing Director of Sola
ADC Lenses in Ireland. He was previously Director of Operations with Johnson &
Johnson (Ireland).
Item 11. EXECUTIVE COMPENSATION
Incorporated by reference to the material included under the caption
"Compensation of Executive Officers" in the Company's proxy statement for the
fiscal year ended March 31, 1998.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the material included under the caption
"Security Ownership of Certain Beneficial Owners and Managers" in the Company's
proxy statement for the fiscal year ended March 31, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the material included under the caption
"Certain Transactions" in the Company's proxy statement for the fiscal year
ended March 31, 1998.
23
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report:
1. Financial Statements. See Index to Consolidated Financial
Statements and Financial Statement Schedules included on page F-1.
2. Financial Statement Schedules. See "Schedule II - Valuation and
Qualifying Accounts" included on page S-1.
Schedules other than those listed above have been omitted since
they are either not required, not applicable or the information is
otherwise included.
3. List of Exhibits. See Index of Exhibits included on page E-1.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K, dated February 17, 1998 to report
the Company's adoption of FAS 128, Earnings per Share, for its fiscal
quarter ended December 31, 1997, and restating certain earnings per share
information previously presented in the Company's Securities Exchange Act
filings.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SOLA INTERNATIONAL INC.
(Registrant)
Date: June 15th, 1998 By: /s/Steven M. Neil
------------------
Steven M. Neil
Executive Vice President, Finance,
Chief Financial Officer, Secretary
and Treasurer
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Irving S. Shapiro
- --------------------
Irving S. Shapiro Chairman of the Board June 15th, 1998
/s/John E. Heine
- ----------------
John E. Heine President and Chief Executive Officer, June 15th, 1998
Director (Principal Executive Officer)
/s/Steven M. Neil
- -----------------
Steven M. Neil Executive Vice President, Finance, Chief June 15th, 1998
Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
/s/Douglas D. Danforth
- ----------------------
Douglas D. Danforth Director June 15th, 1998
/s/Hamish Maxwell
- -----------------
Hamish Maxwell Director June 15th, 1998
/s/Maurice J. Cunniffe
- ----------------------
Maurice J. Cunniffe Director June 15th, 1998
/s/A. William Hamill
- --------------------
A. William Hamill Director June 15th, 1998
/s/Jackson L. Schultz
- ---------------------
Jackson L. Schultz Director June 15th, 1998
</TABLE>
25
<PAGE>
SOLA INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors....................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1997............... F-3
Consolidated Statements of Income for the years ended March 31, 1998,
1997 and 1996......................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1998, 1997 and 1996......................................... F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1997 and 1996........................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
Quarterly Financial Data (unaudited).................................... F-28
Financial Statement Schedule............................................ S-1
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders
Sola International Inc.
We have audited the accompanying consolidated balance sheets of Sola
International Inc. as of March 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended March 31, 1998. Our audits also included the financial
statement schedule listed in the index at item 14(a). These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sola International Inc. as of March 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/Ernst & Young LLP
Palo Alto, California
May 6, 1998
F-2
<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
March 31,
------------------------------
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................................. $ 34,444 $ 24,401
Trade accounts receivable, less allowance for doubtful accounts of
$4,956 and $4,030 at March 31, 1998 and 1997, respectively .......................... 120,590 104,960
Inventories ........................................................................... 169,756 138,634
Other current assets .................................................................. 16,798 14,225
--------- ---------
Total current assets ................................................................ 341,588 282,220
Property, plant and equipment, at cost, less accumulated depreciation
and amortization .................................................................... 132,778 110,477
Goodwill and other intangibles, net ...................................................... 198,341 200,734
Other long-term assets ................................................................... 11,351 12,077
--------- ---------
Total assets ........................................................................ $ 684,058 $ 605,508
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Current liabilities:
Notes payable to banks and current portion of ......................................... $ 12,600 $ 19,413
Accounts payable ...................................................................... 60,254 56,747
Accrued liabilities ................................................................... 35,462 29,557
Accrued payroll and related compensation .............................................. 30,758 25,836
Other current liabilities ............................................................. 2,536 10,862
--------- ---------
Total current liabilities ........................................................... 141,610 142,415
Long-term debt, less current portion ..................................................... 1,790 3,555
Bank debt, less current portion .......................................................... 95,000 67,938
Senior notes ............................................................................. 99,596 --
Senior subordinated notes ................................................................ -- 91,304
Other long-term liabilities .............................................................. 19,040 15,998
--------- ---------
Total liabilities ................................................................... 357,036 321,210
Commitments and contingencies
Shareholders' equity
Preferred stock, $0.01 par value; 5,000 shares authorized; no shares
issued ............................................................................. -- --
Common stock, $0.01 par value; 50,000 shares authorized; 24,723 shares
(24,263 shares as of March 31, 1997) issued and outstanding ......................... 247 243
Additional paid-in capital ............................................................... 278,688 271,167
Equity participation loans ............................................................... (230) (270)
Retained earnings ........................................................................ 58,057 12,904
Cumulative foreign currency adjustments .................................................. (9,740) 254
--------- ---------
Total shareholders' equity .......................................................... 327,022 284,298
Total liabilities and shareholders' equity .......................................... $ 684,058 $ 605,508
========= =========
<FN>
The accompanying notes are integral part of these financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<CAPTION>
Year Ended March 31,
-----------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales ................................................................. $ 547,735 $ 488,689 $ 387,709
Cost of sales ............................................................. 289,677 264,535 201,991
--------- --------- ---------
Gross profit ........................................................... 258,058 224,154 185,718
--------- --------- ---------
Research and development expenses ......................................... 18,303 17,539 13,329
Selling and marketing expenses ............................................ 93,993 92,387 66,345
General and administrative expenses ....................................... 53,056 47,381 45,291
In-process research and development
expense ................................................................ -- 9,500 --
--------- --------- ---------
Operating expenses ..................................................... 165,352 166,807 124,965
--------- --------- ---------
Operating income ..................................................... 92,706 57,347 60,753
Interest income ........................................................... 664 640 544
Interest expense .......................................................... (17,418) (16,601) (12,685)
--------- --------- ---------
Income before provision for income taxes,
minority interest and extraordinary item ............................. 75,952 41,386 48,612
Provision for income taxes ................................................ (25,369) (10,737) (13,623)
Minority interest ......................................................... 509 248 (401)
--------- --------- ---------
Income before extraordinary item ....................................... 51,092 30,897 34,588
Extraordinary item, loss on repurchase of
senior subordinated notes, net of tax .................................. (5,939) -- (912)
--------- --------- ---------
Net income ................................................................ $ 45,153 $ 30,897 $ 33,676
========= ========= =========
Earnings (loss) per share - basic:
Income before extraordinary item ..................................... $ 2.09 $ 1.31 $ 1.59
Extraordinary item ................................................... (0.24) -- (0.04)
--------- --------- ---------
Net income ........................................................... $ 1.85 $ 1.31 $ 1.55
========= ========= =========
Weighted average common shares
outstanding ............................................................. 24,400 23,561 21,785
========= ========= =========
Earnings (loss) per share - diluted:
Income before extraordinary item ..................................... $ 2.00 $ 1.24 $ 1.51
Extraordinary item ................................................... (0.23) -- (0.04)
--------- --------- ---------
Net income ........................................................... $ 1.77 $ 1.24 $ 1.47
========= ========= =========
Weighted average common and dilutivesecurities outstanding ................ 25,547 24,859 22,944
========= ========= =========
<FN>
The accompanying notes are integral part of these financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share data)
<CAPTION>
Retained
Additional Equity Earnings/
Common Stock Paid-in Participation (Accumulated
Shares Value Capital Loans Deficit)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances, March 31, 1995 ................................. 21,780 $ 218 $206,353 $ (1,095) $(51,669)
17 shares of $0.01 par value common stock
issued under stock option plans ........................ 17 59
Repayment of Equity participation loans .................. 674
Cumulative translation adjustments
Net income ............................................... 33,676
-------- -------- -------- -------- --------
Balances, March 31, 1996 ................................. 21,797 218 206,412 (421) (17,993)
Public Offering of 2.320 shares of $0.01 par
value common stock, net of offering expenses ........... 2,320 23 62,742
146 shares of $0.01 par value common stock
issued under stock option plans ........................ 146 2 1,747
Tax benefit from exercise of stock options ............... 266
Repayment of Equity participation loans .................. 151
Cumulative translation adjustments
Net income ............................................... 30,897
-------- -------- -------- -------- --------
Balances, March 31, 1997 ................................. 24,263 243 271,167 (270) 12,904
460 shares of $0.01 par value common stock
issued under stock option plans ........................ 460 4 5,330
Tax benefit from exercise of stock options ............... 2,191
Repayment of Equity participation loans .................. 40
Cumulative translation adjustments .......................
Net income ............................................... 45,153
-------- -------- -------- -------- --------
Balances, March 31, 1998 ................................. 24,723 $ 247 $278,688 $ (230) $ 58,057
======== ======== ======== ======== ========
</TABLE>
Cumulative
Foreign
Currency Total
Translation Shareholders'
Adjustments Equity
--------- ---------
Balances, March 31, 1995 .......................... $ 5,636 $ 159,443
17 shares of $0.01 par value common stock
issued under stock option plans ................. 59
Repayment of Equity participation loans ........... 674
Cumulative translation adjustments ................ (1,611) (1,611)
Net income ........................................ 33,676
--------- ---------
Balances, March 31, 1996 .......................... 4,025 192,241
Public Offering of 2.320 shares of $0.01 par
value common stock, net of offering expenses .... 62,765
146 shares of $0.01 par value common stock
issued under stock option plans ................. 1,749
Tax benefit from exercise of stock options ........ 266
Repayment of Equity participation loans ........... 151
Cumulative translation adjustments ................ (3,771) (3,771)
Net income ........................................ 30,897
--------- ---------
Balances, March 31, 1997 .......................... 254 284,298
460 shares of $0.01 par value common stock
issued under stock option plans ................. 5,334
Tax benefit from exercise of stock options ........ 2,191
Repayment of Equity participation loans ........... 40
Cumulative translation adjustments ................ (9,994) (9,994)
Net income ........................................ 45,153
--------- ---------
Balances, March 31, 1998 .......................... $ (9,740) $ 327,022
========= =========
The accompanying notes are integral part of these financial statements.
F-5
<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Year Ended March 31,
-------------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................. $ 45,153 $ 30,897 $ 33,676
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................................... 22,140 21,595 17,247
Inventory write-up ..................................................... -- 7,216 --
In-process research and development .................................... -- 9,500 --
Provision for excess and obsolete inventory ............................ 1,833 1,593 1,090
Provision for doubtful accounts ........................................ 1,337 1,258 2,846
Increase (decrease) in net deferred taxes .............................. 7,750 (3,644) 1,657
(Gain) on disposal/sale of property, plant and
equipment ........................................................... (82) (272) (73)
Changes in assets and liabilities:
Trade accounts receivable ........................................... (21,242) (19,513) (10,883)
Inventories ......................................................... (38,231) (24,464) (16,222)
Prepaids and other assets ........................................... (6,022) (725) 521
Accounts payable--trade ............................................. 2,710 6,258 10,010
Accrued and other current liabilities ............................... 3,652 1,803 (9,750)
Tax benefit from exercise of stock options .......................... 2,191 266 --
Other long-term liabilities ......................................... (335) 650 643
--------- --------- ---------
Net cash provided by operating activities ......................... 20,854 32,418 30,762
--------- --------- ---------
Cash flows from investing activities:
Acquisition of American Optical, less cash and
cash equivalents of $3,365 .......................................... -- (108,594) --
Acquisition of Neolens, less cash and cash
equivalents of $12 .................................................. -- (16,848) --
Additional investment in Venezuela subsidiary .......................... -- -- (3,561)
Capital expenditures ................................................... (39,497) (29,951) (17,580)
Payments received on notes receivable from
Pilkington and affiliates ........................................... -- -- 1,585
Other investing activities ............................................. (1,730) 636 585
--------- --------- ---------
Net cash used in investing activities ............................. (41,227) (154,757) (18,971)
--------- --------- ---------
Cash flows from financing activities:
Sale of common stock ................................................... -- 62,765 --
Payments on equity participation loans/exercise
of stock options .................................................... 5,374 1,900 733
Net receipts (payments) under notes payable to
banks ............................................................... 2,731 (4,789) 6,785
Borrowings on long-term debt ........................................... -- 4,081 1,297
Payments on long-term debt ............................................. (4,628) (5,278) (1,735)
Net receipts under bank debt ........................................... 22,374 66,626 6,000
Issuance of senior notes ............................................... 99,596 -- --
Repurchase of senior subordinated notes ................................ (93,152) -- (17,766)
--------- --------- ---------
Net cash provided by (used in) financing activities ............... 32,295 125,305 (4,686)
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents ......................................................... (1,879) (959) (859)
--------- --------- ---------
Net increase in cash and cash equivalents .............................. 10,043 2,007 6,246
Cash and cash equivalents at beginning of period ....................... 24,401 22,394 16,148
--------- --------- ---------
Cash and cash equivalents at end of period ............................. $ 34,444 $ 24,401 $ 22,394
========= ========= =========
<FN>
The accompanying notes are integral part of these financial statements.
</FN>
</TABLE>
F-6
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Presentation
Sola International Inc. ("Company") designs, manufactures and distributes a
broad range of eyeglass lenses, primarily focusing on the fast growing plastic
lens segment of the global market. The Company operates in one business segment.
In June 1996, the Company acquired substantially all of the worldwide
ophthalmic business ("AO") of American Optical Corporation for cash
consideration of $103.6 million (together with the assumption of certain
liabilities) (the "AO Acquisition"). The AO Acquisition was accounted for under
the purchase method of accounting as of the closing date. The total purchase
price of $110.2 million (including acquisition costs of $6.5 million) exceeded
the historical book value of the net assets acquired and such excess was
allocated to the assets and liabilities based on their estimated fair values as
of the AO Acquisition date, including in-process research and development ($9.5
million) with no alternative future use. Independent appraisals were utilized
for determining the amounts assigned to certain purchased assets including
property, plant and equipment and in-process research and development.
In July 1996 the Company acquired control of Neolens, Inc. ("Neolens"), a
Florida corporation that manufactured polycarbonate eyeglass lenses and was a
supplier to the Company. The Company acquired Neolens for cash consideration of
approximately $15.5 million, including the assumption of Neolens debt (the
"Neolens Acquisition") and was accounted for under the purchase method of
accounting as of the closing date. The total purchase price of $16.8 million
(including acquisition costs of $1.3 million) included $17.6 million allocated
to goodwill and other intangible assets. Results of Neolens prior to acquisition
were not material to the Company's consolidated results of operations.
On October 5, 1995 the Company increased its investment in its Venezuela
joint venture, Sola de Venezuela Industria Optica, C.A. ("Sola Venezuela"), from
45% to 80%, and in March 1996, the Company exercised its option to acquire the
remaining 20% of the shares in Sola Venezuela. The purchase price for all the
shares, including the 20% option, and acquisition expenses, amounted to
approximately $3.6 million and was paid in cash. In addition to the cash
purchase price of the final 20% of Sola Venezuela, Sola will pay a contingent
payment based on the growth in the net income of Sola Venezuela in fiscal 1998
over the net income of Sola Venezuela in fiscal 1995, and such payment is not
anticipated to be significant. The acquisition has been accounted for under the
purchase method of accounting.
The accompanying consolidated financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting principles. The
Company's fiscal 1997 financial statements presented herein include the results
of operations and cash flows of the AO business for the nine months and ten days
ended March 31, 1997 and the results of operations and cash flows of the Neolens
business for the nine months ended March 31, 1997 subsequent to their respective
acquisitions.
2. Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned and controlled foreign subsidiaries. All significant
transactions between the entities have been eliminated.
F-7
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies - (Continued)
Cash and Cash Equivalents:
Cash equivalents consist primarily of short-term investments with an
original maturity of three months or less, carried at cost which approximates
market value.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets
(buildings--15 to 50 years; plant and office equipment--2 to 10 years).
Leasehold improvements and leased equipment are amortized over the lesser of
their useful lives or the remaining term of the related leases.
Impact of recently issued accounting standards:
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 15, 1997. The Company is
currently evaluating the impact of the application of the new rules on the
Company's consolidated financial statements.
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
shareholders. FAS 131 is effective for fiscal years beginning after December 15,
1997. The Company is currently evaluating the impact of the application of the
new rules on the Company's consolidated financial statements.
Intangible Assets:
Intangible assets, including trademarks, patents and licenses, are stated
at cost and amortized on a straight-line basis over their estimated useful lives
of 2 to 17 years. Legal costs incurred by the Company in successfully defending
its patents are capitalized to patent costs and amortized over the remaining
life of the patent. Goodwill is amortized over 40 years. As of March 31, 1998
and 1997 accumulated amortization was $17.9 million and $12.4 million,
respectively.
Debt issuance costs are being amortized to interest expense over the
respective lives of the debt instruments which range from five to ten years. As
of March 31, 1998 and 1997, accumulated amortization was $0.4 million and $1.5
million, respectively. As a result of repurchasing the Company's 9 5/8% Senior
Subordinated Notes in fiscal 1998 and 1996 (see Note 8), the Company wrote off
$1.5 million and $0.4 million, respectively, of debt issuance costs reflected on
the statement of income, together with the premium over accreted value, as an
extraordinary item, net of tax.
F-8
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies - (Continued)
Foreign Currency Translation:
The assets and liabilities and revenue and expense accounts of the
Company's foreign subsidiaries operating in non-highly inflationary economies
have been translated using the exchange rate at the balance sheet date and the
weighted average exchange rate for the period, respectively.
The net effect of the translation of the accounts of the Company's
subsidiaries has been included in equity as cumulative foreign currency
translation adjustments. Adjustments that arise from exchange rate changes on
transactions denominated in a currency other than the local currency are
included in income as incurred and are not material.
The Company has operations in Brazil, a hyper-inflationary country until
recently, for which the functional currency is the U.S. dollar. Commencing with
the fourth quarter of fiscal 1997 the Company's operations in Mexico have been
accounted for as hyper-inflationary economies. All translation and transaction
adjustments are included in determining net income.
Revenue Recognition:
Sales and related cost of sales are recognized upon shipment of product.
The Company's principal customers are wholesale distributors and processing
laboratories, retail chains, superoptical retail stores, independent eyecare
practitioners and sunglass manufacturers. No individual customer accounts for
more than 10% of net sales. The Company generally does not require collateral
from its customers, but performs on-going credit evaluations of its customers.
Advertising and Promotion Costs:
The Company's policy is to expense advertising and promotion costs as they
are incurred. The Company's advertising and promotion expenses were
approximately $12.3 million, $12.5 million, and $9.4 million for fiscal 1998,
1997, 1996, respectively.
Income Taxes:
The accompanying financial statements of the Company reflect the provisions
of FASB 109. Investment tax credits and research and development credits are
accounted for by the flow-through method.
Reclassifications:
Certain prior year items have been reclassified to conform with the current
year's presentation. These reclassifications had no impact on total assets or
net income.
Use of Estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies - (Continued)
Concentration of Credit Risks:
Cash and cash equivalents are invested in deposits with major banks in the
United States and in countries where subsidiaries operate. Deposits in these
banks may exceed the amount of insurance provided on such deposits. The Company
has not experienced any losses on its deposits of cash and cash equivalents.
Financial Instruments With Off-Balance-Sheet Risk:
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to reduce its exposure to market and interest
rate risk. Gains and losses due to rate fluctuations on such transactions are
recognized currently. Cash flows related to these gains and losses are reported
as operating or financing activities in the accompanying consolidated statements
of cash flows. As of March 31, 1998, certain of the Company's foreign
subsidiaries had entered into forward contracts for intercompany purchase
commitments, which are not significant, in amounts other than their home
currency. The carrying amount of the foreign exchange contracts approximates
fair value, which has been estimated based on current exchange rates. The
forward exchange contracts generally have varying maturities up to 9 months.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with credit risk.
Earnings (Loss) Per Share:
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all included periods have been presented, and where necessary,
restated to conform to the FAS 128 requirements.
F-10
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies - (Continued)
The following table sets forth the computation of basic and diluted
earnings per share for the fiscal years ended March 31, 1998, 1997 and 1996 (in
thousands, except per share data):
Year Ended March 31,
-------------------------------
1998 1997 1996
-------- -------- --------
Numerator:
Income before extraordinary item ............ $ 51,092 $ 30,897 $ 34,588
Extraordinary item, loss on repurchase of
senior subordinated notes, net of tax ..... (5,939) -- (912)
-------- -------- --------
Net income ............................... $ 45,153 $ 30,897 $ 33,676
======== ======== ========
Denominator:
Denominator for basic earnings per
share-
Weighted average common shares
outstanding............................. 24,400 23,561 21,785
Effect of dilutive securities:
Employee stock options.................. 1,147 1,298 1,159
Denominator for diluted earnings per
share-
-------- -------- --------
Weighted average common shares and
dilutive securities outstanding......... 25,547 24,859 22,944
======== ======== ========
Basic earnings (loss) per share:
Income before extraordinary item............. $ 2.09 $ 1.31 $ 1.59
Extraordinary item........................... (0.24) -- (0.04)
-------- -------- --------
Net income................................ $ 1.85 $ 1.31 $ 1.55
======== ======== ========
Diluted earnings (loss) per share:
Income before extraordinary item............. $ 2.00 $ 1.24 $ 1.51
Extraordinary item........................... (0.23) -- (0.04)
-------- -------- --------
Net income................................ $ 1.77 $ 1.24 $ 1.47
======== ======== ========
F-11
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Inventories
March 31,
----------------------------
1998 1997
-------- --------
(in thousands)
Raw materials .......................... $ 16,714 $ 17,505
Work in progress ....................... 6,872 6,948
Finished goods ......................... 104,966 76,936
Molds .................................. 41,204 37,245
-------- --------
$169,756 $138,634
======== ========
Molds comprise mainly finished goods for use by manufacturing affiliates in
the manufacture of spectacle lenses.
4. Property, Plant and Equipment
March 31,
---------------------
1998 1997
-------- --------
(in thousands)
Land, buildings and leasehold improvements ........... $ 40,467 $ 29,749
Machinery and office equipment ....................... 136,218 115,943
Equipment under capital leases ....................... 593 259
-------- --------
177,278 145,951
Less accumulated depreciation and amortization ....... 44,500 35,474
-------- --------
$132,778 $110,477
======== ========
Depreciation expense for fiscal 1998, 1997 and 1996 was $14.3 million,
$13.3 million and $11.1 million, respectively.
5. Notes Payable to Banks
Notes payable to banks at March 31, 1998 represent borrowings generally
denominated in foreign currencies under several foreign credit agreements with
lenders at interest rates ranging from 1.63% to 8.63%, and 24.0% for Brazilian
Real based borrowings. The Brazilian Real based borrowings were $351,000 at
March 31, 1998. The weighted average interest rates as of March 31, 1998 and
1997 were 8.06% and 8.68%, respectively. As of March 31, 1998, the Company had
total unused lines of credit amounting to $19.8 million and was in compliance
with minimum net worth requirements of agreements with certain foreign banks.
F-12
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Long-Term Debt
March 31,
---------
1998
----
(in thousands)
Uncollateralized term loans, interest rates varying
from 4.75% to 10.0% at March 31, 1998, principal and
interest payable through December 2008 ......................... $ 3,939
Loans collateralized by equipment and other assets,
interest rates varying from 3.92% to 7.85% at March
31, 1998, principal and interest payable through
March 2001 ..................................................... 246
Other........................................................... 110
-------
4,295
Less current portion (included in other current liabilities).... 2,505
-------
Long-term debt, less current portion............................ $ 1,790
=======
Aggregate annual maturities of long-term debt over the next five years and
thereafter are as follows:
Period Ending March 31, (in thousands)
-----------------------
1999......................................................... $2,505
2000......................................................... 678
2001......................................................... 262
2002......................................................... 191
2003......................................................... 182
Thereafter................................................... 477
The Company believes that as of March 31, 1998, the fair value of its
long-term debt approximates the carrying value of those obligations. The fair
value of the Company's long-term debt is estimated based on quoted market prices
for similar issues with the same interest rates that would be available to the
Company for similar debt obligations.
7. Bank Credit Agreement
In conjunction with the repurchase of its Senior Subordinated Notes (see
Note 8) the Company amended its bank credit agreement with The Bank of America
National Trust and Savings Association, for itself and as agent for a syndicate
of other financial institutions ("Amended Agreement"). The Amended Agreement
increased the Company's multicurrency revolving facility from $180 million to
$300 million. Borrowings are divided into two tranches. Tranche A permits
borrowings up to $30 million in either U.S. dollars or foreign currencies, to be
used for working capital and consummating certain permitted acquisitions.
Tranche B permits borrowings of up to $270 million and can be used for working
capital purposes, refinancing the term loans under the existing bank credit
agreement, repurchasing the Company's Senior Subordinated Notes, outstanding
letters of credit ($2.5 million as of March 31, 1998) and consummating certain
permitted acquisitions. The Tranche A Facility matures on October 31, 2000 and
the Tranche B Facility matures on May 31, 2001. In addition, the Amended
Agreement changed certain financial covenants, removed the requirement for
foreign subsidiary guarantees under the
F-13
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Bank Credit Agreement - (Continued)
Tranche A facility, increased the basket for incurring other unsecured
indebtedness to $150 million, and deleted the term facility portion.
Borrowings under the Tranche A and Tranche B revolvers (other than swing
line loans, which may only be Base Rate loans) may be made as Base Rate Loans or
LIBO Rate Loans. Base Rate Loans bear interest at rates per annum equal to the
higher of (a) 0.50% per annum above the latest Federal Funds Rate, or (b) the
Bank of America Reference Rate. LIBO Rate Loans bear interest at a rate per
annum equal to the sum of the LIBO Rate and a margin varying from 0.450% to
0.750% based on the Company's leverage ratio. Fixed rate borrowings in foreign
currencies bear interest at rates per annum equal to the referenced currency's
local IBOR plus a margin varying from 0.450% to 0.750% based on the Company's
leverage ratio. Local currency Base Rate Loans are also available at a spread
similar to US Base Rate Loans described above.
The Amended Agreement contains a number of covenants, including, among
others, covenants restricting the Company and its subsidiaries with respect to
the incurrence of indebtedness (including contingent obligations), the creation
of liens, the making of certain investments and loans, engaging in unrelated
businesses, transactions with affiliates, the consummation of certain
transactions such as sales of substantial assets, mergers or consolidations,
margin stock purchases and other transactions. The Amended Agreement also
restricts the ability of the Company and its subsidiaries to make restricted
payments in the nature of, among other things, (i) declaring, making or paying
dividends or other distributions in excess of prescribed levels and (ii)
purchasing, redeeming or retiring shares of the Company's capital stock in
excess of prescribed levels. The Company and its subsidiaries are also required
to comply with certain financial tests and maintain certain financial ratios.
8. Senior Subordinated Notes
The Company's 6 7/8% Senior Notes ("Notes") were issued under an indenture
dated March 19, 1998, among the Company and State Street Bank and Trust Company
of California, N.A., as Trustee (the "Indenture"). The Notes are unsecured
senior obligations of the Company, limited to $100 million aggregate principal
amount at maturity, and will mature on March 15, 2008. Interest on the notes is
payable semiannually on March 15 and September 15 of each year, commencing
September 15, 1998.
The Notes will be redeemable, as a whole or from time to time in part, at
the option of the Company on any date (a "Redemption Date") at a redemption
price equal to the greater of (i) 100% of the principal amount of the Notes to
be redeemed or (ii) the sum of the present values of the Remaining Scheduled
Payments (as defined) thereon discounted to such Redemption Date on a semiannual
basis at the Treasury Rate (as defined) plus 20 basis points, plus in either
case accrued interest (as defined).
The Notes rank pari passu to all other Senior Indebtedness, as defined in
the Indenture, of the Company. The Company believes that as of March 31, 1998,
the fair value of its Senior Subordinated Notes approximates the carrying value
of those obligations.
During fiscal 1998 the Company repurchased all of its 9 5/8% Senior
Subordinated Notes due 2003. As a result of the purchase the Company recorded an
extraordinary charge of $5.9 million for fiscal 1998 resulting from the
write-off of unamortized debt issuance costs and premium over accreted value,
net of tax of $3.8 million. The repurchase was funded by borrowings under the
Amended Agreement.
F-14
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Common Stock
Common Stock
The Company has entered into loan agreements with certain members of the
Company's management to enable them to invest in the Company's common stock. As
of March 31, 1998 and 1997, loans amounting to $0.2 million and $0.3 million,
respectively, which bear interest at 7.5% per annum, payable quarterly, and
mature on December 1, 1998, were outstanding under this plan. These loans are
secured by the common stock and have been reflected as a reduction in
shareholders' equity on the consolidated balance sheets.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
On February 23, 1995 all outstanding stock options under the previous
corporate structure were assumed by the Company and converted into options to
acquire shares of the Company's Common Stock, with the number of shares subject
to such option and exercise price thereof adjusted appropriately (the "Existing
Option Plan"). The Existing Option Plan has been amended to provide that no new
options will be granted thereunder.
The Company adopted the Sola International Inc. Stock Option Plan (the
"International Plan"), effective February 15, 1995. On August 16, 1996 the
shareholders of the Company ratified an increase of 500,000 to the number of
options available for issuance under the International Plan. The maximum number
of shares of Common Stock with respect to which options may be granted under the
International Plan is 1,355,868 shares plus, subject to the requirement of rule
16b-3 of the Securities Exchange Act of 1934, if applicable, the number of
shares of Common Stock subject to existing options under the Existing Option
Plan, which expire or terminate without exercise for any reason, which number of
shares underlying Existing Options shall not exceed 1,645,219. Under the
International Plan certain key employees, and non employee directors and/or
creditors of the Company and its subsidiaries and affiliates (each an
"Optionee") are eligible to receive non-qualified stock options (the
"International Options") to acquire shares of common stock of the Company.
International Options granted to an Optionee are evidenced by an agreement
between the Optionee and the Company which contains terms not inconsistent with
the International Plan which the committee appointed to administer the
International Plan, deemed necessary or desirable (the "International Option
Agreement").
Pursuant to the Existing Option Plan and the International Plan ("Plans"),
unless otherwise set forth in an Existing Option Agreement or an International
Option Agreement, 20% of the Options granted to an Optionee vest on the date of
grant, with an additional 20% vesting on each successive one-year anniversary of
the date of grant. Options not previously vested become fully vested in the
event of a sale or other disposition of 80% or more of the outstanding capital
stock or substantially all of the assets of the Company, or upon a Merger or
consolidation of the Company and its subsidiaries and affiliates unless the
merger or consolidation is one in which the Company is the surviving corporation
or one in which control of the Company and its subsidiaries and affiliates does
not change (a "Termination Event").
F-15
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Common Stock - (Continued)
However, Existing Options which are not exercised on or prior to a Termination
Event lapse upon the closing of a Termination Event. All non-vested Options of
an Optionee lapse upon such Optionee's termination of employment for any reason.
An Optionee's vested Options lapse 45 days after termination of such Optionee's
employment with the Company and its subsidiaries and affiliates for any reason
other than death or disability, in which case such options terminate 180 days
after such termination; provided, however, that such options lapse immediately
in the event an Optionee's employment with the Company and its subsidiaries and
affiliates is terminated for cause.
Pro Forma Disclosures
Pro Forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions: risk-free
interest rates of 5.67%, 6.67% and 6.67%, no dividend yield, volatility factors
of the expected market price of the Company's common stock of .373, .389 and
.389, and a weighted-average expected life of the option of 4 years, for fiscal
1998, 1997 and 1996, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except for earnings per share
information):
Year Ended March 31,
---------------------------------
1998 1997 1996
------- ------- -------
Pro forma net income .................... $44,157 $30,312 $33,603
Pro forma earnings per share:
Basic........................... $ 1.81 $ 1.29 $ 1.54
Diluted......................... $ 1.73 $ 1.22 $ 1.46
The pro forma effect on net income during the phase-in period of FAS 123
may not be representative of the effects on pro forma net income in future
periods.
F-16
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Common Stock - (Continued)
Option Activity
<TABLE>
A summary of the Company's stock option activity, and related information
for fiscal 1996, 1997 and 1998 follows:
<CAPTION>
Number of Securities Weighted-
Underlying Options Average
(in thousands) Exercise Price
-------------- --------------
<S> <C> <C>
Options outstanding as of March 31, 1995 ............................................. 2,166 $ 11.34
Options granted during fiscal 1996 ................................................. 113 24.45
Options exercised in fiscal 1996 ................................................... (17) 12.70
Options cancelled in fiscal 1996 ................................................... (35) 13.81
Options outstanding as of March 31, 1996 ............................................. 2,227 11.96
Options granted during fiscal 1997 ................................................. 394 34.01
Options exercised in fiscal 1997 ................................................... (145) 12.02
Options cancelled in fiscal 1997 ................................................... (47) 17.98
Options outstanding as of March 31, 1997 ............................................. 2,429 15.43
Options granted during fiscal 1998 ................................................. 413 33.08
Options exercised in fiscal 1998 ................................................... (460) 11.53
Options cancelled in fiscal 1998 ................................................... (153) 34.44
Options outstanding as of March 31, 1998 ............................................. 2,229 18.20
Options exercisable as of March 31, 1998 ............................................. 1,568 14.14
Weighted - average fair value of options granted during fiscal year:
1998 ............................................................................... $ 12.46
1997 ............................................................................... $ 13.65
</TABLE>
Options exercisable as of March 31, 1996 and March 31, 1997 in thousands
were 1,119 and 1,486, respectively. Options available for grant as of March 31,
1996, 1997 and 1998 in thousands were 257, 409 and 149, respectively. Exercise
prices for options granted during fiscal 1998 ranged from $29.81 to $41.44. The
weighted-average remaining contractual life of those options is four years.
10. Defined Contribution Plans
The Company sponsors several defined contribution plans covering
substantially all U.S. and U.K. employees. The plans provide for limited Company
matching of participants' contributions. Contributions to all defined
contribution plans charged to operations were $1.2 million, $1.0 million and
$0.9 million for fiscal 1998, 1997 and 1996, respectively.
11. Defined Benefit Retirement Plans
The Company participates in a defined benefit pension plan ("Domestic
Pension Plan") covering substantially all full-time domestic employees. Benefit
payments under the plan are based principally on
F-17
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Defined Benefit Retirement Plans - (Continued)
employee compensation during the last five or ten year period prior to
retirement and/or length of service. New employees are eligible to participate
in the plan within one year of employment and are vested after five years of
service. The Company's policy is to fund such amounts as are necessary, on an
actuarial basis, to provide for the plan's current service costs and the plan's
prior service costs over their amortization periods.
The Company also participates in a contributory defined benefit pension
plan covering certain Australian employees ("International Pension Plan").
Benefits are generally based on length of service and on employee compensation
during the last three years of service prior to retirement. The Company's policy
is to fund such amounts as are necessary, on an actuarial basis, to provide for
the plan's current service costs and the plan's prior service costs over their
amortization periods.
The following table provides information on the status of the Domestic
Pension Plan and the International Pension Plan.
<TABLE>
Net periodic pension cost includes the following:
<CAPTION>
Year Ended March 31,
-------------------------------------------
1998 1997 1996
------- ------- -------
(in thousands)
Domestic Pension Plan:
<S> <C> <C> <C>
Service cost-benefits earned during the period ..................... $ 1,862 $ 1,662 $ 1,370
Interest cost on projected benefit obligation ...................... 810 702 509
Actual return on plan assets ....................................... (2,381) (400) (180)
Net amortization and deferral ...................................... 1,805 83 25
------- ------- -------
Total net periodic pension cost .................................... $ 2,096 $ 2,047 $ 1,724
======= ======= =======
International Pension Plan:
Service cost-benefits earned during the period ..................... $ 1,433 $ 1,843 $ 1,539
Interest cost on projected benefit obligation ...................... 650 731 684
Actual return on plan assets ....................................... (1,860) (1,344) (1,454)
Net amortization and deferral ...................................... 905 308 583
------- ------- -------
Total net periodic pension cost .................................... $ 1,128 $ 1,538 $ 1,352
======= ======= =======
</TABLE>
F-18
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Defined Benefit Retirement Plans - (Continued)
The significant actuarial assumptions for the following tables, as of the
period-end measurement dates, are as follows:
Year Ended March 31,
------------------
1998 1997 1996
---- ---- ----
Domestic Pension Plan:
Discount rate .................................. 6.35% 7.35% 7.0%
Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
Rate of increase in future compensation
levels ....................................... 5.0% 5.0% 5.0%
International Pension Plan:
Discount rate .................................. 6.5% 7.5% 8.0%
Expected long-term rate of return on plan assets 7.5% 8.0% 8.5%
Rate of increase in future compensation
levels ....................................... 4.0% 5.0% 5.5%
The change in the actuarial assumptions for fiscal 1998, 1997 and 1996 have
not had a significant effect on the funded status of the Domestic or
International Pension Plans.
At March 31, 1998, the Domestic Pension Plan and International Pension Plan
assets include cash equivalents, fixed income securities and common stock.
F-19
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Defined Benefit Retirement Plans - (Continued)
<TABLE>
The funded status as of the year-end measurement dates was as follows:
<CAPTION>
Year Ended March 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Domestic Pension Plan:
Actuarial present value of benefit obligations:
Vested benefit obligation ......................................... $ 7,556 $ 4,294 $ 2,776
======== ======== ========
Accumulated benefit obligation .................................... $ 8,012 $ 4,652 $ 3,091
======== ======== ========
Projected benefit obligation ...................................... $ 16,884 $ 11,301 $ 9,603
Plan assets at fair value ......................................... 10,441 6,021 3,733
-------- -------- --------
Projected benefit obligation in excess of plan assets ............. 6,443 5,280 5,870
Unrecognized net loss ............................................. (1,754) (498) (1,179)
Unrecognized prior service cost ................................... -- -- --
Unrecognized transition asset, net ................................ -- -- --
-------- -------- --------
Accrued pension cost .............................................. $ 4,689 $ 4,782 $ 4,691
======== ======== ========
International Pension Plan:
Actuarial present value of benefit obligations:
Vested benefit obligation ......................................... $ 10,591 $ 11,295 $ 10,480
======== ======== ========
Accumulated benefit obligation .................................... $ 10,625 $ 11,297 $ 10,486
======== ======== ========
Projected benefit obligation ...................................... $ 10,810 $ 11,446 $ 10,827
Plan assets at fair value ......................................... 12,612 13,333 12,032
-------- -------- --------
Projected benefit obligation less than plan assets ................ (1,802) (1,887) (1,205)
Unrecognized net gain ............................................. 1,633 1,657 947
Unrecognized transition asset, net ................................ 169 230 258
-------- -------- --------
Accrued pension cost .............................................. $ -- $ -- $ --
======== ======== ========
</TABLE>
F-20
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Income Taxes
The domestic and foreign components of income before provision for income
taxes, minority interest and extraordinary item are as follows:
Year Ended March 31,
-----------------------------------------
1998 1997 1996
------- ------- -------
(in thousands)
Domestic .................... $42,918 $14,351 $27,158
Foreign ..................... 33,034 27,035 21,454
------- ------- -------
$75,952 $41,386 $48,612
======= ======= =======
The components of the provision for income taxes are as follows:
Year Ended March 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
Current:
Federal and State ........................ $ 9,082 $ 6,142 $ 3,756
Foreign .................................. 8,006 7,178 8,210
Deferred:
Federal and State ........................ 7,808 1,720 9,181
Foreign .................................. 4,891 1,534 1,134
Valuation allowance adjustment ............. (4,418) (9,837) (9,858)
Tax benefit allocated to reduction of
goodwill ................................. -- 4,000 1,200
-------- -------- --------
$ 25,369 $ 10,737 $ 13,623
======== ======== ========
During fiscal 1998 and 1997, the Company recognized certain tax benefits
related to stock option plans in the amount of $2.2 million and $0.3 million,
respectively. Such benefits were recorded as a reduction of income taxes payable
and an increase in additional paid-in capital.
F-21
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Income Taxes - (Continued)
A reconciliation between income tax provisions computed at the U.S. federal
statutory rate and the effective rate reflected in the statements of income is
as follows:
Year Ended March 31,
----------------------
1998 1997 1996
---- ---- ----
Provision at statutory rate ........................ 35.0% 35.0% 35.0%
State tax provision, net of federal effect ......... 3.5 4.0 3.6
Valuation allowance ................................ (5.8) (23.8) (15.2)
Tax benefit allocated to reduction of goodwill ..... -- 9.7 2.5
Income of foreign subsidiaries at differing
statutory rates ................................. (1.3) (2.4) 9.3
Tax benefit from NOL utilization ................... -- -- (5.7)
Other .............................................. 2.0 3.4 (1.5)
---- ---- ----
33.4% 25.9% 28.0%
==== ==== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
March 31,
-----------------
1998 1997
------- -------
(in thousands)
Deferred tax assets:
Accounts receivable, principally due to allowances for
doubtful accounts ...................................... $ 2,064 $ 2,249
Inventories, principally due to reserves ................. 3,191 3,591
Property, plant and equipment, principally due to
differences in depreciation ............................ 4,874 5,868
Accruals for employee benefits ........................... 8,322 8,904
In-process research and development ...................... 12,281 13,225
Other assets ............................................. 3,610 4,746
Net operating losses ..................................... 9,188 11,221
------- -------
Total gross deferred tax assets .......................... 43,530 49,804
Less valuation allowance ................................. 9,801 14,219
------- -------
Net deferred tax assets .................................. $33,729 $35,585
======= =======
Deferred tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation ............................ $12,102 $ 9,262
Inventories .............................................. 2,752 2,641
Amortization of goodwill ................................. 5,653 3,999
Unremitted income of foreign subsidiaries ................ 3,834 2,700
Other .................................................... 4,071 3,385
------- -------
Net deferred tax liabilities ............................. $28,412 $21,987
======= =======
Net deferred tax assets less net deferred tax
liabilities ............................................ $ 5,317 $13,598
======= =======
F-22
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Income Taxes - (Continued)
In fiscal 1997 a valuation allowance of $8.6 million was established
against deferred tax assets acquired in the AO Acquisition. Movements in the
valuation allowances in fiscal 1998, 1997 and 1996 relate primarily to
realization of NOL's or changes in the Company's evaluation of the realizability
of deferred tax assets.
For tax purposes, the Company's foreign subsidiaries, at March 31, 1998,
had net operating loss carryforwards of $32.9 million. Of this amount, $31.0
million does not expire, and $1.9 million expires between 2002 and 2007. The
deferred tax assets reflected in the Company's accounts as of March 31, 1998
before valuation allowances reflect these NOL's.
The Company has not provided for U.S. federal income and foreign
withholding taxes on $21 million of non-U.S. subsidiaries' undistributed
earnings as of March 31, 1998 because such earnings are intended to be
reinvested indefinitely. Upon distribution of those earnings in the form of
dividends or otherwise, the Company would be subject to U.S. income taxes
(subject to an adjustment for foreign tax credits). Determination of the amount
of unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculation.
13. Commitments
The Company leases certain warehouse and office facilities, office
equipment and automobiles under non cancelable operating leases which expire in
1998 through 2012. The Company is responsible for taxes, insurance and
maintenance expenses related to the leased facilities. Under the terms of
certain lease agreements, the leases may be extended, at the Company's option,
and certain of the leases provide for adjustments of the minimum monthly rent.
Future minimum annual lease payments under the leases are as follows:
Period Ending March 31,
- ----------------------- (in thousands)
1999.......................................................... $4,774
2000.......................................................... 3,909
2001.......................................................... 2,730
2002.......................................................... 2,540
2003.......................................................... 2,563
Thereafter.................................................... 5,449
Rent expense for fiscal 1998, 1997, and 1996 was $7.8 million, $5.6 million
and $5.4 million, respectively.
14. Contingencies
The Company is subject to environmental laws and regulations concerning
emissions to the air, discharges to surface and subsurface waters and the
generation, handling, storage, transportation, treatment and disposal of waste
materials.
F-23
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Contingencies - (Continued)
The Company is currently participating in a remediation program of one of
its manufacturing facilities under the Comprehensive Environmental Response,
Compensation and Liability Act and the Superfund Amendments and Reauthorization
Act of 1986. In March 1997 the U.S. Environmental Protection Agency ("EPA")
consented to the Company curtailing clean-up activities for a six month period
which ended in September. The Company continued to monitor contamination levels
during the curtailment period. During the quarter ended December 31, 1997 a
report on contamination levels, and the impact of curtailed activities, was
submitted to the EPA, and such report is currently under review. The report
indicates no significant impact on the site from the curtailed activities, and
the EPA has consented to continued curtailment of activities until such time as
they have concluded their review of the report. The Company expects continued
reduction of clean-up activities due to relatively low levels of contamination
existing at the site.
The Company is also involved in other investigations of environmental
contamination at several U.S. sites. Some clean-up activities have been
conducted and investigations are continuing to determine future remedial
requirements, if any.
Under the terms of the sale agreement with Pilkington plc ("Pilkington"),
for the purchase of the Sola business in December 1993 ("Acquisition"),
Pilkington has indemnified the Company with regard to expenditures subsequent to
the Acquisition for certain environmental matters relating to circumstances
existing at the time of the Acquisition. Under the terms of the indemnification,
the Company is responsible for the first $1 million spent on such environmental
matters, Pilkington and the Company share equally the cost of any further
expenditures between $1 million and $5 million, and Pilkington retains full
liability for any expenditures in excess of $5 million.
In the ordinary course of business, various legal actions and claims
pending have been filed against the Company. While it is reasonably possible
that such contingencies may result in a cost greater than that provided for in
the financial statements, it is the opinion of management that the ultimate
liability, if any, with respect to these matters, will not materially affect the
consolidated operations or financial position of the Company.
F-24
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Worldwide Operations
The Company operates in the ophthalmic industry in the design and
manufacture of eyeglass lenses.
<TABLE>
A summary of information about the Company's geographic areas is as follows
(in thousands):
<CAPTION>
North Rest of
America Europe World Eliminations Total
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1998
Revenue:
External .................................. $ 281,158 $ 160,697 $ 105,880 $ -- $ 547,735
Internal .................................. 42,784 57,170 47,697 (147,651) --
Operating income ............................. 53,322 25,502 15,007 (1,125) 92,706
Identifiable assets .......................... 370,792 164,891 156,003 (7,628) 684,058
Year Ended March 31, 1997
Revenue:
External .................................. $ 234,173 $ 150,013 $ 104,503 $ -- $ 488,689
Internal .................................. 30,129 59,455 43,894 (133,478) --
Operating income ............................. 21,416 19,414 16,245 272 57,347
Identifiable assets .......................... 327,590 151,033 131,906 (5,021) 605,508
Year Ended March 31, 1996
Revenue:
External .................................. $ 190,785 $ 106,726 $ 90,198 $ -- $ 387,709
Internal .................................. 12,414 57,300 38,950 (108,664) --
Operating income ............................. 35,318 16,645 9,612 (822) 60,753
Identifiable assets .......................... 204,733 115,205 105,096 (8,185) 416,849
</TABLE>
Internal sales represent intercompany sales between regions at a mark-up
from cost; the elimination of any profit arising from such sales is reflected in
eliminations in determining operating income.
For fiscal 1998, 1997 and 1996, the corporate headquarters costs of $9.7
million, $6.9 million and $7.7 million, respectively, are included in the North
American geographic area.
F-25
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Pro Forma Data
The following pro forma data, as restated for the adoption of FAS 128, was
prepared to illustrate the estimated effect of the AO Acquisition and the
financing related thereto, as if the Acquisition had occurred as of the
beginning of each period presented:
Year Ended March 31,
---------------------------
1997 1996
--------- -----------
Net sales .................................... $ 507,713 $ 475,274
========= ===========
Income before extraordinary item ............. $ 41,968 $ 42,093
========= ===========
Net income ................................... $ 41,968 $ 41,181
========= ===========
Earnings per share - basic:
Income before extraordinary item ........... $ 1.72 $ 1.75
========= ===========
Net income ................................. $ 1.72 $ 1.71
========= ===========
Earnings per share - diluted:
Income before extraordinary item ........... $ 1.64 $ 1.67
========= ===========
Net income ................................. $ 1.64 $ 1.63
========= ===========
These pro forma results of operations have been prepared for comparison
purposes only, and do not purport to be indicative of what the results would
have been had the AO Acquisition occurred at the beginning of each period
presented. As a result of the AO Acquisition the Company has incurred two
non-recurring charges during fiscal 1997: (i) a $7.2 million charge to cost of
sales for the amortization associated with an inventory write-up to fair value
during the six months ended September 30, 1996; and (ii) a $9.5 million charge
for the write-off of in-process research and development all of which was
recorded in the quarter ended June 30, 1996. These charges, and the related
provision for tax thereon, have been excluded from the pro forma results as they
are non-recurring. The pro forma data above does not include pro forma
adjustments for the Neolens Acquisition as the results of Neolens prior to
acquisition were not material to the Company's consolidated results of
operations.
F-26
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
17. Supplementary Cash Flow Data (in thousands)
<CAPTION>
Year Ended March 31,
-------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid ...................................................................... $23,411 $19,273 $11,220
======= ======= =======
Taxes paid ......................................................................... $14,599 $14,075 $11,486
======= ======= =======
Supplemental disclosures of non-cash investing and financing activities:
Capital expenditures accrued but not paid .......................................... $ 3,223 $ 3,701 $ 1,646
======= ======= =======
</TABLE>
F-27
<PAGE>
SOLA INTERNATIONAL INC.
QUARTERLY FINANCIAL DATA
(in thousands, except per share data)
(unaudited)
Quarter Ended
-----------------------------------------
June 30, Sept. 30, Dec. 31, March 31,
1996 1996 1996 1997
-------- -------- -------- --------
Net sales .......................... $109,536 $128,194 $119,721 $131,238
Gross profit ....................... 51,487 53,109 57,124 62,434
Operating income ................... 6,082 13,975 15,261 22,029
Net income ......................... 2,162 6,969 7,840 13,926
Earnings per share - basic (1):
Net income ....................... 0.10 0.29 0.32 0.57
Earnings per share - diluted (1):
Net income ....................... 0.09 0.27 0.31 0.55
(1) As restated for the adoption of FAS 128.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------
June 30, Sept. 30, Dec. 31, March 31,
1997 1997 1997 1998
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net sales .............................. $137,621 $135,731 $ 129,272 $145,111
Gross profit ........................... 64,827 63,839 62,367 67,025
Operating income ....................... 21,257 21,883 20,983 28,583
Income before extraordinary item ....... 11,089 11,778 11,235 16,990
Net income ............................. 11,089 11,778 5,312 16,974
Earnings (loss) per share - basic (2):
Income before extraordinary item ..... 0.46 0.48 0.46 0.69
Extraordinary item ................... -- -- (0.24) --
Net income ........................... 0.46 0.48 0.22 0.69
Earnings (loss) per share - diluted (2):
Income before extraordinary item ..... 0.44 0.46 0.44 0.66
Extraordinary item ................... -- -- (0.23) --
Net income ........................... 0.44 0.46 0.21 0.66
<FN>
(2) The quarter end June 30 and September 30, 1997 have been restated for the
adoption of FAS 128.
</FN>
</TABLE>
F-28
<PAGE>
<TABLE>
SCHEDULE II
SOLA INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance, Charged Balance,
Beginning to End of
of Period Expenses Deductions Other(1) Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1998
Allowance for doubtful accounts ..................... $ 4,030 $ 1,337 $ (254) $ (157) $ 4,956
======= ======= ======= ======== =======
Allowance for excess and obsolete
inventory ........................................ $ 4,471 $ 1,833 $(1,578) $ (366) $ 4,360
======= ======= ======= ======== =======
Year ended March 31, 1997
Allowance for doubtful accounts ..................... $ 5,424 $ 1,258 $(2,652) $ -- $ 4,030
======= ======= ======= ======== =======
Allowance for excess and obsolete
inventory ........................................ $ 3,434 $ 1,593 $ (556) $ -- $ 4,471
======= ======= ======= ======== =======
Year ended March 31, 1996
Allowance for doubtful accounts ..................... $ 2,854 $ 2,846 $ (230) $ (46) $ 5,424
======= ======= ======= ======== =======
Allowance for excess and obsolete
inventory ........................................ $ 2,534 $ 1,090 $ (201) $ 11 $ 3,434
======= ======= ======= ======== =======
<FN>
- -------------------------
(1) Other relates primarily to foreign currency translation adjustments.
</FN>
</TABLE>
S-1
<PAGE>
<TABLE>
INDEX OF EXHIBITS
<CAPTION>
Page Number or
Exhibit No. Description Incorporation by Reference to
----------- ----------- -----------------------------
<S> <C> <C>
2.1 Purchase agreement between Sola Filed as Exhibit 2 to the Form 8-K of the
International Inc. and American Optical Company, dated May 6, 1996, and
Corporation, dated as of May 6, 1996 incorporated herein by reference
3.1 Amended and Restated Certificate of Filed as Exhibit 3.1 to the Annual Report
Incorporation of the Company on Form 10-K of the Company for the fiscal
year ending March 31, 1995, dated June 7,
1995, and incorporated herein by reference
3.2 Amended and Restated By-Laws of the Filed as Exhibit 3.1 to the Company's
Company Quarterly Report on Form 10-Q for the
period ending September 30, 1995, and
incorporated herein by reference
10.1 Purchase Agreement, dated as of September Filed as Exhibit 10.1 to the Registration
1, 1993 by and between Sola Holdings Statement, as amended, on Form S-1 of the
Inc., Pilkington plc and certain of Company (File No. 33-68824) and
Pilkington plc's subsidiaries incorporated herein by reference
10.2* Confidential Severance Agreement between Filed as Exhibit 10 to the Company's
Sola International Inc. and John E. Quarterly Report on Form 10-Q for the
Heine, dated as of November 20, 1996 period ending December 31, 1996, and
incorporated herein by reference
10.3* Employment Agreement between Sola Optical Filed as Exhibit 10.4 to the Registration
USA, Inc. and James H. Cox, dated as of Statement, as amended, on Form S-1 of the
February 26, 1993 Company (File No. 33-68824) and
incorporated herein by reference
10.4* Assignment and Amendment of Employment Filed as Exhibit 10.7 to the Registration
Agreement, dated as of December 1, 1993, Statement, as amended, on Form S-1 of the
among Sola Optical USA, Inc., Sola Group Company (File No. 33-87892) and
Ltd. and James H. Cox incorporated herein by reference
10.5* Employment Agreement between Sola Filed as Exhibit 10.2 to the Registration
International Inc. and Steven M. Neil, Statement, as amended, on Form S-3 of the
dated as of September 2, 1997 Company (File No. 333-45929) and
incorporated herein by reference
10.6* Assignment and Amendment of Employment Filed as Exhibit 10.12 to the Registration
Agreement, dated as of December 1, 1993, Statement, as amended, on Form S-1 of the
among Sola Optical USA, Inc., Sola Group Company (File No. 33-87892) and
Ltd. and Stephen J. Lee incorporated herein by reference
10.7* Employment Agreement between Sola Optical
USA, Inc. and Theodore Gioia dated as of
February 26, 1993
10.8* Assignment and Amendment of Employment
Agreement, dated as of December 1, 1993
among Sola Optical USA, Inc., Sola Group
Ltd. and Theodore Gioia
10.9* Employment Agreement between Sola Optical
UK Ltd. and Mark T. Mackenzie dated as of
May 16, 1996
E-1
<PAGE>
INDEX OF EXHIBITS
(continued)
Page Number or
Exhibit No. Description Incorporation by Reference to
----------- ----------- -----------------------------
10.10* Employment Agreement between Sola
International Inc. and Mark T. Mackenzie
dated as of May 16, 1996
10.11 Multicurrency Credit Agreement, dated as Filed as Exhibit 4 to the Report on Form
of June 14, 1996, among Sola 8-K/A of the Company, dated May 6, 1996,
International Inc., and the other and incorporated herein by reference
Borrowers as the Borrowers, the
Subsidiary Guarantors, Bank of America
National Trust and Savings Association,
as Agent and Letter of Credit Issuing
Bank, The First National Bank of Boston
and The Bank of Nova Scotia, as
Co-Agents, and the Other Financial
Institutions Party Thereto
10.12 Amendment No. 1 to the Multicurrency Filed as Exhibit 10.1 to the Company's
Credit Agreement, dated as of June 14, Quarterly Report on Form 10-Q for the
1996, among Sola International Inc., and period ending December 31, 1997, and
the other Borrowers as the Borrowers, the incorporated herein by reference
Subsidiary Guarantors, The Bank of
America National Trust and Savings
Association, as Agent and Letter of
Credit Issuing Bank, The First National
Bank of Boston and The Bank of Nova
Scotia, as Co-Agents, and the Other
Financial Institutions Party Thereto
10.13 Amendment No. 2 to the Multicurrency As above except Exhibit 10.2
Credit Agreement, dated as of June 14,
1996, among Sola International Inc., and
the other Borrowers as the Borrowers, the
Subsidiary Guarantors, The Bank of
America National Trust and Savings
Association, as Agent and Letter of
Credit Issuing Bank, The First National
Bank of Boston and The Bank of Nova
Scotia, as Co-Agents, and the Other
Financial Institutions Party Thereto
10.14 Amendment No. 3 to the Multicurrency Filed as Exhibit 10.1 to the Company's
Credit Agreement, dated as of June 14, Registration Statement, as amended, on
1996, among Sola International Inc., and Form S-3 of the Company (File No
the other Borrowers as the Borrowers, the 333-45929) and incorporated herein by
Subsidiary Guarantors, The Bank of reference
America National Trust and Savings
Association, as Agent and Letter of
Credit Issuing Bank, The First National
Bank of Boston and The Bank of Nova
Scotia, as Co-Agents, and the Other
Financial Institutions Party Thereto
10.15 Lease Agreement, dated May 10, 1993, Filed as Exhibit 10.9 to the Registration
between Sola Optical Taiwan Ltd. and Statement, as amended, on Form S-1 of the
Chang Jin Co., Ltd. (including English Company (File No. 33-68824) and
summary of principal terms) incorporated herein by reference
E-2
<PAGE>
INDEX OF EXHIBITS
(continued)
Page Number or
Exhibit No. Description Incorporation by Reference to
----------- ----------- -----------------------------
10.16 Lease Agreement between Optical Sola de Filed as Exhibit 10.10 to the Registration
Mexico and Messrs. Salvadore Statement, as amended, on Form S-1 of the
Luttenroth-Camou and Carlos Company (File No. 33-68824) and
Lutteroth-Lomeli (including English incorporated herein by reference
summary of principal terms)
10.17* Sola Investors Inc. Stock Option Plan Filed as Exhibit 10.11 to the Annual
Report on Form 10-K of the Company, dated
March 31, 1994, and incorporated herein by
reference
10.18* Amendment Number One to Sola Investors Filed as Exhibit 10.21 to the Registration
Inc. Stock Option Plan Statement, as amended, on Form S-1 of the
Company (File No. 33-87892) and
incorporated herein by reference
10.19* Sola International Inc. Stock Option Plan Filed as Exhibit 10.22 to the Registration
Statement, as amended, on Form S-1 of the
Company (File No. 33-87892) and
incorporated herein by reference
10.20* Sola International Inc. Stock Option Filed as Exhibit A and Exhibit B to the
Plan, Amendment Number One and Amendment fiscal 1996 Proxy Statement of Sola
Number Two International Inc., dated July 12, 1996,
and incorporated herein by reference
10.21 Indenture by and between the Company and
State Street Bank and Trust Company of
California, N.A., as Trustee, with
respect to the 6 7/8% Notes due 2008
10.22* Form of Indemnification Agreement between Filed as Exhibit 10.24 to the Registration
the executive officers and directors of Statement, as amended, on Form S-1 of the
the Company and the Company Company (File No. 33-87892) and
incorporated herein by reference
10.23* Sola International Inc. Management Filed as Exhibit 10.25 to the Registration
Incentive Plan Statement, as amended, on Form S-1 of the
Company (File No. 33-87892) and
incorporated herein by reference
10.24 Sola Optical 401(k) Savings Plan Filed as Exhibit 4.4 to the Registration
Statement on Form S-8 of the Company (File
No. 333-4489), filed with the Commission
on May 23, 1996, and incorporated herein
by reference
10.25 Trust Agreement entered into as of May Filed as Exhibit 4.5 to the Registration
15, 1996 between Sola Optical USA, Inc. Statement on Form S-8 (File No. 333-4489)
and Chase Manhattan Bank, N.A. of the Company, filed with the Commission
on May 23, 1996, and incorporated herein
by reference
12.1 Statement regarding ratio of earnings to
fixed charges
21.1 List of subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, Independent
Auditors
E-3
<PAGE>
INDEX OF EXHIBITS
(continued)
Page Number or
Exhibit No. Description Incorporation by Reference to
----------- ----------- -----------------------------
27.1 Financial Data schedule
99.1 Factors Affecting Future Operating Results
<FN>
- -------------------------
*Compensatory plan or management agreement
</FN>
</TABLE>
E-4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 26th day of February, 1993, by and
between SOLA Optical USA, Inc. (the "Company") and Theodore Gioia (the
"Executive").
WITNESSETH:
WHEREAS, the Executive is currently employed by the Company; and
WHEREAS, the Company and the Executive wish to provide for the continued
employment of the Executive with the Company on the terms and conditions set
forth herein.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Term of Employment.
(a) The Company hereby agrees to continue the employment of the
Executive and the Executive hereby accepts continued employment with the
Company, in the position and with the duties and responsibilities as set forth
in Section 2 hereof for the term of employment under this Agreement (the
"Term"), subject to the terms and conditions of this Agreement.
(b) The Term shall commence as of the date hereof and shall continue
until (but not including) the second anniversary of that date or such later date
to which the
<PAGE>
Term may be extended in accordance with the provisions of Section 7 hereof.
2. Position; Duties and Responsibilities. During the Term, the Executive
shall be employed by the Company as Vice President Strategic Planning of the
SOLA Group. The duties and responsibilities of the Executive shall be those
currently assigned to the Executive and such other duties and responsibilities
as the Company, in its sole discretion, shall assign to Executive, including
duties and responsibilities which relate to the operations of, or are for the
benefit of, subsidiaries and affiliates of the Company. During the Term, the
Executive shall serve the Company faithfully and diligently and shall devote
full working time and attention exclusively to the Executive's duties and
responsibilities hereunder. During the period of the Executive's employment
under this Agreement, the Executive shall be assigned to such of the Company's
works or offices or the works or offices of any subsidiary or affiliate of the
Company as may reasonably be determined (bearing in mind the personal
circumstances of, and following discussion with, the Executive) from time to
time by the Board of Directors of the Company.
3. Compensation. During the Term, the Executive shall receive a salary
at a rate that is not less than the rate in effect on the date hereof, payable
in accordance with the Company's standard payroll practices and subject to
2
<PAGE>
discretionary increases in accordance with the Company's normal review
procedures and policies.
4. Benefits.
(a) During the Term, the Executive shall be eligible to participate in
the pension, life insurance, medical, hospitalization, disability and other
employee benefit plans of the Company specified on the attached Schedule. In
addition, the Executive shall be entitled to the other benefits specified on the
attached Schedule.
(b) During the Term, the Company shall reimburse the Executive for
reasonable and necessary expenses related to the Executive's performance of the
Executive's duties under the Agreement, upon submission of detailed vouchers
theref or in accordance with the Company's standard practices as in effect from
time to time.
5. Termination of Employment.
(a) A termination by the Company of the Executive's employment
automatically terminates the Term as of the date of such termination of
employment. If a termination of the Term by the Company is for Cause (as defined
in Section 6 hereof), then the Company shall provide the Executive (or the
Executive's estate) with written notice to that effect within 30 days of such
termination.
(b) A termination by the Executive of the Executive's employment will
automatically terminate the Term as of the date of such termination of
employment; provided,
3
<PAGE>
however, that the Executive must give, the Company written notice at least three
months prior to such termination (or such shorter period as may be consented to
by the Company). The Company shall not unreasonably withhold its consent to a
notice period of less than three months. A termination of the Term by the
Executive for Good Reason (as defined in Section 6 hereof) shall be treated as
such only if the Executive, in the written notice referred to above, makes a
statement to that effect and describes the circumstances constituting Good
Reason.
(c) The Term will automatically terminate upon the death or Disability
(as defined in Section 6 hereof) of the Executive.
(d) In the event that the Term is terminated (i) by the Company for
Cause (ii) by the Executive other than for Good Reason, or (iii) as a result of
the Executive's death or Disability, then, as of the date of such termination,
the Company shall have no further obligations to the Executive hereunder, other
than for salary through the date of the termination.
(e) In the event that the Term is terminated (i) by by the Company other
than for Cause or (ii) by the Executive for Good Reason, then the Company shall
continue to pay the Executive, in accordance with the Company's standard payroll
practices, the Executive's salary, at the rate in effect pursuant to Section 3
hereof as of the date of such
4
<PAGE>
termination, through the date on which the Term would expire pursuant to
Sections 1 and 7 hereof (without regard to the operation of this Section 5) were
the Company to have given written notice pursuant to Section 7 on the date of
such termination.
(f) Upon any termination of the Term described in Subsection 5(e)
hereof, the Executive's employment with the Company shall be deemed to continue
through the date on which the Term would expire pursuant to Sections 1 and 7
hereof (without regard to the operation of this Section 5) were the Company to
have given written notice pursuant to Section 7 on the date of such termination
for purposes of determining (i) the Executive's coverage under the pension, life
insurance, medical, hospitalization, disability and other employee benefit plans
of the Company specified on the attached Schedule and (ii) the Executive's
entitlement to the other benefits specified on the attached Schedule; provided,
however, that the Executive will not be entitled to any benefit (other than a
reimbursement for repatriation costs) under any plan designed to provide for the
payment of expatriation expenses after the date on which such Executive ceases
to reside in the United States.
6. Definitions.
"Cause" means (i) a material breach by the Executive of the terms of
this Agreement, including, but not limited to, a disclosure of Company
Confidential Information
5
<PAGE>
or Affiliate Confidential Information in violation of Section 8 hereof, (ii) the
commission by the Executive of a felony or an act which is materially
detrimental to the Company's reputation, (iii) the commission by the Executive
of acts of fraud, material dishonesty or gross misconduct in connection with the
business of the Company, or (iv) repeated and willful failure by the Executive
to perform the Executive's duties hereunder after a demand for such performance
is delivered to the Executive by the Company.
"Disability" means an inability on the part of the Executive to perform
in accordance herewith by reason of a mental or physical disorder or injury
constituting "long-term disability" as defined under the Company's medical plans
as in effect from time to time.
"Good Reason" means a termination on account of a substantial diminution
of the Executive's responsibilities within the Company, unless such diminution
results from a sustained inability on the part of the Executive to
satisfactorily perform the Executive's duties under this Agreement or any reason
constituting Cause.
7. Extension. The Term shall continue in effect following the second
anniversary of the date hereof unless and until either (i) the Executive gives
written notice to the Company of the termination thereof at least three months
in advance or (ii) the Company gives written notice to the
6
<PAGE>
Executive of the termination thereof at least twelve months in advance.
8. Covenant Not to Compete; Confidentiality. The Executive recognizes
that the services to be performed hereunder are special, unique, and
extraordinary and that by reason of the Executive's prior employment with the
Company and the employment contemplated by this Agreement the Executive has
acquired and will acquire confidential information and trade secrets concerning
the Company's operations ("Company Confidential Information") and the operations
of its parent and affiliates ("Affiliate Confidential Information").
Accordingly, it is agreed that:
(a) During the Term, and for the greater of one year following the Term
or any period following the Term covered by payments provided for in Section 5
hereof, the Executive will not, directly or indirectly, as an officer, director,
stockholder, partner, associate, owner, employee, consultant or otherwise,
become or be interested in or associated with any other corporation, firm or
business engaged in the same or a similar or competitive business with the
Company or any of its affiliates in any geographical area in which the Company
or any of its affiliates are then engaged in business, provided that the
Executive's ownership, directly or indirectly, of not more than one percent of
the issued and outstanding stock of a corporation the shares of which are
regularly traded on a
7
<PAGE>
national securities exchange or in the over-the-counter market shall not, in any
event, be deemed to be a violation of this subsection.
(b) The Executive shall not divulge to any entity or person, other than
the Company or its affiliates, or, in the event of an assignment of this
Agreement pursuant to Section 13 hereof, the assignee and its affiliates, if
any, whether during the Term or after the expiration or termination thereof, any
Company Confidential Information concerning the Company's customer lists,
research or development programs or plans, processes, methods or any other of
its trade secrets, except information that is then available to the public in
published literature and became publicly available through no fault of the
Executive.
(c) The Executive shall not divulge to any person or entity, including
an assignee of this Agreement and its affiliates, but excepting the Company and
its affiliates, whether during the Term or after the expiration or termination
thereof, any Affiliate Confidential Information acquired by the Executive
concerning the customer lists, research or development programs or plans,
processes, methods or any other trade secrets of the parent or any affiliate,
except information which is then available to the public in published literature
and became publicly available through no fault of the Executive.
8
<PAGE>
(d) The Executive acknowledges that all information the disclosure of
which is prohibited hereby is of a confidential and proprietary character and of
great value to the Company and its affiliates. Upon the expiration or
termination of the Term, the Executive shall forthwith deliver up to the Company
all records, memoranda, data and documents of any description which refer or
relate in any way to Company Confidential Information or Affiliate Confidential
Information and return to the Company any of its equipment and property which
may then be in the Executive's possession or under the Executive's personal
control. Upon the assignment of this Agreement, pursuant to Section 13, the
Executive shall forthwith deliver up to the Company all records, memoranda, data
and documents of any description which refer or relate in any way to Affiliate
Confidential Information and return to the Company any of its equipment and
property which may then be in the Executive's possession or under the
Executive's personal control.
(e) The Executive agrees during the Term and for a two year period
after the expiration or termination thereof not to disclose the terms of this
Agreement to any person other than the Executive's immediate family, the
Executive's attorneys, accountants and other professional advisors or a
prospective employer permitted hereby, except as otherwise required by law.
9
<PAGE>
(f) The Company shall be entitled, in addition to any other right or
remedy that it may have at law or in equity with respect to a breach of this
Agreement by the Executive (including the right to terminate payments pursuant
to Subsection 5(d) hereof), to an injunction, without the posting of a bond or
other security, enjoining or restraining the Executive from any violation or
threatened violation of this section, and the Executive hereby consents to the
issuance of such an injunction.
9. Mitigation. The Executive shall not be required to mitigate the
amount of any payments or benefits provided for in Subsection 5(e) or Subsection
5(f) hereof by seeking other employment or a consultancy with any other entity
or otherwise, but the Executive shall notify the Company of any employment or
consultancy engaged in by the Executive during the period covered by any
payments or benefits provided in Subsection 5(e) or Subsection 5(f) hereof and
(i) the amounts payable pursuant to Subsection 5(e) shall be reduced by the
amount of any salary, discretionary bonus, fees, stock, stock options, stock
dividends or any non-cash consideration so paid or payable with respect to such
period and (ii) the benefits to be provided pursuant to Subsection 5(f) shall be
reduced by any comparable benefits available with respect to such period. The
amounts payable pursuant to Subsection 5(e) and the benefits provided pursuant
to Subsection 5(f) shall not be
10
<PAGE>
reduced by any payment due under the Pilkington plc Special Incentive Plan for
Key Sola Management Executives.
10. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any payment or benefits
provided under this Agreement, and no such payment or benefits shall be
assignable in anticipation of payment either by voluntary or involuntary acts,
or by operation of law.
11. Notices. All notices given hereunder will be deemed sufficient if
given in writing and delivered either personally or sent by certified mail to
the Executive at the Executive's address set forth in the records of the Company
or to the Company at its principal offices for the attention of the President of
the Company, or, in either case, to such other persons or addresses as either
party may request by notice.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California without
reference to principles of conflicts of laws.
13. Assignment. This Agreement may be assigned by the Company to any
non-affiliate of the Company that shall succeed to all or a substantial portion
of the business and assets of the Company. In addition, this Agreement may be
assigned by the Company to any subsidiary or affiliate of the Company. In the
event of any assignment of this
11
<PAGE>
Agreement, the Company shall, concurrently with such assignment, cause the
assignee to assume the obligations of the Company hereunder by a written
agreement addressed to the Executive with the same effect as if such assignee
were the "Company" hereunder. The Executive acknowledges and agrees that in
consideration for entering into this Agreement, the Executive's obligations to
the Company set forth in Section 8 hereof shall survive assignment and remain an
obligation owed by the Executive to the Company. The Executive further
acknowledges that the Company shall retain its rights under Subsection 8(f)
hereof with respect to the enforcement of the Executive's obligations to the
Company under Section 8. This Agreement is personal to the Executive and the
Executive may not assign any rights or delegate any responsibilities hereunder
without the prior approval of the Company.
14. Arbitration. With respect to any controversy arising out of or with
respect to this Agreement, or the subject matter hereof, such controversy shall
be settled by final and binding arbitration in California in accordance with the
then-existing rules (the "Rules") of the American Arbitration Association
("AAA") and judgement upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof; provided, however, that the law
applicable to any controversy shall be the law of the State of California,
regardless of its or any jurisdiction's
12
<PAGE>
choice of law principles. In any such arbitration, the award or decision shall
be rendered by a majority of the members of a Board of Arbitrators consisting of
three members, one of whom shall be appointed by each party and the third of
whom shall be the chairman of the panel and be appointed by mutual agreement of
the two party-appointed arbitrators. In the event of a failure of the two party-
appointed arbitrators to agree within sixty days of the commencement of the
arbitration proceeding upon the appointment of the third arbitrator, the third
arbitrator shall be appointed by the AAA in accordance with the Rules. In the
event that either party shall fail to appoint an arbitrator within thirty days
after the commencement of the arbitration proceeding, such arbitrator and the
third arbitrator shall be appointed by the AAA in accordance with the Rules. Any
award made in favor of the Executive shall be limited to a recovery of contract
damages limited to foreseeable damages which are a direct consequence of a
breach of this Agreement. In further limitation of any award made to the
Executive, the arbitrators are not empowered to award any other damages or order
any other remedy including, but not limited to, compensatory and punitive
damages.
15. Sale of the Company. In the event of a transfer, pursuant to
privately negotiated transaction, of substantially all of the stock or assets of
the Company, the
13
<PAGE>
Company shall either (i) assign this Agreement, pursuant to Section 13 hereof,
to an affiliate (of the Company prior to the transfer) or (ii) cause the
transferee, or an affiliate of the transferee to assume the obligations of the
Company hereunder by a written agreement addressed to the Executive with the
same effect as if such transferee or affiliate of the transferee, as the case
may be, were the "Company" hereunder. For purposes of this section, a sale of
stock as part of a public offering shall not be treated as pursuant to a
privately negotiated transaction.
16. Entire Agreement. This Agreement contains the entire agreement
between the Company and the Executive concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations, and
undertakings, whether written or oral, between them with respect thereto.
17. Amendment or Waiver. This Agreement cannot be changed, modified or
amended without the consent in writing of both the Executive and the Company. No
waiver by either the Company or the Executive at any time of a breach by the
other party of any condition or provision of this Agreement shall be deemed a
waiver of a similar or dissimilar condition or provision at the same or at any
prior or subsequent time. Any waiver must be in writing and signed by the
Executive or an authorized representative of the Company, as the case may be.
14
<PAGE>
18. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
SOLA Optical USA, Inc.
/s/ Stephen J. Lee
-------------------------
By: Stephen J. Lee
Vice President
/s/ Theodore Gioia
-------------------------
Theodore Gioia
15
<PAGE>
Schedule ot Continuing Benefits Entitlement Pursuant to Paragraph 4(a) of the
Attached Agreement between SOLA Optical USA Inc. and Theodore Gioia
Copies of the rules and details of the following benefits are available from
Stephen J. Lee, Vice President Human Resources, The SOLA Group.
1. Participation in the SOLA Group Management Incentive Plan.
2. Participation in the Pilkington Visioncare Long Term Bonus plan or its
successor.
3. Participation in the SOLA Group Healthcare and Insurance Plans in accordance
with Company Policy.
4. Payment of an Executive Healthcare Supplement.
5. Participation in the Pilkington Visioncare Pension plan or equivalent
successor plan.
6. Participation in the Pilkington Visioncare Retirement Savings Plan or
equivalent successor plan.
ASSIGNMENT AND AMENDMENT OF
EMPLOYMENT AGREEMENT
THIS ASSIGNMENT AND AMENDMENT OF EMPLOYMENT
AGREEMENT (this "Agreement") is made as of the 1st day December, 1993 by and
between Sola Optical USA, Inc. (the "Company"), Sola Group Ltd. (formerly
California Hive-Down, Inc.) ("Sola") and Theodore Gioia (the "Executive").
WITNESSETH:
WHEREAS, the Company and the Executive entered into an Employment
Agreement dated as of February 26, 1993 (the "Employment Agreement"); and
WHEREAS, the Employment Agreement provides that the Executive is
entitled to participate in certain employee benefit plans of the Company,
including certain employee benefit plans provided by its ultimate parent
Pilkington plc ("Pilkington") and certain subsidiaries of Pilkington, specified
on the schedule attached to the Employment Agreement; and
WHEREAS, the Employment Agreement imposes certain requirements in
connection with the sale of the Company or the assignment of the Employment
Agreement; and
WHEREAS, Pilkington and certain of it subsidiaries, including the
Company, entered into a Purchase Agreement (the "Purchase Agreement") with Sola
Holdings Inc. ("Holdings"), dated September 1, 1993, with respect to the
acquisition (the "Acquisition") of among other things, all of the assets the
Company, including the Employment Agreement, by Holdings or a subsidiary
thereof; and
WHEREAS, in connection with the Acquisition the parties desire that the
rights and obligations of the Company in, to and under the Employment Agreement
be assigned to and assumed by Sola, a subsidiary of Holdings; and
WHEREAS, effective upon on the consummation of the Acquisition, Sola and
Holdings will not be affiliated with Pilkington and consequently thereafter will
not be able to
<PAGE>
continue the Executive's participation in the employee benefit plans provided by
Pilkington and certain subsidiaries of Pilkington specified on the schedule
attached to the Employment Agreement; and
WHEREAS, pursuant to the Purchase Agreement, the obligation of Holdings
to consummate the transaction contemplated thereunder is conditioned upon the
satisfaction of certain conditions, including the delivery to Holdings of an
amendment to the Employment Agreement whereby the termination of the Executive's
participation in certain employee benefit plans of the Company will not
constitute a breach of the Employment Agreement; and
WHEREAS, the Executive desires that the transaction contemplated under
the Purchase Agreement be consummated.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements herein contained, the parties hereto agree, effective as of the
Closing Date (as defined in the Purchase Agreement), as follows:
1. The Company hereby assigns and Sola hereby assumes all of the
Company's rights and obligations in, to and under the Employment Agreement. A
copy of this Agreement has been delivered to Executive pursuant to Section 15 of
the Employment Agreement.
2. The Executive shall cease his participation in the employee benefit
plans of the. Company listed on Exhibit A attached hereto (the "Pilkington
Plans").
3. Executive hereby consents to the termination of the Executive's
participation in the Pilkington Plans.
4. The Employment Agreement is hereby amended as set forth herein and
except as amended herein, the Employment Agreement shall remain in full force
and effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Assignment and
Amendment of Employment Agreement as of the date first written above.
SOLA OPTICAL USA, INC.
/s/ Mike Hyldon
------------------------
Name:
Title:
SOLA GROUP LTD.
/s/ John E. Heine
------------------------
Name: John E. Heine
Title: President
/s/ Theodore Gioia
------------------------
Theodore Gioia
-3-
<PAGE>
Theodore Gioia
Exhibit A
Pilkington Visioncare Long Term Bonus Plan
Pilkington Visioncare Pension Plan
-4-
[LOGO] Sola Optical Europe
- ------------------------------------------------------------
16th May 1996
Mr Mark Mackenzie
Ashdale
6 Ashley Rise
Walton-on-Thames
Surrey
KT12 1ND
Dear Mark,
I am pleased to confirm your employment conditions as European Region Director
for duties performed on behalf of SOLA UK with effect from 1st April 1995. In
respect of these duties your contract of employment is with SOLA Optical UK Ltd
("the Company") and is governed English law. This contract together with the
Company's Staff Handbook, a copy of which has been provided to you, sets out the
terms and conditions of your employment with the Company. This contract
supersedes all previous agreements oral and in writing between you and the
Company in relation to the matters dealt with in it.
Your base salary in respect of these duties is L.74,823 per annum paid in
monthly instalment on the 15th of each month by direct debit transfer to your
bank. Your salary will be subject to annual discretionary review increases
effective January 1st.
You will be eligible to participate in the SOLA Group Management Incentive Plan
(MIP), which is an annual cash incentive program based on achievement of
financial goals for the Group and the Region.
Your MIP payment will be guaranteed at a minimum of 50% of your base salary for
1994/95 and 25% of your base salary for 1995/96.
You are provided with a Company car which will be fully taxed, insured and
maintained by the Company.
Your holiday entitlement is 15 days in addition to normal UK statutory holidays.
You and your family are covered by our UK Private Patients Plan medical care
insurance. This covers specialist and hospital treatment but not private general
practitioner treatment, dental treatment or prescription drugs. These
non-covered items are available free of charge or subsidised under the UK
National Health Scheme.
You are also eligible for the SOLA UK Pension Plan which is a contributory Group
Personal Pension Plan contracted in to the UK Earnings Related Pension Scheme.
You can transfer existing pension assets into the plan if you wish to do so.
SOLA's pension consultants and actuaries, the Wyatt Co are available to advise
you on your personal situation.
Sola Optical Europe, 18 Lion & Lamb Yard, Farnham, Surrey, GU9 7LL
Tel: 01252 733878 Fax: 01252 733781 United Kingdom
Registered Office Sola Optical (UK) Ltd Holford Way Holford Birmingham B6 7UU
Registered in England Number 1132513
<PAGE>
The Company will reimburse you for half of the cost of school fees incurred
educating your daughters at private schools in the UK. You will be paid a
supplement of L.500 per month via the payroll with effect from April 1995. A
reconciliation between these payments and 50% of your final bill will be made at
the end of each school year and any necessary adjustments will be made at that
time.
You are required to give the Company 3 months notice of termination of your
employment. Your notice entitlement from the Company is also 3 months subject to
the conditions covering termination of your employment set forth below.
In the event that your employment is terminated by the Company for any reason
other than gross misconduct, the Company will have the following financial
obligations to you:
* If you are terminated during the initial 12 months of your employment, you
will continue to be paid your base salary and will continue to receive your
employee benefits for a period of 12 months from the date of your
termination. In addition, you will be paid your guaranteed minimum MIP
payment.
* If you are terminated after 12 months of employment, you will continue to
be paid your base salary and will continue to receive your employee
benefits for a period of 12 months from the date of your termination.
* These severance arrangements are inclusive of all termination payments and
any payment in lieu of notice.
Please return a signed copy of this letter confirming acceptance of the above
terms and conditions of employment as soon as possible.
Your sincerely,
/s/ Steve Lee
Steve Lee
Vice President Human Resources
Agree and Acknowledged: /s/ Mark Mackenzie May 23, 1996
--------------------- -------------
Mark Mackenzie Date
[LOGO] Sola International Inc.
- -------------------------------------------------------
16th May 1996
Mr Mark Mackenzie
Ashdale
6 Ashley Rise
Walton-on-Thames
Surrey
KT12 1ND
United Kingdom
Dear Mark,
I am pleased to confirm your compensation and benefit arrangements in respect of
your continuing duties performed on behalf of SOLA International Inc ("the
Company") outside the UK in your capacity as Geschaftsfuhrer of SOLA Optical
Holdings GMBH and as chairman of SOLA ADC Lenses Ltd. In respect of these
duties, your contract of employment is with SOLA International Inc and is
governed by US law. Please note that these duties take precedence over your
duties for SOLA Optical UK Ltd where any conflict may arise. However SOLA
International Inc recognises your obligations to SOLA Optical UK Ltd and will
seek to facilitate your duties thereunder.
Your base salary in respect of these duties will be $2,637 per month ($31,640)
on an annual basis) and will be paid in two equal installments on the fifteenth
and thirtieth of each month. Your salary will be subject to annual discretionary
review increases effective January 1st.
You will be eligible to participate in the SOLA Group Management Incentive plan
(MIP), which is an annual cash incentive program based on achievement of
financial goals for the Group and the Region.
Your MIP payment will be guaranteed at a minimum of 50% of your base salary for
1994/95 and 25% of your base salary for 1995/96.
In addition, the company will reimburse to you via the payroll the cost of
interest at 8.5% on your bridging loan of L.475,000 in connection with the
purchase of your UK property until the sale of your property in France.
In addition the company will reimburse you for any loss on the sale of your
property in France up to a maximum of $100,000. Further the company will also
reimburse the costs associated with the sale up to a maximum of $20,000.
Your holiday entitlement is 10 days per annum and is in addition to any holiday
entitlement arising from your employment with SOLA Optical UK Ltd
- --------------------------------------------------------------------------------
2420 Sand Hill Road Suite 200, Menlo Park, CA 94025 USA (415) 324 6868
Fax (415) 324 6850
<PAGE>
You are required to give the Company 3 months notice of termination of your
employment. Your notice entitlement from the Company is also 3 months subject to
the conditions covering termination of your employment set forth below. In the
event that your employment is terminated by the Company for any reason other
than gross misconduct, the Company will have the following financial obligations
to you:
* If you are terminated during the initial 12 months of your employment, you
will continue to be paid your base salary and will continue to receive your
employee benefits for a period of 12 months from the date of your
termination. In addition, you will be paid your guaranteed minimum MIP
payment.
* If you are terminated after 12 months of employment, you will continue to
be paid your base salary and will continue to receive your employee
benefits for a period of 12 months from the date of your termination.
* These severance arrangements are inclusive of all termination payments and
any payment in lieu of notice.
Please return a signed copy of this letter confirming acceptance of the above
terms and conditions of employment as soon as possible.
Yours sincerely,
/s/ Steve Lee
Steve Lee
Vice President Human Resources
Agree and Acknowledged: /s/ Mark Mackenzie May 23, 1996
--------------------- -------------
Mark Mackenzie Date
EXECUTION COPY
SOLA INTERNATIONAL INC., as Issuer
and
State Street Bank and Trust Company of California, N.A., as Trustee
------------------------
INDENTURE
Dated as of March 19, 1998
------------------------
<PAGE>
SOLA INTERNATIONAL INC.
<TABLE>
Reconciliation and tie between Trust Indenture Act of 1939 and
the Indenture, dated as of March 19, 1998:
<CAPTION>
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
<S> <C>
ss. 310(a)(1)............................................................... 609
(a)(2)............................................................... 609
(a)(3)............................................................... Not Applicable
(a)(4)............................................................... Not Applicable
(a)(5)............................................................... 609
(b).................................................................. 608, 610
ss. 311(a).................................................................. 610, 613
(b).................................................................. 613
(c).................................................................. Not Applicable
ss. 312(a).................................................................. 701, 702(a)
(b).................................................................. 702(b)
(c).................................................................. 702(c)
ss. 313(a).................................................................. 703(a)
(b).................................................................. 703(a)
(c).................................................................. 703(a), 602
(d).................................................................. 703(b)
ss. 314(a).................................................................. 704
(a)(4)............................................................... 101,1005
(b).................................................................. Not Applicable
(c)(1)............................................................... 102
(c)(2)............................................................... 102
(c)(3)............................................................... Not Applicable
(d).................................................................. Not Applicable
(e).................................................................. 102
ss. 315(a).................................................................. 601
(b).................................................................. 602
(c).................................................................. 601
(d).................................................................. 601, 603
(e).................................................................. 514
ss. 316(a)(last sentence)................................................... 101
(a)(1)(A)............................................................ 502, 512
(a)(1)(B)............................................................ 513
(a)(2)............................................................... Not Applicable
<PAGE>
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
(b).................................................................. 508
(c).................................................................. 104(c)
ss. 317(a)(1)............................................................... 503
(a)(2)............................................................... 504
(b).................................................................. 1003
ss. 318(a).................................................................. 107
<FN>
- ---------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the
Indenture.
</FN>
</TABLE>
<PAGE>
TABLE OF CONTENTS
Page
----
PARTIES........................................................................1
RECITALS OF THE COMPANY........................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions......................................................2
"Act".......................................................................2
"Additional Amounts"........................................................2
"Affiliate".................................................................2
"Authenticating Agent"......................................................3
"Authorized Newspaper"......................................................3
"Bearer Security"...........................................................3
"Board of Directors"........................................................3
"Board Resolution"..........................................................3
"Book-Entry Security".......................................................3
"Business Day"..............................................................3
"Commission"................................................................3
"Common Stock"..............................................................4
"Company"...................................................................4
"Company Request" or "Company Order"........................................4
"Conversion Event"..........................................................4
"Corporate Trust Office"....................................................4
"corporation"...............................................................4
"Coupon"....................................................................4
"Currency"..................................................................5
"CUSIP number"..............................................................5
"Defaulted Interest"........................................................5
"Depositary"................................................................5
"Dollars" or "$"............................................................5
"ECU".......................................................................5
"Event of Default"..........................................................5
"Exchange Act"..............................................................5
"Foreign Currency"..........................................................5
"GAAP"......................................................................5
"Government Obligations"....................................................5
"Holder"....................................................................6
<PAGE>
"Indenture".................................................................6
"Indexed Security"..........................................................6
"interest"..................................................................6
"Interest Payment Date".....................................................6
"Maturity"..................................................................6
"Office or Agency"..........................................................7
"Officers' Certificate".....................................................7
"Opinion of Counsel"........................................................7
"Original Issue Discount Security"..........................................7
"Outstanding"...............................................................7
"Paying Agent"..............................................................8
"Person"....................................................................9
"Place of Payment"..........................................................9
"Predecessor Security"......................................................9
"Preferred Stock"...........................................................9
"Repayment Date"............................................................9
"Repayment Price"...........................................................9
"Redemption Date"...........................................................9
"Redemption Price"..........................................................9
"Registered Security".......................................................9
"Regular Record Date".......................................................9
"Responsible Officer"......................................................10
"Security".................................................................10
"Security Register"........................................................10
"Senior Indebtedness"......................................................10
"Significant Subsidiary"...................................................10
"Special Record Date"......................................................10
"Stated Maturity"..........................................................10
"Subordinated Securities"..................................................10
"Subsidiary"...............................................................10
"Trustee"..................................................................11
"Trust Indenture Act"......................................................11
"United States"............................................................11
"United States Person".....................................................11
"Voting Stock".............................................................11
Section 102. Compliance Certificates and Opinions............................11
Section 103. Form of Documents Delivered to Trustee..........................12
Section 104. Acts of Holders; Record Dates...................................13
Section 105. Notices, Etc., to Trustee and Company...........................15
Section 106. Notice to Holders; Waiver.......................................15
Section 107. Conflict with Trust Indenture Act...............................16
Section 108. Effect of Headings and Table of Contents........................16
-ii-
<PAGE>
Section 109. Successors and Assigns..........................................17
Section 110. Separability Clause.............................................17
Section 111. Benefits of Indenture...........................................17
Section 112. Governing Law...................................................17
Section 113. Legal Holidays..................................................17
Section 114. Immunity of Stockholders, Directors, Officers and Agents
of the Company................................................18
ARTICLE TWO
SECURITY FORMS
Section 201. Forms of Securities.............................................19
Section 202. Securities in Book-Entry Form...................................19
Section 203. Form of Legend for Book-Entry Securities........................20
Section 204. Form of Trustee's Certificate of Authentication.................21
ARTICLE THREE
THE SECURITIES
Section 301. Amount Unlimited; Issuable in Series............................22
Section 302. Currency; Denominations.........................................26
Section 303. Execution, Authentication, Delivery and Dating..................27
Section 304. Temporary Securities............................................29
Section 305. Registration, Registration of Transfer and Exchange.............30
Section 306. Mutilated, Destroyed, Lost and Stolen Securities................34
Section 307. Payment of Interest; Interest Rights Preserved..................35
Section 308. Persons Deemed Owners...........................................37
Section 309. Cancellation....................................................38
Section 310. Computation of Interest.........................................39
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture.........................40
Section 402. Application of Trust Money......................................42
-iii-
<PAGE>
ARTICLE FIVE
REMEDIES
Section 501. Events of Default...............................................43
Section 502. Acceleration of Maturity; Rescission and Annulment..............44
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.46
Section 504. Trustee May File Proofs of Claim................................47
Section 505. Trustee May Enforce Claims Without Possession of Securities.....47
Section 506. Application of Money Collected..................................48
Section 507. Limitation on Suits.............................................48
Section 508. Unconditional Right of Holders to Receive Principal,
Premium, if any, and Interest and Additional Amounts, if any..49
Section 509. Restoration of Rights and Remedies..............................49
Section 510. Rights and Remedies Cumulative..................................50
Section 511. Delay or Omission Not Waiver....................................50
Section 512. Control by Holders..............................................50
Section 513. Waiver of Past Defaults.........................................50
Section 514. Undertaking for Costs...........................................51
Section 515. Waiver of Usury, Stay or Extension Laws.........................51
ARTICLE SIX
THE TRUSTEE
Section 601. Certain Duties and Responsibilities.............................53
Section 602. Notice of Defaults..............................................53
Section 603. Certain Rights of Trustee.......................................54
Section 604. Not Responsible for Recitals or Issuance of Securities..........56
Section 605. May Hold Securities.............................................56
Section 606. Money Held in Trust.............................................56
Section 607. Compensation and Reimbursement..................................56
Section 608. Disqualification; Conflicting Interests.........................57
Section 609. Corporate Trustee Required; Eligibility.........................57
Section 610. Resignation and Removal; Appointment of Successor...............58
Section 611. Acceptance of Appointment by Successor..........................59
Section 612. Merger, Conversion, Consolidation or Succession to Business.....61
Section 613. Preferential Collection of Claims Against Company...............61
Section 614. Appointment of Authenticating Agent.............................61
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of Holders.......64
Section 702. Preservation of Information; Communications to Holders..........64
Section 703. Reports by Trustee..............................................65
Section 704. Reports by Company..............................................65
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company May Consolidate, Etc., Only on Certain Terms............66
Section 802. Rights and Duties of Successor Corporation......................66
Section 803. Officers' Certificate and Opinion of Counsel....................67
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures Without Consent of Holders..............68
Section 902. Supplemental Indentures with Consent of Holders.................70
Section 903. Execution of Supplemental Indentures............................71
Section 904. Effect of Supplemental Indentures...............................71
Section 905. Conformity with Trust Indenture Act.............................72
Section 906. Reference in Securities to Supplemental Indentures..............72
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest.....................73
Section 1002. Maintenance of Office or Agency................................73
Section 1003. Money for Securities Payments to Be Held in Trust..............74
Section 1004. Corporate Existence............................................76
Section 1005. Statement as to Compliance.....................................76
Section 1006. Waiver of Certain Covenants....................................76
Section 1007. Additional Amounts.............................................77
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Applicability of Article.......................................79
Section 1102. Election to Redeem; Notice to Trustee..........................79
Section 1103. Selection by Trustee of Securities to Be Redeemed..............79
Section 1104. Notice of Redemption...........................................80
Section 1105. Deposit of Redemption Price....................................82
Section 1106. Securities Payable on Redemption Date..........................82
Section 1107. Securities Redeemed in Part....................................83
ARTICLE TWELVE
SINKING FUNDS
Section 1201. Applicability of Article.......................................84
Section 1202. Satisfaction of Sinking Fund Payments with Securities..........84
Section 1203. Redemption of Securities for Sinking Fund......................84
ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
Section 1301. Applicability of Article.......................................86
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
Section 1401. Applicability of the Article; Company's Obligation to Effect
Defeasance or Covenant Defeasance............................87
Section 1402. Defeasance and Discharge.......................................87
Section 1403. Covenant Defeasance............................................88
Section 1404. Applicability of the Article; Company's Obligation to Effect
Defeasance or Covenant Defeasance............................88
Section 1405. Deposited Money and Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions........................90
Section 1406. Reinstatement..................................................92
Section 1407. Effect on Subordination Provisions.............................92
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ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
Section 1501. Purposes for Which Meetings May Be Called......................93
Section 1502. Call, Notice and Place of Meetings.............................93
Section 1503. Persons Entitled to Vote at Meetings...........................93
Section 1504. Quorum; Action.................................................94
Section 1505. Determination of Voting Rights; Conduct and Adjournment of
Meetings.....................................................95
Section 1506. Counting Votes and Recording Action of Meetings................96
ARTICLE SIXTEEN
SUBORDINATION OF SECURITIES
Section 1601. Securities Subordinate to Senior Indebtedness..................97
ARTICLE SEVENTEEN
SECURITIES IN FOREIGN CURRENCIES
Section 1701. Applicability of Article.......................................98
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INDENTURE, dated as of March 19, 1998, between SOLA INTERNATIONAL INC.,
a Delaware corporation (the "Company"), having its principal office at 2420 Sand
Hill Road, Suite 200, Menlo Park, California 94025, and State Street Bank and
Trust Company of California, N.A., as Trustee hereunder (the "Trustee"), having
a Corporate Trust Office at 633 West 5th Street, 12th Floor, Los Angeles,
California 90071.
RECITALS OF THE COMPANY
The Company deems it advisable to issue from time to time for its
lawful purposes its unsecured debentures, notes or other evidences of
indebtedness (hereinafter called the "Securities") in one or more series as in
this Indenture provided, and has duly authorized the execution and delivery of
this Indenture to provide for the issuance from time to time of the Securities,
unlimited as to principal amount, to bear interest at the rates or formulas, to
mature at such times and to have such other provisions as shall be fixed as
hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act that are required to be part of and to govern
indentures qualified under the Trust Indenture Act.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of series
thereof, as follows:
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ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have, when capitalized, the
meanings assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to "dollars", "$", "U.S. dollars", "United States
dollars" or "cash" shall refer to the lawful currency of the United States of
America; and
(f) the definitions included herein may be modified, expanded, deleted
or otherwise amended in a supplemental indenture after the date hereof or
pursuant to Section 301 hereof.
Certain terms used principally in certain Articles hereof are defined
in those Articles.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Additional Amounts" means any additional amounts which are required
hereby or by any Security or pursuant to a Board Resolution, under circumstances
specified herein or therein, to be paid by the Company in respect of certain
taxes, assessments or other governmental charges imposed on Holders specified
therein and which are owing to such Holders.
"Affiliate" means, with respect to any specified Person, any other
Person which, directly or indirectly, is in control of, is controlled by or is
under common control with such specified Person. For the purposes of this
definition, "control" when used with
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respect to any specified Person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Authenticating Agent" means any authenticating agent appointed by the
Trustee pursuant to Section 614.
"Authorized Newspaper" means a newspaper, in an official language of
the place of publication or in the English language, customarily published on
each day that is a Business Day in the place of publication, whether or not
published on days that are Legal Holidays in the place of publication, and of
general circulation in each place in connection with which the term is used or
in the financial community of each such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on a day that is a Business Day in the
place of publication.
"Bearer Security" , means any Security in the form established pursuant
to Section 201 which is payable to bearer.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted or
consented to by the Board of Directors and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Book-Entry Security" means a Security bearing the legend specified in
Section 203 evidencing all or part of a series of Securities, authenticated and
delivered to the Depositary for such series or its nominee, and registered in
the name of such Depositary or nominee.
"Business Day" when used with respect to any Place of Payment means,
unless otherwise specified with respect to any Securities pursuant to Section
301, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in the Place of Payment are authorized or obligated
by law or executive order to close.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
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"Common Stock" means, with respect to any Person, capital stock issued
by such Person other than Preferred Stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Vice Chairman, its Chief Executive Officer, its President, its Chief Financial
Officer or a Vice President (whether or not designated by a number or words
added before or after the title "Vice President"), and by any one of its
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary and delivered
to the Trustee.
"Conversion Event" means the cessation of use of (i) a Foreign Currency
both by the government of the country or the confederation which issued such
Foreign Currency and for the settlement of transactions by a central bank or
other public institutions of or within the international banking community, (ii)
the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established.
"Corporate Trust Office" means either (A) the principal corporate trust
office of the Trustee at which at any particular time its corporate trust
business shall be administered, which office at the date of original execution
of this Indenture is located at 633 West 5th Street, 12th Floor, Los Angeles,
California 90071, Attention: Corporate Trust Department, or (B) for purposes of
Sections 105, 305 and 1002, "Corporate Trust Office" also means the office of an
affiliate of the Trustee in the Borough of Manhattan, The City of New York at
which at any particular time its corporate trust business shall be administered
in The City of New York, which office at the date of original execution of this
Indenture is located at c/o State Street Bank and Trust Co., 61 Broadway, 15th
Floor, New York, New York 10006, Attention: Corporate Trust Department; provided
that, for purposes of any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document or notice provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with, the Trustee, whether pursuant to Section 105 or otherwise, "Corporate
Trust Office" means any office referred to in clause (A) or (B) of this
paragraph.
"corporation" means a corporation, association, limited liability
company, joint-stock company or business trust, except that, as used in the
definition of the terms "Subsidiary" and "Voting Stock," the term "corporation"
means solely a corporation.
"Coupon" means any interest coupon appertaining to a Bearer Security.
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"Currency", with respect to any payment, deposit or other transfer in
respect of the principal of or any premium or interest on or any Additional
Amounts with respect to any Security, means Dollars or the Foreign Currency, as
the case may be, in which such payment, deposit or other transfer is required to
be made by or pursuant to the terms hereof or such Security and, with respect to
any other payment, deposit or transfer pursuant to or contemplated by the terms
hereof or such Security, means Dollars.
"CUSIP number" means the alphanumeric designation assigned to a
Security by Standard & Poor's Corporation, CUSIP Service Bureau.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more Book-Entry
Securities, The Depository Trust Company and its successors, or another Person
designated as Depositary by the Company pursuant to Section 301, which must be a
clearing agency registered under the Exchange Act, and if at any time there is
more than one such Person, "Depositary" shall mean the Depositary with respect
to the Securities of that series.
"Dollars" or "$" means a dollar or other equivalent unit of legal
tender for payment of public or private debts in the United States of America.
"ECU" means the European Currency Unit as defined and revised from time
to time by the Council of the European Community.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any statute successor thereto.
"Foreign Currency" means any currency, currency unit or composite
currency, including, without limitation, the ECU, issued by the government of
one or more countries other than the United States of America or by any
recognized confederation or association of such governments.
"GAAP" means generally accepted accounting principles in the United
States as in effect on the date of application thereof.
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the other government or
governments in the confederation which issued the Foreign Currency in which the
principal of or any premium or interest on the relevant Security or any
Additional Amounts in respect thereof shall be payable, in each case where the
payment or payments thereunder are supported by the full faith and credit of the
United States of America or such other government or governments, as the case
may be, or (ii) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America or such other
government or governments, in each case where the timely payment or payments
thereunder are unconditionally guaranteed as a full faith and credit obligation
by the United States of America or such other government or governments, as the
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case may be, and which, in the case of (i) or (ii), are not callable or
redeemable at the option of the issuer or issuers thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of or other amount with respect to any such Government Obligation
held by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of or other
amount with respect to the Government Obligation evidenced by such depository
receipt.
"Holder" means in the case of any Registered Security, the Person in
whose name such Security is registered in the Security Register and, in the case
of any Bearer Security, the bearer thereof and, in the case of any Coupon, the
bearer thereof.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
and shall include the terms of particular series of Securities established as
contemplated by Section 301; provided, however, that, if at any time more than
one Person is acting as Trustee under this instrument, "Indenture" shall mean,
with respect to any one or more series of Securities for which such Person is
Trustee, this instrument as originally executed or as it may from time to time
be supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof and shall include the terms of
those particular series of Securities for which such Person is Trustee
established as contemplated by Section 301, exclusive, however, of any
provisions or terms which relate solely to other series of Securities for which
such Person is not Trustee, regardless of when such terms or provisions were
adopted.
"Indexed Security" has the meaning specified in Section 301(11).
"interest", when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, shall mean
interest payable after Maturity.
"Interest Payment Date", when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as
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therein or herein provided, whether at the Stated Maturity or by declaration of
acceleration, notice of redemption, repayment at the option of the Holder or
otherwise.
"Office or Agency" with respect to any Securities, means an office or
agency of the Company maintained or designated as a Place of Payment for such
Securities pursuant to Section 1002 or any other office or agency of the Company
maintained or designated for such Securities pursuant to Section 1002 or, to the
extent designated or required by Section 1002 in lieu of such office or agency,
the Corporate Trust Office of the Trustee.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, Vice Chairman, the Chief Executive Officer, the President, Chief
Financial Officer or a Vice President (whether or not designated by a number or
word or words added before or after the title "Vice President"), and by the
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the Company,
and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company or the Trustee, and who shall be
reasonably acceptable to the Trustee.
"Original Issue Discount Security" means any Security which provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding", when used with respect to any Securities means, as of
the date of determination, all such Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption or repayment at the option of the Holder money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities and any Coupons
appertaining thereto except, in the case of Securities as to which the
Company had effected satisfaction and discharge pursuant to Article
Four, to the extent provided in Article Four; provided, that if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor reasonably
satisfactory to the Trustee has been made; and Securities, except to
the extent provided in Section 1402 and 1403, with respect to which the
Company has effected defeasance and/or covenant defeasance, as provided
in Article Fourteen;
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(iii) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof reasonably satisfactory to it that such Securities
are held by a bona fide purchaser in whose hands such Securities are
valid obligations of the Company; and
(iv) Securities converted or exchanged into Common Stock or other
securities pursuant to or in accordance with this Indenture if the
terms of such Securities provide for convertibility pursuant to Section
301;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by Section 313 of the Trust Indenture Act, (i) the
principal amount of an Original Issue Discount Security that shall be deemed to
be Outstanding shall be the amount of the principal thereof that would be due
and payable as of the date of such determination upon acceleration of the
Maturity thereof pursuant to Section 502, (ii) the principal amount of any
Indexed Security of any series that may be counted in making such determination
or calculation and that shall be deemed outstanding for such purpose shall be
equal to the principal face amount of such Indexed Security at original
issuance, unless otherwise established as contemplated by Section 301 with
respect to such Security, (iii) the principal amount of a Security denominated
in Foreign Currency that shall be deemed outstanding for such purpose shall be
the Dollar equivalent, determined on the date of original issuance of such
Security, of the principal amount (or, in the case of an Original Issue Discount
Security, the Dollar equivalent on the date of original issuance of such
Security of the amount determined as provided in (i) above) of such Security,
and (iv) Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company.
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"Person" means any individual, corporation, business trust,
partnership, joint venture, joint-stock company, limited liability company,
association, company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities of any
series, means the place or places where the principal of and any premium and
interest on the Securities of that series are payable as established as
contemplated by Section 301.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security or a Security to which a
mutilated, destroyed, lost or stolen Coupon appertains shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security or
the Security to which the mutilated, destroyed, lost or stolen Coupon
appertains.
"Preferred Stock" means, with respect to any Person, capital stock
issued by such Person that is entitled to a preference or priority over any
other capital stock issued by such Person upon any distribution of such Person's
assets, whether by dividend or upon liquidation.
"Repayment Date" when used with respect to any Security to be repaid at
the option of the Holder, means the date fixed for such repayment by or pursuant
to this Indenture.
"Repayment Price" when used with respect to any Security to be repaid
at the option of the Holder, means the price at which it is to be repaid by or
pursuant to this Indenture.
"Redemption Date", when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registered Security" shall mean any Security established pursuant to
Section 201 which is registered in the Security Register.
"Regular Record Date" for the interest payable on any Interest Payment
Date on any Registered Security of any series means the date, if any, specified
in or pursuant to this Indenture or such Security as the "Regular Record Date."
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"Responsible Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Department (or any successor department)
including, without limitation, any vice president (whether or not designated by
a number or a word or words added before or after the title "vice president"),
any trust officer, any assistant secretary, the controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer or employee to whom such
matter is referred because of such officer's or employee's knowledge of and
familiarity with the particular subject.
"Security" has the meaning stated in the first recital of this
Indenture and, more particularly, means any Security or Securities authenticated
and delivered under this Indenture; provided, however, that, if at any time
there is more than one Person acting as Trustee under this Indenture,
"Securities" with respect to such Person shall mean Securities authenticated and
delivered under this Indenture, exclusive, however, of Securities of any series
as to which such Person is not Trustee.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" has the meaning determined pursuant to Section
301(21).
"Significant Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is a "significant subsidiary" as defined in Rule
1-02(w) of Regulation S-X promulgated under the Securities Act of 1933, as
amended (as in effect on the date of the Indenture).
"Special Record Date" for the payment of any Defaulted Interest on the
Securities of any series means a date fixed by the Trustee pursuant to Section
307.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security or a Coupon representing such installment of interest as the
fixed date on which the principal of such Security or such installment of
principal or interest is, or such Additional Amounts are, due and payable.
"Subordinated Securities" means any Securities which, pursuant to
Section 301, are by their terms expressly subordinated in right of payment to
Senior Indebtedness.
"Subsidiary" means (i) any corporation at least a majority of the total
voting power of whose outstanding Voting Stock is owned, directly or indirectly,
at the date of determination by the Company and/or one or more other
Subsidiaries of the Company, (ii) any partnership in which the Company and/or
one or more other Subsidiaries of the Company owns, directly or indirectly, at
the date of determination at least a majority
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interest in the equity capital or profits of such partnership, or (iii) any
other Person in which the Company and/or one or more other Subsidiaries of the
Company, directly or indirectly, at the date of determination, (x) owns at least
a majority ownership interest or (y) has the power to elect or direct the
election of at least a majority of the directors or other governing body of such
Person.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder, and
if at any time there is more than one such Person, "Trustee" as used with
respect to the Securities of any series shall mean the Trustee with respect to
Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"United States", except as otherwise provided in or pursuant to this
Indenture or any Security, means the United States of America (including the
states thereof and the District of Columbia), its territories, its possessions
and other areas subject to its jurisdiction.
"United States Person" means, unless otherwise specified with respect
to any Debt Securities pursuant to Section 301, any citizen or resident of the
United States, any corporation, partnership or other entity created or organized
in or under the laws of the United States, any estate the income of which is
subject to United States federal income taxation regardless of its source, or
any trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States fiduciaries who have the
authority to control all substantial decisions of the trust.
"Voting Stock" means, with respect to any corporation, securities of
any class or series of such corporation, the holders of which are ordinarily, in
the absence of contingencies, entitled to vote for the election of directors of
the corporation.
Section 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished. Each such
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certificate or opinion shall be given in the form of an Officers' Certificate,
if to be given by an officer of the Company, or an Opinion of Counsel, if to be
given by counsel, and shall comply with the requirements of the Trust Indenture
Act and any other requirements set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1005) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this
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Indenture or any Security, they may, but need not, be consolidated and form one
instrument.
Section 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided in or pursuant to this Indenture to be given or
taken by Holders of the Outstanding Securities of all series or one or more
series, as the case may be, may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agents duly appointed in writing. If, but only if, Securities of a series are
issuable as Bearer Securities, any request, demand, authorization, direction,
notice, consent, waiver or other action provided in or pursuant to this
Indenture to be made, given or taken by Holders of Securities of such series
may, alternatively, be embodied in and evidenced by the record of Holders of
Securities of such series voting in favor thereof, either in person or by
proxies duly appointed in writing, at any meeting of Holders of Securities of
such series duly called and held in accordance with the provisions of Article
Fifteen, or a combination of such instruments and any such record. Except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent, or
of the holding by any Person of a Security, shall be sufficient for any purpose
of this Indenture and (subject to Section 601) conclusive in favor of the
Trustee and the Company, if made in the manner provided in this Section. The
record of any meeting of Holders of Securities shall be proved in the manner
provided in Section 1506.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any date not more than 60 days nor less than 5 days prior to
the date of any of the following actions as the record date for the purpose of
determining the Holders of Registered Securities of any series entitled to give
or take any request, demand, authorization, direction, notice, consent, waiver
or other action, or to vote on any action,
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authorized or permitted to be given or taken by Holders of Registered Securities
of such series. If not set by the Company prior to the first solicitation of a
Holder of Registered Securities of such series made by any Person in respect of
any such action, or, in the case of any such vote, prior to such vote, the
record date for any such action or vote shall be the 30th day (or, if later, the
date of the most recent list of Holders required to be provided pursuant to
Section 701) prior to such first solicitation or vote, as the case may be. With
regard to any record date for action to be taken by the Holders of one or more
series of Registered Securities, only the Holders of Registered Securities of
such series on such date (or their duly designated proxies) shall be entitled to
give or take, or vote on, the relevant action.
(d) The ownership, principal amount and serial numbers of Registered
Securities held by any Person, and the date of commencement and the date of
termination of holding the same, shall be proved by the Security Register.
(e) The ownership, principal amount and serial numbers of Bearer
Securities held by any Person, and the date of commencement and the date of
termination of holding the same, may be proved by the production of such Bearer
Securities or by a certificate executed, as depositary, by any trust company,
bank, banker or other depositary reasonably acceptable to the Company, wherever
situated, if such certificate shall be deemed by the Company and the Trustee to
be satisfactory, showing that at the date therein mentioned such Person had on
deposit with such depositary, or exhibited to it, the Bearer Securities therein
described; or such facts may be proved by the certificate or affidavit of the
Person holding such Bearer Securities, if such certificate or affidavit is
deemed by the Company and the Trustee to be satisfactory. The Trustee and the
Company may assume that such ownership of any Bearer Security continues until
(1) another certificate or affidavit bearing a later date issued in respect of
the same Bearer Security is produced, or (2) such Bearer Security is provided to
the Trustee by some other Person, or (3) such Bearer Security is no longer
Outstanding. The ownership, principal amount and serial numbers of Bearer
Securities held by the Person so executing such instrument or writing and the
date of the commencement and the date of the termination of holding the same may
also be proved in any other manner which the Company and the Trustee deem
sufficient.
(f) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee, any
Security Registrar, any Paying Agent, any Authenticating Agent or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
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(g) For purposes of this Indenture, any action by the Holders which may
be taken in writing may be taken by electronic means or as otherwise reasonably
acceptable to the Trustee.
Section 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
or at any other address previously furnished in writing by the Trustee
to the Holders or the Company or any other obligor on the Securities,
or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing to or
with the Company addressed to it at the address of its principal office
specified in the first paragraph of this instrument to the Attention of
the Treasurer with a copy to the Company's Chief Financial Officer or
at any other address previously furnished in writing to the Trustee by
the Company. Any such communication shall be effective upon receipt.
Section 106. Notice to Holders; Waiver.
Except as otherwise expressly provided in or pursuant to this
Indenture, where this Indenture provides for notice to Holders of any event,
(1) such notice shall be sufficiently given (unless otherwise
herein expressly provided) to each Holder of Registered Securities affected by
such event if in writing and mailed, first-class postage prepaid, , at his
address as it appears in the Security Register, not later than the latest date
(if any), and not earlier than the earliest date (if any), prescribed for the
giving of such notice.
(2) such notice shall be sufficiently given to Holders of Bearer
Securities, if any, affected by such event if published in an Authorized
Newspaper in The City of New York and in such other city or cities as may be
specified in such Securities on a Business Day, such publication to be not
earlier than the earliest date and not later than the latest date prescribed for
the giving of such notice. Any such notice shall be deemed to have been given on
the date of such publication or, if published more than once, on the date of the
first such publication.
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In any case where notice to Holders of Registered Securities is given
by mail, neither the failure to mail such notice, nor any defect in any notice
so mailed, to any particular Holder of Registered Securities shall affect the
sufficiency of such notice with respect to other Holders of Registered
Securities. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been received by such Holder of Registered
Securities, whether or not such Holder of Registered Securities actually
receives such notice. In case by reason of the suspension of regular mail
service or by reason of any other cause it shall be impracticable to give such
notice by mail, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose hereunder.
In case by reason of the suspension of publication of any Authorized
Newspaper or Authorized Newspapers or by reason of any other cause it shall be
impracticable to publish any notice to Holders of Bearer Securities as provided
above, then such notification to Holders of Bearer Securities as shall be given
with the approval of the Trustee shall constitute sufficient notice to such
Holders for every purpose hereunder. Neither the failure to give notice by
publication to Holders of Bearer Securities as provided above, nor any defect in
any notice so published, shall affect the sufficiency of any notice mailed to
Holders of Registered Securities as provided above.
Any request, demand, authorization, direction, notice, consent or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the Trust Indenture Act provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or excluded, as the case may
be.
Section 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
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Section 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 110. Separability Clause.
In case any provision in this Indenture, any Security or any Coupon
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 111. Benefits of Indenture.
Nothing in this Indenture, any Security or any Coupon, express or
implied, shall give to any Person, other than the parties hereto, any Security
Registrar, any Paying Agent, any Authenticating Agent and their successors
hereunder and the Holders of Securities or Coupons, and, solely in the case of
Securities which, pursuant to Section 301, are by their terms expressly
subordinated in right of payment to Senior Indebtedness, the holders of such
Senior Indebtedness, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
Section 112. Governing Law.
This Indenture, the Securities and any Coupons shall be deemed to be a
contract under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of such state, without
regard to principles of conflicts of laws. This Indenture is subject to the
provisions of the Trust Indenture Act that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
Section 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Repayment
Date, sinking fund payment date, Stated Maturity or Maturity, as the case may
be, of any Security shall not be a Business Day at any Place of Payment for such
Security, then notwithstanding any other provision of this Indenture, any
Security or any Coupon (other than a provision of any Security or any Coupon
established as contemplated by Section 301 and which specifically states that
such provision shall apply in lieu of this Section 113), payment of interest or
principal (and premium, if any) need not be made at such Place of Payment on
such date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment
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Date, Redemption Date, Repayment Date, sinking fund payment date or at the
Stated Maturity or Maturity, as the case may be, and no interest shall accrue on
such payment for the period from and after such Interest Payment Date,
Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or
Maturity, as the case may be, to the next succeeding Business Day. For purposes
of this Section 113, the sole Place of Payment with respect to any Book-Entry
Securities for which the Depositary is The Depository Trust Company or its
successor shall be deemed to be the Borough of Manhattan, The City of New York.
Section 114. Immunity of Stockholders, Directors, Officers and Agents of the
Company.
No recourse under or upon any obligation, covenant or agreement
contained in this Indenture, or in any Security, or because of any indebtedness
evidenced thereby, shall be had against any past, present or future stockholder,
employee, officer or director, as such, of the Company or of any predecessor or
successor, either directly or through the Company or any predecessor or
successor, under any rule of law, statute or constitutional provision or by the
enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Securities by the Holders and as part of the consideration for
the issue of the Securities.
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ARTICLE TWO
SECURITY FORMS
Section 201. Forms of Securities.
Each Registered Security, Bearer Security, Coupon and temporary or
permanent Book-Entry Security issued pursuant to this Indenture shall be in
substantially the forms as shall be established by or pursuant to one or more
Board Resolutions (as set forth in a Board Resolution or, to the extent
established pursuant to rather than as set forth in a Board Resolution, an
Officer's Certificate detailing such establishment) or in one or more indentures
supplemental hereto, shall have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture or any indenture supplemental hereto, and may have such letters,
numbers or other marks of identification or designation and such legends or
endorsements placed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Indenture, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Securities may be
listed, or to conform to usage.
Unless otherwise provided in or pursuant to this Indenture or any
Securities, the Securities shall be issuable in registered form without Coupons.
The definitive Securities and definitive Coupons, if any, shall be
printed, lithographed or engraved or produced by any combination of these
methods on steel engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities or Coupons.
Section 202. Securities in Book-Entry Form.
If Securities of or within a series are issuable in book-entry form, as
specified as contemplated by Section 301, then, notwithstanding clause (9) of
Section 301 and the provisions of Section 302, any such Security shall represent
such of the Outstanding Securities of such series as shall be specified therein
and may provide that it shall represent the aggregate amount of Outstanding
Securities of such series from time to time endorsed thereon and that the
aggregate amount of Outstanding Securities of such series represented thereby
may from time to time be increased or decreased to reflect exchanges. Any
endorsement of a Security in book-entry form to reflect the amount, or any
increase or decrease in the amount, of Outstanding Securities represented
thereby shall be made by the Trustee in such manner and upon instructions given
by such Person or Persons as shall be specified in such Security or in the
Company Order to be delivered
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to the Trustee pursuant to Section 303 or 304. Subject to the provisions of
Section 303 and, if applicable, Section 304, the Trustee shall deliver and
redeliver any Security in permanent book-entry form in the manner and upon
instructions given by the Person or Persons specified in such Security or in the
applicable Company Order. If a Company Order pursuant to Section 303 or 304 has
been, or simultaneously is, delivered, any instruction by the Company with
respect to endorsement, delivery or redelivery of a Security in book-entry form
shall be in writing but need not comply with Section 102 and need not be
accompanied by Opinion of Counsel.
The provisions of the last sentence of Section 303 shall apply to any
Security represented by a Security in book-entry form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in book-entry form together with written instructions (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 303.
Notwithstanding the provisions of Section 307, unless otherwise
specified as contemplated by Section 301, payment of principal of (and premium,
if any), any interest on, and any Additional Amounts in respect of any Security
in temporary or permanent book-entry form shall be made to the Person or Persons
specified therein.
Notwithstanding the provisions of Section 308 and except as provided in
the preceding paragraph, the Company, the Trustee and any agent of the Company
and the Trustee shall treat as the Holder of such principal amount of
Outstanding Securities represented by a permanent Book-Entry Security (i) in the
case of a permanent Book-Entry Security in registered form, the Holder of such
permanent Book-Entry Security in registered form or (ii) in the case of a
Book-Entry Security in bearer form, the Persons or Persons specified pursuant to
Section 301.
Section 203. Form of Legend for Book-Entry Securities.
Any Book-Entry Security authenticated and delivered hereunder shall
bear a legend in substantially the following form and such other legends as may
be required by the applicable Depositary or as shall be deemed necessary or
desirable by the Company:
"This Security is a Book-Entry Security within the meaning of
the Indenture hereinafter referred to and is registered in the name of
a Depositary or a nominee of a Depositary. This Security is not
exchangeable for Securities registered in the name of a Person other
than the Depositary or its nominee except in the limited circumstances
described in the Indenture, and unless and until it is exchanged in
whole or in part for Securities in definitive certificated form, this
Security may not be
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transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such
nominee to a successor Depositary or nominee of such successor
Depositary."
Section 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificates of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
State Street Bank and Trust Company of
California, N.A., as Trustee
By: __________________________________
Authorized Signatory
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ARTICLE THREE
THE SECURITIES
Section 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. With respect to any
series of Securities which may be designated and authenticated and delivered
under this Indenture, there shall be established in or pursuant to one or more
Board Resolutions (and to the extent established pursuant to rather than as set
forth in a Board Resolution, in an Officers' Certificate detailing such
establishment) or established in one or more indentures supplemental hereto,
prior to the issuance of Securities of any such series (except as provided in
the last paragraph of this Section 301), any or all of the following, as
applicable, each of which (except for the matters set forth in clauses (1), (2)
(with respect to any limit upon the aggregate principal amount of the Securities
which may be authenticated and delivered under this Indenture), (18) and (21)
below), if so provided, may be determined from time to time by the Company with
respect to unissued Securities of the series when issued from time to time:
(1) the title of the Securities (which shall distinguish the
Securities of the series from Securities of any other series) or series
of which they are a part;
(2) the aggregate principal amount of the Securities and any
limit upon the aggregate principal amount of the Securities of the
series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 304, 305, 306, 906 or 1107, upon repayment
in part of any Security of such series pursuant to Article Thirteen or
upon surrender in part of any Security for conversion or exchange into
Common Stock or other securities pursuant to its terms, and except for
any Securities which, pursuant to Section 303, are deemed never to have
been authenticated and delivered hereunder), which limit, unless
otherwise expressly established, may be changed from time to time by or
pursuant to Board Resolution, Officers' Certificate or indentures
supplemental hereto without the consent of any Holders; in the event
that such series of Securities may be reopened from time to time for
issuances of additional Securities of such series, the terms thereof
shall indicate whether any such additional Securities shall have the
same terms as the prior Securities of such series or whether the
Company shall be
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entitled to establish additional or different terms with respect to
such additional Securities;
(3) the Person to whom any interest on a Registered Security of
the series shall be payable, if other than the Person in whose name
that Security (or one or more Predecessor Securities) is registered at
the close of business on the Regular Record Date for such series;
(4) the date or dates, or the method or methods, if any, by
which such date or dates shall be determined, on which the principal of
(and premium, if any, on) such Securities will be payable;
(5) the rate or rates (which may be fixed, floating or
adjustable) or the method of determination thereof, at which the
Securities of the series will bear interest, if any, the date or dates
from which such interest shall accrue or method by which such date or
dates shall be determined, the Interest Payment Dates on which any such
interest shall be payable, the Regular Record Date, if any, for any
such interest payable on any Interest Payment Date, or the method by
which such date or dates shall be determined, whether and under what
circumstances Additional Amounts on such Securities or any of them
shall be payable and the basis upon which interest shall be calculated
if other than that of a 360-day year of twelve 30-day months;
(6) the place or places where the principal of and any premium
and interest on Securities of the series shall be payable, any
Registered Securities of the series may be surrendered for registration
of transfer and exchange, where Securities of that series that are
convertible or exchangeable may be surrendered for conversion or
exchange, as applicable, and where notices or demands to or upon the
Company in respect of the Securities of the series and the Indenture
may be served;
(7) the period or periods within which, the price or prices at
which, the Currencies, currency units or composite currencies in which,
and the other terms and conditions upon which Securities of the series
may be redeemed, in whole or in part, at the option of the Company;
(8) the obligation, if any, of the Company to redeem, repay or
purchase any of such Securities of the series pursuant to any sinking
fund or analogous provisions or at the option of a Holder thereof, and
the period or periods within which, the price or prices at which and
the other terms and conditions upon which Securities of the series will
be redeemed, repaid or purchased, in whole or in part, pursuant to any
such obligation;
(9) if other than denominations of $1,000 and any integral
multiple thereof the denominations in which any Registered Securities
of the series shall be
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issuable, and if other than the denominations of $5,000 and any
integral multiple thereof, the denominations in which Securities of the
series that are Bearer Securities shall be issuable;
(10) if other than the Currency of the United States of America,
the Foreign Currency in which the principal of or any premium or
interest on such Securities will be payable (and the manner in which
the equivalent of the principal amount thereof in the Currency of the
United States of America is to be determined for any purpose, including
for the purpose of determining the principal amount deemed to be
outstanding at any time);
(11) if the amount of payments of principal of or any premium or
interest on any Securities of the series ("Indexed Securities") may be
determined with reference to an index, pursuant to a formula, or
pursuant to other methods (which index, formula or method may be based,
without limitation, on one or more currencies, currency units,
composite currencies, commodities, equity indices or other indices),
the manner in which such amounts will be determined;
(12) if the principal of or any premium or interest on such
Securities of the series is to be payable, at the election of the
Company or a Holder thereof, in one or more Currencies, currency units
or composite currencies other than those in which the Securities are
stated to be payable, the currencies, currency units or composite
currencies in which payment of any such amount as to which such
election is made will be payable, and the periods within which and the
terms and conditions upon which such election is to be made;
(13) if other than the entire principal amount thereof, the
portion of the principal amount of Securities of the series which shall
be payable upon declaration of acceleration of the Maturity thereof
pursuant to this Indenture or, if applicable, the portion of the
principal amount of Securities of the series that is convertible into
or exchangeable for other securities or the method by which such
portion shall be determined;
(14) the application, if any, of Section 1402 and/or 1403 to the
Securities of the series (and, in the case of Section 1403, if
applicable, any additional covenants subject to covenant defeasance)
and any provisions in modification of, in addition to or in lieu of any
of the provisions in Sections 1402 and 1403; and, if either Section
1402 or 1403 is made applicable with respect to the Securities of the
series, whether such defeasance or covenant defeasance must be effected
with respect to all Outstanding Securities of the series or whether
such defeasance or covenant defeasance may be effected with respect to
Securities within the series;
(15) the obligation, if any, of the Company to permit the
conversion of the Securities of the series into the Company's Common
Stock or other securities, as
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the case may be, and the terms and conditions upon which such
conversion shall be effected (including, without limitation, the
initial conversion price or rate, the conversion period, the conversion
agent, if any adjustment of the applicable conversion price or rate and
any requirements relative to the reservation of such shares or
securities for purposes of conversion);
(16) whether any of the Securities of the series will be issued
in whole or in part in book-entry form and, in such case, the initial
Depositary with respect to such Book-Entry Security or Securities and
the circumstances under which any such Securities may be registered in
the name of a Person other than such Depositary or its nominee, if
other than as set forth in Section 305;
(17) whether Securities of the series are to be issuable as
Registered Securities, as Bearer Securities or alternatively as Bearer
Securities and Registered Securities, and whether the Bearer Securities
are to be issuable with Coupons, without Coupons or both, and any
restrictions applicable to the offer, sale or delivery of the Bearer
Securities and the terms, if any, upon which Bearer Securities of the
series may be exchanged for Registered Securities of the series and
vice versa;
(18) if any of the Securities of the series are to be issuable as
Bearer Securities, the date as of which any such Bearer Security shall
be dated, if other than the date of original issuance of the first of
such Securities to be issued;
(19) provisions, if any, granting special rights to the Holders
of Securities of the series upon the occurrence of such events as may
be specified;
(20) any deletions from, modifications of or additions to the
Events of Default or covenants of the Company provided for with respect
to Securities of the series (whether or not such Events of Default or
covenants are consistent with the Events of Default or covenants set
forth herein) and, if Section 1006 is not to be applicable to any
additional covenants established with respect to the Securities, those
covenants;
(21) the terms, if any, pursuant to which the Securities of the
series will be made subordinate in right of payment to all Senior
Indebtedness of the Company, and the definition of any such Senior
Indebtedness (in the absence of an express statement that the
Securities of such series are subordinate in right of payment to all
Senior Indebtedness, the Securities of such series shall not be
subordinate to Senior Indebtedness);
(22) whether the payment of principal, premium and interest, if
any, Additional Amounts, if any, and other amounts due hereunder, and
performance of
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the Company's other obligations hereunder, will be guaranteed by one or
more guarantors, including subsidiaries of the Company; and
(23) any other terms of the series, whether or not consistent
with the provisions of this Indenture.
All Securities of any one series and all Coupons, if any, appertaining
to Bearer Securities of such series shall be substantially identical except, in
the case of Registered Securities, as to denomination and except as may
otherwise be provided by the Company in the Board Resolution, or pursuant to the
Board Resolution and set forth in the Officers' Certificate, or in any indenture
or indentures supplemental hereto pertaining to such series of Securities. The
terms of the Securities may provide, without limitation, that the Securities
shall be authenticated and delivered by the Trustee on original issue from time
to time upon telephonic or written order of persons designated in the Board
Resolution, Officers' Certificate or supplemental indenture (telephonic
instructions to be promptly confirmed in writing by such person) and that such
persons are authorized to determine, consistent with such Board Resolution,
Officers' Certificate or supplemental indenture, such terms as are specified in
such Board Resolution, Officers' Certificate or supplemental indenture. All
Securities of any one series need not be issued at the same time and, unless
otherwise so provided by the Company as contemplated by this Section 301, a
series may be reopened without consent of any Holder from time to time for
issuances of additional Securities of such series or to establish additional
terms of such series of Securities (which additional term shall only be
applicable with respect to unissued or additional Securities of such series).
The terms of any Security may be established prior to the issuance thereof but
after the issuance of other Securities of the same series.
Section 302. Currency; Denominations.
In the absence of any such provisions with respect to the Securities of
any series, the principal of, any premium and interest on and any Additional
Amounts with respect to the Securities shall be payable in Dollars. In the
absence of any such provisions with respect to the Securities of any series, the
Registered Securities denominated in Dollars shall be issuable in registered
form without Coupons, other than Registered Securities issued in book-entry form
(which may be of any denomination), and shall be issuable in denominations of
$1,000 and any integral multiple thereof. Bearer Securities denominated in
Dollars shall be issuable in registered form without Coupons, other than Bearer
Securities issued in book-entry form (which may be of any denomination) and
shall be issuable in denominations of $5,000 and any integral multiple thereof.
Securities not denominated in Dollars shall be issuable in such denominations as
are established with respect to such Securities in or pursuant to this
Indenture.
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Section 303. Execution, Authentication, Delivery and Dating.
The Securities and Coupons, if any, shall be executed on behalf of the
Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief
Executive Officer, its President, its Chief Financial Officer or one of its Vice
Presidents, under its corporate seal or a facsimile thereof which may, but need
not, be attested by one of its Vice Presidents, its Treasurer, one of its
Assistant Treasurers, its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities or Coupons, if any, may be
manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Securities or
Coupons.
Securities and any Coupons bearing the manual or facsimile signatures
of individuals who were at any time the proper officers of the Company shall
bind the Company, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities or
Coupons.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series, together with
any Coupons appertaining thereto, executed by the Company, to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities to or upon the order of the
Company or pursuant to such procedures acceptable to the Trustee and to such
recipients as the case may be as specified from time to time by a Company Order.
If all the Securities of any series are not to be issued at one time and if the
terms of such Securities established as contemplated by Section 301 so permit,
such Company Order may set forth procedures acceptable to the Trustee for the
completion and authentication of such Securities from time to time. In
authenticating Securities of any series and any Coupons appertaining thereto,
and accepting the additional responsibilities under this Indenture in relation
to such Securities and any Coupons appertaining thereto, the Trustee shall be
entitled to receive, and (subject to Section 601) shall be fully protected in
relying upon,
(i) any Board Resolution, Officers' Certificate and/or indenture
supplemental hereto by or pursuant to which the forms and terms of such
Securities are established as contemplated by Sections 201 and 301;
(ii) an Officers' Certificate stating that the forms and terms of
such Securities and Coupons, if any, have been established pursuant to
Sections 201 and 301 and comply with this Indenture; and
(iii) an Opinion of Counsel substantially to the effect that:
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(a) the forms and the terms of such Securities and Coupons,
if any, have been duly authorized and established in conformity
with the provisions of this Indenture,
(b) all conditions precedent provided for in this Indenture
relating to the Trustee's authentication of such Securities and
Coupons, if any, have been complied with, and
(c) such Securities and Coupons, if any, when authenticated
and delivered by the Trustee and issued by the Company in the
manner and subject to any conditions specified in such Opinion of
Counsel, will constitute valid and legally binding obligations of
the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles
and to such other matters as such counsel may specify.
The Trustee shall not be required to authenticate such Securities if the issue
of such Securities pursuant to this Indenture will affect the Trustee's own
rights, duties or immunities under the Securities and this Indenture or
otherwise in a manner which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Company Order, Board Resolution,
indentures supplemental hereto, Officers' Certificate and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the time
of authentication of each Security of such series if such documents (with such
modifications as may be appropriate) are delivered at or prior to the
authentication upon original issuance of the first Security of such series to be
issued and reasonably contemplate such authentication of each such Security.
Each Registered Security shall be dated the date of its authentication
unless otherwise established therefor as contemplated by Section 301. Each
Bearer Security shall be dated as of the date specified in or pursuant to this
Indenture.
No Security or Coupon appertaining thereto, if any, shall be entitled
to any benefit under this Indenture or be valid or obligatory for any purpose
unless there appears on such Security a certificate of authentication
substantially in the form provided for herein executed by the Trustee or an
Authenticating Agent by manual signature, and such certificate upon any Security
shall be conclusive evidence, and the only evidence, that such Security has been
duly authenticated and delivered hereunder and is entitled to the benefits of
this Indenture. Except as permitted by Section 306 or 307 or as may otherwise be
provided in or pursuant to this Indenture, the Trustee shall not authenticate
and deliver
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any Bearer Security unless all Coupons appertaining thereto then matured have
been detached and canceled. Notwithstanding the foregoing, if any Security shall
have been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 309 together with a written statement (which
need not comply with Section 102 and need not be accompanied by an opinion of
counsel) stating that such Security has never been issued and sold by the
Company, for all purposes of this Indenture such Security shall be deemed never
to have been authenticated and delivered hereunder and shall never be entitled
to the benefits of this Indenture.
Section 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities of such series which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued, in registered form or, if authorized in or pursuant to this
Indenture, in bearer form with one or more Coupons or without Coupons and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities. In the case of Securities of any series,
such temporary Securities may be in book-entry form.
Except in the case of temporary Securities in book-entry form, which
shall be exchanged in accordance with the provisions thereof, if temporary
Securities of any series are issued, the Company will cause definitive
Securities of that series to be prepared without unreasonable delay. After the
preparation of definitive Securities of such series, the temporary Securities of
such series shall be exchangeable for definitive Securities of such series upon
surrender of the temporary Securities of such series at the Office or Agency of
the Company in a Place of Payment for that series, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Securities of any
series (accompanied by any unmatured Coupons appertaining thereto), the Company
shall execute, and the Trustee shall authenticate and deliver in exchange
therefor, one or more definitive Securities of the same series, of any
authorized denominations and of a like aggregate principal amount and tenor;
provided, however, that no definitive Bearer Security, except as provided in or
pursuant to this Indenture, shall be delivered in exchange for a temporary
Registered Security; and provided, further, that a definitive Bearer Security
shall be delivered in exchange for a temporary Bearer Security only in
compliance with the conditions set forth in or pursuant to this Indenture. Until
so exchanged, the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series and tenor.
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Section 305. Registration, Registration of Transfer and Exchange.
With respect to the Registered Securities of each series, the Company
shall cause to be kept at the Corporate Trust Office of the Trustee or in any
Office or Agency of the Company in a Place of Payment a register (the register
maintained in such office and in any other Office or Agency of the Company in a
Place of Payment being herein sometimes collectively referred to as the
"Security Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of the Registered
Securities and of transfers of the Registered Securities. The Security Register
shall be in written form or any other form capable of being converted into
written form within a reasonable time. The Trustee, at its Corporate Trust
Office, is hereby appointed "Security Registrar" for the purpose of registering
the Securities and transfers of the Securities as herein provided.
The Company shall have the right to remove and replace from time to
time the Security Registrar for any series of Securities; provided that no such
removal or replacement shall be effective until a successor Security Registrar
with respect to such series of Securities shall have been appointed by the
Company and shall have accepted such appointment. In the event the Trustee shall
not be or shall cease to be Security Registrar with respect to a series of
Securities, it shall have the right to examine the Security Register for such
series at all reasonable times. There shall be only one Security Register for
each series of Securities.
Upon surrender for registration of transfer of any Registered Security
of any series at the Office or Agency of the Company in a Place of Payment for
Securities of that series, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Registered Securities of the same series, of any
authorized denominations and of a like aggregate principal amount and tenor,
containing identical terms and provisions, bearing a number not
contemporaneously outstanding.
At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series, any authorized
denominations and of a like aggregate principal amount and tenor, containing
identical terms and provisions, upon surrender of the Securities to be exchanged
at such Office or Agency. Whenever any Registered Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Registered Securities which the Holder making the exchange is
entitled to receive.
If (but only if) permitted by the applicable Board Resolution and set
forth in the applicable Officers' Certificate, or in any indenture supplemental
hereto, with respect to Securities of any series, at the option of the Holder,
Bearer Securities of such series may be exchanged for Registered Securities of
such series containing identical terms,
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denominated as authorized in or pursuant to this Indenture and in the same
aggregate principal amount, upon surrender of the Bearer Securities to be
exchanged at any Office or Agency for such series, with all unmatured Coupons
and all matured Coupons in default thereto appertaining. If the Holder of a
Bearer Security is unable to produce any such unmatured Coupon or Coupons or
matured Coupon or Coupons in default, such exchange may be effected if the
Bearer Securities are accompanied by payment in funds acceptable to the Company
and the Trustee in an amount equal to the face amount of such missing Coupon or
Coupons, or the surrender of such missing Coupon or Coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Bearer Security shall surrender to any Paying
Agent any such missing Coupon in respect of which such a payment shall have been
made, such Holder shall be entitled to receive the amount of such payment;
provided, however, that, except as otherwise provided in Section 1002, interest
represented by Coupons shall be payable only upon presentation and surrender of
those Coupons at an Office or Agency for such series located outside the United
States. Notwithstanding the foregoing, in case a Bearer Security of any series
is surrendered at any such Office or Agency for such series in exchange for a
Registered Security of such series and like tenor after the close of business at
such Office or Agency on (i) any Regular Record Date and before the opening of
business at such Office or Agency on the relevant Interest Payment Date, or (ii)
any Special Record Date and before the opening of business at such Office or
Agency on the related date for payment of Defaulted Interest, such Bearer
Security shall be surrendered without the Coupon relating to such Interest
Payment Date or proposed date of payment, as the case may be (or, if such Coupon
is so surrendered with such Bearer Security, such Coupon shall be returned to
the Person so surrendering the Bearer Security), and interest or Defaulted
Interest, as the case may be, shall not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of the Registered
Security issued in exchange for such Bearer Security, but shall be payable only
to the Holder of such Coupon when due in accordance with the provisions of this
Indenture.
If provided in or pursuant to this Indenture with respect to Securities
of any series, at the option of the Holder, Registered Securities of such series
may be exchanged for Bearer Securities upon such terms and conditions as may be
provided in or pursuant to this Indenture with respect to such series.
Whenever any Securities are surrendered for exchange as contemplated by
the immediately preceding two paragraphs, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to
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the same benefits under this Indenture, as the Securities surrendered upon such
registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange or redemption shall (if so required by the Company or
the Security Registrar for such Security) be duly endorsed, or be accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed, by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer and
other than exchanges of interests in Book-Entry Securities for definitive
Securities pursuant to the second succeeding paragraph.
Except as otherwise provided in or pursuant to this Indenture, neither
the Company nor the Trustee shall be required (i) to issue, register the
transfer of or exchange Securities of any series, if such Security may be among
those selected for redemption, during a period beginning at the opening of
business 15 days before selection of the Securities of that series to be
redeemed under Section 1103 and ending at the close of business on (A) if such
Securities are issuable only as Registered Securities, the day of the mailing of
the relevant notice of redemption and (B) if such Securities are issuable as
Bearer Securities, the day of the first publication of the relevant notice of
redemption or, if such Securities are also issuable as Registered Securities and
there is no publication, the mailing of the relevant notice of redemption, or
(ii) to register the transfer of or exchange any Registered Security, or portion
thereof, so selected for redemption in whole or in part, except in the case of
any Registered Security to be redeemed in part, the portion thereof not to be
redeemed, or (iii) to exchange any Bearer Security so selected for redemption
except, to the extent provided with respect to such Bearer Security, that such
Bearer Security shall be simultaneously surrendered for redemption with written
instruction for payment consistent with the provisions of this Indenture or (iv)
to issue, register the transfer of or exchange any Security which, in accordance
with its terms, has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Security not be so repaid.
Notwithstanding the foregoing, no Book-Entry Security shall be
registered for transfer or exchange, or authenticated and delivered, whether
pursuant to this Section, Sections 304, 306, 906 or 1107 or otherwise, in the
name of a Person other than the Depositary for such Book-Entry Security or its
nominee until (i) the Depositary with respect to a Book-Entry Security notifies
the Company that it is unwilling or unable to continue as Depositary for such
Book-Entry Security or the Depositary ceases to be a clearing agency registered
under the Exchange Act and no successor Depositary for such
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Securities shall have been appointed within 90 days of such notification or of
the Company becoming aware of the Depositary ceasing to be so registered, as the
case may be, (ii) the Company, in its sole discretion, executes and delivers to
the Trustee a Company Order that all Book-Entry Securities of such series shall
be so transferable and exchangeable or (iii) there shall have occurred and be
continuing an Event of Default with respect to the Securities of such series.
Upon the occurrence in respect of any Book-Entry Security of any series of any
one or more of the conditions specified in clauses (i), (ii) or (iii) of the
preceding sentence or such other conditions as may be established as
contemplated by Section 301 for Securities of such series, the Company shall
without unnecessary delay deliver to the Trustee certificated Securities of such
series in such form and denominations as are required by or pursuant to this
Indenture, containing identical terms and in aggregate principal amount equal to
the aggregate principal amount of such Book-Entry Securities and shall cause the
Trustee to authenticate and deliver such certificated Securities to such Persons
and registered in such names as the Depositary with respect to such series shall
direct.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any Book-Entry Security, whether pursuant to this Section,
Section 304, 306, 906 or 1107 or otherwise, shall also be a Book-Entry Security
and bear the legend specified in Section 203.
Subject to the second preceding paragraph, if the Securities are
Book-Entry Securities, the Depositary or its nominee, as registered owner of a
Book-Entry Security, shall be the Holder of such Book-Entry Security for all
purposes under this Indenture, and owners of beneficial interests in a
Book-Entry Security shall hold such interests pursuant to the applicable
procedures of the Depositary. Accordingly, any such owner's beneficial interest
in a Book-Entry Security will be shown only on, and the transfer of such
interest shall be effected only through, records maintained by the Depositary or
its nominee.
If any beneficial owner of an interest in a Book-Entry Security is
entitled to exchange such interest for Securities of such series of like tenor,
terms and principal amount and which are not Book-Entry Securities, whether
pursuant to the third preceding paragraph or as otherwise specified as
contemplated by Section 301, and provided that any applicable notice provided in
the Book-Entry Security shall have been given, then without unnecessary delay
but in any event not later than the earliest date on which such interest may be
so exchanged, the Company shall deliver to the Trustee definitive Securities in
aggregate principal amount equal to the principal amount of such beneficial
owner's interest in such Book-Entry Security, executed by the Company. On or
after the earliest date on which such interests may be so exchanged, such
Book-Entry Security shall be surrendered by the Depository or such depository as
shall be specified in the Company Order with respect thereto to the Trustee, as
the Company's agent for such purpose, to be exchanged, in whole or from time to
time in part, for definitive Securities
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without charge and the Trustee shall authenticate and deliver, in exchange for
each portion of such Book-Entry Security, an equal aggregate principal amount of
definitive Securities of the same series of authorized denominations and of like
tenor and terms as the portion of such Book-Entry Security to be exchanged
which, unless the Securities of the series are not issuable both as Bearer
Securities and as Registered Securities, as specified as contemplated by Section
301, shall be in the form of Bearer Securities or Registered Securities, or any
combination thereof; provided, however, that no Bearer Security delivered in
exchange for a portion of a Book-Entry Security shall be mailed or otherwise
delivered to any location in the United States. If a Registered Security is
issued in exchange for any portion of a Book-Entry Security after the close of
business at the Office or Agency where such exchange occurs on (i) any Regular
Record Date and before the opening of business at such Office or Agency on the
relevant Interest Payment Date or (ii) any Special Record Date and before the
opening of business at such Office or Agency on the related proposed date for
payment of Defaulted Interest, interest or Defaulted Interest, as the case may
be, will not be payable on such Interest Payment Date or proposed date for
payment, as the case may be, in respect of such Registered Security, but will be
payable on such Interest Payment Date or proposed date for payment, as the case
may be, only to the Person to whom interest in respect of such portion of such
Book-Entry Security is payable in accordance with the provisions of this
Indenture.
Section 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security or a Security with a mutilated Coupon
appertaining to it is surrendered to the Trustee or the Company, together with,
in proper cases, such security or indemnity as may be required by the Company or
the Trustee to save each of them or any agent of each of them harmless, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security, with Coupons appertaining thereto corresponding to the
Coupons, if any, of the same series and of like tenor, terms and principal
amount and bearing a number not contemporaneously outstanding, with Coupons
corresponding to the Coupons, if any, appertaining to the surrendered Security.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security or
Coupon and (ii) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security or Coupon has been
acquired by a bona fide purchaser, the Company shall execute and, upon the
Company's request, the Trustee shall authenticate and deliver, in lieu of any
such destroyed, lost or stolen Security or in exchange for the Security to which
a destroyed, lost or stolen Coupon appertains (with all appurtenant Coupons not
destroyed, lost or stolen), a new Security of the same series and of like tenor
and principal amount and bearing a number not contemporaneously outstanding,
with
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Coupons corresponding to the Coupons, if any, appertaining to such destroyed,
lost or stolen Security or to the Security to which such destroyed, lost or
stolen Coupon appertains.
Notwithstanding the provisions of the previous two paragraphs, in case
any such mutilated, destroyed, lost or stolen Security or Coupon has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Security, pay such Security or Coupon; provided, however, that
payment of principal of, any premium or interest on or any Additional Amounts
with respect to any Bearer Securities shall, except as otherwise provided in
Section 1002, be payable only at an Office or Agency for such Securities located
outside the United States and, unless otherwise provided in or pursuant to this
Indenture, any interest on Bearer Securities and any Additional Amounts with
respect to such interest shall be payable only upon presentation and surrender
of the Coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series, together with any Coupons
appertaining thereto, issued pursuant to this Section in lieu of any destroyed,
lost or stolen Security, or in exchange for the Security to which a destroyed,
lost or stolen Coupon appertains, shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security and Coupons appertaining thereto or the destroyed, lost or
stolen Coupon shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionately with any and
all other Securities of that series and Coupons, if any, duly issued hereunder.
The provisions of this Section, as amended or supplemented pursuant to
this Indenture with respect to particular Securities or generally, are exclusive
and shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities or Coupons.
Section 307. Payment of Interest; Interest Rights Preserved.
Except as otherwise established as contemplated by Section 301 with
respect to any Securities of any series, interest on any Registered Security
which is payable, and is punctually paid or duly provided for, on any Interest
Payment Date shall be paid to the Person in whose name that Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest; provided, however, that each installment
of interest on any Registered Security may at the Company's option be paid by
(i) mailing a check for such interest, payable to or upon the written order of
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the Person entitled thereto pursuant to Section 308, to the address of such
Person as its appears on the Security Register, or (ii) wire transfer to an
account located inside the United States maintained by the payee.
Unless otherwise provided as contemplated by Section 301 with respect
to the Securities of any series, payment of interest may be made, in the case of
a Bearer Security, by transfer to an account maintained by the payee with a bank
located outside the United States. Unless otherwise provided in or pursuant to
this Indenture, in case a Bearer Security of any series is surrendered in
exchange for a Registered Security of such series after the close of business at
an Office or Agency for such Security on any Regular Record Date therefor and
before the opening of business at such Office or Agency on the next succeeding
Interest Payment Date therefor, such Bearer Security shall be surrendered
without the Coupon relating to such Interest Payment Date and interest shall not
be payable on such Interest Payment Date in respect of the Registered Security
issued in exchange for such Bearer Security, but shall be payable only to the
Holder of such Coupon when due in accordance with the provisions of this
Indenture.
Except as otherwise established as contemplated by Section 301 with
respect to Securities of any series, any interest on any Registered Security
which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease
to be payable to the Holder on the relevant Regular Record Date by virtue of
having been such Holder, and such Defaulted Interest may be paid by the Company,
at its election in each case, as provided in paragraph (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Registered Securities (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Registered Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money in cash equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as provided in this clause. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which
shall not be more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special
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Record Date and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of such Securities at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record
Date. The Trustee may, in its discretion, in the name and at the
expense of the Company cause a similar notice to be published at least
once in an Authorized Newspaper of general circulation in the Borough
of Manhattan, The City of New York, but such publication shall not be a
condition precedent to the establishment of such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names such Securities
(or their respective Predecessor Securities) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (2). In case a Bearer Security
is surrendered at the Office or Agency for such Security in exchange
for a Registered Security after the close of business at such Office or
Agency on any Special Record Date and before the opening of business at
such Office or Agency on the related proposed date for payment of
Defaulted Interest, such Bearer Security shall be surrendered without
the Coupon relating to such Defaulted Interest and Defaulted Interest
shall not be payable on such proposed date of payment in respect of the
Registered Security issued in exchange for such Bearer Security, but
shall be payable only to the Holder of such Coupon when due in
accordance with the provisions of this Indenture.
(2) The Company may pay any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent
with the requirements of any securities exchange on which such
Securities may be listed, and upon such notice as may be required by
such exchange, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause, such manner of payment
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 308. Persons Deemed Owners.
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered as the
owner of such Security for the purpose of receiving payment of principal of and
any premium and (subject to Section 305 and 307) any interest on such Registered
Security and for all other purposes whatsoever, whether or not any payment with
respect to such Registered Security shall be
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overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the bearer of any Bearer Security or the bearer of any Coupon as the
absolute owner of such Security or Coupon for the purpose of receiving payment
thereof or on account thereof and for all other purposes whatsoever, whether or
not any payment with respect to such Security or Coupon shall be overdue, and
neither the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.
No holder of any beneficial interest in any Book-Entry Security held on
its behalf by a Depositary shall have any rights under this Indenture with
respect to such Book-Entry Security, and such Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as owner of
such Book-Entry Security for all purposes whatsoever. None of the Company, the
Trustee, any Paying Agent or the Security Registrar will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of a Book-Entry Security or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Notwithstanding the foregoing, with respect to any Book-Entry Security,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by any Depositary, as a Holder, with respect to
such Book-Entry Security or impair, as between such Depositary and owners of
beneficial interests in such Book-Entry Security, the operation of customary
practices governing the exercise of the rights of such Depositary (or its
nominee) as Holder of such Book-Entry Security.
Section 309. Cancellation.
All Securities and Coupons surrendered for payment, redemption,
repayment at the option of the Holder, registration of transfer or exchange,
conversion, or for credit against any sinking fund payment shall, if surrendered
to any Person other than the Trustee, be delivered to the Trustee and shall be
promptly canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and may deliver to
the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Securities previously authenticated hereunder which the Company
has not issued and sold, and all Securities and any Coupons so delivered shall
be promptly canceled by the Trustee. If the Company shall so acquire any of the
Securities, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities unless and until
the same are surrendered to the Trustee for cancellation. No Securities shall be
authenticated in lieu of or in exchange for any
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Securities canceled as provided in this Section, except as expressly permitted
by this Indenture. All canceled Securities held by the Trustee shall be disposed
of as directed by a Company Order.
Section 310. Computation of Interest.
Except as otherwise established as contemplated by Section 301 in
respect of Securities of any series, interest on the Securities of each series
shall be computed on the basis of a 360-day year of twelve 30-day months.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Order cease to be of further effect
with respect to Securities of any series specified in such Company Order and any
Coupons appertaining thereto (except as to any surviving rights as provided in
the last paragraph of this Section 401 and rights to receive the principal,
premium, if any, and interest, if any, on and Additional Amounts, if any, with
respect to Securities of such series), and the Trustee, upon receipt of Company
Order, and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture as to such series,
when
(1) either
(A) all Securities of such series theretofore
authenticated and delivered and all Coupons appertaining thereto (other
than (i) Coupons appertaining to Bearer Securities of such series
surrendered in exchange for Registered Securities of such series and
maturing after such exchange whose surrender is not required or has
been waived as provided in Section 305, (ii) Securities and Coupons of
such series which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306, (iii) Coupons
appertaining to Securities of such series called for redemption and
maturing after the relevant Redemption Date whose surrender has been
waived as provided in Section 1106, and (iv) Securities and Coupons of
such series for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all Securities of such series and, in the case of (i)
or (ii) below, if applicable, any Coupons appertaining thereto not
theretofore delivered to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) if redeemable at the option of the Company, are
to be called for redemption within one year under
arrangements satisfactory to the
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Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose money in the Currency in which
such Securities are payable in an amount sufficient to pay and
discharge the entire indebtedness on such Securities and any Coupons
appertaining thereto not theretofore delivered to the Trustee for
cancellation, including the principal of, any premium and interest on,
and any Additional Amounts with respect to, such Securities and any
Coupons appertaining thereto, to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated
Maturity or Redemption Date thereof, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company with respect to the Outstanding
Securities of such series and any Coupons appertaining thereto; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture with respect to such series have been
complied with.
In the event there are Securities of two or more series hereunder, the
Trustee shall be required to execute an instrument acknowledging satisfaction
and discharge of this Indenture only if requested to do so with respect to
Securities of such series as to which it is Trustee and if the other conditions
thereto are met.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to Securities of any series pursuant to this Section 401, (i) the
obligations of the Company to the Trustee under Section 607, (ii) the
obligations of the Company to any Authenticating Agent under Section 614, (iii)
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003, in each case with respect to such Securities
and (iv) the obligations of the Company and the Trustee with respect to the
Securities of such series under Sections 305, 306, 402, 1002 and 1003, with
respect to the payment of Additional Amounts, if any, with respect to such
Securities as contemplated by Section 1007, with respect to any rights of the
Holders of such Securities to require the Company to repay such Securities as
contemplated by Section 1301, and with respect to any rights of the Holders to
convert or exchange such Securities into Common Stock or other securities, shall
survive.
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Section 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
cash deposited with the Trustee pursuant to Section 401, shall be held in trust
and applied by it, in accordance with the provisions of the Securities of the
relevant series, the Coupons, if any, appertaining thereto, and this Indenture,
to the payment, either directly or through any Paying Agent (other than the
Company acting as its own Paying Agent) as the Trustee may determine, to the
Persons entitled thereto, of the principal (and premium, if any), interest and
Additional Amounts for whose payment such cash has been deposited with or
received by the Trustee, but such cash need not be segregated from other funds
except to the extent required by law.
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ARTICLE FIVE
REMEDIES
Section 501. Events of Default.
"Event of Default", wherever used herein with respect to Securities of
any series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body),
unless such event is specifically deleted or modified in or pursuant to the
supplemental Indenture, Board Resolution or Officers' Certificate establishing
the terms of such series pursuant to Section 301 of this Indenture:
(1) default in the payment of principal of or premium, if any,
on any Security of that series when due (whether at Stated Maturity, on
any Redemption Date or Repayment Date or otherwise); or
(2) default in the payment of any interest on, or any
Additional Amounts payable in respect of, any Security of that series
or any Coupon appertaining thereto as and when the same shall become
due and payable, and continuance of such default for a period of 30
days; or
(3) default in the deposit of any sinking fund payment, when
and as due by the terms of a Security of that series; or
(4) default in the performance or breach of any covenant or
agreement of the Company in this Indenture (other than any such default
or breach which is elsewhere in this Section specifically dealt with or
which is included herein solely for the benefit of a series of
Securities other than that series) or in the Securities of such series,
and continuance of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Securities of that
series a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(5) default under any bond, debenture, note, mortgage,
indenture or other instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money
borrowed by the Company (or by a Significant Subsidiary of the Company,
the repayment of which the Company has guaranteed or for which the
Company is directly responsible or liable as obligor or
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guarantor) having an aggregate principal amount outstanding of at least
$20,000,000, whether such indebtedness exists at the date of this
Indenture or shall thereafter be created, which default shall have
resulted in such indebtedness being declared due and payable prior to
the date on which it would otherwise have become due and payable,
without such indebtedness being discharged or such acceleration having
been rescinded or annulled within 30 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities of that series a written notice
specifying such default and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or (B) a decree or
order adjudging the Company a bankrupt or insolvent, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60
consecutive days; or
(7) the commencement by the Company of a voluntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization
or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the written consent by it to
the entry of a decree or order for relief in respect of the Company in
an involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law, or the written consent
by it to the filing or commencement of any case or proceeding in
respect of the Company under any applicable bankruptcy, insolvency,
reorganization or other similar law, or the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any
substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due; or
(8) any other Event of Default established as contemplated by
Section 301 with respect to Securities of that series.
Section 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of
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the Outstanding Securities of that series may declare the principal of (or, if
any of the Securities of that series are Original Issue Discount Securities or
Indexed Securities, such portion of the principal amount of such Securities as
may be specified in the terms thereof) and accrued interest on all of the
Securities of that series to be immediately due and payable by a notice in
writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount) and interest shall
become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient in cash to pay:
(A) all interest on the Securities of that series and any
Coupons appertaining thereto which has become due otherwise
than by such declaration of acceleration and any Additional
Amounts with respect thereto,
(B) the principal of (and premium, if any, on) the
Securities of that series which has become due otherwise than
by such declaration of acceleration,
(C) to the extent that payment of such interest is lawful,
interest upon overdue principal of, premium and interest (if
any) on and Additional Amounts (if any) with respect to the
Securities of such series at the rate or rates prescribed
therefor in such Securities or this Indenture (it being
understood that, if no rate of interest on overdue amounts is
specifically provided, then any such overdue principal,
premium, interest and Additional Amounts shall, to the extent
lawful, bear interest at the rate of interest borne by such
Securities), and
(D) all amounts owing the Trustee pursuant to Section 607
in respect of Securities of that series; and
(2) all Events of Default with respect to Securities of that
series, other than the non-payment of the principal and interest, if
any, of Securities of that series which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
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No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on, or any
Additional Amounts payable in respect of, any Security or any Coupon
appertaining thereto when such interest or Additional Amounts, as the
case may be, becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of or
premium, if any, on any Security when due (whether at Stated Maturity,
on any Redemption Date or Repayment Date or otherwise),
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities and any Coupons appertaining thereto, the whole
amount then due and payable on such Securities and any Coupons appertaining
thereto for principal and any premium and interest and Additional Amounts and,
to the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal, premium, interest and Additional Amounts at
the rate or rates prescribed therefor in such Securities (it being understood,
that if no rate of interest on overdue amounts is specifically provided, then
any such overdue principal, premium, interest and Additional Amounts shall, to
the extent lawful, bear interest at the rate of interest borne by such
Securities), and, in addition thereto, such further amount as shall be
sufficient to cover the amounts due the Trustee pursuant to Section 607 in
respect of such Securities.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and Coupons and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon such Securities
and any Coupons appertaining thereto, wherever situated.
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series
and any Coupons appertaining thereto by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any
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covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of any Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount, or such
lesser amount as may be provided for in the Securities of any series,
of principal, and premium, if any, interest and Additional Amounts
owing and unpaid in respect of such Securities and any Coupons and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee pursuant to Section 607 and of
the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official), in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay the Trustee any amount due it pursuant to Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or any of the
Securities or Coupons may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or Coupons or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the
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payment of the amounts due the Trustee pursuant to Section 607, be for the
ratable benefit of the Holders of the Securities or Coupons in respect of which
such judgment has been recovered.
Section 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or in
lieu of any proceeding contemplated by this Article shall be applied, subject to
applicable law, in the following order, at the date or dates fixed by the
Trustee and, in the case of the distribution of such money on account of
principal or any premium, interest or Additional Amounts, upon presentation of
the Securities or Coupons, or both, as the case may be, and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 607;
SECOND: Solely in the case of any money collected in respect of
Subordinated Securities, to the payment of amounts then due and unpaid to the
holders of the applicable Senior Indebtedness to the extent required pursuant to
the subordination provisions relating to such Subordinated Securities;
THIRD: To the payment of the amounts then due and unpaid for principal
of and any premium, interest and Additional Amounts payable on the Securities
and any Coupons appertaining thereto in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Securities and
Coupons for principal and any premium, interest and Additional Amounts,
respectively; and
FOURTH: To the payment of the remainder, if any, to the Company.
Section 507. Limitation on Suits.
No Holder of any Security of any series or any Coupons appertaining
thereto shall have any right to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities
of that series;
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(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities of that series shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities of that
series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Security to affect, disturb or prejudice the rights of
any other of such Holders, or to obtain or to seek to obtain priority or
preference over any other of such Holders of Securities of another series or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal and ratable benefit of all of such Holders.
Section 508. Unconditional Right of Holders to Receive Principal,
Premium, if any, and Interest and Additional Amounts, if any.
Notwithstanding any other provision in this Indenture, the Holder of
any Security or Coupon shall have the right, which is absolute and
unconditional, to receive payment of the principal of and any premium and
(subject to Section 305 and 307) any interest on or any Additional Amounts with
respect to such Security or such Coupon, as the case may be, on the respective
Maturity or Maturities thereof and to institute suit for the enforcement of any
such payment, and such rights shall not be impaired without the consent of such
Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
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Section 510. Rights and Remedies Cumulative.
To the extent permitted by applicable law, except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities or Coupons in the last paragraph of Section 306, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not, to the extent permitted by law, prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities
or Coupons appertaining thereto to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
Section 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture or with the Securities of any series or be
unduly prejudicial to Holders of Securities of such series not joining
therein, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series and any Coupons appertaining thereto waive any past
default hereunder with respect to such series and its consequences, except a
default
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(1) in the payment of the principal of or any premium or
interest on, or any Additional Amounts with respect to, any Security of
such series, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security of
any series by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee in respect of the Securities
of such series, the filing by any party litigant in such suit of an undertaking
to pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Company or the Trustee, to
any suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in principal amount of the Outstanding Securities of such series,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on, or Additional Amounts, if
any, with respect to any Security on or after the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on or after the
Redemption Date and, in the case of repayment, on or after the Repayment Date)
or for the enforcement of the right, if any, to convert or exchange any Security
into Common Stock or other securities in accordance with its terms.
Section 515. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
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suffer and permit the execution of every such power as though no such law had
been enacted.
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ARTICLE SIX
THE TRUSTEE
Section 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act and this Indenture. The Trustee shall be under no
obligation, subject to the duty of the Trustee during a default to act with the
required standard of care, to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Securities of any
series, unless such Holders shall have offered the Trustee reasonable security
or indemnity against costs, expenses and liabilities which might be incurred by
it in compliance with such request. Whether or not therein expressly so
provided, every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section.
Section 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with
respect to the Securities of any series, the Trustee shall transmit to all
Holders of Securities of such series, in the manner and to the extent provided
in Trust Indenture Act Section 313(c), notice of such default hereunder, unless
such default shall have been cured or waived; provided, however, that, except in
the case of a default in the payment of the principal of (or premium, if any) or
interest on or any Additional Amounts with respect to any Security of such
series, or in the payment of any sinking fund installment with respect to the
Securities of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
committee of Responsible Officers of the Trustee in good faith determine that
the withholding of such notice is in the interests of the Holders of the
Securities and Coupons of such series; and provided, further, that in the case
of any default of the character specified in Section 501(4) with respect to
Securities of such series, no notice to Holders shall be given until at least 60
days after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default with respect to the Securities of such series.
Subject to Trust Indenture Act Section 315(b), the Trustee shall not be deemed
to have, or be required to take, notice of any default or Event of Default
(other than a default described in paragraph (1), (2), or (3) of Section 501)
except upon (A) written notification from the Company or (B) written
notification from a Holder and, in the absence of such notice, the Trustee may
conclusively presume that there is no default or Event of Default except as
aforesaid. Subject to Section 601 of this Indenture, such notification shall not
be deemed
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to include receipt of information obtained in any report or other documents
furnished under Section 704 of this Indenture, which reports and documents the
Trustee shall have no duty to examine.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601 hereof and to the provisions
of Sections 315(a) through 315(d) of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon receipt by it of any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (other than
delivery of any Security, together with any Coupons appertaining thereto, to the
Trustee for authentication and delivery pursuant to Section 303 which shall be
evidenced as provided therein) and any resolution of the Board of Directors may
be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon a Board Resolution, an Opinion of Counsel or an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders of any series or any Coupons appertaining thereto pursuant to
this Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, coupon, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make
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such further inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) the Trustee shall not be liable for any action taken or omitted by
it in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture other than any liabilities
arising out of the negligence of the Trustee;
(i) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it;
(j) in the absence of bad faith on its part, the Trustee may
conclusively rely on the statements in certificates and opinions furnished to it
and conforming to the requirements of this Indenture; but in the case of any
such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture;
(k) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(l) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
Holders of a majority in principal amount of the Outstanding Securities of any
series, relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture with respect to the Securities of such
series; and
(m) no provision of this Indenture shall require the Trustee to
determine the maximum interest rate permissible under applicable law.
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Section 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, and in any Coupons shall be taken as
the statements of the Company, and neither the Trustee nor any Authenticating
Agent assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or Coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility and Qualification on Form T-1 supplied to the Company
are true and accurate subject to the qualifications set forth therein. The
Trustee or any Authenticating Agent shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
Section 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other Person that may be an agent of the Trustee or of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Securities or Coupons and, subject to Sections 608 and 613, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such
other Person.
Section 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
Section 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee and each predecessor Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by
it in accordance with any provision of this Indenture (including the
reasonable compensation and the
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expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee and each predecessor Trustee and
the officers, directors, employees and agents of the Trustee (the
Trustee, each predecessor Trustee and such officers, directors,
employees and agents being hereinafter referred to in this Section
collectively as the "Indemnified Parties" and individually as an
"Indemnified Party") for, and to hold each Indemnified Party harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of
its powers or duties hereunder; provided that any Indemnified Party
shall promptly notify the Company of the commencement of any action, or
proceeding for which it intends to seek indemnity hereunder, will
permit the Company to conduct the defense thereof on its behalf and
will not compromise or settle any such action, suit or proceeding
without the prior approval of the Company.
The Company's payment obligations pursuant to this Section 607 shall
survive the discharge of this Indenture. When the Trustee renders services or
incurs expenses or makes disbursements or advances after the occurrence of an
Event of Default specified in Section 501(6) or (7), the compensation for such
services and such expenses, disbursements and advances are intended to
constitute expenses of administration under any bankruptcy, insolvency,
reorganization or other similar law.
Section 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
Section 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has (or
if such Trustee is a Subsidiary of a bank holding company, its parent bank
holding company has) a combined capital and surplus of at least $50,000,000. If
such Person publishes reports of condition at least annually, pursuant to law or
to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its
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combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
Section 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may, or any Holder who has been a
bona fide Holder of a Security of the applicable series for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder of a Security
who has been a bona fide Holder of a Security for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company
or by any Holder of a Security who has been a bona fide Holder of a
Security for at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by or pursuant to Board Resolution may
remove the Trustee with respect to all Securities or the Securities of any
series, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security of any series for at least six months may, on behalf of
himself and all others similarly situated, petition any
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court of competent jurisdiction for the removal of the Trustee with respect to
the Securities of such series and the appointment of a successor Trustee or
Trustees with respect thereto.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Securities of one or more series, the Company, by or pursuant to
a Company Request, Company Order or Board Resolution, shall promptly appoint a
successor Trustee or Trustees with respect to the Securities of that or those
series (it being understood that any such successor Trustee may be appointed
with respect to the Securities of one or more or all of such series and that at
any time there shall be only one Trustee with respect to the Securities of any
particular series) and shall comply with the applicable requirements of Section
611. If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the Securities
of any series shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 611, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities of any series and each appointment
of a successor Trustee with respect to the Securities of any series to all
Holders of Securities of such series in the manner provided in Section 106. Each
notice of such appointment shall include the name of the successor Trustee with
respect to the Securities of such series and the address of its Corporate Trust
Office. Notices of resignation, removal and appointment may be combined into a
single notice.
Section 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such
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retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and, subject to Section 1003, shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
such one or more series shall execute and deliver an indenture supplemental
hereto wherein each successor Trustee shall accept such appointment and which
(1) shall contain such provisions as shall be necessary or desirable to transfer
and confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in paragraphs (a) and (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
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Section 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities. In case
any Securities shall not have been authenticated by such predecessor Trustee,
any such successor Trustee may authenticate and deliver such Securities, in
either its own name or that of its predecessor Trustee, with the full force and
effect which this Indenture provides for the certificate of authentication of
the Trustee.
Section 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect
to one or more series of Securities which shall be authorized to act on behalf
of the Trustee to authenticate Securities of such series issued upon original
issue and upon exchange, registration of transfer or partial redemption or
repayment thereof or pursuant to Section 306, and Securities so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder. Any
such appointment shall be evidenced by an instrument in writing signed by a
Responsible Officer of the Trustee, a copy of which instrument shall be promptly
furnished to the Company. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a bank or trust company or corporation
organized and doing business under the laws of the United States
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of America, any State thereof or the District of Columbia, authorized under such
laws to act as Authenticating Agent, having (or if such entity is a Subsidiary
of a bank holding company, its parent bank holding company has) a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee for such series and to the Company. The Trustee for any
series of Securities may at any time terminate the agency of an Authenticating
Agent by giving written notice thereof to such Authenticating Agent and to the
Company. Upon receiving such a notice of resignation or upon such a termination,
or in case at any time such Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, the Trustee for such series may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall (i) mail written notice of such appointment by first-class
mail, postage prepaid, to all Holders of Registered Securities, if any, of the
series with respect to which such Authenticating Agent will serve, as their
names and addresses appear in the Security Register, and (ii) if Securities of
that series are issued as Bearer Securities, publish notice of such appointment
at least once in an Authorized Newspaper in the place where such successor
Authenticating Agent has its principal office if such office is located outside
the United States. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
If at any time there shall be an Authenticating Agent appointed with
respect to one or more series of Securities, then in lieu of the Trustee's
certificate of authentication, an alternative certificate of authentication
shall be borne by such Securities substantially in the following form:
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
By: __________________________________,
as Trustee
By: __________________________________,
as Authenticating Agent
By: __________________________________,
Authorized Signatory
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not later than 15 days after each Regular Record
Date for Securities of each series at the time Outstanding, a list, in such form
as the Trustee may reasonably require, of the names and addresses of the Holders
of Registered Securities as of such Regular Record Date, or if there is no
Regular Record Date for interest for such series of Securities, semi-annually,
upon such dates as are set forth in the Board Resolution, Officers' Certificates
indenture supplemental hereto authorizing such series, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
provided, however, that so long as the Trustee is the Security Registrar, no
such list shall be required to be furnished.
Section 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of the Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities or Coupons, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
any disclosure of information as to names and addresses of Holders made pursuant
to the Trust Indenture Act, regardless of the source from which such information
was derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under the Trust Indenture Act.
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Section 703. Reports by Trustee.
(a) Within 60 days after each May 15, commencing with the first May 15
after the first issuance of Securities pursuant to this Indenture, the Trustee
shall transmit to the Holders such reports concerning the Trustee and its
actions under this Indenture as may be required pursuant to Trust Indenture Act
Section 313(a) in the manner provided pursuant thereto, and such other reports
as may be required under such Act in the manner and at the times provided
pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to the Holders, be filed by the Trustee with the Company and, to the extent
required, with each stock exchange upon which any Securities are listed and with
the Commission. The Company will notify the Trustee when any Securities are
listed on any stock exchange.
Section 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge with or into any other
Person, and the Company shall not sell, lease, assign, transfer or otherwise
convey all or substantially all of its assets to another Person, unless:
(1) (a) in the case of a merger, the Company shall be the surviving
corporation or (b) the Person (if other than the Company) surviving the merger,
formed by such consolidation or which acquires such assets shall be an entity
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall expressly assume the due and
punctual payment of the principal of and any premium and interest on and any
Additional Amounts with respect to all of the Securities, according to their
tenor, and the due and punctual performance and observance of all of the other
covenants and conditions of this Indenture and the Securities to be performed or
observed by the Company by an indenture supplemental hereto, complying with
Article Nine hereof, satisfactory to the Trustee, executed and delivered to the
Trustee by such Person; and
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or the lapse of time, or both, would
become an Event of Default, shall have occurred and be continuing.
Section 802. Rights and Duties of Successor Corporation.
In case of any such merger in which the Company is not the surviving
corporation or any such consolidation, sale, lease, assignment, transfer or
conveyance and upon any such assumption by the successor entity, such successor
entity shall succeed to and be substituted for, and may exercise every right and
power of, the Company under this Indenture and the Securities, with the same
effect as if it had been named herein as the party of the first part, and the
predecessor Person, except in the event of a lease, shall be relieved of any
further obligation under this Indenture and the Securities. Such successor
entity thereupon may cause to be signed, and may issue either in its own name or
in the name of the Company, any or all of the Securities issuable hereunder
which theretofore shall not have been signed by the Company and delivered to the
Trustee; and, upon the order of such successor entity, instead of the Company,
and subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee shall authenticate and shall deliver any Securities
which previously shall have been signed and delivered by the officers of the
Company to the Trustee for authentication, and any Securities which such
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successor entity thereafter shall cause to be signed and delivered to the
Trustee for that purpose. All the Securities of any series so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Securities of such series theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such Securities had been issued at
the date of the execution hereof.
In case of any such merger in which the Company is not the surviving
corporation or any such consolidation, sale, lease, assignment, transfer or
conveyance, such changes in phraseology and form (but not in substance) may be
made in the Securities thereafter to be issued as may be appropriate.
Section 803. Officers' Certificate and Opinion of Counsel.
Any consolidation, merger, sale, conveyance, assignment, transfer or
lease permitted under Section 801 is also subject to the condition that the
Trustee shall have received an Officers' Certificate and an Opinion of Counsel
to the effect that any such consolidation, merger, sale, conveyance, transfer,
assignment or lease, and the assumption by any successor Person and any such
supplemental indenture, comply with the provisions of this Article and that all
conditions precedent herein provided for relating to such transaction have been
complied with.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution (which Board Resolution may provide general terms for such
action and may provide that the specific terms of such action may be determined
in accordance with or pursuant to a Company Order), and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Securities as obligor under this
Indenture; or
(2) to add to the covenants of the Company for the benefit of
the Holders of the Securities of all or any series (and if such
covenants are to be for the benefit of the Securities of less than all
series, stating that such covenants are expressly being included solely
for the benefit of the Securities of such series) or to surrender any
right or power herein conferred upon the Company; or
(3) to add any additional Events of Default (and if such
Events of Default are to be for the benefit of less than all series of
Securities, stating that such Events of Default are expressly being
included solely for the benefit of the Securities of such series);
provided, however, that in respect of any such additional Events of
Default such supplemental indenture may provide for a particular period
of grace after default (which period may be shorter or longer than that
allowed in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available to
the Trustee upon such default or may limit the rights of Holders of a
majority in aggregate principal amount of that or those series of
Securities to which such additional Events of Default apply to waive
such default; or
(4) to add to or change any of the provisions of this
Indenture to such extent as shall be necessary to permit or facilitate
the issuance of Securities in bearer form, registrable or not
registrable as to principal, and with or without Coupons, to change or
eliminate any restrictions on the payment of principal of, any premium
or interest on or any Additional Amounts with respect to Bearer
Securities, to permit Bearer Securities to be issued in exchange for
Registered Securities, to permit Bearer Securities to be exchanged for
Bearer Securities of
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other authorized denominations or to permit or facilitate the issuance
of Securities in uncertificated form, provided that any such action
shall not adversely affect the interests of the Holders of Securities
of any series or any Coupons appertaining thereto in any material
respect; or
(5) to add to, change or eliminate any of the provisions of
this Indenture in respect of one or more series of Securities, provided
that any such addition, change or elimination (i) shall neither (A)
apply to any Security of any series created prior to the execution of
such supplemental indenture and entitled to the benefit of such
provision nor (B) modify the rights of the Holder of any such Security
with respect to such provision or (ii) shall become effective only when
there is no such Security Outstanding; or
(6) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one
or more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee; or
(7) to secure the Securities; or
(8) to supplement any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the
defeasance, covenant defeasance or satisfaction and discharge of the
Securities of any series pursuant to this Indenture; provided that any
such action shall not adversely affect the interests of the Holders of
Securities of such series or any other series or any Coupons
appertaining thereto in any material respect; or
(9) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, provided that such action
pursuant to this clause (9) shall not adversely affect the interests of
the Holders of Securities of any series or any Coupons appertaining
thereto in any material respect;
(10) to add a guarantor or guarantors for any series or all
series of the Securities;
(11) to comply with the requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
Trust Indenture Act; or
(12) to establish the form or terms of Securities of any series
and any related Coupons as contemplated by Sections 201 and 301,
including the
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provisions and procedures relating to Securities convertible into or
exchangeable for Common Stock or other securities, as the case may be.
Section 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by Board Resolution (which Board
Resolution may provide general terms or parameters for such action and may
provide that the specific terms of such action may be determined in accordance
with or pursuant to a Company Order), and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities of such series and any related Coupons under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or
premium, if any, or any installment of principal of or interest on any
Security, or the date, if any, on which any Security is subject to
repayment at the option of the Holder, or reduce the principal amount
thereof or the rate (or modify the calculation of such rate) of
interest thereon or any Additional Amounts with respect thereto or any
premium payable thereon, or change the obligation of the Company to pay
Additional Amounts pursuant to Section 1007 (except as contemplated by
Section 801(1) and permitted by Section 901(1)), or reduce the amount
of the principal of an Original Issue Discount Security or other
Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 502 or the
amount provable in bankruptcy pursuant to Section 504, or change any
Place of Payment where or Currency in which any Security or any premium
or interest on, or any Additional Amounts with respect to any Security
is payable, or impair the right to institute suit for the enforcement
of any such payment on or after the Maturity thereof (as such Maturity
may be extended, if applicable, in accordance with the terms of such
Security or Coupon appertaining thereto), or
(2) reduce the percentage in principal amount of the
Outstanding Securities of any series, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver with respect to such series (of
compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this
Indenture, or reduce the requirements of Section 1504 for quorum or
voting, or
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(3) modify any of the provisions of this Section, Section 513
or Section 1006, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby or, in the case of Subordinated Securities, modify any
of the provisions relating to subordination or the related definition
of "Senior Indebtedness" in a manner adverse to the holders of such
Subordinated Securities.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of the Securities of one or more particular series, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Persons entitled to consent to any indenture
supplement hereto. If a record date is fixed, the Holders at the close of
business on such record date, or their duly designated proxies, and only such
Persons, shall be entitled to consent to such supplemental indenture, whether or
not such Holders remain Holders after such record date; provided, that unless
such consent shall have become effective by virtue of the requisite percentage
having been obtained prior to the date which is 90 days after such record date,
any such consent previously given shall automatically and without further action
by any Holder be canceled and of no further effect.
Section 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture
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shall form a part of this Indenture for all purposes; and every Holder of
Securities theretofore or thereafter authenticated and delivered hereunder and
of any Coupon appertaining thereto shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act, as then in effect at the
time of execution thereof.
Section 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
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ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of the Holders of
Securities of each series that it will duly and punctually pay the principal of
(and premium, if any) and interest on and any Additional Amounts payable in
respect or the Securities of that series in accordance with the terms of the
Securities of that series, any Coupons appertaining thereto and this Indenture.
Unless otherwise specified as contemplated by Section 301 with respect to any
series of Securities, any interest due on and any Additional Amounts payable in
respect of Bearer Securities on or before Maturity, other than Additional
Amounts, if any, payable in respect of principal of (or premium, if any, on)
such a Security, shall be payable only upon presentation and surrender of the
several Coupons for such interest installments as are evidenced thereby as they
severally mature. Unless otherwise specified with respect to Securities of any
series pursuant to Section 301, at the option of the Company, all payments of
principal may be paid by (i) check to the registered Holder of the Registered
Security or other person entitled thereto or (ii) wire transfer to an account
located inside the United States maintained by the payee, in each case, against
surrender of such Security.
Section 1002. Maintenance of Office or Agency.
If Securities of a series are issuable only as Registered Securities,
the Company will maintain in each Place of Payment for the Securities of that
series of Securities an Office or Agency where Securities of that series may be
presented or surrendered for payment or, if applicable, conversion, where
Securities of that series may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. If Securities of a
series are issuable as Bearer Securities, the Company shall maintain, subject to
any laws or regulations applicable thereto, an Office or Agency in a Place of
Payment for such series which is located outside the United States where
Securities of such series and any Coupons appertaining thereto may be presented
and surrendered for payment or, if applicable, conversion; provided, however,
that if the Securities of such series are listed on the London Stock Exchange or
the Luxembourg Stock Exchange or any other stock exchange located outside the
United States and such stock exchange shall so require, the Company shall
maintain a Paying Agent in London, Luxembourg or any other required city located
outside the United States, as the case may be, so long as the Securities of such
series are listed on such exchange. The Company will give prompt written notice
to the Trustee of the location, and any change in the location, of such
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Office or Agency. If at any time the Company shall fail to maintain any such
required Office or Agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, except that Bearer
Securities or such series and any Coupons appertaining thereto may be presented
and surrendered for payment at the place specified for the purpose with respect
to such Securities as provided in or pursuant to this Indenture, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
Except as otherwise provided in or pursuant to this Indenture, no
payment of principal, premium, interest or Additional Amounts with respect to
Bearer Securities shall be made at any Office or Agency in the United States or
by check mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, if
amounts owing with respect to any Bearer Securities shall be payable in Dollars,
payment of principal of, any premium or interest on and any Additional Amounts
with respect to any such Securities may be made at the Corporate Trust Office of
the Trustee in the Borough of Manhattan, The City of New York, or any Office or
Agency designated by the Company in the Borough of Manhattan, The City of New
York, if (but only if) payment of the full amount of such principal, premium,
interest or Additional Amounts at all offices outside the United States
maintained for such purpose by the Company in accordance with this Indenture is
illegal or effectively precluded by exchange controls or other similar
restrictions.
The Company may also from time to time designate one or more other
offices or agencies where the Securities of one or more series may be presented
or surrendered for any or all such purposes and may from time to time rescind
such designations; provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an Office
or Agency in each Place of Payment for Securities of any series for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
Office or Agency. Unless otherwise provided in or pursuant to this Indenture,
the Company hereby designates as the Place for Payment of each series of
Securities the Borough of Manhattan, The City of New York, and initially
appoints the Corporate Trust Office of the Trustee in the Borough of Manhattan,
The City of New York, as the Company's Office or Agency in the Borough of
Manhattan, The City of New York for such purpose and as Security Registrar. The
Company may subsequently appoint a different Office or Agency in the Borough of
Manhattan, The City of New York and a different Security Registrar for the
Securities of any series.
Section 1003. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with
respect to the Securities of any series, it will, on or before each due date of
the principal of or any
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premium or interest on, or any Additional Amounts with respect to, any of the
Securities of that series, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum in the Currency or Currencies in which the
Securities of such series are payable (except as otherwise specified pursuant to
Section 301 for the Securities of such series) sufficient to pay the principal
and any premium and interest and Additional Amounts so becoming due until such
sums shall be paid to such Persons or otherwise disposed of as herein provided
and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities of any series and any related Coupons, it will, on or prior to each
due date of the principal of or any premium or interest on, or any Additional
Amounts with respect to, any Securities of that series, deposit with a Paying
Agent a sum (in the Currency or Currencies in which the Securities of such
series are payable (except as otherwise specified pursuant to Section 301 for
the Securities of such series)) sufficient to pay such amount, such sum to be
held in trust for the benefit of the Persons entitled thereto, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of its
action or failure so to act.
The Company will cause each Paying Agent for the Securities of any
series, other than the Trustee, to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee, subject to
the provisions of this Section, that such Paying Agent will (i) comply with the
provisions of the Trust Indenture Act applicable to it as a Paying Agent, (ii)
during the continuance of any default by the Company (or any other obligor upon
the Securities of that series) in the making of any payment in respect of the
Securities of that series, and upon the written request of the Trustee,
forthwith pay to the Trustee all sums held in trust by such Paying Agent for
payment in respect of the Securities of that series, and (iii) hold all sums
held by it for the payment of the principal of, any premium or interest on or
any Additional Amounts with respect to Securities of such series in trust for
the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as provided in or pursuant to this
Indenture.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or any premium or
interest on or any Additional Amounts with respect to any Security of any series
or any Coupon
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appertaining thereto and remaining unclaimed for two years after such principal,
premium or interest or Additional Amount has become due and payable shall be
paid to the Company upon Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once in an Authorized Newspaper in each Place of Payment for such
series or mailed to Holders of Registered Securities entitled to such money
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication
or mailing, any unclaimed balance of such money then remaining will be repaid to
the Company.
Section 1004. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and related rights and franchises (charter and statutory); provided,
however, that the Company shall not be required to preserve any such right or
franchise if the Board of Directors of the Company shall determine that the
preservation thereof is no longer necessary or desirable in the conduct of the
business of the Company; and provided, further, however, that the foregoing
shall not prohibit a sale, transfer or conveyance of a Subsidiary or any of its
assets in compliance with the terms of the Indenture.
Section 1005. Statement as to Compliance.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, a written
statement (which need not be contained in or accompanied by an Officer's
Certificate) signed by the principal executive officer, the principal financial
officer or the principal accounting officer of the Company, stating whether or
not, to the best of his or her knowledge, the Company is in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture and if the Company shall be in default, specifying all such defaults
and the nature and status thereof of which he or she may have knowledge.
Section 1006. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 1004 and 1005 with respect to
the Securities of any series or with the covenants established as contemplated
by Section 301 with respect to the Securities of any series, except to the
extent the terms of such Securities
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established as contemplated by Section 301 make this Section 1006 inapplicable
to any such term, provision or condition of any such covenant, if before or
after the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Securities of such series shall, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
Section 1007. Additional Amounts.
If any Securities of a series provide for the payment of Additional
Amounts, the Company agrees to pay to the Holder of any such Security or any
Coupon appertaining thereto Additional Amounts as provided in or pursuant to
this Indenture or such Securities. Whenever in this Indenture there is
mentioned, in any context, the payment of the principal of or any premium or
interest on, or in respect of, any Security of any series or any Coupon or the
net proceeds received on the sale or exchange of any Security of any series,
such mention shall be deemed to include mention of the payment of Additional
Amounts provided by the terms of such series established hereby or pursuant
hereto to the extent that, in such context, Additional Amounts are, were or
would be payable in respect thereof pursuant to such terms, and express mention
of the payment of Additional Amounts (if applicable) in any provision hereof
shall not be construed as excluding Additional Amounts in those provisions
hereof where such express mention is not made.
Except as otherwise provided in or pursuant to this Indenture or the
Securities of any series, if the Securities of a series provide for the payment
of Additional Amounts, at least 10 days prior to the first Interest Payment Date
with respect to such series of Securities (or if the Securities of such series
shall not bear interest prior to Maturity, the first day on which a payment of
principal or premium is made), and at least 10 days prior to each date of
payment of principal or premium or interest if there has been any change with
respect to the matters set forth in the below-mentioned Officers' Certificate,
the Company shall furnish to the Trustee and the principal Paying Agent or
Paying Agents, if other than the Trustee, an Officers' Certificate instructing
the Trustee and such Paying Agent or Paying agents whether such payment of
principal of and premium, if any, or interest, if any, on the Securities of such
series shall be made to Holders of Securities of such series or the Coupons
appertaining thereto who are not United States persons without withholding for
or on account of any tax, assessment or other governmental charge described in
the Securities of such series. If any such withholding shall be required, then
such Officers' Certificate shall specify by country the amount, if any, required
to be withheld on such payments to such Holders of Securities or Coupons, and
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the Company agrees to pay to the Trustee or such Paying Agent the Additional
Amounts required by the terms of such Securities. The Company covenants to
indemnify the Trustee and any Paying Agent for, and to hold them harmless
against, any loss, liability or expense reasonably incurred without negligence
or bad faith on their part arising out of or in connection with actions taken or
omitted by any of them in reliance on any Officers' Certificate furnished
pursuant to this Section.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated
Maturity shall be redeemable in accordance with their terms established as
contemplated by Section 301 and (except as otherwise expressly established as
contemplated by Section 301 in respect of Securities of such series) in
accordance with this Article.
Section 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced
by a Board Resolution or by action taken pursuant to a Board Resolution. In case
of any redemption at the election of the Company of less than all the Securities
of any series, the Company shall, at least 45 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date, of the principal amount of
Securities of such series to be redeemed and, if applicable, of the tenor of the
Securities to be redeemed. In the case of any redemption of Securities prior to
the expiration of any restriction on such redemption provided in the terms of
such Securities or elsewhere in this Indenture, the Company shall furnish the
Trustee with an Officers' Certificate evidencing compliance with such
restriction.
Section 1103. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed
(unless all of the Securities of such series of a specified tenor and with
identical terms are to be redeemed), the particular Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Trustee, from the Outstanding Securities of such series not previously called
for redemption, pro rata among Securities of such series with the same Stated
Maturity and within a Stated Maturity by lot or by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to the minimum authorized denomination for
Securities of that series or any integral multiple thereof) of the principal
amount of Securities of such series of a denomination larger than the minimum
authorized denomination for Securities of that series.
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The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
Unless otherwise specified in or pursuant to this Indenture or the
Securities of any series, if any Security selected for partial redemption is
converted or exchanged for Common Stock or other securities in part before
termination of the conversion or exchange right with respect to the portion of
the Security so selected, the converted or exchanged portion of such Security
shall be deemed (so far as may be) to be the portion selected for redemption.
Securities which have been converted or exchanged during a selection of
Securities to be redeemed shall be treated by the Trustee as Outstanding for the
purpose of such selection.
Section 1104. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, unless a shorter period is specified in the Securities to be redeemed, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register. Failure to give notice by mailing in the manner herein
provided to the Holder of any Registered Securities designated for redemption as
a whole or in part, or any defect in the notice to any such Holder, shall not
affect the validity of the proceedings for the redemption of any other
Securities or portion thereof.
Any notice that is mailed to the Holder of any Registered Securities in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not such Holder receives the notice
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series
are to be redeemed, the identification (and, in the case of partial
redemption of any Securities, the principal amounts) of the particular
Securities to be redeemed,
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(4) in the case of a Security to be redeemed in part, the
principal amount of such Security to be redeemed and that after the
Redemption Date upon surrender of such Security, the holder will
receive, without a charge, a new Security or Securities in the
aggregate principal amount equal to the unredeemed portion thereof.
(5) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and, if
applicable, that interest thereon will cease to accrue on and after
said date,
(6) the place or places where such Securities, together (in
the case of Bearer Securities) with all Coupons appertaining thereto,
if any, maturing after the Redemption Date, are to be surrendered for
payment of the Redemption Price and, if applicable, any accrued
interest and Additional Amounts pertaining thereto,
(7) that the redemption is for a sinking fund, if such is the
case,
(8) that, unless otherwise specified in such notice, Bearer
Securities of any series, if any, surrendered for redemption must be
accompanied by all Coupons maturing subsequent to the date fixed for
redemption or the amount of any such missing Coupon or Coupons will be
deducted from the Redemption Price, unless security or indemnity
satisfactory to the Company, the Trustee and any Paying Agent is
furnished,
(9) if Bearer Securities of any series are to be redeemed and
any Registered Securities of such series are not to be redeemed, and if
such Bearer Securities may be exchanged for Registered Securities not
subject to redemption on the Redemption Date pursuant to Section 305 or
otherwise, the last date, as determined by the Company, on which such
exchanges may be made,
(10) in the case of Securities of any series that are
convertible or exchangeable into Common Stock or other securities, the
conversion or exchange price or rate, the date or dates on which the
right to convert or exchange the principal of the Securities of such
series to be redeemed will commence or terminate, as applicable, and
the place or places where such Securities may be surrendered for
conversion or exchange, and
(11) the CUSIP number of such Securities, if any (or any other
numbers used by a Depository to identify such Securities.
A notice of redemption published as contemplated by Section 106 need
not identify particular Registered Securities to be redeemed.
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Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 1105. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money, in the Currency or Currencies in which the Securities of such series are
payable, sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) accrued interest on all the
Securities which are to be redeemed on that date.
Section 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest, if any) such Securities shall, if the same were interest-bearing,
cease to bear interest and the Coupons for such interest appertaining to any
Bearer Securities so to be redeemed, except to the extent provided below, shall
be void. Upon surrender of any such Security and any Coupons appertaining
thereto for redemption in accordance with said notice, such Security shall be
paid by the Company at the Redemption Price, together with, unless otherwise
provided in or pursuant to the Indenture, any accrued and unpaid interest to the
Redemption Date; provided, however, that, except as otherwise provided in or
pursuant to this Indenture or the Bearer Securities of such series, installments
of interest on Bearer Securities whose Stated Maturity is on or prior to the
Redemption Date shall be payable only upon presentation and surrender of Coupons
for such interest (at an Office or Agency located outside the United States
except as provided in Section 1002), and provided, further, that, except as
otherwise provided in or pursuant to this Indenture or the Registered Securities
of any series, installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Registered
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Regular Record Dates according to their terms
and the provisions of Section 307.
If any Bearer Security surrendered for redemption shall not be
accompanied by all appurtenant Coupons maturing after the Redemption Date, such
Security may be paid after deducting from the Redemption Price, or, at the
option of the Company, after payment to the Trustee for the benefit of the
Company of, an amount equal to the face amount of all such missing Coupons, or
the surrender of such missing Coupon or Coupons may be waived by the Company and
the Trustee if there be furnished to them
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such security or indemnity as they may require to save each of them and any
Paying Agent harmless. If thereafter the Holder of such Security shall surrender
to the Trustee or any Paying Agent any such missing Coupon in respect of which a
deduction shall have been made from the Redemption Price, such Holder shall be
entitled to receive the amount so deducted; provided, however, that any interest
or Additional Amounts represented by Coupons shall be payable only upon
presentation and surrender of those Coupons at an Office or Agency for such
Security located outside of the United States except as otherwise provide in
Section 1002.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and any premium shall, until
paid, bear interest from the Redemption Date at the rate prescribed therefor in
the Security or, if no rate of interest on overdue amounts is prescribed in such
Security, at the rate of interest borne by such Security.
Section 1107. Securities Redeemed in Part.
Any Registered Security which is to be redeemed only in part shall be
surrendered at any Office or Agency for such Security (with, if the Company or
the Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Registered Security or Registered
Securities of the same series and of like tenor, of any authorized denomination
as requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered.
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ARTICLE TWELVE
SINKING FUNDS
Section 1201. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of a series except as otherwise specified as
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any payment in excess of such minimum amount provided for by
the terms of Securities of any series is herein referred to as an "optional
sinking fund payment". If provided for by the terms of Securities of any series,
the cash amount of any sinking fund payment may be subject to reduction as
provided in Section 1202. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of
Securities of such series and this Indenture.
Section 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company may, in satisfaction of all or any part of any mandatory
sinking fund payment with respect to the Securities of a series (1) deliver
Outstanding Securities of a series (other than any previously called for
redemption or which have been surrendered for repayment at the option of the
Holders), together in the case of any Bearer Securities of such series with all
unmatured Coupons appertaining thereto and (2) apply as a credit Securities of
such series which have been redeemed either at the election of the Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, as
provided for by the terms of such series; provided that such Securities so
delivered or applied as a credit have not been previously so credited. Such
Securities shall be received and credited for such purpose by the Trustee at the
Redemption Price specified in such Securities so delivered or applied as a
credit for redemption through operation of the sinking fund and the amount of
such sinking fund payment shall be reduced accordingly.
Section 1203. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash in the
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Currency or Currencies in which the Securities of such series are payable
(except as otherwise specified pursuant to Section 301 for the Securities of
such series) and the portion thereof, if any, which is to be satisfied by
delivering and crediting Securities of that series pursuant to Section 1202 ,
and the optional amount, if any, to be added in cash to the next ensuing
mandatory sinking fund payment, and will also deliver to the Trustee any
Securities to be so delivered and credited. If such Officers' Certificate shall
specify an optional amount to be added in cash to the next ensuing mandatory
sinking fund payment, the Company shall thereupon be obligated to pay the amount
therein specified. Not less than 30 and not more than 60 days before each such
sinking fund payment date the Trustee shall select the Securities to be redeemed
upon such sinking fund payment date in the manner specified in Section 1103 and
cause notice of the redemption thereof to be given in the name of and at the
expense of the Company in the manner provided in Section 1104. Such notice
having been duly given, the redemption of such Securities shall be made upon the
terms and in the manner stated in Sections 1105, 1106 and 1107.
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ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
Section 1301. Applicability of Article.
Securities of any series which are repayable at the option of
the Holders thereof before their Stated Maturity shall be repaid in accordance
with the terms of the Securities of such series. The repayment of any principal
amount of Securities pursuant to such option of the Holder, to require repayment
of Securities before their Stated Maturity, for purposes of Section 309, shall
not operate as a payment, redemption or satisfaction of the indebtedness
represented by such Securities unless and until the Company, at its option,
shall deliver or surrender the same to the Trustee with a directive that such
Securities be canceled. Notwithstanding anything to the contrary contained in
this Section 1301, in connection with any repayment of Securities, the Company
may arrange for the purchase of any Securities by an agreement with one or more
investment bankers or other purchasers to purchase such Securities by paying to
the Holders of such Securities on or before the close of business on the
Repayment Date an amount not less than the Repayment Price payable by the
Company on repayment of such Securities, together with, if applicable, accrued
interest thereon, and the obligation of the Company to pay the Repayment Price
of such Securities shall be satisfied and discharged to the extent such payment
is so paid by such purchasers.
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ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
Section 1401. Applicability of the Article; Company's Obligation to Effect
Defeasance or Covenant Defeasance.
If pursuant to Section 301 provision is made for either or both of (a)
defeasance of the Securities of or within a series under Section 1402 or (ii)
covenant defeasance of the Securities of or within a series under Section 1403,
then the provision of the Section or Sections, as the case may be, together with
other provisions of this Article (with such modifications thereto as may be
specified pursuant to Section 301 with respect to any Securities), shall be
applicable to such Securities and any Coupons appertaining thereto, and the
Company may at its option by Board Resolution, at any time, with respect to such
Securities and any Coupons appertaining thereto, elect to have Section 1402 (if
applicable) or Section 1403 (if applicable) be applied to such Outstanding
Securities and any Coupons appertaining thereto upon compliance with the
conditions set forth below in this Article.
Section 1402. Defeasance and Discharge.
Upon the Company's exercise of the above option applicable to this
Section with respect to any Securities of or within a series, the Company shall
be deemed to have been discharged from its obligations with respect to such
Outstanding Securities and any Coupons appertaining thereto on the date the
conditions set forth Section 1404 are satisfied (hereinafter, "defeasance"). For
this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by such Outstanding
Securities and any Coupons appertaining thereto, which shall thereafter be
deemed to be "Outstanding" only for the purpose of Section 1405 and other
Sections of this Indenture referred to in clauses (A) through (D), inclusive, of
this Section, and to have satisfied all its other obligations under such
Securities and any Coupons appertaining thereto and this Indenture insofar as
such Securities and any Coupons appertaining thereto are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged herein: (A) the rights of Holders of such
Outstanding Securities and any Coupons appertaining thereto to receive, solely
from the trust funds described in Section 1404 and as more fully set forth in
such Section, payments in respect of the principal of (and premium, if any) and
interest, if any, on and Additional Amounts, if any, with respect to such
Securities and any Coupons appertaining thereto when such payments are due, (B)
the Company's and the Trustee's obligations with respect to such Securities
under Sections 305, 306, 1002 and 1003, with respect to payments of Additional
Amounts, if any, on such Securities as
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contemplated by Section 1007, with respect to the rights, if any, of the holders
of such Securities to require the Company to repay such Securities as
contemplated by Section 1301 and with respect to the rights, if any, of Holders
to convert or exchange such Securities into Common Stock or other securities,
(C) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and (D) this Article. Subject to compliance with this Article Fourteen, the
Company may exercise its option under this Section notwithstanding the prior
exercise of its option under Section 1403 with respect to such Securities and
any Coupons appertaining thereto.
Section 1403. Covenant Defeasance.
Upon the Company's exercise of the option applicable to this Section
with respect to any Securities of or within a series, the Company shall be
released from its obligations under Section 1004 (other than the Company's
obligation under Section 1004 to preserve and keep in full force and effect its
corporate existence, subject to Article Eight) and 1005, and, if specified
pursuant to Section 301, its obligations under any other covenant, with respect
to such Outstanding Securities and any Coupons appertaining thereto on and after
the date the conditions set forth in Section 1404 are satisfied (hereinafter
"covenant defeasance"), and such Securities and any Coupons appertaining thereto
shall thereafter be deemed to be not "Outstanding" for the purpose of any
direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with Sections 1004 (other than the
Company's obligation under Section 1004 to preserve and keep in full force and
effect its corporate existence, subject to Article Eight) and 1005, or such
other covenant, but shall continue to be deemed "Outstanding" for all other
purposes hereunder. For this purpose, such covenant defeasance means that, with
respect to such Outstanding Securities and any Coupons appertaining thereto, the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such Section or such other
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such Section (other than the Company's obligation under Section
1004 to preserve and keep in full force and effect its corporate existence,
subject to Article Eight) or other such covenant or by reason of reference in
any such Section or such other covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or an
Event of Default under Section 501(4) or 501(8) or otherwise, as the case may
be, but, except as specified above, the remainder of this Indenture and such
Securities and any Coupons appertaining thereto shall be unaffected thereby.
Section 1404. Applicability of the Article; Company's Obligation to Effect
Defeasance or Covenant Defeasance.
The following shall be the conditions to application of Section 1402 or
1403 to any Outstanding Securities of or within a series and any Coupons
appertaining thereto:
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(a) the Company shall have deposited or caused to be
irrevocably deposited with the Trustee (or another trustee satisfying
the requirements of Section 609 who shall agree to comply with the
provisions of this Article Fourteen) as trust funds in trust for the
purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of
such Securities and any Coupons appertaining thereto, (1) an amount
sufficient (in such Currency or Currencies in which such Securities and
any Coupons appertaining thereto, and installments of principal, if
any, thereof and interest, if any, thereon, are then specified as
payable at Stated Maturity), or (2) Government Obligations applicable
to such Securities and Coupons appertaining thereto (determined on the
basis of the Currency or Currencies in which such Securities and
Coupons appertaining thereto, and installments of principal, if any,
thereof and interest, if any, thereon, are then specified as payable at
Stated Maturity) which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide
not later than one day before the due date of any payment of principal
of (and premium, if any) and interest, if any, on, and Additional
Amounts, if any, with respect to such Securities and any Coupons
appertaining thereto, money in an amount, or (3) a combination thereof,
in each case in an amount sufficient in the opinion of a nationally
recognized firm of independent public accountants or a nationally
recognized independent investment banking firm expressed in a written
certification thereof delivered to the Trustee to pay and discharge,
and which shall be applied by the Trustee (or other qualifying trustee)
to pay and discharge (i) the principal of (and premium, if any, on),
interest, if any, on, and Additional Amounts, if any, with respect to
such Outstanding Securities and any Coupons appertaining thereto on the
Stated Maturity of such principal or installment of principal or
interest and (ii) any mandatory sinking fund payments or analogous
payments applicable to such Outstanding Securities and any Coupons
appertaining thereto on the day on which such payments are due and
payable in accordance with the terms of this Indenture and of such
Securities and any Coupons appertaining thereto;
(b) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture
or any other material agreement or instrument to which the Company is a
party or by which it is bound;
(c) No Event of Default or event which with notice or lapse of
time or both would become an Event of Default with respect to such
Securities and any Coupons appertaining thereto shall have occurred and
be containing on the date of such deposit or, insofar as Section 501(6)
or (7) are concerned, at any time during the period ending on the 91st
day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period);
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(d) In the case of an election under Section 1402, the Company
shall have delivered to the Trustee an Opinion of Counsel from
independent legal counsel of nationally recognized standing stating
that (i) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (ii) since the date of this
Indenture, there has been a change in the applicable United States
federal income tax law or the judicial interpretation thereof by a U.S.
federal court of competent jurisdiction, in either case to the effect
that, and based thereon such opinion shall confirm that, Holders of the
Securities of that series and any Coupons appertaining thereto will not
recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such defeasance had not occurred;
(e) In the case of an election under Section 1403, the Company
shall have delivered to the Trustee an Opinion of Counsel from
independent legal counsel of nationally recognized standing to the
effect that Holders of such Securities and any Coupons appertaining
thereto will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had
not occurred;
(f) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance under Section 1402 or the
covenant defeasance under Section 1403 (as the case may be) have been
complied with and an Opinion of Counsel to the effect that, as a result
of a deposit pursuant to subsection (a) above and the related exercise
of the Company's option under Section 1402 or Section 1403 (as the case
may be), registration is not required under the Investment Company Act
of 1940, as amended, by the Company, with respect to the trust funds
representing such deposit or by the Trustee for such trust funds; and
(g) Notwithstanding any other provisions of this Section, such
defeasance or covenant defeasance shall be effected in compliance with
any additional or substitute terms, conditions or limitations which may
be established as contemplated by Section 301 in respect of the
Securities of that series.
Section 1405. Deposited Money and Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and Government Obligations (or other property as may be provided pursuant
to Section 301) (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 1405, the
"Trustee") pursuant to Section 1404 in
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respect of any Outstanding Securities of any series and any Coupons appertaining
thereto shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and any Coupons appertaining thereto and this
Indenture, to the payment, either directly or through any Paying Agent (other
than the Company acting as its own Paying Agent) as the Trustee may determine,
to the Holders of such Securities and any Coupons appertaining thereto of all
sums due and to become due thereon in respect of principal (and premium, if any)
and interest and Additional Amounts, if any, but such money need not be
segregated from other funds except to the extent required by law.
Unless otherwise specified in or pursuant to this Indenture or any
Securities pursuant to Section 301, if, after a deposit referred to in Section
1404(a) has been made, (a) the Holder of a Security in respect of which such
deposit was made is entitled to, and does, elect pursuant to Section 301 or the
terms of such Security to receive payment in a Currency other than that in which
the deposit pursuant to Section 1404(a) has been made in respect of such
Security, or (b) a Conversion Event occurs in respect of the Foreign Currency in
which the deposit pursuant to Section 1404(a) has been made, the indebtedness
represented by such Security and any Coupons appertaining thereto shall be
deemed to have been, and will be, fully discharged and satisfied through the
payment of the principal of (and premium, if any), and interest, if any, on ,
and Additional Amounts, if any, with respect to such Security as the same
becomes due out of the proceeds yielded by converting (from time to time as
specified below in the case of any such election ) the monies, proceeds from
Government Obligations or other property deposited in respect of such Security
into the Currency in which such Security becomes payable as a result of such
election or Conversion Event based on (x) in the case of payments made pursuant
to clause (a) above, the applicable market exchange rate for such Currency in
effect on the second Business Day prior to each payment date, or (y) with
respect to a Conversion Event, the applicable market exchange rate for such
Foreign Currency in effect (as nearly as feasible) at the time of the Conversion
Event.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge, imposed on or assessed against the Government Obligations
deposited pursuant to this Section 1404 or the principal or interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of such Outstanding Securities and any Coupons
appertaining thereto.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or Government Obligations (or other property and any proceeds therefrom)
held by it as provided in Section 1404 which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect a defeasance or
covenant defeasance, as applicable, in accordance with this Article
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Section 1406. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any cash or
Government Obligations deposited pursuant to Section 1404 in accordance with
this Indenture or the Securities of or within the applicable series by reason of
any legal proceedings or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and such
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1404 until such time as the Trustee or Paying Agent is
permitted to apply such money in accordance with this Indenture and such
Securities; provided, however, that if the Company makes any payment of
principal of, premium, if any or interest on, any such Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the cash and
Government Obligations held by the Trustee or Paying Agent.
Section 1407. Effect on Subordination Provisions.
Unless otherwise expressly provided pursuant to Section 301 with
respect to any series of Subordinated Securities, the provisions for
subordination of such Subordinated Securities contemplated by Article Sixteen
hereof are hereby expressly made subject to the provisions for satisfaction and
discharge set forth in Article Four hereof and the provisions for defeasance and
covenant defeasance set forth in this Article Fourteen and, anything herein to
the contrary notwithstanding, upon the effectiveness of such satisfaction and
discharge pursuant to Article Four or any such defeasance or covenant defeasance
pursuant to this Article Fourteen with respect to any Securities, such
Securities shall thereupon cease to be so subordinated and shall no longer be
subject to the subordination provisions applicable thereto and, without
limitation to the foregoing, all monies, Government Obligations and other
securities or property deposited with the Trustee (or other qualifying trustee)
in trust in connection with such satisfaction and discharge, defeasance or
covenant defeasance, as the case may be, and all proceeds therefrom may be
applied to pay the principal of, premium, if any, and interest, if any, on, and
Additional Amounts, if any, with respect to such Securities as and when the same
shall become due and payable notwithstanding the provisions contemplated by
Article Sixteen hereof.
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ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
Section 1501. Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities of any series may be called at any
time and from time to time pursuant to this Article to make, give or take any
request, demand, authorization, direction, notice, consent, waiver or other Act
provided by this Indenture to be made, given or taken by Holders of Securities
of such series.
Section 1502. Call, Notice and Place of Meetings.
(1) The Trustee may at any time call a meeting of Holders of Securities
of any series for any purpose specified in Section 1501, to be held at such time
and at such place in the Borough of Manhattan, The City of New York, or, if
Securities of such series have been issued in whole or in part as Bearer
Securities, in London or in such place outside the United States as the Trustee
shall determine. Notice of every meeting of Holders of Securities of any series,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given, in the manner
provided in Section 106, not less than 21 nor more than 180 days prior to the
date fixed for the meeting.
(2) In case at any time the Company (by or pursuant to a Board
Resolution) or the Holders of at least 10% in principal amount of the
Outstanding Securities of any series shall have requested the Trustee to call a
meeting of the Holders of Securities of such series for any purpose specified in
Section 1501, by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have mailed
notice of or made the first publication of the notice of such meeting within 21
days after receipt of such request (whichever shall be required pursuant to
Section 106) or shall not thereafter proceed to cause the meeting to be held as
provided herein, then the company or the Holders of Securities of such series in
the amount above specified, as the case may be, may determine the time and the
place in the Borough of Manhattan, The City of New York, or, if Securities of
such series are to be issued as Bearer Securities, in London for such meeting
and may call such meeting for such purposes by giving notice thereof as provided
in clause (1) of this Section.
Section 1503. Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities of any
series, a Person shall be (1) a Holder of one or more Outstanding Securities of
such series, or (2) a
-93-
<PAGE>
Person appointed by an instrument in writing as proxy for a Holder or Holders of
one or more Outstanding Securities of such series by such Holder or Holders. The
only Persons who shall be entitled to be present or to speak at any meeting of
Holders of Securities of any series shall be the Persons entitled to vote at
such meeting and their counsel, any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel.
Section 1504. Quorum; Action.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities of a series shall constitute a quorum for a meeting of
Holders of Securities of such series; provided, however, that if any action is
to be taken at such meeting with respect to a consent or waiver which this
Indenture expressly provides may be given by the Holders of not less than a
specified percentage in principal amount of the Outstanding Securities of a
series, the Persons entitled to vote such specified percentage in principal
amount of the Outstanding Securities of such series shall constitute a quorum.
In the absence of a quorum within 30 minutes after the time appointed for any
such meeting, the meeting shall, if convened at the request of Holders of
Securities of such series, be dissolved. In any other case the meeting may be
adjourned for a period of not less than 10 days as determined by the chairman of
the meeting prior to the adjournment of such meeting. In the absence of a quorum
at any such adjourned meeting, such adjourned meeting may be further adjourned
for a period of not less than 10 days as determined by the chairman of the
meeting prior to the adjournment of such adjourned meeting. Notice of the
reconvening of any adjourned meeting shall be given as provided in Section
1502(l), except that such notice need be given only once not less than five days
prior to the date on which the meeting is scheduled to be reconvened. Notice of
the reconvening of an adjourned meeting shall state expressly the percentage, as
provided above, of the principal amount of the Outstanding Securities of such
series which shall constitute a quorum.
Except as limited by the proviso to Section 902, any resolution
presented to a meeting or adjourned meeting duly reconvened at which a quorum is
present as aforesaid may be adopted only by the affirmative vote of the Holders
of a majority in principal amount of the Outstanding Securities of that series;
provided, however, that, except as limited by the proviso to Section 902, any
resolution with respect to any consent or waiver which this Indenture expressly
provides may be given by the Holders of not less than a specified percentage,
which is less than a majority in principal amount of the Outstanding Securities
of a series may be adopted at a meeting or an adjourned meeting duly convened
and at which a quorum is present as aforesaid only by the affirmative vote of
the Holders of at least such specified percentage in principal amount of the
Outstanding Securities of that series.
-94-
<PAGE>
Any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with this Section shall be
binding on all the Holders of Securities of such series and the Coupons
appertaining thereto, whether or not such Holders were present or represented at
the meeting.
Section 1505. Determination of Voting Rights; Conduct and Adjournment of
Meetings.
(1) Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities of such series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall deem appropriate.
Except as otherwise permitted or required by any such regulations, the holding
of Securities shall be proved in the manner specified in Section 104 and the
appointment of any proxy shall be proved in the manner specified in Section 104
or by having the signature of the person executing the proxy witnessed or
guaranteed by any trust company, bank or banker authorized by Section 104 to
certify to the holding of Bearer Securities. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 104 or other proof.
(2) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 1502(2), in which
case the Company or the Holders of Securities of the series calling the meeting,
as the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting.
(3) At any meeting, each Holder of a Security of such series or proxy
shall be entitled to one vote for each $1,000 principal amount of Securities of
such series held or represented by him; provided, however, that no vote shall be
cast or counted at any meeting in respect of any Security challenged as not
Outstanding and ruled by the chairman of the meeting to be not Outstanding. If
the Securities of such series are issuable in minimum denominations of less than
$1,000, then a Holder of such a Security in a principal amount of less than
$1,000 shall be entitled to a fraction of one vote which is equal to the
fraction that the principal amount of such Security bears to $1,000. The
chairman of the meeting shall have no right to vote, except as a Holder of a
Security of such series or proxy.
(4) Any meeting of Holders of Securities of any series duly called
pursuant to Section 1502 at which a quorum is present may be adjourned from time
to time by
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<PAGE>
Persons entitled to vote a majority in principal amount of the Outstanding
Securities of such series represented at the meeting; and the meeting may be
held as so adjourned without further notice.
Section 1506. Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities of such series or of
their representatives by proxy and the principal amounts and serial numbers of
the Outstanding Securities of such series held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in triplicate of all votes cast at the meeting. A record, at least in
triplicate, of the proceedings of each meeting of Holders of Securities of any
series shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 1502 and, if
applicable, Section 1504. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
-96-
<PAGE>
ARTICLE SIXTEEN
SUBORDINATION OF SECURITIES
Section 1601. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security of any
series, by his acceptance thereof, likewise covenants and agrees, that solely to
the extent and in the manner set forth in an indenture supplemental hereto
pursuant to Section 301(21) hereof, the indebtedness represented by the
Securities of such series and the payment of principal of (and premium, if any)
and interest on each or all of the Securities of such series will be expressly
made subordinate and subject in right of payment to the prior payment in full of
all Senior Indebtedness.
-97-
<PAGE>
ARTICLE SEVENTEEN
SECURITIES IN FOREIGN CURRENCIES
Section 1701. Applicability of Article.
Whenever this Indenture provides for any distribution to
Holders of Securities of any series in which not all of such Securities are
denominated in the same Currency, in the absence of any provision to the
contrary in or pursuant to this Indenture or the Securities of such series, any
amount in respect of any Security denominated in a Currency other than Dollars
shall be treated for any such distribution as that amount of Dollars that could
be obtained for such amount on such reasonable basis of exchange and as of the
record date with respect to Registered Securities of such series (if any) for
such distribution (or, if there shall be no applicable record date, such other
date reasonably proximate to the date of such distribution) as the Company may
specify in a written notice to the Trustee or, in the absence of such written
notice, as the Trustee may determine.
--------------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
-98-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, as of the day and year first above written.
SOLA INTERNATIONAL INC.
By: /s/ Steven M. Neil
-------------------------------
Steven M. Neil
Executive Vice President, Chief
Financial Officer, Treasurer
and Secretary
[CORPORATE SEAL]
Attest:
By: /s/ Theodore Gioia
--------------------------
Vice President
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., Trustee
By: /s/ Joni Frederick
-------------------------------
Authorized Signatory
-99-
EXHIBIT 12.1
SOLA INTERNATIONAL INC.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
(Unaudited)
Year Ended March 31,
-------------------------------
1998 1997 1996
-------- -------- --------
Fixed charges:
Interest expense .......................... $ 16,988 $ 16,187 $ 12,412
Interest capitalized during period ........ 666 -- --
Amortization of financing costs ........... 429 414 273
Interest portion of rental expense ........ 2,607 1,862 1,790
-------- -------- --------
Total fixed charges .......................... $ 20,690 $ 18,463 $ 14,475
-------- -------- --------
Earnings:
Income from continuing operations before
income taxes ............................ $ 75,952 $ 41,386 $ 48,612
Fixed charges per above ...................... 20,690 18,463 14,475
Less interest capitalized during the period .. (666) -- --
-------- -------- --------
Earnings as adjusted ......................... $ 95,976 $ 59,849 $ 63,087
======== ======== ========
Ratio of earnings to fixed charges ........... 4.64 3.24 4.36
======== ======== ========
<TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<CAPTION>
Name Jurisdiction
---- ------------
<S> <C>
Sola Argentina S.A. Argentina
Sola Optical Partners, A Limited Partnership Australia (Victoria)
Sola Optical Holdings Pty. Ltd. Australia (Victoria)
Sola Corporation Limited Australia (South Australia)
Sola Optical Licensing Pty. Ltd. Australia (South Australia)
Sola International Holdings Ltd. Australia (South Australia)
Sola Licensing Pty. Ltd. Australia (South Australia)
Sola Optical Australia Pty. Ltd. Australia (South Australia)
Norinco Sola Optical Ltd. People's Republic of China (50%)
Sola Belgium N.V. Belgium
De Muynck Optics N.V. Belgium
Sola Brasil Industria Optica Ltda Brazil
Solbras-Distribuidora de Produtos Sola Ltda Brazil
Sola Industria e Comercio Ltda Brazil
Sociedade Amazonense de Oculos Ltda Brazil
American Optical Lens Company Limited Canada
1132782 Ontario, Inc. Canada
Sola Optical (U.K.) Limited England
UKO International Limited England
UK Optical Limited England
Raphael Taylor Group Limited England
United Kingdom Optical Company Limited England
The Hadley Company Limited England
Levers Optical (Manufacturing) Limited England
J&H Taylor Group Limited England
Raphael's Limited England
UKO International (Overseas Holdings) Ltd. England
M. Wiseman and Company (South Africa) Limited England
M. Wiseman and Company (Zimbabwe) Limited England
AO European Services Limited England
Alpha Lens Company Limited England
British American Optical Company Limited England
Chadwick Taylor Limited England
U.K. Wiseman Limited England
M. Wiseman and Company Limited England
Sola Optical Holdings S.A.R.L. France
Industrie Optique Sola S.A. France
Sola Optical S.A. France
AO Ouest Optique S.A. France
Sola Group Holdings GmbH Germany
Sola Optical GmbH Germany
Sola Brillenglas Vertriebs GmbH Germany
Sola Hong Kong Ltd. Hong Kong
Sola Holdings Ireland Limited Ireland
Sola IFSC Ireland
Sola ADC Lenses Limited Ireland
Sola RDC Limited Ireland
Sola Ophthalmic Products Ltd. Ireland
Sola Optical Italia S.p.A. Italy
<PAGE>
Name Jurisdiction
---- ------------
O.V.Bari S.r.l. Italy (51%)
Sola Optical Japan Limited Japan (Osaka)
Solnox Optical Ltd. Japan (50%)
Lentes Sola S.A. de C.V. Mexico
American Optical de Mexico S.A. de C.V. Mexico
Optica Sola de Mexico S.A. de C.V. Mexico
American Optical Lensmex S.A. de C.V. Mexico
Imgo Industries B.V. Netherlands
American Optical Norway AS Norway
Sola Optical (Poland) Sp.zo.o Poland
Sola Optical Singapore Pte Ltd. Singapore
American Optical Co. Pte. Ltd. Singapore
American Optical Company International A.G. Switzerland
Sola Optical Taiwan Ltd. Republic of China
Sola Optical Holdings I Ltd. U.S.A. (Delaware)
Sola Optical Holdings II Ltd. U.S.A. (Delaware)
Sola Optical Holdings III Ltd. U.S.A. (Delaware)
Sola Optical Holdings IV Ltd. U.S.A. (Delaware)
Sola Optical Holdings V Ltd. U.S.A. (Delaware)
Sola Optical Holdings VI Ltd. U.S.A. (Delaware)
Sola Optical Holdings Aus. Ltd. U.S.A. (Delaware)
Sola Optical Holdings Fr. Ltd. U.S.A. (Delaware)
American Optical Lens Company U.S.A. (Delaware)
Sola Neolens, Inc. U.S.A. (Florida)
Sola de Venezuela Industria Optica C.A. Venezuela
Sola Optical China Limited British Virgin Islands (70%)
Sola Optical Guangzhou Ltd. People's Republic of China
Sola Shanghai Omyl Ltd. People's Republic of China (50%)
Sola Guangzhou Jiu Fo People's Republic of China
</TABLE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-4489) pertaining to the Sola Optical 401 (K) Savings Plan, the
Registration Statement (Form S-8 No. 33-93788) pertaining to the Sola
International Inc. Stock Option Plan and the Sola Investors' Stock Option Plan
of Sola International Inc. and the Registration Statement (Form S-3 No.
333-45929) pertaining to the registration of $250,000,000 of common stock and/or
debt securities of our report dated May 6, 1998, with respect to the
consolidated financial statements and schedule of Sola International Inc.
included in this Annual Report (Form 10-K) for the year ended March 31, 1998.
/s/Ernst & Young LLP
Palo Alto, California
June 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 34,425
<SECURITIES> 19
<RECEIVABLES> 125,546
<ALLOWANCES> 4,956
<INVENTORY> 169,756
<CURRENT-ASSETS> 341,588
<PP&E> 177,278
<DEPRECIATION> 44,500
<TOTAL-ASSETS> 684,058
<CURRENT-LIABILITIES> 141,610
<BONDS> 206,827
0
0
<COMMON> 247
<OTHER-SE> 326,775
<TOTAL-LIABILITY-AND-EQUITY> 684,058
<SALES> 547,735
<TOTAL-REVENUES> 547,735
<CGS> 289,677
<TOTAL-COSTS> 289,677
<OTHER-EXPENSES> 165,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,418
<INCOME-PRETAX> 75,952
<INCOME-TAX> 25,369
<INCOME-CONTINUING> 51,092
<DISCONTINUED> 0
<EXTRAORDINARY> (5,939)
<CHANGES> 0
<NET-INCOME> 45,153
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.77
</TABLE>
Exhibit 99.1
FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-K, the Company's Annual Report to Shareholders, any Form 10-Q
or any Form 8-K of the Company or any other written or oral statements made by
or on behalf of the Company include forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results to differ
materially from historical results or those anticipated. The words "believe",
"expect", "anticipate" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Although the Company believes that it has the product offerings and
resources needed for continuing success, future net sales and margin trends
cannot be reliably predicted and may cause the Company to adjust its operations.
Factors external to the Company can result in volatility of the Company's common
stock price. Because of the foregoing factors, recent trends should not be
considered reliable indicator of future stock prices or financial results.
The following factors could cause actual operating results to differ
materially from historical results or those anticipated:
Highly Competitive Industry and Affect of New Products on Results
The eyeglass lens and coating industry is highly competitive. The Company
competes principally on the basis of customer service, the quality and breadth
of product offerings, and price. The eyeglass lens and coating industry is
characterized by price competition, which can be severe in certain markets,
particularly for standard products. Sola attempts, to the extent possible, to
counter competition on the basis of price by focusing on providing a rapid
response to orders, maintaining high fill rates, developing differentiated new
products, and educating processing laboratories and eyecare practitioners on the
benefits of Sola lenses and coatings. There can be no assurance, however, that
the Company's competitors will not develop products or services that are more
effective or less expensive than the Company's products or which could render
certain of the Company's products less competitive. Since recently-developed
products comprise a substantial portion of the Company's sales, the Company's
performance and future growth are dependent upon its continuing ability to
develop and market new products. The Company's quarterly results can be affected
by the ability to generate sales from new products as anticipated and the costs
of such introductions.
Some of the Company's competitors have significantly greater financial
resources than the Company to fund expansion and research and development. See
"--Substantial Indebtedness" and "--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources".
Within a particular market, certain of the Company's competitors may enjoy a
"home-country" advantage over foreign competition. In addition, in certain
markets (primarily Europe), the Company also faces competition from a number of
its principal competitors which are vertically integrated with processing
centers to a greater extent than the Company, enabling them to customize
prescription lenses. This limits the number of independent lens processing
customers to which the Company can market its products.
International Operations
The Company operates manufacturing and distribution sites in three major
regions of the world--North America (including Mexico), Europe and Rest of World
(comprising primarily Australia, Asia and South America)--and derived
approximately half of its net sales in fiscal 1998 from the sale of products
<PAGE>
outside the United States. As a result, a significant portion of the Company's
sales and operations are subject to certain risks, including adverse
developments in the foreign political and economic environment, exchange rates,
tariffs and other trade barriers, staffing and managing foreign operations and
potentially adverse tax consequences. Although the Company and its predecessors
have been successfully conducting business outside of the United States since
its inception in 1960, there can be no assurance that any of these factors will
not have a material adverse effect on the Company's financial condition or
results of operations in the future.
The Company's interest expense is denominated predominantly in U.S.
dollars; its cash flow, however, is comprised of a variety of currencies.
Although the Company may enter into currency swap agreements with financial
institutions to reduce its exposure to fluctuations in foreign currency values
relative to its debt obligations, such hedging transactions, if entered into,
will not eliminate that risk entirely. As a result of the Company's worldwide
operations, currency exchange rate fluctuations tend to affect the Company's
results of operations and financial position. The Company has significant
operations in Brazil, which has, until recently, experienced a
hyper-inflationary environment and whose currency risk may not be effectively
hedged. The functional currency of the Company's operations in Brazil is the
U.S. dollar. Under U.S. generally accepted accounting principles for
hyper-inflationary countries, all translation and transaction adjustments of
foreign operations are reflected in the Company's statements of operations. The
Company's historical statements of operations reflect significant charges to
income primarily attributable to significant devaluations of the Brazilian
currency. There can be no assurance that hyper-inflationary conditions will not
return to Brazil or be present in other countries in which the Company has
significant operations. See "--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Currency Exchange Rates" and "--Inflation".
Restrictions on Payment of Dividends from Subsidiaries
The Company's foreign operations are conducted through its subsidiaries.
These operations contribute significantly to the Company's sales and
profitability. The payment of dividends and the making of loans and advances to
the Company by its subsidiaries may be subject to statutory restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations. Dividends and other payments to the Company from
subsidiaries in certain jurisdictions are subject to legal restrictions and may
have adverse tax consequences to the Company. Management reviews the need for
cash distributions to the Company from its foreign subsidiaries on a case by
case basis. If the need for cash distributions from the subsidiaries should
arise in the future, there can be no assurance that the subsidiaries will be
permitted to make such cash distributions without legal restrictions or adverse
tax consequences to the Company. Commencing in fiscal 1996, the Company has
provided for U.S. federal and state income taxes on unremitted earnings of
certain foreign subsidiaries.
Substantial Indebtedness
Although the Company's outstanding indebtedness was reduced by application
of the proceeds of the Company's initial public offering in March 1995, the
Company continues to have substantial indebtedness. The Company's substantial
indebtedness may limit its capacity to respond to market conditions (including
its ability to satisfy capital expenditure requirements) or to meet its
contractual or financial obligations. In addition, pursuant to the debt
instruments governing the Company's indebtedness, the Company is subject to
restrictive covenants that could limit its ability to conduct its business.
Furthermore, the ability of the Company to satisfy its obligations will be
dependent upon its future performance, which will be subject to prevailing
economic conditions and to financial, business and other factors, including
factors beyond the control of the Company. The Company entered into an Amended
credit agreement with The Bank of America National Trust and Savings
Association, for itself and as agent for a syndicate of other financial
institutions, covering an aggregate amount of $300 million. As of March 31,
1998, $95 million was outstanding under this agreement, and $205 million was
available for future borrowings. Through and including March 15, 2008, interest
on the Company's 6 7/8% Senior Notes due 2008 (the "Notes") will be payable in
cash semiannually. Although the Company believes that
<PAGE>
cash flow from operations will be sufficient to meet all of its debt service
requirements and to fund its capital expenditure requirements, there can be no
assurance that this will be the case.
Reliance on Key Management
The operation of the Company requires managerial and operational expertise.
Although all of the key management employees have employment contracts with the
Company, there can be no assurance that such individuals will remain with the
Company. If, for any reason, such key personnel do not continue to be active in
the Company's management, operations could be adversely affected.
Risks in the Operation of Recently Acquired Facilities
In June 1996 the Company acquired from American Optical Corporation ("AOC")
substantially all of AOC's worldwide ophthalmic business ("AO"). The future
success of the AO Acquisition and the effect of the AO Acquisition on the
financial and operating results of the Company will depend in part on the
ability of the Company to operate AO successfully as a stand alone business and,
where possible, to engage in cooperative and joint activities with AO. The
ability of the Company to accomplish its objectives in connection with the AO
Acquisition is, like any acquisition, subject to certain risks including, among
others, the possible inability to retain certain AO personnel, potential
negative effects of diverting management resources and the possible failure to
retain AO customers.
Dividend Policy; Restrictions on Payment of Dividends
The Company has not declared or paid any cash dividends on any class of its
capital stock, and does not intend to pay dividends on its Common Stock in the
foreseeable future. The Company's Bank Credit Agreement with The Bank of America
National Trust and Savings Association, and the Indenture governing the Notes
(the "Indenture"), restrict and limit the payment of dividends on the Common
Stock. See "--Price Range of Common Stock and Dividend Policy".
Antitakeover Provisions
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated By-Laws contain certain provisions that could make more difficult
the acquisition of the Company by means of a tender offer, a proxy contest or
otherwise. These provisions include advance notice procedures for stockholders
to nominate candidates for election as directors of the Company and for
stockholders to submit proposals for consideration at stockholders' meetings. In
addition, the Company is subject to Section 203 of the Delaware General
Corporation Law, which limits transactions between a publicly held company and
"interested stockholders" (generally, those stockholders who, together with
their affiliates and associates, own 15% or more of a company's outstanding
capital stock). This provision of Delaware law also may have the effect of
deterring certain potential acquisitions of the Company.
Year 2000
The Company has developed preliminary plans to address the possible
exposures related to the impact on its computer systems of the Year 2000. Key
financial, information and operational systems have been assessed and plans have
been developed to address systems modifications required by December 31, 1999.
Based on work to date, and assuming that project plans, which continue to
evolve, can be implemented as planned, management believes the financial impact
of making the required systems changes will not be material to the Company's
consolidated financial position, results of operations or cash flows.
The Company is also in the preliminary stages of assessing the possible
effects on the Company's operations of the Year 2000 readiness of key suppliers
and customers. The Company's reliance on
<PAGE>
suppliers and customers and therefore on the proper functioning of their
information systems and software, means that failure to address Year 2000 issues
could have a material impact on the Company's operations and financial results;
however, the potential impact and related costs are not known at this time.
