<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
[x] OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 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 No. 000-22519
KAYNAR TECHNOLOGIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0591091
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 N. STATE COLLEGE BLVD., SUITE 1000, ORANGE, CALIFORNIA 92868-1638
- --------------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714)712-4900
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
----------------------------
Common Stock, $.01 par value
Securities registered pursuant to Section 12(g) of the Act:
NONE
------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $82.1 million as of February 10, 1999 based on the
closing sales price of $27.375 of the registrant's common stock as reported on
the NASDAQ National Market as of such date.
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The number of shares of common stock outstanding on February 10, 1999 was
5,092,544.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements contained in this Form 10-K, including Item 1
"Business" and Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations", are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. Forward-looking statements address
activities, events or developments that Kaynar Technologies Inc. (the
"Company") expects or anticipates will or may occur in the future, including
future capital expenditures, expansion and growth of the Company's and its
customers' business and operations and other such matters. Forward-looking
statements can be identified by words including, but not limited to,
"believes," "anticipates," "expects," "intends," "seeks," "may," "will" and
"estimates."
Forward-looking statements are subject to certain risks and
uncertainties, including the Company's dependence on conditions in the
commercial aircraft and defense industries, the level of commercial aircraft
build rates (primarily at Boeing and Airbus), the amount of defense spending,
competitive pricing pressures, the cost of material and labor, and other risks
described from time to time in the Company's registration statements and reports
filed with the Securities and Exchange Commission. The foregoing should not be
construed as an exhaustive list of all risks and uncertainties. Actual results
to differ materially from those expressed in forward-looking statements made by
the Company.
PART I
ITEM 1. BUSINESS
The Company is a leading precision fabricator that designs,
develops, and manufactures a wide range of specialty components and tooling
systems and provides related services used primarily by original equipment
manufacturers ("OEMs") and their subcontractors to produce aircraft and
defense products. The Company serves virtually all major airframe and
aircraft OEMs including Boeing, General Electric, Pratt & Whitney, Airbus,
Lockheed Martin and Rolls Royce. In addition, the Company serves the
automotive, electrical and other industrial markets and their associated
after-markets. The Company was formed as a Delaware corporation on October
20, 1993.
Recent Developments
Recent developments of the Company are incorporated herein by reference
from "Recent Developments and Significant Business Combinations" included herein
in Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Financial Information About Industry Segments
The Company's business segment information is incorporated herein by
reference from Note 16 of the Company's consolidated financial statements
included herein in Item 8 "Financial Statements and Supplementary Data."
Products and Services
The Company's specialty components, tooling systems and related
services may be divided into two general categories: those used primarily in
the manufacture of commercial aircraft and defense products and those with
applications in other industries. Within these two categories, the Company's
products may also be grouped by business unit. The Company's Kaynar, Microdot,
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M & M, Eagle, APS and K-FAST business units design and manufacture products
that are sold principally to the commercial aircraft and defense industries,
while the Company's Recoil and Marson business units design and manufacture
products used primarily in the automotive, electrical and other non-aerospace
industries.
Commercial Aircraft and Defense Products
The commercial aircraft and defense industries accounts for the vast
majority of the Company's net sales and operating income. See Item 7
"Management's Discussion and Analysis of Financial Conditions and Results
of Operation--Segment Information."
The Company's commercial aircraft sales depend substantially on
aircraft manufacturers' production rates, which in turn depend upon orders
of new aircraft. Historically, demand from the commercial aircraft
industry has been subject to cyclical fluctuations. There can be no
assurance that demand for new aircraft will not be adversely affected by
business cycle fluctuations or declines in airline profitability.
The Company's defense sales could be adversely affected by reductions
in defense spending and other government budgetary pressures which would
result in reductions, delays or stretch-outs of existing and future
programs. Some of the Company's contracts in the defense market are subject
to termination at the convenience of the customer (as well as for default).
In the event of termination for convenience, the customer generally is
required to pay the costs incurred by the Company and certain other fees
through the date of termination.
Kaynar Products
Kaynar is a leading producer of precision, self-locking internally
threaded nuts used in the manufacture of commercial aircraft and
defense aerospace products. The product line is designed principally
for use in harsh, demanding environments and includes wrenchable nuts,
K-FAST nuts, anchor nuts, gang channels, shank nuts, barrel nuts,
clinch nuts and stake nuts. Kaynar produces fasteners in a wide variety
of materials to accommodate each customer's specifications, from
lightweight aluminum and titanium nuts for airframes, to high-strength,
high-temperature tolerant engine nuts manufactured from materials such
as A-286, Waspaloy(R) and Hastelloy(R). Kaynar also produces the
commercial aircraft and defense industries' broadest line of
lightweight, non-metallic composite fasteners, which may be configured
as wrenchable nuts, anchor nuts, gang channels or barrel nuts. These
composite fasteners are used primarily for military aircraft and are
designed to reduce radar visibility, enhance resistance to lightning
strikes and provide galvanic corrosion protection. Kaynar offers a
variety of coatings and finishes for its fasteners, including
anodizing, cadmium plating, silver plating, aluminum plating, solid
film lubricants and water based cetyl and solvent free lubricants.
Kaynar sales accounted for 75%, 81% and 83% of the Company's total
sales for 1998, 1997 and 1996, respectively.
Microdot Products
Microdot designs and manufactures threaded inserts and studs used
principally in the commercial aircraft and defense industries.
Microdot's threaded inserts, which are made of high-grade steel and
other high-tensile metals, are designed to be installed into softer
metals, plastics and composite materials to create bolt-ready holes
having strong internal self locking threads within the softer parent
material. Once a bolt is threaded into the installed insert, overall
strength of the fastening assembly is substantially enhanced. Microdot
inserts can also be used for thread repairs. Microdot's K-Sert(R)
inserts include keys that can be used to lock the insert in place and
prevent any rotation. Microdot also manufactures Perma-Thread(R)
inserts and Thin Wall(R) inserts which
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are used to create a permanent thread inside a hole and to provide a
high degree of thread protection and fastening integrity from a light
weight fastener. Microdot also manufactures studs from steel and other
high strength materials. Microdot sales accounted for 9%, 11% and 13%
of the Company's total sales for 1998, 1997 and 1996, respectively.
Other Products
M & M specializes in precision machined structural components and
assemblies for aircraft, including pylons, flap hinges, struts, wing
fittings, landing gear parts, spars and many other items. Eagle
manufactures high quality flared fluid fittings used in the hydraulic
systems of aircraft. APS manufactures specialty machinery for
automated assembly of structural components and subassemblies. K-FAST
makes tools primarily designed to install Kaynar, Microdot and Recoil
fasteners and inserts, but can also be used to attach other wrenchable
nuts, bolts and inserts.
Industrial Products and Services
Recoil Products
Recoil produces helically-wound, wire thread, self locking inserts that
increase the strength of fastening assemblies and assist in reduction
of thread wear, which is particularly important when components are
assembled and disassembled frequently or where vibrations are severe.
Recoil also supplies thread repair kits, high-speed steel taps and
various electric and pneumatic, manual and semi-automatic insertion
tools and related accessories.
Marson Products
Marson designs, manufactures and markets a broad line of blind rivets,
threaded inserts and setting tools primarily for the industrial and
automotive markets. Marson is the second largest US manufacturer of
blind rivets and related tools. In addition to manufacturing, Marson
provides many value-added services such as plating, anodizing and
customized product painting.
Raw Materials
The Company purchases raw materials, which include the various metals,
composites and finishes used in production, from over twenty different
suppliers. The Company believes that these raw materials would be available at
competitive prices from various other suppliers as well. However, commercial
deposits of certain metals, such as titanium and nickel, that are required for
the manufacture of several of the Company's products are only found in certain
parts of the world. The availability and prices of these metals may be
influenced by private or governmental cartels, changes in world politics,
unstable governments in exporting nations or inflation. Similarly, supplies of
steel and other less exotic metals used by the Company may also be subject to
variation in availability. Shortages of, and price increases for, certain raw
materials used by the Company have occurred in the past and may occur in the
future.
Patents
The Company currently holds a number of U.S. and international patents,
covering a variety of products and processes. Although the Company believes
patent protection to be valuable in certain circumstances, management does not
believe that the termination, expiration or infringement of one or more of the
Company's patents would have a material adverse effect on the business or
prospects of the Company.
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Major Customers
A significant portion of the Company's business is dependent upon a
limited number of large manufacturers of commercial aircraft and defense
products. Direct sales to Boeing accounted for approximately 20%, 24% and 18%
of sales during 1998, 1997 and 1996, respectively. Sales to Boeing are
diversified over a number of different commercial and military programs. No
other customer accounted for 10% or more of the Company's net sales during
the past three years. In addition, the Company sells to a global network of
independent distributors who sell the Company's products to OEMs,
subcontractors and other customers.
Backlog
At December 31, 1998, backlog believed to be firm was approximately
$108.8 million, compared to $92.5 million at December 31, 1997. Approximately
$97.6 million of total backlog is expected to be delivered during 1999.
Competition
The Company's commercial aircraft and defense business units compete
with a number of producers of aerospace fasteners and fastening systems,
including three publicly-held companies, SPS Technologies Inc. ("SPS"), the
Huck International Division of the Cordant Technologies ("Huck") and The
Fairchild Corporation ("Fairchild"), all of which have greater financial
resources than the Company. SPS manufactures high-strength wrenchable nuts,
gang channels, plate nuts and other products for certain of the same
customers as the Company, including Boeing, Pratt & Whitney and General
Electric. Huck produces fasteners and fastening systems that differ
substantially from the Company's products in design, but nevertheless often
serve comparable functions in airframe and engine construction. Fairchild
produces threaded inserts and studs that compete with the Microdot product
lines, as well as various nuts used by certain of the Company's customers,
including General Electric. The Company has recently entered into a merger
agreement with Fairchild. See Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments and
Significant Business Combinations." The Company also competes with several
smaller, privately-owned companies, which generally have lower sales volumes
than the Company.
The Company believes that competition for sales of specialty components
and tooling systems to the commercial aircraft and defense industries is based
on product design and quality, turnaround time and responsiveness to customer
specifications, product availability and pricing. The Company also believes that
it competes favorably with respect to each of these factors.
HeliCoil and POP Fastening Systems, which are both units of Black &
Decker Corp., are Recoil and Marson's primary competitors in the industrial
market. The Company believes that competition for sales of threaded inserts,
blind rivets, and setting tools to the markets served by Recoil and Marson is
based on turnaround time and responsiveness to customer specifications, product
availability and pricing. The Company also believes that it competes favorably
with respect to each of these factors.
Environmental Matters
The Company uses perchloroethylene to clean products at various stages
of the manufacturing process in order to meet military and civilian
specifications for aircraft and aerospace parts. The Company's products must be
manufactured in strict compliance with such specifications in order to ensure
that aircraft safety and performance standards are met.
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Perchloroethylene has been detected in soil beneath the Company's main
Kaynar facility in Fullerton. Environmental consultants retained by the Company
have determined that this contamination may have been caused by former
degreasing operations on the property. The Company anticipates that remediation
of the perchloroethylene at this site will cost approximately $200,000 over the
course of two years. The Company has established reserves that management
believes are sufficient to cover this remediation.
The Company anticipates that during the period from 1999 through 2004
it will make capital expenditures of between $1 million and $2 million to
introduce aqueous-based and/or low emission solvent cleaning technologies at its
main Kaynar facility in Fullerton. These new operations will significantly
reduce emissions of perchloroethylene and increase manufacturing efficiency.
The Company intends to install equipment to control air emissions from
a dip coating operation in order to achieve final compliance with a South Coast
Air Quality Management District rule governing aerospace coating operations at a
cost of approximately $700,000 at its main Kaynar facility in Fullerton.
Employees
At December 31, 1998, the Company employed approximately 1,650 people.
Financial Information About Foreign and Domestic Operations and Export Sales
The Company's financial information about foreign and domestic
operations and export sales is incorporated herein by reference from Note 14 of
the Company's consolidated financial statements included herein in Item 8
"Financial Statements and Supplementary Data."
ITEM 2. PROPERTIES
FACILITIES
The Company utilizes 13 facilities in excess of 4,000 square feet with
a total area of approximately 575,000 square feet, including both owned and
leased properties. At December 31, 1998, the facilities were:
<TABLE>
<CAPTION>
Approx.
Square Expiration
Location Function Feet of Lease
- --------- --------- -------- -----------
<S> <C> <C> <C>
Fullerton, CA Kaynar 200,000 October 31, 2007
-Product Development
-Engineering
-Manufacturing
-Distribution
Stoughton, MA Marson 110,000 April 10, 2003
-Product Development
-Engineering
-Manufacturing
-Warehousing
-Distribution
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Huntington Beach, CA M & M 58,000 Owned
-Product Development
-Engineering
-Manufacturing
-Distribution
Fullerton, CA K-Fast and APS 57,000 August 13, 2003
-Product Development
-Engineering
-Manufacturing
-Distribution
Placentia, CA Microdot 40,000 September 30, 2001
-Product Development
-Engineering
-Manufacturing
-Distribution
Huntington Beach, CA M & M 25,000 November 30, 1999
-Material storage
Oakleigh, VIC, Australia Recoil Pty 24,000 August 1, 2000
-Product Development
-Engineering
-Manufacturing
-Distribution
Nemesuamos, Hungary K.T.I. Femipari KFT 21,500 Owned
-Manufacturing
Adelanto, CA Kaynar 11,600 Owned
-Manufacturing (to begin in 1999)
-Distribution (to begin in 1999)
La Habra, CA Eagle 10,500 May 17, 1999
(no longer in use as of January 1999)
Fullerton, CA Kaynar 8,300 April 7, 2000
-Raw material storage
Orange, CA KTI 4,600 April 1, 2003
-Corporate Headquarters
-Administration
Carmel, IN Recoil (U.S.) 4,300 December 31, 2003
-Sales and Marketing
-Distribution
</TABLE>
While the Company believes that its facilities (including those not
mentioned in the above paragraph) are adequate to support its operations for the
foreseeable future, the Company regularly reviews its need for additional
facilities and could, in the future, lease or purchase one or more additional
facilities or seek to expand its existing facilities.
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Although the Company maintains standard property casualty insurance
covering its properties, the Company does not carry any earthquake insurance
because of the cost of such insurance. Most of Company's properties are located
in Southern California, an area subject to frequent and sometimes severe
earthquake activity.
ITEM 3. LEGAL PROCEEDINGS
During the ordinary course of business, the Company is threatened with,
or becomes a party to, legal actions and other proceedings. Management believes
that the outcome of legal actions and proceedings to which it is presently a
party will not, singly or in the aggregate, have a material adverse effect on
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Shares of the Company's common stock are traded on the NASDAQ
National Market. The information regarding the quarterly price range of the
Company's common stock is incorporated herein by reference from Note 17 of
the Company's consolidated financial statements included herein in Item 8
"Financial Statements and Supplementary Data." The Company did not pay cash
dividends on its common stock during the last two fiscal years and has no
present intention of paying cash dividends on its common stock in the future.
The number of stockholders of record for the Company's common stock as
of February 10, 1999 was approximately 1,029.
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ITEM 6. SELECTED FINANCIAL DATA
Five Year Financial Summary
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 (2,3) 1997 1996 (1) 1995 1994
---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $185,512 $150,429 $ 99,023 $ 68,781 $ 55,117
Cost of sales 129,223 104,390 72,924 51,940 41,117
---------- -------- ----------- -------- --------
Gross profit 56,289 46,039 26,099 16,841 14,000
Selling, general and administrative expenses 27,438 21,454 13,263 10,018 9,048
---------- -------- ----------- -------- --------
Operating income 28,851 24,585 12,836 6,823 4,952
Interest expense, net 4,067 3,602 4,011 2,935 2,304
---------- -------- ----------- -------- --------
Income before income taxes 24,784 20,983 8,825 3,888 2,648
Provision for income taxes 9,914 8,393 3,530 1,577 1,129
---------- -------- ----------- -------- --------
Net income $ 14,870 $ 12,590 $ 5,295 $ 2,311 $ 1,519
---------- -------- ----------- -------- --------
---------- -------- ----------- -------- --------
Earnings per share
Basic $ 3.39 $ 4.23 $ 3.26 $ 1.39 $ 0.89
---------- -------- ----------- -------- --------
---------- -------- ----------- -------- --------
Diluted $ 1.64 $ 1.54 $ 0.78 $ 0.34 $ 0.22
---------- -------- ----------- -------- --------
---------- -------- ----------- -------- --------
Weighted average number of common stock
and common stock equivalents
Basic 4,382 2,967 1,594 1,594 1,594
Diluted 9,085 8,173 6,800 6,800 6,800
Balance sheet data:
Working capital $ 47,917 $ 38,700 $ 30,188 $ 18,991 $ 15,563
Total assets 199,359 101,656 73,689 43,336 35,051
Long-term obligations 85,295 27,992 46,340 24,895 22,051
Stockholders' equity 72,724 49,433 10,626 5,157 2,944
</TABLE>
(1) In August 1996, the Company purchased its Recoil business unit which has
been accounted for under the purchase method of accounting and,
accordingly, their operating results have been included in the results of
operations since mid-August 1996.
(2) In July 1998, the Company purchased its M & M business unit which has been
accounted for under the purchase method of accounting and, accordingly,
their operating results have been included in the results of operations
since late-July 1998 (see Note 2 of the Company's Consolidated Financial
Statements).
(3) In October 1998, the Company purchased its Marson business unit which has
been accounted for under the purchase method of accounting and,
accordingly, their operating results have been included in the results of
operations since late-October 1998 (see Note 2 of the Company's
Consolidated Financial Statements).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company designs, develops and manufactures a wide range of
specialty components and tooling systems and provides related services primarily
used by OEMs and their subcontractors to produce aircraft and defense products.
In addition, the Company serves the automotive, electrical and other industrial
markets, and their associated after-markets.
In the last three years, the Company's financial objectives have
focused on increasing sales and profitability. The Company's success in
achieving these objectives is due to, among other factors, its ability to take
advantage of increased demand for fasteners from rising commercial aircraft
build rates, the expansion of product lines through acquisitions and new product
development, and increases in efficiencies and productivity. The Company's
financial results over this period reflect a high degree of leverage resulting
from debt incurred to finance the formation of the Company and to finance
internal growth and subsequent acquisitions.
Recent Developments and Significant Business Combinations
On July 28, 1998, the Company acquired all of the issued and
outstanding common stock of M & M Machine & Tool Company Co. ("M & M"). M & M,
located in Huntington Beach, California, specializes in the machining of
structural components and assemblies for aircraft which include pylons, flap
hinges, struts, wing fittings, landing gear parts, spars, and many others. As
consideration for this acquisition, the Company paid the M & M stockholders
$12.4 million in cash and 376,142 shares of the Company's common stock valued at
$8.3 million. In addition, the Company will pay additional consideration of $2
million (60% in cash and 40% in shares of KTI common stock) based on M & M's
recasted earnings before interest, taxes and transaction costs related to the
acquisition for its fiscal year ended October 31, 1998. The purchase price
exceeded the fair value of the net assets by $17.9 million, which is being
allocated as goodwill and amortized using the straight-line method over 40
years. The M & M acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of M & M have been included
in the Company's results of operations since late-July 1998.
On October 27, 1998, the Company acquired all of the issued and
outstanding common stock of Marcliff Corporation which holds all of the issued
and outstanding capital stock of Marson Creative Fastener, Inc. ("Marson").
Located in Stoughton, Massachusetts, Marson designs, manufactures, and markets a
broad line of blind rivets, threaded inserts, and setting tools primarily for
industrial markets. As consideration for this acquisition, the Company paid the
Marson stockholders $34.0 million in cash (of which $9.1 million was used to pay
off Marson's outstanding debt as of the acquisition date). In addition, the
Company will pay additional consideration of $1.1 million based on Marson's
closing balance sheet as of the acquisition date. The purchase price exceeded
the fair value of the net assets by $23.2 million, which is being allocated as
goodwill and amortized using the straight-line method over 40 years. The Marson
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the operating results of Marson have been included in the Company's
results of operations since late-October 1998.
On December 26, 1998, the Company entered into a merger agreement
with The Fairchild Corporation ("Fairchild") in which the Company will become
a wholly owned subsidiary of Fairchild (the "Fairchild Merger" or "Fairchild
Merger Agreement"). Upon the effectiveness of the Fairchild Merger, each
outstanding share of the Company's common stock, with the exception of shares
held by stockholders who properly exercise dissenters' rights under the
Delaware General Corporation Law and shares held by Fairchild, will be
cancelled and converted into the right to
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receive $28.75 in cash. The closing of the Fairchild Merger is subject to
certain conditions, including regulatory approval, financing and approval of
the Company's stockholders.
Results of Operations
The following table is derived from the Company's Condensed
Consolidated Statements of Income for the periods indicated and presents the
results of operations as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 69.7% 69.4% 73.6%
-------- -------- --------
Gross profit 30.3% 30.6% 26.4%
Selling, general and
administrative expenses 14.8% 14.2% 13.4%
-------- -------- --------
Operating income 15.5% 16.4% 13.0%
Interest expense, net 2.2% 2.4% 4.1%
Provision for income taxes 5.3% 5.6% 3.6%
-------- -------- --------
Net income 8.0% 8.4% 5.3%
-------- -------- --------
-------- -------- --------
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
NET SALES. Net sales increased 23.3% or $35.1 million, to $185.5
million in 1998 from $150.4 million in 1997. This growth was primarily the
result of $18.0 million in additional net sales from recently acquired
businesses. In addition, net sales growth was enhanced by increased customer
demand (which occurred as commercial aircraft build rates increased), the
expansion of existing product lines, the development of variations of existing
products and the introduction of new products.
GROSS PROFIT. Gross profit increased 22.4% to $56.3 million in 1998
from $46.0 million in 1997; however, as a percentage of net sales, gross profit
decreased 0.3% to 30.3% in 1998 from 30.6% in 1997. This reduction in gross
profit as a percentage of net sales was primarily due to negative profit margins
in the Company's APS business unit which manufactures specialty automation
equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 27.4% to $27.4 million in 1998 from $21.5
million in 1997, and were up 0.6% as a percentage of net sales. The $5.9 million
increase in these expenses was attributable primarily to acquisitions of
businesses as well as additional employee costs needed to support the increased
sales volume. The 0.6% increase in selling, general and administrative expenses
as a percentage of net sales was primarily due to costs incurred by the Company
relating to its evaluation of strategic alternatives which resulted in the
merger agreement with Fairchild.
INTEREST EXPENSE. Interest expense increased 13.9% to $4.1 million in
1998 from $3.6 million in 1997, primarily as a result of additional debt
incurred during 1998 to fund the acquisitions of M & M and Marson.
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<PAGE>
NET INCOME. The Company recorded net income of $14.9 million for 1998,
or $1.64 per share, compared to $12.6 million, or $1.54 per share, in 1997.
BACKLOG. Backlog at December 31, 1998 increased 17.6% or $16.3 million,
to $108.8 million from $92.5 million at December 31, 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
NET SALES. Net sales increased 51.9%, or $51.4 million, to $150.4
million in 1997 from $99.0 million in 1996. This growth was primarily the result
of an increase in customer demand, which occurred as commercial aircraft build
rates increased. In addition, net sales growth was enhanced by the expansion of
existing product lines, the development of variations of existing products and
the introduction of new products. The Company's acquisition of Recoil accounted
for approximately $12.6 million of net sales for the year.
GROSS PROFIT. Gross profit increased 76.3% to $46.0 million or 30.6% of
net sales in 1997 from $26.1 million or 26.4% of net sales in 1996. This
improvement in gross profit margin was primarily due to the increase in sales
volume (which resulted in a greater absorption of fixed costs) and improved
productivity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 61.7% to $21.5 million in 1997 from $13.3
million in 1996, and were up 0.8% as a percentage of sales. The $8.2 million
increase in these expenses was attributable primarily to (i) additional employee
costs needed to support the increased sales volume and (ii) the selling, general
and administrative expenses of Recoil, which, due to the nature of its business,
tends to have higher selling, general and administrative expenses as a
percentage of net sales than the Company's other business units.
INTEREST EXPENSE. Interest expense decreased 10.0% to $3.6 million in
1997 from $4.0 million in 1996, as a result of using proceeds received from the
initial public offering in May 1997 to decrease outstanding debt by $24.0
million.
NET INCOME. The Company recorded net income of $12.6 million for 1997,
or $1.54 per share, compared to $5.3 million, or $0.78 per share, in 1996.
BACKLOG. Backlog at December 31, 1997 increased 41.2% or $27.0 million,
to $92.5 million from $65.5 million at December 31, 1996.
Segment Information
The Company currently reports in two principal industry segments:
"Commercial Aircraft and Defense" and "Industrial". The following table
illustrates the historical sales and operating income of the Company's
operations for the past three years.
12
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Sales by Segment:
Commercial Aircraft and Defense $169,401 $137,889 $95,156
Industrial 16,111 12,540 3,867
-------- -------- -------
Total Sales $185,512 $150,429 $99,023
Operating Income by Segment:
Commercial Aircraft and Defense $ 30,192 $ 25,892 $13,464
Industrial 1,783 1,645 238
Corporate Expenses (3,124) (2,952) (866)
-------- -------- -------
Total Operating Income $ 28,851 $ 24,585 $12,836
</TABLE>
Commercial Aircraft and Defense Segment Results
NET SALES. Net sales in the Commercial Aircraft and Defense Segment
increased 22.8%, or $31.5 million, to $169.4 million in 1998 from $137.9 in
1997. This growth was primarily the result of additional sales from recently
acquired businesses. In addition, net sales growth was enhanced by increased
customer demand (which occurred as commercial aircraft build rates increased),
the expansion of existing product lines, the development of variations of
existing products and the introduction of new products. Net sales in the
Commercial Aircraft and Defense Segment increased 44.9%, or $42.7 million, to
$137.9 million in 1997 from $95.2 in 1996. This growth was primarily the result
of an increase in customer demand (which occurred as commercial aircraft build
rates increased), the expansion of existing product lines, the development of
variations of existing products and the introduction of new products.
OPERATING INCOME. Operating income increased 16.6% to $30.2 million or
17.8% of net sales in 1998 from $25.9 million or 18.8% of net sales in 1997.
This reduction in operating income as a percentage of net sales was primarily
due to negative profit margins in specialty automation equipment. Operating
income increased 91.9% to $25.9 million or 18.8% of net sales in 1997 from $13.5
million or 14.2% of net sales in 1996. This improvement in operating income as a
percentage of net sales was primarily due to the increase in sales volume (which
resulted in a greater absorption of fixed costs) and improved productivity.
Industrial Segment Results
NET SALES. Net sales in the Industrial Segment increased 28.8%, or
$3.6 million, to $16.1 million in 1998 from $12.5 million in 1997. This
growth was the result of additional sales from recently acquired businesses.
Net sales in the Industrial Segment increased 220.5%, or $8.6 million, to
$12.5 million in 1997 from $3.9 million in 1996. This growth was due to the
fact that the Company purchased its Recoil business unit in mid-August 1996
and, accordingly, their operating results were incorporated for three and a
half months in 1996 as compared to a full year in 1997.
OPERATING INCOME. Operating income increased 12.5% to $1.8 million or
11.1% of net sales in 1998 from $1.6 million or 12.8% of net sales in 1997. This
reduction in operating income as a percentage of net sales was primarily due to
a decrease in 1998 sales in the Company's Recoil business unit (which increased
selling, general and administrative costs as a percentage of net sales).
Operating income increased to $1.6 million or 12.8% of net sales in 1997 from
$0.2 million or 5.1% of net sales in 1996. This improvement in operating income
as a percentage of
13
<PAGE>
net sales was primarily due to the increase in sales volume (which resulted in a
greater absorption of fixed costs) and improved productivity.
Liquidity and Capital Resources
The Company's liquidity requirements consist primarily of working
capital needs, capital expenditures and scheduled payments of interest on its
indebtedness to General Electric Capital Corporation ("GECC"), which
beneficially holds a majority of the Company's common stock. The Company's
working capital requirements have increased as a result of higher accounts
receivable and higher inventory levels needed to support its growth in net
sales. The Company's working capital was $47.9 million as of December 31, 1998,
compared to $38.7 million as of December 31, 1997.
For the year ended December 31, 1998 net cash provided by operating
activities was $6.8 million, as compared to net cash provided by operating
activities of $12.2 million for the year ended December 31, 1997. The primary
sources of cash from operations during 1998 included net income of $14.9
million and non-cash charges for depreciation and amortization of $6.8
million, offset by an increase in inventories of $7.2 million and a decrease
in accounts payable and accrued expenses of $5.7 million and $3.2 million,
respectively. The primary sources of cash from operations during 1997
included net income of $12.6 million, non-cash charges for depreciation and
amortization of $3.8 million, an increase in accrued expenses of $4.9 million
and an increase in accounts payable of $3.8 million, offset by increases in
accounts receivable and inventories of $8.0 million and $4.3 million,
respectively.
The Company's net cash used in investing activities in 1998 was $64.8
million, consisting primarily of $18.3 million in capital expenditures and $49.2
million related to the acquisitions of businesses, offset by $3.0 million in net
redemptions of marketable securities, as compared to net cash used in investing
activities in 1997 of $20.3 million, which consisted primarily of $17.9 million
in capital expenditures and $3.1 million in net purchases of marketable
securities.
The Company's net cash provided by financing activities in 1998 was
$59.2 million, consisting entirely of net borrowings on debt, as compared to net
cash provided by financing activities in 1997 of $7.8 million, consisting of
$27.6 million in net proceeds from the initial public offering in May 1997,
offset by net payments of $19.8 million on debt.
The Company believes that internally generated cash flow and amounts
that may be available under the Company's revolving line-of-credit will provide
adequate funds to meet its working capital needs, planned capital expenditures
and debt service obligations. However, the Company's ability to fund its
operations, make planned capital expenditures and make scheduled payments on,
and refinance, its indebtedness depends on its future operating performance and
cash flow. Future operating performance and cash flow are, in turn, subject to
prevailing economic conditions and to financial, business and other factors
affecting the Company, some of which are beyond the Company's control.
During the past three years, inflation has not had a significant impact
on the Company's operations.
International Sales and Operations
The Company generates a portion of its net sales from international
customers. The Company's direct net sales to foreign customers represents
approximately 16%, 16% and 14% of net sales for 1998, 1997 and 1996,
respectively. Although most of the Company's direct international sales are
invoiced in U.S. dollars, a portion may be invoiced in foreign currency.
14
<PAGE>
The Company does not actively manage its foreign currency exposure and
fluctuations in exchange rates which may result in quarterly variations of the
Company's net sales. The Company has historically mitigated the impact of
exchange rate fluctuations by adjusting the prices of its products, but there is
no assurance that the Company will be able to do so in the future, particularly
during periods of rapid and volatile exchange rate fluctuations.
Other Developments
In connection with the acquisition of M & M, on July 27, 1998, the
Company entered into the Second Restated and Amended Credit Agreement with
GECC (the "Second Credit Agreement"). The Second Credit Agreement increased
the size of the Company's credit facility to a maximum of $65 million,
including $50 million in term loans and a $15 million revolving
line-of-credit. The Second Credit Agreement contains sub-facilities for
letters of credit and swing line loans.
In connection with the acquisition of Marson, on October 23, 1998,
the Company entered into the Third Restated and Amended Credit Agreement with
GECC (the "Third Credit Agreement"), which replaced the Second Credit
Agreement. The Third Credit Agreement increased the size of the Company's
credit facility to a maximum of $99 million, including $74 million in term
loans and a $25 million revolving line-of-credit. The Third Credit Agreement
contains sub-facilities for letters of credit and swing line loans.
During the past several years, the Company's growth in net sales has
occurred primarily as a result of increased customer demand due to the increases
in commercial aircraft build rates. Boeing, a significant customer of the
Company, has announced that it has been experiencing production difficulties
affecting build rates. There can be no assurance that such difficulties will not
affect Boeing's demand for the Company's products. Additionally, the aerospace
industry has recently experienced a flattening of commercial aircraft build
rates which have and may continue to impact incoming orders.
Year 2000 Compliance
The Company has in place detailed programs to address Year 2000
readiness in its internal computer systems and its key customers and suppliers.
The Company's Year 2000 readiness team includes both internal personnel and
external consultants. The team's activities are designed to ensure that there
will be no material adverse effects on the Company's business operations and
that transactions with customers, suppliers, and financial institutions will be
fully supported. The specific costs of achieving Year 2000 compliance have been,
and are expected to be, immaterial.
The Company has already converted its most significant manufacturing
facilities to new software systems which are Year 2000 compliant. The Company
expects that all other critical systems will be compliant by March 1999 and
fully tested by September 1999. The Company could be subject to liability to
customers and other third parties if its systems are not Year 2000 compliant,
resulting in possible legal actions for breach of contract, breach of warranty,
misrepresentation, unlawful trade practices and other harm.
The Company is also in the process of ascertaining that its significant
suppliers, customers and financial institutions have appropriate plans to ensure
that they are Year 2000 compliant. If a significant business partner of the
Company fails to be Year 2000 compliant, the Company could suffer a material
loss of business or incur material expenses. Risk assessment, readiness
evaluation, action plans and contingency plans related to third parties are
expected to be completed during the first half of 1999.
The Company is beginning to develop and evaluate contingency plans to
deal with events affecting the Company or one of its business partners arising
from significant Year 2000
15
<PAGE>
problems. These contingency plans include identifying alternative suppliers,
distribution networks, and service providers.
While the Company believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that all internal systems, as
well as those of third parties on which the Company relies upon, will be
converted on a timely basis and will not have a material affect on the Company's
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and the
report of the Company's independent public accountants with respect thereto, are
set forth below.
<TABLE>
<CAPTION>
Financial Statements Page
-------------------------------------------- -----
<S> <C>
Report of Independent Public Accountants 17
Consolidated Statements of Income - Years
ended December 31, 1998, 1997 and 1996. 18
Consolidated Balance Sheets - December 31,
1998 and 1997. 19-20
Consolidated Statements of Shareholders'
Equity - Years Ended December 31, 1998,
1997 and 1996. 21
Consolidated Statements of Cash Flows - Years
ended December 31, 1998, 1997 and 1996. 22-23
Notes to Consolidated Financial Statements 24-36
</TABLE>
Supplementary information regarding "Quarterly Financial Data
(Unaudited)" is set forth under Item 8 in Note 17 to the Consolidated Financial
Statements.
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Kaynar Technologies Inc.:
We have audited the accompanying consolidated balance sheets of Kaynar
Technologies Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kaynar Technologies
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
February 5, 1999
17
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Net sales (1) $185,512 $150,429 $99,023
Cost of sales 129,223 104,390 72,924
---------- ---------- -----------
Gross profit 56,289 46,039 26,099
Selling, general and administrative expenses 27,438 21,454 13,263
---------- ---------- -----------
Operating income 28,851 24,585 12,836
Interest expense, net 4,067 3,602 4,011
---------- ---------- -----------
Income before provision for income taxes 24,784 20,983 8,825
Provision for income taxes 9,914 8,393 3,530
---------- ---------- -----------
Net income $ 14,870 $ 12,590 $ 5,295
---------- ---------- -----------
---------- ---------- -----------
Earnings per share
Basic $ 3.39 $ 4.23 $ 3.26
Diluted $ 1.64 $ 1.54 $ 0.78
---------- ---------- -----------
---------- ---------- -----------
Weighted average number of shares of common stock and
common stock equivalents
Basic 4,382 2,967 1,594
Diluted 9,085 8,173 6,800
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
(1) Including $13,038, $12,961 and $11,437 in 1998, 1997 and 1996, respectively,
to a related party (see Note 15)
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - ASSETS
AS OF DECEMBER 31, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Current assets:
Cash $ 1,893 $ 675
Marketable securities 50 3,079
Accounts receivable (1) 30,421 23,293
Inventories 52,778 34,231
Prepaid expenses and other current assets 1,430 647
Deferred tax asset 2,685 1,006
--------- ----------
Total current assets 89,257 62,931
--------- ----------
Property, plant and equipment, at cost 76,035 41,048
Less accumulated depreciation and amortization (14,452) (8,797)
--------- ----------
61,583 32,251
--------- ----------
Intangible assets, net of accumulated amortization of $1,104 and
$480 at December 31, 1998 and 1997, respectively 47,958 6,409
Other assets 561 65
--------- ----------
Total assets $199,359 $101,656
--------- ----------
--------- ----------
</TABLE>
(1) Including $982 and $1,846 in 1998 and 1997, respectively, from a related
party (see Note 15), net of allowance for doubtful accounts of $703 and
$310 in 1998 and 1997, respectively
The accompanying notes are an integral part of these consolidated
financial statements.
19
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Current liabilities:
Revolving line-of-credit, to a related party (see Note 8) $ 13,000 $ -
Current portion of long-term debt 4,054 1,021
Current portion of capital lease obligations 280 272
Accounts payable 8,017 9,969
Accrued payroll and related expenses 8,115 8,546
Other accrued expenses 7,874 4,423
---------- ---------
Total current liabilities 41,340 24,231
---------- ---------
Long-term liabilities:
Long-term debt, primarily to a related party (see Note 8) 80,624 26,372
Capital lease obligations 194 484
Deferred tax liability 4,477 1,136
---------- ---------
Total long-term liabilities 85,295 27,992
---------- ---------
Commitments and contingencies (see Notes 8 and 12)
Stockholders' equity:
Series C Convertible Preferred stock; $0.01 par value;
Authorized--10,000,000; issued and outstanding-4,206,000 and 5,206,000
shares at December 31, 1998 and 1997, respectively 42 52
Common stock; $0.01 par value; Authorized--20,000,000 shares; issued
and outstanding--5,090,142 and 3,694,000 shares at December 31, 1998
and 1997, respectively 51 37
Additional paid-in capital 37,821 28,973
Retained earnings 36,264 21,394
Accumulated other comprehensive income (1,454) (1,023)
---------- ---------
Total stockholders' equity 72,724 49,433
---------- ---------
Total liabilities and stockholders' equity $199,359 $101,656
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
20
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Preferred Stock
Series C Common Stock
----------------- -----------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 5,206 $52 1,594 $16
Comprehensive Income:
Net income
Currency Translation
Comprehensive Income
Dividends declared
----- --- ----- ---
BALANCE, December 31, 1996 5,206 52 1,594 16
Comprehensive Income:
Net income
Currency Translation
Comprehensive Income
Common stock issuance - - 2,100 21
Dividends declared
----- --- ----- ---
BALANCE, December 31, 1997 5,206 52 3,694 37
Comprehensive Income:
Net income
Currency Translation
Comprehensive Income
Conversion of Preferred (1,000) (10) 1,000 10
Common stock issuance - - 396 4
----- --- ----- ---
BALANCE, December 31, 1998 4,206 $42 5,090 $51
----- --- ----- ---
----- --- ----- ---
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other
Paid-in Comprehensive Retained Comprehensive
Capital Income Earnings Income Total
----------- ------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $ 1,432 $ 3,639 $ 18 $ 5,157
Comprehensive Income:
Net income $ 5,295 5,295 5,295
Currency Translation 270 270 270
-------
Comprehensive Income $ 5,565
-------
-------
Dividends declared (96) (96)
------- ------- ------- -------
BALANCE, December 31, 1996 1,432 8,838 288 10,626
Comprehensive Income:
Net income $12,590 12,590 12,590
Currency Translation (1,311) (1,311) (1,311)
-------
Comprehensive Income $11,279
-------
-------
Common stock issuance 27,541 27,562
Dividends declared (34) (34)
------- ------- ------- -------
BALANCE, December 31, 1997 28,973 21,394 (1,023) 49,433
Comprehensive Income:
Net income $14,870 14,870 14,870
Currency Translation (431) (431) (431)
-------
Comprehensive Income $14,439
-------
-------
Conversion of Preferred - -
Common stock issuance 8,848 8,852
------- ------- ------- -------
BALANCE, December 31, 1998 $37,821 $36,264 $(1,454) $72,724
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
21
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $14,870 $12,590 $ 5,295
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 6,772 3,818 2,613
Increase (decrease) in deferred income taxes 680 (990) 186
(Gain) loss on sale of property, plant and equipment (124) 154 34
Changes in operating assets and liabilities, net of acquisitions-
(Increase) decrease in accounts receivable 962 (7,990) (2,505)
Increase in inventories (7,190) (4,346) (6,867)
(Increase) decrease in prepaid expenses and other current assets (112) 32 (152)
(Increase) decrease in other assets (211) 187 181
Increase (decrease) in accounts payable (5,657) 3,800 2,361
Increase (decrease) in accrued expenses (3,222) 4,946 3,172
------- ------- -------
Net cash provided by operating activities 6,768 12,201 4,318
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (18,322) (17,909) (6,850)
Proceeds from sales of property, plant and equipment 403 92 43
Net redemptions (purchases) of marketable securities 3,029 (3,079) -
Acquisitions, net of acquired cash of $421 in 1998 (49,203) - (12,160)
(Increase) decrease in intangible assets (669) 638 (1,231)
------- ------- -------
Net cash used in investing activities (64,762) (20,258) (20,198)
------- ------- -------
Cash flows from financing activities:
Net borrowings (payments) on line-of-credit, from a related party 13,000 (746) (3,560)
Borrowings on long-term debt, primarily from a related party 52,882 501 21,245
Payments on long-term debt, primarily from a related party (6,345) (20,263) (898)
Net principal (payments) borrowings on capital lease obligations (303) 795 (55)
Net proceeds from issuance of common stock - 27,562 -
------- ------- -------
Net cash provided by financing activities 59,234 7,849 16,732
------- ------- -------
Effect of exchange rate changes on cash (22) (26) 5
------- ------- -------
Net increase (decrease) in cash 1,218 (234) 857
Cash, beginning of period 675 909 52
------- ------- -------
Cash, end of period $ 1,893 $ 675 $ 909
------- ------- -------
------- ------- -------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,094 $ 3,943 $ 3,787
------- ------- -------
------- ------- -------
Income taxes $12,844 $ 8,395 $ 2,841
------- ------- -------
------- ------- -------
Noncash financing activities:
Capital lease obligations assumed for the purchase of equipment $ - $ 507 $ 355
------- ------- -------
------- ------- -------
Borrowings on long-term debt for preferred stock dividends $ - $ 34 $ 96
------- ------- -------
------- ------- -------
Common stock issued in connection with acquisitions of businesses $ 8,852 $ - $ -
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
23
<PAGE>
KAYNAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands, except per share data)
1. NATURE OF OPERATIONS AND RECENT DEVELOPMENTS
Kaynar Technologies Inc. (the "Company") is a leading precision fabricator that
designs, develops and manufactures a wide range of specialty components and
tooling systems and provides related services used primarily by original
equipment manufacturers ("OEM's") and their subcontractors to produce aircraft
and defense products. In addition, the Company serves the automotive, electrical
and other industrial markets and their associated after-markets.
On December 26, 1998, the Company entered into a merger agreement with The
Fairchild Corporation ("Fairchild") in which the Company will become a wholly
owned subsidiary of Fairchild (the "Fairchild Merger"). Upon the
effectiveness of the Fairchild Merger, each outstanding share of the
Company's common stock, with the exception of shares held by stockholders who
properly exercise dissenters' rights under the Delaware General Corporation
Law and shares held by Fairchild, will be cancelled and converted into the
right to receive $28.75 in cash. The closing of the Fairchild Merger is
subject to certain conditions, including regulatory approval, financing and
approval of the Company's stockholders.
2. BUSINESS COMBINATIONS
On July 28, 1998, the Company acquired all of the issued and outstanding
common stock of M & M Machine & Tool Company Co. ("M & M"). M & M, located in
Huntington Beach, California, specializes in the machining of structural
components and assemblies for aircraft which include pylons, flap hinges,
struts, wing fittings, landing gear parts, spars, and many others. As
consideration for this acquisition, the Company paid the M & M stockholders
$12,441 in cash and 376,142 shares of the Company's common stock valued at
$8,294. In addition, the Company will pay additional consideration of $2,000
(60% in cash and 40% in shares of KTI common stock) based on M & M's recasted
earnings before interest, taxes and transaction costs related to the
acquisition for its fiscal year ended October 31, 1998 (which was accrued for
and included in other accrued expenses as of December 31, 1998). The purchase
price exceeded the fair value of the net assets by $17,850, which is being
allocated as goodwill and amortized using the straight-line method over 40
years. The M & M acquisition has been accounted for under the purchase method
of accounting and, accordingly, the operating results of M & M have been
included in the Company's results of operations since late-July 1998.
On October 27, 1998, the Company acquired all of the issued and outstanding
common stock of Marcliff Corporation which holds all of the issued and
outstanding capital stock of Marson Creative Fastener, Inc. ("Marson").
Located in Stoughton, Massachusetts, Marson designs, manufactures, and
markets a broad line of blind rivets, threaded inserts, and setting tools
primarily for industrial markets. As consideration for this acquisition, the
Company paid the Marson stockholders $34,000 in cash (of which $9,058 was
used to pay off Marson's outstanding debt as of the acquisition date). In
addition, the Company will pay additional consideration of $1,111 based on
Marson's closing balance sheet as of the acquisition date (which was accrued
for and included in other accrued expenses as of December 31, 1998). The
purchase price exceeded the
24
<PAGE>
fair value of the net assets by $23,217, which is being allocated as goodwill
and amortized using the straight-line method over 40 years. The Marson
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the operating results of Marson have been included in the Company's
results of operations since late-October 1998.
3. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma consolidated statements of income information
present the results of the Company's operations for the years ended December 31,
1998 and 1997 as though the acquisitions of M & M and Marson had occurred as of
the beginning of each respective calendar year:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 220,374 $ 195,654
Net income 15,971 14,047
Earnings per share
Basic 3.42 4.16
Diluted 1.71 1.64
</TABLE>
The pro forma results have been prepared for comparative purposes only and are
not necessarily indicative of the actual results of operations had the
acquisitions taken place at the beginning of the fiscal year or the results that
may occur in the future. The pro forma results include additional interest on
borrowed funds, additional amortization of goodwill resulting from the
acquisitions and the change in salary and benefit costs of certain officers of
the acquired companies.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
b. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Kaynar
Technologies Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
c. REVENUE RECOGNITION
Sales and related costs are recorded by the Company upon shipment of
product. Revenues related to the rental of the Company's K-FAST tools,
which are not significant, are recognized monthly over the term of the
lease. Revenues related to the Company's APS business unit, which are
not significant, are recognized based on percentage of completion.
25
<PAGE>
d. CURRENCY TRANSLATION ADJUSTMENT
Assets and liabilities of the Company's foreign subsidiaries are
translated into United States dollars at the year-end rate of exchange.
Income and expense items are translated at the average rates of
exchange for the period. Gains and losses resulting from translating
foreign currency financial statements are accumulated in a separate
component of stockholders' equity. Foreign currency transaction gains
and losses are included in the consolidated statements of income.
e. MARKETABLE SECURITIES
The Company invests excess cash in a money market fund that invests in
short term (maturities of 397 days or less) direct obligations of the
U.S. Treasury.
f. INVENTORIES
Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out (FIFO) method and market based upon
the lower of replacement cost or estimated realizable value. Inventory
costs include material, labor and factory overhead.
g. PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed principally on the straight-line method over
the estimated useful lives of the depreciable assets (ranging from five
to ten years). Cost and accumulated depreciation for property retired
or disposed of are removed from the accounts and any gains or losses
are reflected in operations. Major renewals and betterments that extend
the useful life of an asset are capitalized.
h. INTANGIBLE ASSETS
Intangible assets primarily represent the excess of purchase price over
fair value of net assets acquired and related acquisition costs
incurred in the acquisitions of Recoil, M & M and Marson. Intangibles
are amortized using the straight-line method from the date of
acquisition over the expected period to be benefited, currently
estimated between 20 and 40 years. The Company assesses the
recoverability of intangible assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of."
i. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, marketable securities, accounts
receivable and accounts payable approximate their fair value as of
December 31, 1998 and 1997. The carrying amounts of the line-of-credit
and long-term debt approximate fair value as the obligations bear
interest at rates that fluctuate with the market rate. The carrying
amount of the term loans approximates fair value as the obligation
compares favorably with fixed rate obligations that would be currently
available to the Company.
j. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109 "Accounting
for Income Taxes," which requires an asset and liability approach in
accounting for income taxes payable or refundable at the date of the
financial statements as a result of all events that have been
recognized in the financial statements and as measured by the
provisions of enacted laws.
26
<PAGE>
k. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding plus
the dilutive effect of other securities. The Company's other securities
are (i) Series C Convertible Preferred stock and (ii) outstanding
common stock options.
The table below details the components of the basic and diluted
earnings per share ("EPS") calculations:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
--------------------- --------------------- -------------------
Income Shares Income Shares Income Shares
---------- -------- --------- --------- --------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $14,870 4,382 $12,590 2,967 $5,295 1,594
Less: dividends on
previously issued
preferred stock - - (34) - (96) -
---------- -------- --------- --------- --------- --------
Income available to
common stockholders 14,870 4,382 12,556 2,967 5,199 1,594
Effect of Dilutive
Securities
Series C Convertible
Preferred stock - 4,688 34 5,206 96 5,206
Options and other - 15 - - - -
---------- -------- --------- --------- --------- --------
Diluted EPS $14,870 9,085 $12,590 8,173 $5,295 6,800
---------- -------- --------- --------- --------- --------
---------- -------- --------- --------- --------- --------
</TABLE>
l. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," effective for fiscal years beginning after June 15, 1999.
The Company does not believe the adoption of this standard will have a
material impact on the Company's results of operations.
27
<PAGE>
5. INVENTORIES
Inventories consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Raw materials $ 3,772 $ 2,593
Work in progress 14,245 11,012
Components 8,611 5,325
Finished goods 18,901 9,550
Supplies and small tools 7,249 5,751
-------- --------
$52,778 $34,231
-------- --------
-------- --------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
Years of
Estimated
Useful Life 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Land - $ 1,787 $ 32
Buildings 20 1,799 -
Machinery and equipment 5 to 10 49,911 20,083
Equipment rented to others 7 8,534 8,581
Leasehold improvements Lease term 5,432 1,315
Construction in progress - 8,572 11,037
------- -------
76,035 41,048
Accumulated depreciation and amortization (14,452) (8,797)
------- -------
$61,583 $32,251
------- -------
------- -------
</TABLE>
7. INCOME TAXES
The components of the net accumulated deferred income tax (asset) liability at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current deferred tax (asset) liability:
Inventory reserves $(1,369) $ (87)
Accrued vacation (706) (449)
Other (610) (470)
--------- ---------
$(2,685) $(1,006)
--------- ---------
--------- ---------
Long-term deferred tax (asset) liability:
Depreciation $ 4,477 $ 1,136
--------- ---------
--------- ---------
</TABLE>
28
<PAGE>
The provision for income taxes includes income taxes currently payable and those
deferred due to temporary differences between the financial statements and tax
basis of assets and liabilities. The provision differs from the statutory rates
primarily due to permanent differences. The provision for income taxes for the
years ended December 31, 1998, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Current provision:
Federal $7,083 $7,716 $2,590
State 1,500 1,400 720
Foreign 33 267 -
Deferred provision:
Federal 1,061 (707) 69
State 237 (283) 151
-------- --------- --------
$9,914 $8,393 $3,530
-------- --------- --------
-------- --------- --------
</TABLE>
Variations from the federal statutory rate for the years ended December 31,
1998, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------ ----------------------
Amount Percent Amount Percent Amount Percent
------------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate $8,675 35.0% $7,344 35.0% $3,001 34.0%
State income taxes,
net of federal benefit 1,129 4.5 726 3.5 485 5.5
Foreign sales
corporation benefit (552) (2.2) (220) (1.0) (141) (1.6)
Foreign losses not currently
benefited 161 0.6 115 0.5 - -
Utilization of foreign losses (26) (0.1) (114) (0.5) - -
Non-deductible expenses 212 0.9 173 0.8 94 1.1
Other 315 1.3 369 1.7 91 1.0
------------- ----------- ----------- ------------ ----------- ----------
$9,914 40.0% $8,393 40.0% $3,530 40.0%
------------- ----------- ----------- ------------ ----------- ----------
------------- ----------- ----------- ------------ ----------- ----------
</TABLE>
8. DEBT ARRANGEMENTS
The Company entered into a Third Restated and Amended Credit Agreement on
October 23, 1998 (the "Third Credit Agreement") with its primary lender
General Electric Capital Corporation ("GECC") which has a wholly owned
subsidiary, CFE, Inc. ("CFE"), that owned all of the outstanding shares of
the Company's Series C Preferred stock and one million shares of the
Company's common stock as of December 31, 1998. The Third Credit Agreement
contains significant financial and operating covenants, including limitations
on the ability of the Company to incur additional indebtedness and
restrictions on, among other things, the Company's ability to pay dividends
or take certain other corporate actions. The Third Credit Agreement also
requires the Company to be in compliance with certain financial ratios. In
addition to the Term Loan under the Third Credit Agreement ("Term Loan"), the
Company has entered into promissory notes with other lenders for the purchase
of property, machinery and equipment ("The Notes").
29
<PAGE>
The following schedule summarizes the future annual minimum principal payments
due under the Term Loan and The Notes as of December 31, 1998:
<TABLE>
<CAPTION>
Term The
Loan Notes Total
-------- -------- ---------
<S> <S> <S> <S>
1999 $ 1,700 $ 2,354 $ 4,054
2000 1,700 2,178 3,878
2001 1,700 1,495 3,195
2002 1,700 1,177 2,877
2003 67,200 789 67,989
Thereafter - 2,685 2,685
-------- -------- ---------
$74,000 $10,678 $84,678
-------- -------- ---------
-------- -------- ---------
</TABLE>
Debt arrangements are described as follows:
a. TERM LOAN
On October 23, 1998, the Company entered into the Third Credit
Agreement which amended its existing Term Loan with GECC, increasing
the borrowing capacity of the Term Loan to $74,000. The Term Loan bears
interest, payable every 30 to 90 days, at LIBOR rate plus one and
one-half percent (which was 6.8 percent at December 31, 1998).
Principal payments of $425 are due quarterly through October 1, 2002,
with a final payment of $67,200 due January 3, 2003. At December 31,
1998 and 1997, outstanding principal under the Term Loan totaled
$74,000 and $25,525, respectively. Interest expense on the Term Loan
for the years ended December 31, 1998, 1997 and 1996 was approximately
$2,712, $2,498 and $2,400, respectively. The Term Loan is secured by
substantially all of the Company's assets.
b. THE NOTES
The Company has promissory notes with financing institutions, which are
secured by certain property, machinery and equipment. At December 31,
1998 and 1997, the outstanding principal under the Notes was $10,678
and $1,868, respectively. The Notes bear interest at interest rates
ranging from 4.9 percent to 10.5 percent per annum.
Monthly payments are payable through June 1, 2008.
c. LINE-OF-CREDIT
The line-of-credit with GECC (the "LOC") is a $25,000 revolving credit
facility, limited by the lesser of the sum of specified portions of
qualified accounts receivable and inventory, and $25,000.
Interest is payable every 30 to 90 days at LIBOR rate plus one and
one-half percent (which was 7.1 percent at December 31, 1998). The LOC,
which expires January 3, 2003, had $13,000 outstanding at December 31,
1998 and had no borrowings at December 31, 1997. Interest expense on
LOC for the years ended December 31, 1998, 1997 and 1996 was
approximately $497, $129 and $682, respectively.
30
<PAGE>
9. SERIES C CONVERTIBLE PREFERRED STOCK
Each share of the Series C Preferred stock is convertible at any time into one
share of common stock. The conversion rate is subject to certain anti-dilutive
adjustments. The Series C Preferred stock will participate in any dividends paid
on the common stock as if the Series C Preferred stock had been converted into
common stock.
In the event of liquidation, dissolution or winding up of the Company, the
holders of the Series C Preferred stock will be entitled to receive a
liquidation preference out of the assets available for distribution in an amount
equal to $0.22 per share, plus any accrued and unpaid dividends, before any
distribution is made to the holders of the common stock.
On June 26, 1998, CFE elected to convert one million such shares into one
million shares of common stock of the Company in accordance with the terms of
the Series C preferred stock.
10. STOCK INCENTIVE PLAN
In 1997, the Company adopted the Kaynar Technologies Inc. 1997 Stock Incentive
Plan (the "Plan") which authorized 500,000 stock option grants to purchase the
Company's common stock.
The Company has granted 115,400 options in 1997 and 147,900 options in 1998 with
a weighted average exercise price of $24.77 and $11.71, respectively, under the
Plan (of which 9,200 options with an exercise price of $25.00 were cancelled
during 1998). These options were issued at fair market value at the time of
grant. Option grants are made at the discretion of the Board of Directors.
Options vest at 25 percent per year (beginning one year from the grant date),
may be exercisable in whole or in installments, and expire five years from the
grant date. The weighted average exercise price of options outstanding as of
December 31, 1998 is $17.16. The weighted average contractual life of options
outstanding as of December 31, 1998 is 4.3 years. The weighted average exercise
price of options exercisable as of December 31, 1998 is $24.75.
Characteristics of options outstanding at December 31, 1998 are presented in the
table below:
<TABLE>
<CAPTION>
Exercise Contractual Options Options
Price Life Outstanding Exercisable
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 9.25 4.8 years 119,000 -
$14.50 3.3 years 3,000 750
$15.88 4.8 years 12,000 -
$19.00 4.6 years 3,000 -
$25.00 3.7 years 102,000 25,500
$26.75 4.1 years 1,500 -
$27.75 4.2 years 12,400 -
$29.50 3.8 years 1,200 300
------- ------
254,100 26,550
</TABLE>
The Company accounts for the Plan under APB Opinion No. 25. SFAS No. 123
"Accounting for Stock-Based Compensation" was issued by the FASB in 1995 and, if
fully adopted, changes the methods for recognition of cost on plans similar to
those of the Company. Adoption of SFAS No. 123 is optional, however pro forma
disclosures as if the Company had adopted the cost recognition method
31
<PAGE>
are required. Had compensation cost for stock options awarded under the Plan
been determined consistent with SFAS No. 123, the Company's net income would
have reflected the following pro forma amounts as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C> <C>
Net Income: As Reported $14,870 $12,590
Pro Forma $14,417 $12,439
Basic EPS: As Reported $3.39 $4.23
Pro Forma $3.29 $4.18
Diluted EPS: As Reported $1.64 $1.54
Pro Forma $1.59 $1.52
</TABLE>
For the above pro forma disclosures, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions: weighted average risk-free interest rate of 5.0
percent; a weighted average volatility of 56.5 percent; estimated option life of
4 years; and no expected dividend yield. The weighted average fair value of the
Company's stock options granted in 1998 and 1997 was $5.68 and $12.02,
respectively.
11. SAVINGS AND RETIREMENT PLAN
The Company sponsors a defined contribution plan (the "Retirement Plan"), which
provides benefits to all employees who have completed six months of service.
Employees may make contributions between one and 21 percent of their annual
compensation. The Company may make contributions to the Retirement Plan at
its discretion.
The Company contributed approximately $1,461, $988 and $577 to the Retirement
Plan in the years ended December 31, 1998, 1997 and 1996, respectively.
12. COMMITMENTS AND CONTINGENCIES
a. OPERATING LEASES
The Company leases certain facilities and equipment under long-term
operating leases with varying terms. The leases generally provide that
the Company pay taxes, maintenance and insurance costs, and some leases
contain renewal and/or purchase options. Total rental expense under
operating leases totaled approximately $1,975, $1,231 and $1,187 in the
years ended December 31, 1998, 1997 and 1996, respectively. Minimum
rental expenses on commitments for the years subsequent to December 31,
1998, are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $ 2,125
2000 1,927
2001 1,696
2002 1,519
2003 1,006
Thereafter 2,108
-------
$10,381
-------
-------
</TABLE>
32
<PAGE>
b. CAPITAL LEASES
The Company has entered into capital lease agreements for equipment.
Future lease payments due under the agreements are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $307
2000 163
2001 36
------
506
Amounts representing interest (32)
------
474
Current portion (280)
------
$194
------
------
</TABLE>
c. PURCHASE COMMITMENTS
The Company has certain one-year purchase commitments which require
that all purchases of particular raw materials be purchased from
various vendors at a fixed price, none of which exceeded fair market
value as of December 31, 1998.
d. CONTINGENCIES
The Company is, from time to time, subject to claims and disputes for
legal, environmental and other matters in the normal course of its
business. While the results of such matters cannot be predicted with
certainty, management does not believe that the final outcome of any
pending matters will have a material effect on the consolidated
financial position and results of operations.
13. SIGNIFICANT CUSTOMERS
For the years ended December 31, 1998, 1997 and 1996, two customers accounted
for approximately 20 and 7 percent, 24 and 9 percent and 18 and 12 percent of
net sales, respectively. No other customer accounted for 10 percent or more of
net sales in any of the three years ended December 31, 1998. Accounts receivable
balances from these same two customers accounted for approximately 10 and 7
percent of accounts receivable at December 31, 1998 and 14 and 8 percent of
accounts receivable at December 31, 1997. No other customer represents 10
percent or more of the Company's gross accounts receivable at December 31, 1998
and 1997.
33
<PAGE>
14. GEOGRAPHIC SALES INFORMATION
Net sales for the years ended December 31, 1998, 1997 and 1996 were made to
geographic regions as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States $156,834 84.5% $126,845 84.4% $85,069 85.9%
Europe 16,487 8.9 13,255 8.8 8,378 8.5
Pacific Rim 6,683 3.6 5,219 3.4 2,256 2.3
Other 5,508 3.0 5,110 3.4 3,320 3.3
---------- --------- --------- --------- --------- ---------
$185,512 100.0% $150,429 100.0% $99,023 100.0%
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
</TABLE>
Sales for the Company's foreign operations represented less than 10 percent of
net sales during each of the years ended December 31, 1998, 1997 and 1996.
15. RELATED PARTY MATTERS
As discussed in Note 8, the primary lender to the Company is GECC which has a
wholly-owned subsidiary CFE. CFE owns 100 percent of the outstanding Series C
Convertible Preferred Stock and one million shares of the Company's common
stock.
GECC is also an affiliated entity to a customer (the Aircraft Engines Division
of General Electric Co.) that accounted for approximately 7, 9 and 12 percent of
1998, 1997 and 1996 net sales, respectively, and 7 and 8 percent of accounts
receivable at December 31, 1998 and 1997, respectively.
34
<PAGE>
16. INDUSTRY SEGMENT INFORMATION
The Company is currently segmented into eight business units. The Company's
Kaynar, Microdot, M & M, Eagle, APS and K-FAST business units design and
manufacture products that are sold principally to the commercial aircraft and
defense industries. The Company's Recoil and Marson business units design and
manufacture inserts, blind rivets and related installation tools used primarily
in the automotive, electrical and other non-aerospace industries. The following
table illustrates the Company's financial data by industry segment for the past
three years.
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
-------- ---------- ---------
<S> <C> <C> <C>
Sales by Segment:
Commercial Aircraft and Defense (2) $169,401 $137,889 $95,156
Industrial (1)(3) 16,111 12,540 3,867
-------- ---------- ---------
Total Sales $185,512 $150,429 $99,023
Operating Income by Segment:
Commercial Aircraft and Defense (2) $ 30,192 $ 25,892 $13,464
Industrial (1)(3) 1,783 1,645 238
Corporate Expenses (3,124) (2,952) (866)
-------- ---------- ---------
Total Operating Income $ 28,851 $ 24,585 $12,836
Depreciation and Amortization by Segment:
Commercial Aircraft and Defense (2) $ 5,822 $ 3,209 $ 2,304
Industrial (1)(3) 950 609 309
-------- ---------- ---------
Total Depreciation and Amortization $ 6,772 $ 3,818 $ 2,613
Total Assets by Segment:
Commercial Aircraft and Defense (2) $144,817 $ 86,571 $58,429
Industrial (1)(3) 54,542 15,085 15,260
-------- ---------- ---------
Total Assets $199,359 $101,656 $73,689
</TABLE>
(1) In August 1996, the Company purchased its Recoil business unit which has
been accounted for under the purchase method of accounting and,
accordingly, their operating results have been included in the results
of operations since mid-August 1996.
(2) In July 1998, the Company purchased its M & M business unit which has been
accounted for under the purchase method of accounting and, accordingly,
their operating results have been included in the results of operations
since late-July 1998.
(3) In October 1998, the Company purchased its Marson business unit which has
been accounted for under the purchase method of accounting and,
accordingly, their operating results have been included in the results
of operations since late-October 1998.
35
<PAGE>
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------------
1998 March 29 June 28 September 27 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $45,355 $46,824 $45,293 $48,040
Gross profit 13,881 14,630 13,458 14,320
Net income 4,275 4,351 3,402 2,842
Basic earnings per share 1.15 1.16 0.69 0.56
Diluted earnings per share 0.48 0.49 0.37 0.31
Stock price per share
High 29.50 34.50 24.00 27.50
Low 24.00 22.25 11.50 8.00
</TABLE>
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------------
1997 March 30 June 29 September 28 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $32,202 $37,250 $37,884 $43,093
Gross profit 9,233 11,036 11,903 13,867
Net income 2,169 2,933 3,388 4,100
Basic earnings per share 1.35 1.03 0.92 1.11
Diluted earnings per share 0.32 0.36 0.38 0.46
Stock price per share
High - 19.87 30.25 34.12
Low - 14.50 18.50 24.50
</TABLE>
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
Pursuant to the Company's Certificate of Incorporation, the members of
the Board of Directors are elected at each annual meeting of stockholders and
hold office until their successors have been duly elected and qualified. The
Board of Directors consists of five members.
<TABLE>
<CAPTION>
Director
Name (1) Age(2) Since Experience and Position Held
- -------------------------- ------ -------- -----------------------------------------------------
<S> <C> <C> <C>
Norman A. Barkeley (3) 68 1997 Director
Burton J. Kloster, Jr. (4) 67 1997 Director
Jordan A. Law (5) 56 1993 Chairman of the Board of Directors, President and Chief Executive
Officer
Richard P. Strubel (6) 59 1997 Director
David A. Werner (7) 46 1993 Executive Vice President and Director
</TABLE>
- ----------------------
(1) Pursuant to a Stockholders Agreement dated May 6, 1997, GECC designated
Burton J. Kloster, Jr. and Richard P. Strubel as individuals to be
nominated for elections to the Board of Directors.
(2) as of December 31, 1998
(3) Norman A. Barkeley has been retired since December 1998. Until his
retirement, Mr. Barkeley had been chairman since July 1988, chief executive
officer from July 1988 to December 1996, and president from July 1988 to
December 1995 of Ducommun Incorporated, an aerospace equipment
manufacturer.
(4) Burton J. Kloster, Jr. has been retired since September 1995. Until his
retirement, Mr. Kloster was a director of GECC since September 1989, senior
vice president of GECC since October 1984 and vice president, general
counsel and secretary of GECC since March 1976.
(5) Jordan A. Law has served as President and Chief Executive Officer of the
Company since October 1993. Mr. Law also serves as Chairman of the Board of
Directors.
(6) Richard P. Strubel has been managing director since June 1990 of Tandem
Partners, Inc., a management services firm. Mr. Strubel was president and
chief executive officer of Microdot, Inc. from January 1984 to October
1994. Mr. Strubel is a director of Children's Memorial Medical Center
located in Chicago and is a trustee of the University of Chicago. Mr.
Strubel also is a trustee of numerous institutional and retail mutual funds
managed by Goldman, Sachs
37
<PAGE>
& Co. and a trustee of the Benchmark Funds, a family of institutional
mutual funds managed by The Northern Trust Company.
(7) David A. Werner has served as Executive Vice President of the Company since
December 1996. Mr. Werner served as Secretary of the Company from October
1993 to April 1998. Mr. Werner served as Vice President and Treasurer of
the Company from October 1993 to December 1996. Mr. Werner is also a
director of Lumber Yard Supply, a privately-held corporation, and is a
certified public accountant.
Executive Officers of the Registrant
All executive officers of the Company are named below and are appointed
by the Board of Directors. The date that each officer was first appointed to the
position is indicated. No officer listed was appointed as a result of any
arrangement between him and any other person as that phrase is understood under
the Securities Exchange Act regulations. No family relationship exists among the
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age(1) Experience and Position Held
- ---------------------- ------- ---------------------------------------------
<S> <C> <C>
Jordan A. Law 56 Chairman of the Board of Directors, President and Chief Executive
Officer (1993).
David A. Werner 46 Executive Vice President (1996) and Director (1993). Previously
Secretary, Vice President and Treasurer (1993).
LeRoy A. Dack 54 President, Aerospace Components Group (1998). Previously President,
Kaynar and K-FAST business units (1996). Previously Vice President and
General Manager, Kaynar business unit (1994).
Robert L. Beers 52 President, Tooling Group (1998). Previously Senior Vice President,
Marketing and Business Development (1996), Vice President, Sales and
Marketing (1994).
</TABLE>
- -------------------------
(1) as of December 31, 1998
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth a summary of the aggregate indicated
compensation awarded to, earned by, or paid to the executive officers of the
Company as of December 31, 1998 for the years ended December 31, 1998, 1997 and
1996.
38
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Shares of
---------------------------------------------- Common Stock
Other Annual Subject to
Name and Position Year Salary Bonus Compensation Options
- --------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jordan A. Law 1998 $225,000 $275,000 - 20,000
PRESIDENT AND CHIEF EXECUTIVE OFFICER 1997 $190,000 $250,000 - 13,000
1996 $175,000 $181,000 - -
David A. Werner 1998 $184,000 $210,000 - 15,000
EXECUTIVE VICE PRESIDENT 1997 $170,000 $202,000 - 12,000
1996 $150,000 $144,000 - -
LeRoy A. Dack 1998 $170,000 $158,000 - 15,000
PRESIDENT, AEROSPACE COMPONENTS GROUP 1997 $137,000 $158,000 - 11,000
1996 $122,000 $ 80,000 - -
Robert L. Beers 1998 $147,000 $100,000 - 7,000
PRESIDENT, TOOLING GROUP 1997 $136,000 $115,000 - 7,000
1996 $124,000 $ 77,000 $4,796 (1) -
</TABLE>
- ---------------------------
(1) This amount compensated Mr. Beers for vacation time not taken.
Option Grants
The following table sets forth grants of options during 1998 to
the executive officers of the Company as of December 31, 1998. No stock
appreciation rights were granted to, and no options were exercised by, any
executive officer during 1998.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------- Value at Assumed
No. of % of Total Annual Rates of Stock
Shares Options Price Appreciation for
Underlying Granted to Per Share Option Term (1)
Option Employees in Exercise Expiration ------------------------
Name Granted(2) 1998 (3) Price(4) Date 5% ($) 10% ($)
- --------------- ---------- ------------ -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jordan A. Law 20,000 13.7% 9.25 Oct. 2003 51,000 113,000
David A. Werner 15,000 10.3% 9.25 Oct. 2003 38,000 85,000
LeRoy A. Dack 15,000 10.3% 9.25 Oct. 2003 38,000 85,000
Robert L. Beers 7,000 4.8% 9.25 Oct. 2003 18,000 40,000
</TABLE>
- ------------------------
(1) Potential realizable value is based on the assumption that the common stock
price appreciates at the annual rate shown (compounded annually) from the
date of grant until the end of the option term. Such assumptions are
prescribed by certain rules promulgated by the Securities and Exchange
Commission ("SEC") and are not intended to forecast future appreciation,
if any, in the price of the common stock. The actual value, if any, an
executive may realize will
39
<PAGE>
depend on the excess of the stock price over the exercise price on the date
the option is exercised (if the executive were to sell the shares on the
date of exercise); there is no assurance that the value realized will be
at or near the potential realizable value as calculated in this table.
(2) Stock options were granted under the Company's 1997 Stock Incentive Plan
(the "Plan") on October 20, 1998 with an exercise price equal to $9.25
per share, for a term (subject to earlier termination following a
termination of employment or a change in control) of five years, and are
exercisable no earlier than the first anniversary of the date of grant.
The options vest in four equal annual installments. Options under the
Plan may result in payments following the resignation or other
termination of employment with the Company or as a result of a change in
control. Vested options under the Plan generally must be exercised
within a period of twelve months following a termination by reason of
death or disability and three months following a termination for other
reasons except for cause, unless the Compensation Committee otherwise
provides. The Plan permits the Compensation Committee, which administers
the Plan, to accelerate, extend or otherwise modify benefits payable
under the applicable awards in various circumstances as the Compensation
Committee shall determine, including a change in control, but an option
generally will not be accelerated to a date less than six months after
its grant date.
(3) During fiscal year 1998, the Company granted options to 69 employees to
purchase an aggregate of 146,400 shares of its common stock. All grants
were made at exercise prices equal to the market price on the grant date.
(4) The exercise price may be paid in any combination of cash, promissory notes
and shares of common stock or pursuant to certain cashless exercise
procedures, in each case as permitted under the Plan. In addition, holders
may be permitted to offset or surrender shares or deliver already owned
shares in satisfaction of applicable tax withholding requirements.
FISCAL YEAR END 1998 OPTION VALUES
<TABLE>
<CAPTION>
Number of
Shares Value of
Underlying Unexercised
Unexercised in-the-Money
Options at Options at
December 31, 1998 December 31, 1998 (1)
------------------ ---------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
------------------ ---------------------
<S> <C> <C>
Jordan A. Law 3,250 / 29,750 $7,313 / $381,938
David A. Werner 3,000 / 24,000 $6,750 / $290,250
LeRoy A. Dack 2,750 / 23,250 $6,188 / $288,563
Robert L. Beers 1,750 / 12,250 $3,938 / $137,813
</TABLE>
- -----------------------
(1) This amount represents solely the difference between the market value on
December 31, 1998 ($27.25) of those unexercised options which had an
exercise price below such market price (i.e., "in-the-money" options") and
the respective exercise prices of the options. No assumptions or
representations regarding the "value" of such options are made or intended.
40
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Five Percent Beneficial Owners
Except for executive officers of the Company, the following table sets
forth the stock ownership of all persons known by the Company to be the
beneficial owners of more than 5% of the outstanding shares of the Company
common stock as of February 10, 1999, based upon Schedule 13D or 13G reports
filed with the SEC.
SHARES OF COMMON STOCK OR COMMON STOCK EQUIVALENTS BENEFICIALLY OWNED (1)(2)
<TABLE>
<CAPTION>
Common Stock Fully Diluted
Name and Address of Beneficial Owner Number Percentage (3) Percentage (3)(4)
- ------------------------------------ ---------- ---------------- -----------------
<S> <S> <C> <C>
CFE, Inc.(5) 5,206,000 19.6% 55.8%
201 High Ridge Road
Stamford, Connecticut 06927
The Fairchild Corporation (5) 720,100 14.1% 7.7%
45025 Aviation Drive, Suite 400
Dulles, Virginia 20166-7516
Chartwell Investment Partners (6) 332,300 6.5% 3.6%
1235 Westlake Drive, Suite 330
Berwyn, Pennsylvania 19312
</TABLE>
- -----------------------
(1) Shares of Series C preferred stock are treated as common stock equivalents
because they are convertible at any time into common stock at a one-to-one
conversion rate, subject to adjustment in certain circumstances.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual has
sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within 60 days after February 10,
1999. The inclusion herein of such shares, however, does not constitute an
admission that the named stockholder is a direct or indirect beneficial
owner of such shares. Except as provided under applicable state marital
property laws or as otherwise noted, each person or entity named in the
table has sole voting power and investment with respect to all shares of
capital stock listed as owned by such person or entity.
(3) Does not include common stock which may be issued pursuant to the Agreement
and Plan of Merger among the Company, KTIC Acquisition Corp. and M & M
Machine & Tool Co. dated as of July 27, 1998, where the Company may be
obligated to pay up to $2 million as part of the second contingent
adjustment to the former stockholders of M & M Machine & Tool Co., of which
$800,000 will be in the form of the Company common stock. The value of each
share of the Company common stock shall equal the average closing price for
the twenty trading days preceding the second contingent adjustment date,
which shall be no later than February 28, 1999.
(4) "Fully Diluted Percentage" means, as of the Record Date, the number of
shares of common stock and common stock equivalents held by such person,
divided by the sum of (1) the number of shares of common stock outstanding
and (2) the number of shares of common stock issuable upon conversion or
exercise of all outstanding convertible securities, option and warrants
41
<PAGE>
convertible into, or exercisable for, common stock at that time or within
sixty days thereafter.
(5) CFE, Inc., a wholly-owned subsidiary of GECC, holds 1,000,000 shares of
common stock and 4,206,000 shares of Series C preferred stock. GECC and CFE
have entered into a voting and option agreement with Fairchild pursuant to
which CFE has agreed to vote its share in favor of the Fairchild Merger
Agreement and against any competing proposal. CFE has also granted to
Fairchild an option to purchase CFE's shares that becomes exercisable 60
days after the Fairchild Merger Agreement is terminated (subject to certain
conditions). Beneficial ownership of CFE's shares has not been attributed
to Fairchild for purposes of this table.
(6) A Schedule 13G filed April 13, 1998 indicates that the reporting entity is
a registered investment adviser, which has sole voting power with respect
to 196,200 shares and sole disposition power with respect to all of the
shares.
Beneficial Ownership of Directors and Officers
The following table sets forth the beneficial ownership of the Company
common stock by each director and each executive officer so indicated and all
executive officers and directors as a group as of February 10, 1999.
SHARES OF COMMON STOCK OR COMMON STOCK EQUIVALENTS BENEFICIALLY OWNED (1)(2)
<TABLE>
<CAPTION>
Common Stock Fully Diluted
Name of Beneficial Owner Number Percentage (3) Percentage (3)(4)
- ------------------------------ ---------- -------------- -----------------
<S> <C> <C> <C>
Jordan A. Law (5) 335,394 6.6% 3.6%
David A. Werner (6) 344,564 6.8% 3.7%
Robert L. Beers (7) 201,750 4.0% 2.2%
LeRoy A. Dack (8) 202,726 4.0% 2.2%
Norman A. Barkeley (9) 5,875 * *
Burton J. Kloster, Jr.(9) 10,375 * *
Richard P. Strubel (9) 3,375 * *
All directors and executive officers as a group 1,104,009 21.6% 11.8%
(7 people) (5)(6)(7)(8)(9)
</TABLE>
- -----------------------
* Less than 1%.
(1) Shares of Series C preferred stock are treated as common stock equivalents
because they are convertible at any time into common stock at a one-to-one
conversion rate, subject to adjustment in certain circumstances.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual has
sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within 60 days after February 10,
1999. The inclusion herein of such shares, however, does not constitute an
admission that the named
42
<PAGE>
stockholder is a direct or indirect beneficial owner of such shares. Except
as provided under applicable state marital property laws or as otherwise
noted, each person or entity named in the table has sole voting power and
investment with respect to all shares of capital stock listed as owned by
such person or entity.
(3) Does not include common stock which may be issued pursuant to the Agreement
and Plan of Merger among the Company, the KTIC Acquisition Corp. and M & M
Machine and Tool Co. dated as of July 27, 1998, where the Company may be
obligated to pay up to $2 million as part of the second contingent
adjustment to the former stockholders of M & M Machine and Tool Co., of
which $800,000 will be in the form of the Company common stock. The value
of each share of the Company common stock shall equal the average closing
price for the twenty trading days preceding the second contingent
adjustment date, which shall be no later than February 28, 1999.
(4) "Fully Diluted Percentage" means, as of the Record Date, the number of
shares of common stock and common stock equivalents held by such person,
divided by the sum of (i) the number of shares of common stock outstanding
and (ii) the number of shares of common stock issuable upon conversion or
exercise of all outstanding convertible securities, option and warrants
convertible into, or exercisable for, common stock at that time or within
sixty days thereafter.
(5) For Mr. Law the amount listed includes options exercisable within 60 days
of February 10, 1999 to purchase 3,250 shares of common stock. Mr. Law has
entered into a voting agreement with Fairchild with respect to his shares
and options. See "Changes in Control" below.
(6) For Mr. Werner the amount listed includes options exercisable within 60
days of February 10, 1999 to purchase 3,000 shares of common stock. Mr.
Werner has entered into a voting agreement with Fairchild with respect to
his shares and options. See "Changes in Control" below.
(7) For Mr. Beers the amount listed includes options exercisable within 60 days
of February 10, 1999 to purchase 1,750 shares of common stock. Mr. Beers
has entered into a voting agreement with Fairchild with respect to his
shares and options. See "Changes in Control" below.
(8) For Mr. Dack, the amount listed includes options exercisable within 60 days
of February 10, 1999 to purchase 2,750 shares of common stock. Mr. Dack has
entered into a voting agreement with Fairchild with respect to his shares
and options. See "Changes in Control" below.
(9) For each of Messrs. Barkeley, Kloster and Strubel, the amount listed
includes options exercisable within 60 days of February 10, 1999 to
purchase 375 shares of common stock.
Changes in Control
Pursuant to their voting agreements with Fairchild, each of CFE and
Messrs. Law, Werner, Beers and Dack has agreed to vote all of their shares in
favor of the adoption of the Fairchild Merger Agreement. The GECC voting
agreement and management stockholder voting agreements, plus Fairchild's own
holdings of approximately 720,100 shares of common stock as of the date of this
proxy statement, are expected to result in 100% of the outstanding Series C
Preferred Stock and 54.9% of the outstanding common stock being voted in favor
of adoption of the Fairchild Merger Agreement. Thus, it is expected that the
Fairchild Merger Agreement will be adopted at a special meeting of shareholders,
which would effect a change in control of the Company. Under its voting
agreement, CFE has granted Fairchild an option to purchase CFE's shares which,
if exercised, could also effect a change in control of the Company.
43
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information from Note 15 of the Company's consolidated financial
statements included in Item 8 "Financial Statements and Supplementary Data" is
incorporated herein by reference.
The Company officers and directors own the Company common stock. To
that extent, their interest in the Fairchild Merger may be considered to be
the same as other the Company stockholders. For information concerning such
ownership, see Item 12 "Security Ownership of Certain Beneficial Owners and
Management." However, a number of the Company officers and directors have
interests in the Fairchild Merger that are, or may be, different from other
the Company stockholders.
Under the terms of the Fairchild Merger Agreement, all outstanding
the Company stock options issued pursuant to the Company's 1997 Stock
Incentive Plan will become vested and fully exercisable at the effective time
and will be converted into the right to receive from the Company for each
share subject to the option an amount in cash equal to the excess of $28.75
over the exercise price per share of the option, net of withholding taxes. In
addition, completion of the Fairchild Merger will constitute a change of
control of the Company under the employment agreements of certain the Company
executive officers, triggering certain rights of those officers, including
the right to receive certain payments if their employment is terminated.
Fairchild also has agreed to indemnify each the Company officer and
director against losses arising from his or her service as a director or officer
of the Company and will continue to maintain directors' and officers' liability
insurance for them.
Messrs. Law, Werner, Beers and Dack have entered into voting agreements
with Fairchild that, among other things, require them to vote their shares in
favor of adopting the Fairchild Merger Agreement.
Two members of the Company Board of Directors, Burton J. Kloster, Jr.
and Richard P. Strubel, were designated by GECC to be nominated by the Company
for election to the Board pursuant to a stockholders agreement. Prior to joining
the Board, Mr. Kloster served as a director and a senior executive officer of
GECC. GECC and CFE have entered into a voting and option agreement with
Fairchild which, among other things, provides that:
- CFE will vote its shares of Series C preferred stock
and common stock in favor of adopting the Fairchild
Merger Agreement;
- CFE will, at Fairchild's option, sell its shares of
Series C preferred stock and common stock to
Fairchild at a price of $28.75 per share if the
Fairchild Merger Agreement is terminated (subject to
certain conditions); and
- GECC's Commercial Finance Division will not engage in
the fastener business for a period of ten years in
exchange for a payment of $28 million to CFE.
If Fairchild were to exercise its option to purchase CFE's shares of
Series C preferred stock, those shares would automatically be converted into
shares of common stock. In addition, GECC is the Company's primary lender
through a credit agreement under which, as of December 31, 1998, the Company
owed GECC approximately $87 million. The Fairchild Merger Agreement requires the
repayment of all of the Company's indebtedness at the effective time, including
all indebtedness under the GECC credit agreement. GECC's interests in the
Fairchild Merger may not necessarily coincide with those of other Company
stockholders.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
All financial statements of the Company are set forth under
Item 8 of this report on Form 10-K.
2. Financial Statement Schedules
Financial statement schedules not filed have been omitted for
the reason that the required information is shown in the
financial statements or notes thereto, the amounts involved
are not significant, or the required matter is not present.
3. Exhibits and Index to Exhibits
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------
<S> <C>
2.1(a) Australian Asset Sale Agreement, dated August 9,
1996, among the Vendors (as defined therein),
Recoil Inc., RCL Pty. and Operating Company (1)
2.1(b) US Asset Sale Agreement, dated August 9, 1996, among Recoil
Inc., Operating Company, Recoil Pty. Ltd., the Advent Group
and the Price Interests (1)
2.2 Recapitalization Agreement with General Electric Capital
Corporation ("GECC"), dated May 5, 1997 (4)
2.3 Agreement and Plan of Merger among Kaynar Technologies Inc.,
KTIC Acquisition Corp. and M & M Machine & Tool Co. dated as
of July 27, 1998 (the "M & M Merger Agreement") (6)
2.4 List of Schedules omitted from the M & M Merger Agreement (6)
2.5 Stock Purchase Agreement among Kaynar Technologies Inc. and the
Stockholders of Marcliff Corporation dated as of October 27, 1998
2.6 Agreement and Plan of Reorganization dated as of December 26, 1998
by and among The Fairchild Corporation, Dah Dah, Inc., and Kaynar
Technologies Inc. (7)
3.1 Amended and Restated Certificate of Incorporation of the Company (2)
3.2 Amended and Restated By-laws of the Company (2)
4.1 Specimen of Common Stock Certificate (2)
4.2 Kaynar Technologies Inc. 1997 Stock Incentive Plan (formerly known
as the Kaynar Holdings Inc. 1997 Stock Incentive Plan), including
the Form of Eligible Director Nonqualified Stock Option Agreement (5)
4.3 Form of Incentive Stock Option Agreement (5)
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.4 Form of Nonqualified Stock Option Agreement (5)
4.5 Registration Rights Agreement among Kaynar Technologies Inc. and
the Stockholders dated as of July 27, 1998 (6)
10.2(a) Third Amended and Restated Credit Agreement,
Dated October 23, 1998, among the Company, the
other Credit Parties Signatory thereto, the
Lenders Signatory thereto from time to time, and
GECC as Agent and Lender (the "Third Credit
Agreement")
10.2(b) First Amendment and Limited Waiver to the Third Credit Agreement dated
as of December 14, 1998
10.2(c) Second Amendment and Limited Waiver to the Third Credit Agreement
dated as of December 31, 1998
10.3 Lease with The Prudential Insurance Co. of America regarding the
Fullerton, California facility (1)
10.4(a) Lease with West L.A. Properties regarding the Placentia,
California facility (1)
10.4(b) Amendment to Lease with West L.A. Properties dated August 21, 1996 (4)
10.5 Lease with Enfield View Pty. Ltd. regarding the Oakleigh, VIC,
Australia facility (1)
10.6(a) General Terms Agreement, dated September 20, 1996, between the Company
and Boeing (1)
10.6(b) Special Business Provisions, dated September 20,
1996, between the Company and Boeing (portions
omitted and filed separately with Commission
pursuant to an application for confidential
treatment) (3)
10.6(c) Letter Agreement dated January 13, 1999 with Boeing
10.7(a) Contract Award Letter of Agreement, dated April
28, 1994, between the Company and Boeing
(portions omitted and filed separately with
Commission pursuant to an application for
confidential treatment) (3)
10.7(b) Boeing Commercial Airplane Group Purchase Order Terms and
Conditions (2)
10.8 Stockholders Agreement, dated as of May 6, 1997 (2)
10.9(a) Form of Employment Agreement for Messrs. Law and Werner (1)
10.9(b) Form of Amended Employment Agreement for Messrs. Law and Werner
10.10 Form of Employment Agreement for Messrs. Beers, Dack, Berecz and Varholick (1)
21.1 List of Subsidiaries
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
99.1 Form of Director Indemnification Agreement (1)
99.2 Indemnification and Contribution Agreement with GECC, dated May 5, 1997 (4)
99.3 Voting Agreement dated as of December 26, 1998 between The Fairchild Corporation and Jordan
A. Law (7)
99.4 Voting Agreement dated as of December 26, 1998 between The Fairchild Corporation and David A.
Werner (7)
99.5 Voting Agreement dated as of December 26, 1998 between The Fairchild Corporation and Robert
L. Beers. (7)
99.6 Voting Agreement dated as of December 26, 1998 between The Fairchild Corporation and LeRoy A.
Dack (7)
99.7 Voting and Option Agreement dated as of December 26, 1998 by and among The Fairchild
Corporation, Dah Dah, Inc., CFE Inc., and General Electric Capital Corporation (7)
</TABLE>
--------------------------
<TABLE>
<CAPTION>
<S> <C>
(1) Incorporated by reference from the Initial Registration Statement on Form S-1 of the
Registrant filed on February 26, 1997 (SEC file No. 333-22345).
(2) Incorporated by reference from Pre-Effective Amendment No. 4 to the Registration Statement
filed on May 5, 1997 (SEC file No. 333-22345).
(3) Incorporated by reference from Pre-Effective Amendment No. 6 to the Registration Statement
filed on May 6, 1997 (SEC file No. 333-22345).
(4) Incorporated by reference from the Registrants Form 10-Q for the period ended June 29, 1997
filed on August 6, 1997 (SEC file No. 000-22519).
(5) Incorporated by reference from the Registrant's Form S-8 filed on January 29, 1997 (SEC file
No. 333-45185).
(6) Incorporated by reference from the Registrants Form 8-K filed on August 12, 1998 (SEC file
No. 000-22519).
(7) Incorporated by reference from the Registrants Form 8-K filed on January 5, 1999 (SEC file
No. 000-22519).
</TABLE>
(b) Reports on Form 8-K
During the last quarter of 1998, no reports on Form 8-K were
filed.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Orange, State of
California on this 12th day of February, 1998.
KAYNAR TECHNOLOGIES INC.
By: /s/ Jordan A. Law
--------------------------------------
Jordan A. Law
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------- ------------------------------------ -----------------
<S> <C> <C>
/s/ Jordan A. Law Chief Executive Officer and February 12, 1999
- -------------------------- Chairman of the Board
Jordan A. Law (Principal Executive Officer)
/s/ David A. Werner Executive Vice President and Director February 12, 1999
- -------------------------- (Principal Financial Officer)
David A. Werner
/s/ Robert M. Nelson Controller February 12, 1999
- -------------------------- (Principal Accounting Officer)
Robert M. Nelson
/s/ Norman A. Barkeley Director February 12, 1999
- --------------------------
Norman A. Barkeley
/s/ Burton J. Kloster, Jr. Director February 12, 1999
- --------------------------
Burton J. Kloster, Jr.
/s/ Richard P. Strubel Director February 12, 1999
- --------------------------
Richard P. Strubel
</TABLE>
48
<PAGE>
Exhibit 2.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARCLIFF CORPORATION
MARSON CREATIVE FASTENER, INC.
STOCK PURCHASE AGREEMENT
SALE OF STOCK
BY
THE STOCKHOLDERS OF
MARCLIFF CORPORATION
TO
KAYNAR TECHNOLOGIES, INC.
DATED: AS OF OCTOBER 27, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. REDEMPTION AND PURCHASE AND SALE OF SHARES........................................1
1.1 REDEMPTION...............................................................................1
1.2 PURCHASE AND SALE........................................................................2
ARTICLE 2. PURCHASE PRICE FOR THE PURCHASE SHARES............................................2
2.1 PURCHASE PRICE AND PAYMENT...............................................................2
2.2 DETERMINATION OF CLOSING NET BOOK VALUE; ADJUSTMENT OF THE AGGREGATE
PURCHASE PRICE...............................................................................3
ARTICLE 3. THE CLOSING.......................................................................5
3.1 TIME AND PLACE OF CLOSING................................................................5
3.2 DELIVERY OF THE REDEMPTION SHARES........................................................5
3.3 DELIVERY OF THE PURCHASE SHARES..........................................................5
3.4 SATISFACTION OF SENIOR DEBT..............................................................5
3.5 FURTHER ASSURANCES.......................................................................5
ARTICLE 4. THE SELLERS' REPRESENTATIVE........................................................6
4.1 APPOINTMENT OF THE SELLERS' REPRESENTATIVE................................................6
4.2 ACCEPTANCE OF APPOINTMENT................................................................6
4.3 APPOINTMENT INDEPENDENT, SEVERABLE AND BINDING...........................................7
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE SELLERS......................................7
5.1 ORGANIZATION AND QUALIFICATION OF MARCLIFF AND ITS SUBSIDIARIES..........................7
5.2 SUBSIDIARIES; SECURITIES OWNED...........................................................8
5.3 CAPITAL STOCK............................................................................8
5.4 AUTHORITY................................................................................9
5.5 TITLE TO SHARES.........................................................................10
5.6 MARCLIFF BOARD APPROVAL.................................................................10
5.7 COMPLIANCE WITH CHARTER, OBLIGATIONS AND LAWS...........................................10
5.8 NO CONFLICT.............................................................................10
5.9 FINANCIAL STATEMENTS....................................................................10
5.10 ABSENCE OF CERTAIN CHANGES OR EVENTS...................................................11
5.11 TAX MATTERS............................................................................12
5.12 TITLE TO PROPERTIES; LIENS.............................................................14
5.13 COLLECTIBILITY OF ACCOUNTS RECEIVABLE..................................................16
5.14 INVENTORIES............................................................................16
5.15 INTELLECTUAL PROPERTY RIGHTS...........................................................16
5.16 MATERIAL CONTRACTS.....................................................................16
5.17 LABOR AND EMPLOYEE RELATIONS...........................................................17
5.18 EMPLOYEE BENEFIT PLANS.................................................................18
5.19 ENVIRONMENTAL MATTERS..................................................................20
5.20 PERMITS................................................................................21
5.21 LITIGATION; PRODUCT LIABILITY CLAIMS...................................................21
5.22 FINDER'S FEE...........................................................................22
5.23 TRANSACTIONS WITH INTERESTED PERSONS...................................................22
5.24 NO UNDISCLOSED LIABILITIES OR CONTINGENCIES............................................22
5.25 CONDUCT OF BUSINESS....................................................................22
5.26 INSURANCE..............................................................................24
5.27 CUSTOMERS AND SUPPLIERS................................................................24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.28 DISCLOSURE.............................................................................24
5.29 KNOWLEDGE..............................................................................24
5.30 SOLE REPRESENTATIONS AND WARRANTIES....................................................25
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE BUYER......................................25
6.1 ORGANIZATION OF THE BUYER...............................................................25
6.2 AUTHORITY...............................................................................25
6.3 NO CONFLICT.............................................................................25
6.4 INFORMED BUYER..........................................................................25
6.5 LITIGATION..............................................................................26
6.6 FINANCIAL RESOURCES; OTHER MATTERS......................................................26
6.7 FINDER'S FEE............................................................................26
6.8 SOLE REPRESENTATIONS AND WARRANTIES.....................................................26
ARTICLE 7. COVENANTS OF THE SELLERS.........................................................26
7.1 CONDUCT OF BUSINESS.....................................................................26
7.2 DUE DILIGENCE...........................................................................28
7.3 WAIVERS, CONSENTS AND APPROVALS.........................................................28
7.4 BREACH OF REPRESENTATIONS AND WARRANTIES................................................28
7.5 HART-SCOTT-RODINO ACT...................................................................28
7.6 CONSUMMATION OF AGREEMENT...............................................................29
7.7 NONDISCLOSURE OF PROPRIETARY DATA.......................................................29
ARTICLE 8. COVENANTS OF BUYER...............................................................29
8.1 WAIVERS CONSENTS AND APPROVALS..........................................................29
8.2 BREACH OF REPRESENTATIONSAND WARRANTIES.................................................29
8.3 HART-SCOTT-RODINO ACT...................................................................29
8.4 CONSUMMATION OF AGREEMENT...............................................................30
8.5 RESTRICTIONS AS TO CERTAIN POST-CLOSING ENVIRONMENTAL REMEDIAL ACTIONS..................30
ARTICLE 9. CONDITIONS TO OBLIGATIONS OF THE BUYER...........................................30
9.1 REPRESENTATIONS; WARRANTIES; COVENANTS..................................................30
9.2 RESIGNATIONS............................................................................30
9.3 HSR ACT.................................................................................31
9.4 OPINIONS OF COUNSEL; ADDITIONAL DOCUMENTS...............................................31
9.5 NATIONSCREDIT PAY-OFF LETTER............................................................31
9.6 NO INJUNCTION...........................................................................31
9.7 EMPLOYMENT AND NONCOMPETITION AGREEMENTS................................................31
9.8 REDEMPTION..............................................................................31
9.9 TERMINATION OF STOCKHOLDERS AGREEMENT; WAIVER OF RIGHTS.................................31
9.10 TERMINATION OF STOCK RESTRICTION AGREEMENT.............................................31
9.11 ESCROW AGREEMENT.......................................................................32
9.12 THE BUYER'S FRUSTRATION OF CLOSING CONDITIONS..........................................32
ARTICLE 10. CONDITIONS TO OBLIGATIONS OF THE SELLERS........................................32
10.1 REPRESENTATIONS; WARRANTIES; COVENANTS.................................................32
10.2 HSR ACT................................................................................32
10.3 ADDITIONAL DOCUMENTS...................................................................32
10.4 PREPAYMENT OF BROWN AND RITCHIE NOTES..................................................32
10.5 NO INJUNCTION..........................................................................32
10.6 ESCROW AGREEMENT.......................................................................32
10.7 THE SELLERS'FRUSTRATION OF CLOSING CONDITIONS..........................................32
ARTICLE 11. TERMINATION OF AGREEMENT........................................................33
</TABLE>
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<TABLE>
<S> <C>
11.1 TERMINATION............................................................................33
11.2 EFFECT OF TERMINATION..................................................................33
11.3 RIGHT TO PROCEED.......................................................................33
ARTICLE 12. INDEMNIFICATION.................................................................33
12.1 DEFINITIONS............................................................................33
12.2 SURVIVAL OF WARRANTIES.................................................................34
12.3 INDEMNIFICATION BY THE SELLERS.........................................................34
12.4 INDEMNIFICATION BY THE BUYER...........................................................35
12.5 DEFENSE OF THIRD PARTY ACTIONS.........................................................36
ARTICLE 13. GENERAL PROVISIONS..............................................................37
13.1 FEES AND EXPENSES......................................................................37
13.2 NOTICES................................................................................37
13.3 PUBLICITY AND DISCLOSURES..............................................................39
13.4 FURTHER ASSURANCES.....................................................................39
13.5 ENTIRE AGREEMENT.......................................................................39
13.6 SEVERABILITY...........................................................................40
13.7 ASSIGNABILITY..........................................................................40
13.8 AMENDMENT..............................................................................40
13.9 COUNTERPARTS...........................................................................40
13.10 EFFECT OF TABLE OFCONTENTS AND HEADINGS...............................................40
13.11 GOVERNING LAW.........................................................................40
</TABLE>
SIGNATURES
LIST OF SCHEDULES
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STOCK PURCHASE AGREEMENT
AGREEMENT entered into as of the 27th day of October, 1998, between
Kaynar Technologies Inc., a Delaware corporation with its principal place of
business at 500 N. State College Boulevard, Suite 1000, Orange, California
92868-1638 ("the Buyer"), Marcliff Corporation, a Delaware corporation with its
principal place of business at 44 Campanelli Parkway, Stoughton, Massachusetts
02072 ("Marcliff"), each of those stockholders of Marcliff Corporation listed on
Schedule 1 hereto (each of such stockholders being referred to individually
herein as a "Seller" and collectively as the "Sellers") and Orion Capital
Partners, L.P. as the Sellers' Representative (the "Sellers' Representative").
RECITALS:
WHEREAS, each Seller holds of record and beneficially those shares of
the common stock and preferred stock of Marcliff listed opposite his or its name
on Schedule 1 hereto, which shares of common and preferred stock constitute all
of the issued and outstanding shares of the capital stock of Marcliff or holds
of record and beneficially options to purchase those shares of common stock of
Marcliff listed opposite his or its name on Schedule 1 hereto, which options
constitute all of the issued and outstanding options to purchase shares of the
capital stock of Marcliff (such shares and the shares to be issued upon exercise
of such options being referred to collectively as the "Shares");
WHEREAS, Marcliff holds of record and beneficially all of the issued
and outstanding shares of the capital stock of Marson Creative Fastener, Inc., a
Delaware corporation ("Marson");
WHEREAS, Marcliff will redeem certain of the Shares of its Common Stock
(the "Redemption Shares") from the Sellers in exchange for certain Excluded
Assets (as defined in Section 1.1 hereof);
WHEREAS, the Buyer is prepared to purchase, and the Sellers are
prepared to sell, all of the Shares other than the Redemption Shares (the
"Purchase Shares") subject to the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE 1. REDEMPTION AND PURCHASE AND SALE OF SHARES.
1.1 REDEMPTION . Subject to the provisions of this Agreement, Marcliff
hereby agrees to redeem, and each of the Sellers agrees to tender for
redemption, at the Closing (as defined in Section 3.1 hereof), those Redemption
Shares listed opposite the name of such Seller on Schedule 1.1, free and clear
of any and all liens, pledges, security interests, claims, charges, restrictions
or encumbrances of any kind or nature whatsoever, in exchange for (i) all of the
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issued and outstanding membership interests (the "LLC Membership Interests") in
Chelsea Crescent, LLC, a Massachusetts limited liability company ("Chelsea
Crescent"), the membership interests of which are currently held by Marcliff and
Marson; (ii) prepaid items outstanding as of the Closing (the "C&L Prepaid
Items") related to certain vacant land in Chelsea, Massachusetts (the "C&L Real
Estate") held by C&L Realty Trust, a trust the beneficial interest of which is
wholly-owned by Marson ("C&L Realty Trust"); (iii) the promissory notes payable
to Marcliff by Michael G. Brown and Alan Ritchie in the original principal
amounts of $59,940 and $99,900, respectively, both duly endorsed for transfer,
(together, the "Brown and Ritchie Notes"); (iv) interest receivable outstanding
as of the Closing with respect to the Brown and Ritchie Notes (the "Brown and
Ritchie Interest Receivable"); and (v) subject to the Sellers' obligations under
Section 13.1 hereof, the $75,000 deposit paid to Bowles Hollowell Conner & Co.
and any other prepaid items outstanding as of the Closing relating to fees and
expenses to be paid to Bowles Hollowell Conner & Co. or to legal counsel
retained by the Sellers or the Sellers' Representative in connection with the
transactions contemplated by this Agreement (the "BHC Deposit and Prepaid Items"
and collectively with the LLC Membership Interests, the C&L Prepaid Items, the
Brown and Ritchie Notes and the Brown and Ritchie Interest Receivable, the
"Excluded Assets"). At the Closing, Marcliff shall transfer the Excluded Assets
to the Sellers' Representative (as defined in Section 4.1 hereof) who shall hold
the Excluded Assets for the benefit of the Sellers, either directly or through a
holding company, liquidating trust or other entity which it may establish for
the purpose. The Sellers' Representative shall use all reasonable efforts to
liquidate the Excluded Assets as soon as possible and, after making provision
for the payment of all fees and expenses to be borne by the Sellers, as provided
in Section 13.1 hereof, the Sellers' Representative shall distribute the
proceeds received upon liquidation of the Excluded Assets to the Sellers in
proportion to the number of Redemption Shares tendered by each of them.
1.2 PURCHASE AND SALE. Subject to the provisions of this Agreement,
each of the Sellers agrees to sell, and the Buyer agrees to purchase, at the
Closing (as defined in Section 3.1 hereof), those Purchase Shares listed
opposite the name of such Seller on Schedule 1.2 hereto, in each case free and
clear of any and all liens, pledges, security interests, claims, charges,
restrictions and encumbrances of any kind or nature whatsoever, other than
restrictions on transfer arising under federal and state securities laws.
ARTICLE 2 PURCHASE PRICE FOR THE PURCHASE SHARES.
2.1 PURCHASE PRICE AND PAYMENT. The aggregate purchase price to be paid
by the Buyer to the Sellers in consideration of the sale of the Purchase Shares
(the "Aggregate Purchase Price") shall be equal to Thirty Four Million Dollars
($34,000,000) minus the aggregate principal amount of all of the indebtedness of
Marcliff and its Subsidiaries (as defined in Section 5.2 hereof) to
NationsCredit Commercial Corporation ("NationsCredit") outstanding as of the
date of the Closing and any accrued and unpaid interest and any fees thereon
(the "Senior Debt"). The Senior Debt represents all of the indebtedness of
Marcliff and its Subsidiaries for money borrowed. The Aggregate Purchase Price
shall be subject to adjustment pursuant to Section 2.2 hereof. At the Closing,
the Buyer shall pay the Aggregate Purchase Price, less One Million Dollars
($1,000,000), to the Sellers' Representative by wire transfer of immediately
available
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funds and shall pay One Million Dollars ($1,000,000) by wire transfer of
immediately available funds to Brown, Rudnick, Freed & Gesmer, as escrow agent
(the "Escrow Agent"), to be held in an interest-bearing account (such amount,
together with interest accrued thereon, the "Hold Back Amount") pending any
adjustments and payments to be made pursuant to Section 2.2 hereof and the
Escrow Agreement annexed hereto as Schedule 2.1(b) (the "Escrow Agreement").
The Sellers' Representative shall make provision for the payment of all fees
and expenses to be borne by the Sellers, as provided in Section 13.1 hereof,
and the payment of all real estate and other taxes and maintenance and other
expenses to be reasonably anticipated in connection with the disposition of
the C&L Real Estate and shall thereafter promptly distribute to the Sellers
as indicated in Schedule 2.1(a) hereto all of the Aggregate Purchase Price
other than the Hold Back Amount.
2.2 DETERMINATION OF CLOSING NET BOOK VALUE; ADJUSTMENT OF THE
AGGREGATE PURCHASE PRICE.
(a) Promptly following the Closing, the Sellers' Representative and the
Buyer shall direct Marcliff's independent public accountants, KPMG Peat Marwick,
to prepare at Marcliff's expense and to deliver to both the Buyer and the
Sellers' Representative within sixty (60) days following the Closing an audited
consolidated balance sheet (the "Closing Balance Sheet") of Marcliff and its
Subsidiaries which shall reflect the book value of the assets and liabilities of
Marcliff and its Subsidiaries as of the date of the Closing immediately prior to
the Closing provided, however, that the Closing Balance Sheet shall include a
liability of $31,382, which reflects the parties' agreement as to the
appropriate adjustment as of the Closing for the Company's underaccrual of its
pension obligations under the Retirement Plan for Employees of Marson
Corporation and Marson Fastener Corporation and shall exclude (i) the Excluded
Assets, and (ii) any of the fees or expenses of KPMG Peat Marwick incurred in
connection with the preparation of the Closing Balance Sheet. The Closing
Balance Sheet shall indicate the difference between the aggregate net book value
of those assets of Marcliff and its Subsidiaries shown on the Closing Balance
Sheet and the aggregate consolidated net book value of those liabilities of
Marcliff and its Subsidiaries shown on the Closing Balance Sheet (the "Closing
Net Book Value"). The Closing Balance Sheet shall be prepared on a basis
consistent with the preparation of the consolidated balance sheet of Marcliff
and its Subsidiaries dated May 25, 1998 and otherwise in accordance with
generally accepted accounting principles ("GAAP"). To the extent that the
Closing Net Book Value differs from $10,525,000 (which was the consolidated net
book value of Marcliff and its Subsidiaries excluding the book value of the
Excluded Assets, as derived from the consolidated balance sheet of Marcliff and
its Subsidiaries dated May 25, 1998), then the Aggregate Purchase Price shall be
adjusted on a dollar for dollar basis by the amount of such difference as
hereinafter set forth.
(b) In the event that the Closing Net Book Value is greater than
$10,525,000, then within ten (10) days following the later of (x) the date of
delivery of the Closing Balance Sheet to the Buyer and the Sellers'
Representative or (y) the resolution of any dispute with respect to the Closing
Balance Sheet as provided in paragraph (e) of this Section 2.2, the Buyer shall
pay to the Sellers' Representative in immediately available funds by federal
funds wire transfer an amount equal to such difference, together with interest
on the amount of such difference at the rate of ten
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percent (10%) per annum calculated from the date of the Closing to the date of
payment. Such amount shall then promptly be distributed by the Sellers'
Representative to the Sellers in the same proportions as the payments paid to
the Sellers at the Closing in respect of their Shares of Common Stock (Voting
and Non-Voting) as indicated on Schedule 2.1(a) hereof, and the Hold Back Amount
shall be paid by the Escrow Agent to the Sellers' Representative in immediately
available funds by federal funds wire transfer in accordance with the Escrow
Agreement, also for distribution by the Sellers' Representative to the Sellers
in the same proportions as the payments paid to the Sellers at the Closing in
respect of the Shares of Common Stock (Voting and Non-Voting) as indicated on
Schedule 2.1(a) hereof.
(c) In the event that the Closing Net Book Value is less than
$10,525,000, then the Escrow Agent shall pay from the Hold Back Amount to the
Buyer in immediately available funds by federal funds wire transfer in
accordance with the Escrow Agreement an amount equal to such difference,
together with interest on the amount of such difference at the rate of ten
percent (10%) per annum calculated from the date of the Closing to the date of
payment, and, in the event that the Hold Back Amount is insufficient to pay such
amount in full, then the Sellers shall pay the balance of such amount to the
Buyer in immediately available funds by federal funds wire transfer, such
balance to be paid by each of the Sellers in same proportions as the payments
paid to the Sellers at the Closing in respect of their Shares of Common Stock
(Voting and Non-Voting) as indicated on Schedule 2.1(a) hereof. In the event
that the amount of such payment is less than the Hold Back Amount, then,
promptly following such payment, the Escrow Agent shall pay the balance of the
Hold Back Amount to the Sellers' Representative in immediately available funds
by federal funds wire transfer in accordance with the Escrow Agreement for
distribution by the Sellers' Representative to the Sellers in the same
proportions as the payments paid to the Sellers at the Closing in respect of
their Shares of Common Stock (Voting and Non-Voting) as indicated on Schedule
2.1(a) hereof.
(d) In the event that the Closing Net Book Value is equal to
$10,525,000, then there shall be no post-closing adjustment to the Purchase
Price pursuant to this Section 2.2 and the Escrow Agent shall pay the Hold Back
Amount to the Sellers' Representative in immediately available funds by federal
funds wire transfer in accordance with the Escrow Agreement for distribution by
the Sellers' Representative to the Sellers in the same proportions as the
payments paid to the Sellers at the Closing in respect of their Shares of Common
Stock (Voting and Non-Voting) as indicated on Schedule 2.1(a) hereof.
(e) In the event that any dispute shall arise as to the manner of
preparation or the accuracy of the Closing Balance Sheet, the Buyer or the
Sellers' Representative may elect, by notice given at any time prior to its
receipt of the Closing Balance Sheet or within twenty (20) days following such
receipt, to object to the manner of preparation or accuracy of the Closing
Balance Sheet, which notice shall set forth in reasonable detail the nature of
the objection and the matters in dispute. Promptly following receipt of any such
objection, the Buyer and the Sellers' Representative shall use commercially
reasonable efforts to address and resolve the objection to the Closing Balance
Sheet. In the event, however, that the Buyer and the Sellers' Representative
have not been able to resolve such objection to their mutual satisfaction within
fifteen (15) days following the delivery of the original notice of objection,
then the Buyer and the Sellers'
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Representative shall submit the dispute to PricewaterhouseCoopers LLP. The
determination of such dispute by PricewaterhouseCoopers LLP shall be final and
binding on the parties. All fees and expenses of PricewaterhouseCoopers LLP
charged or incurred in connection with the determination of such dispute shall
be borne between the Buyer and the Sellers on a proportionate basis, determined
by reference to the relative differences between (i) the proposed Closing Net
Book Values as asserted by the Buyer and the Sellers' Representative in the
dispute and (ii) the Closing Net Book Value as finally determined by
PricewaterhouseCoopers LLP. The apportionment of such fees and expenses between
the Buyer and the Sellers shall be determined by PricewaterhouseCoopers LLP and
such apportionment shall also be final and binding upon the parties.
ARTICLE 3 THE CLOSING.
3.1 TIME AND PLACE OF CLOSING. The closing of the purchase and sale of
the Shares provided for in this Agreement (herein called the "Closing") shall be
held at the offices of Brown, Rudnick, Freed & Gesmer, One Financial Center,
Boston, Massachusetts at 10:00 a.m. on October 27, 1998 or at such other place,
date or time as may be fixed by mutual agreement of the parties.
3.2 DELIVERY OF THE REDEMPTION SHARES . At the Closing, each of the
Sellers shall deliver or cause to be delivered to Marcliff, against Marcliff's
transfer of the Excluded Assets to the Sellers' Representative, certificates
representing the Redemption Shares, duly endorsed in blank or with a stock power
duly endorsed in blank and Marcliff shall immediately cancel the Redemption
Shares.
3.3 DELIVERY OF THE PURCHASE SHARES. At the Closing, each of the
Sellers shall deliver or cause to be delivered to the Buyer, against the Buyer's
tender of the Aggregate Purchase Price to the Sellers' Representative and the
Hold Back Amount to the Escrow Agent, certificates representing the Purchase
Shares duly endorsed in blank or with a stock power duly endorsed in blank,
together with such other documents as the Buyer may reasonably request to
evidence the transfer to the Buyer of good and marketable title in and to such
Purchase Shares, free and clear of all liens, pledges, security interests,
claims, charges, encumbrances and restrictions on transfer, other than
restrictions on transfer arising under federal and state securities laws.
3.4 SATISFACTION OF SENIOR DEBT. At the Closing, the Buyer shall also
pay, on behalf of Marcliff and its Subsidiaries, all of the outstanding Senior
Debt to NationsCredit.
3.5 FURTHER ASSURANCES. From time to time after the Closing at the
request of the Buyer and without further consideration, the Sellers shall
execute and deliver further instruments of transfer and assignment (in addition
to those delivered under Section 3.3 hereof) and shall take such other action as
the Buyer may reasonably require to effectively transfer the Redemption Shares
to Marcliff and the Purchase Shares to the Buyer, in each case free and clear of
any and all liens, pledges, security interests, claims, charges, restrictions or
encumbrances of any kind or nature whatsoever, other than restrictions on
transfer arising under federal and state securities laws.
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ARTICLE 4 THE SELLERS' REPRESENTATIVE
4.1 APPOINTMENT OF THE SELLERS' REPRESENTATIVE. By the execution and
delivery of this Agreement, each of the Sellers hereby irrevocably constitutes
and appoints Orion Capital Partners, L.P. as his or its true and lawful agent
and attorney-in-fact (the Sellers' Representative), with full power of
substitution in the premises, (i) to receive the Excluded Assets, to hold the
Excluded Assets either directly or through a holding company, liquidating trust
or other entity, to take any and all such actions as it may deem necessary or
appropriate to liquidate the Excluded Assets, to make provision for the payment
of, and to pay, all fees and expenses for real estate and other taxes and
maintenance and other fees and expenses which may be incurred in connection with
the ownership and liquidation of the Excluded Assets and to distribute the
remaining balance of the proceeds of the Excluded Assets as provided in Article
1 of this Agreement; (ii) to receive the Aggregate Purchase Price, to make
provision for the payment of, and to pay, all fees and expenses to be borne by
the Sellers as provided in Section 13.1 hereof from the proceeds of the
Aggregate Purchase Price, to effect adjustments to the Aggregate Purchase Price
and distribute the same in accordance with Article 2 of this Agreement and the
Escrow Agreement; (iii) to waive or modify any condition to the obligations of
the Sellers to consummate the transactions contemplated by this Agreement; (iv)
to execute and deliver all ancillary agreements, certificates and documents, and
to make any representations or warranties therein, which the Sellers'
Representative may deem necessary or appropriate in connection with the
consummation of the transactions contemplated by this Agreement; (v) to do or to
refrain from doing any act or deed on behalf of the Sellers which the Sellers'
Representative may, in its sole discretion, deem necessary or appropriate in
order to consummate the transactions contemplated by this Agreement, as fully
and as completely as each such Seller could do if personally present; and (vi)
to receive all notices on behalf of the Sellers under or in connection with this
Agreement. Each of the Sellers hereby acknowledges and agrees that, while the
Sellers' Representative shall act on behalf of the Sellers in the manner which
the Sellers' Representative believes to be in the best interest of the Sellers
and consistent with their obligations under this Agreement, the Sellers'
Representative shall not be responsible to the Sellers for any loss or damage
which any of the Sellers may suffer by reason of the exercise by the Sellers'
Representative of its rights or the performance of its duties under this
Agreement, other than such loss or damage arising from gross negligence or
willful misconduct in the exercise of such rights or performance of such duties.
Further, the Sellers hereby agree, severally and not jointly, to indemnify the
Sellers' Representative from and against any loss, damage, cost or expense,
including attorneys fees or expenses, which the Sellers' Representative may
incur or suffer which arise out of or relate to the exercise of its rights or
the performance of its duties under this Agreement, other than such losses,
damages, costs or expenses, which the Sellers' Representative may incur or
suffer as a direct consequence of the Sellers' Representative's gross negligence
or willful misconduct in the exercise of such rights or performance of such
duties.
4.2 ACCEPTANCE OF APPOINTMENT. By execution and delivery of this
Agreement, Orion Capital Partners, L.P. hereby accepts appointment as the
Sellers' Representative and acknowledges and agrees that it shall exercise its
rights and perform its duties under this Agreement in good faith and in the
manner which it believes to be in the best interest of the
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Sellers and consistent with their obligations under this Agreement. The Sellers'
Representative also agrees to provide the Sellers with such information as they
may reasonably request from time to time regarding the transactions contemplated
by this Agreement and the performance by the Sellers' Representative of its
duties hereunder, including, without limitation, the liquidation of the Excluded
Assets, the payment of fees and expenses to be paid as provided in Section 13.1
and any adjustments to, and the distribution of, the Aggregate Purchase Price
under this Agreement.
4.3 APPOINTMENT INDEPENDENT, SEVERABLE AND BINDING. The provisions of
this Article 4 are independent and severable, shall constitute an irrevocable
power of attorney, coupled with an interest and surviving death or dissolution,
granted by the Sellers to the Sellers' Representative and shall be binding upon
the heirs, legal representatives, successors and assigns of each of the Sellers.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
As a material inducement to the Buyer to enter into this Agreement and
to consummate the transactions contemplated hereby, each of the Sellers,
severally and not jointly, hereby make to the Buyer the following
representations and warranties; provided that the representations and warranties
set forth in Sections 5.4 and 5.5 are only made by each Seller with respect to
himself or itself and not with respect to any other Seller.
5.1 ORGANIZATION AND QUALIFICATION OF MARCLIFF AND ITS SUBSIDIARIES.
Marcliff and each of its Subsidiaries, other than Chelsea Crescent and C&L
Realty Trust, is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated, which
jurisdictions are listed on Schedule 5.1 hereto, and has full corporate power
and authority to own or lease its properties, to conduct its business in all
material respects in the names and in the places where such properties are owned
or leased or such business is conducted by it and to consummate the transactions
contemplated by this Agreement. Chelsea Crescent is a limited liability company
duly formed under the laws of the Commonwealth of Massachusetts and C&L Realty
Trust is a Massachusetts business trust duly formed under the laws of the
Commonwealth of Massachusetts. Each of Chelsea Crescent and C&L Realty Trust has
full power and authority to own or lease its properties, to conduct its business
in all material respects in the names and in the places where such properties
are owned or leased or such business is conducted by it and to consummate the
transactions contemplated hereby. Marcliff and its Subsidiaries are duly
qualified or licensed to do business in those jurisdictions listed on Schedule
5.1 and there is no other jurisdiction in which the properties owned or leased
by Marcliff or any of its Subsidiaries or the business conducted by Marcliff or
any of its Subsidiaries makes such qualification or licensing to do business
necessary, except where the failure to be so qualified or licensed would not
have a material adverse effect on the properties, assets, financial condition,
business or results of operation of Marcliff and its Subsidiaries taken as a
whole or that would materially impair the ability of the Sellers to perform
their obligations hereunder (a "Material Adverse Effect").
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5.2 SUBSIDIARIES; SECURITIES OWNED. Marson is a wholly-owned subsidiary
of Marcliff and Marson Canada, Inc. ("Marson Canada") is a wholly-owned
subsidiary of Marson. The LLC Membership Interests of Chelsea Crescent are owned
ninety-nine percent (99%) by Marson and one percent (1%) by Marcliff. The
beneficial interest in C&L Realty Trust is wholly-owned by Marson. (Marson,
Marson Canada, Chelsea Crescent and C&L Realty Trust are sometimes referred to
collectively herein as the "Subsidiaries"). Except as noted on Schedule 5.2
hereto, neither Marcliff nor Marson has any other subsidiaries or owns any
securities issued by any other corporation, business organization or
governmental authority other than U.S. government securities, bank certificates
of deposit and money market accounts acquired as short-term investments in the
ordinary course of business.
5.3 CAPITAL STOCK. The total authorized capital stock of Marcliff
consists of 1,000,000 shares of Voting Common Stock, $.01 par value per share,
of which 151,274.510 shares are issued and outstanding, 500,000 shares of
Non-Voting Common Stock, $.01 par value per share, of which 48,725.490 shares
are issued and outstanding, 1,000,000 shares of Preferred Stock, $1.00 par value
per share, of which 200,000 shares are issued and outstanding and 1,000,000
shares of Senior Pay-In-Kind Preferred Stock, $1.00 par value per share, of
which 22,000 shares are issued and outstanding. Carl A. Annese, Jr. holds a
non-qualified option to purchase 1,005.025 shares of Voting Common Stock, $.01
par value per share, at a price of $10.00 per share. Other than the option held
by Mr. Annese, there are no outstanding subscriptions, options, warrants,
commitments, preemptive rights, agreements or arrangements of any kind issued or
granted by Marcliff for, or relating to the issuance or sale of, any shares of
the capital stock or other securities of Marcliff or any equity interests or
similar rights therein (collectively, "Marcliff Securities"). There are no
contractual or other outstanding obligations of Marcliff to repurchase, redeem
or otherwise acquire any Marcliff Securities or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity. The total authorized capital stock of Marson consists of 1,000
shares of Common Stock $1.00 par value per share, of which 1,000 shares are
issued and outstanding and are held of record and beneficially by Marcliff, free
and clear of any and all liens, pledges, security interests, claims, charges,
restrictions or encumbrances of any kind or nature whatsoever. There are no
outstanding subscriptions, options, warrants, commitments, preemptive rights,
agreements or arrangements of any kind for, or relating to the issuance or sale
of, any shares of the capital stock or other securities of Marson or any equity
interests or similar rights therein (collectively, "Marson Securities"). There
are no contractual or other outstanding obligations of Marcliff or Marson to
repurchase, redeem or otherwise acquire any Marson Securities or to provide
funds to or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity. Marson Canada has an unlimited number of Common
Shares authorized, of which 1,000 shares are issued and outstanding and are held
of record and beneficially by Marson, free and clear of any and all liens,
pledges, security interests, claims, charges, restrictions or encumbrances of
any kind or nature whatsoever. There are no outstanding subscriptions, options,
warrants, commitments, preemptive rights, agreements or arrangements of any kind
for, or relating to the issuance or sale of, any shares of the capital stock or
other securities of Marson Canada or any equity interest or similar rights
therein (collectively, "Marson Canada Securities"). There are no contractual or
other outstanding obligations of Marcliff, Marson or Marson Canada to
repurchase, redeem or otherwise acquire any Marson Canada Securities or to
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provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity. There are no outstanding
subscriptions, options, warrants, commitments, preemptive rights, agreements or
arrangements of any kind for, or relating to the sale of, (i) any membership
interests in Chelsea Crescent or other securities of Chelsea Crescent or any
equity interest or similar rights therein (collectively "Chelsea Crescent
Securities") or (ii) any beneficial interest in C&L Realty Trust or other
securities of C&L Realty Trust or any equity interest or similar rights therein
(collectively, the "C&L Securities"). There are no contractual or other
outstanding obligations of Marcliff, Marson or Chelsea Crescent to repurchase,
redeem or otherwise acquire any Chelsea Crescent Securities or to provide funds
to or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity. There are no contractual or other outstanding
obligations of Marcliff, Marson or C&L Realty Trust to repurchase, redeem or
otherwise acquire any C&L Securities or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity.
5.4 AUTHORITY. As to each Seller who is an individual, such Seller has
full right, power, authority and capacity to enter into this Agreement and each
agreement, document and instrument to be executed and delivered by him or on his
behalf pursuant to, or as contemplated by, this Agreement and to consummate the
transactions contemplated hereby and thereby. As to each Seller who is not an
individual, such Seller has full right, power and authority to enter into this
Agreement and each agreement, document and instrument to be executed and
delivered by it or on its behalf pursuant to, or as contemplated by, this
Agreement and to carry out the transactions contemplated hereby and thereby and
the execution and delivery by such Seller of this Agreement and each such other
agreement, document and instrument, and the performance by such Seller of its
obligations hereunder and thereunder, has been duly authorized by all necessary
corporate and other action, and no other action is required. This Agreement and
each agreement, document and instrument executed and delivered by such Seller
pursuant to, or as contemplated by, this Agreement constitute, or when executed
and delivered will constitute, valid and binding obligations of such Seller,
enforceable in accordance with their respective terms, subject to laws of
general application affecting creditors' rights generally. Each Seller hereby
waives any preemptive rights, rights of first refusal and any rights to receive
accrued or set aside dividends which such Seller may have in regards to the
Redemption Shares and the Purchase Shares. Neither the execution and delivery by
such Seller of this Agreement and each agreement, document and instrument to be
executed and delivered by such Seller pursuant to, or as contemplated by, this
Agreement nor the performance by such Seller of his or its obligations
thereunder, (i) violates, with respect to each Seller who is not an individual,
any provision of the certificate of incorporation, the certificate of limited
partnership, the limited partnership agreement or other relevant constitutive or
organizational document of such Seller; (ii) violates any laws of the United
States or laws of any state or other jurisdiction applicable to such Seller or
requires such Seller to obtain any approval, consent or waiver of, or make any
filing with, any person or entity (governmental or otherwise) that has not been
obtained or made; (iii) results in a breach of, or constitute a default under,
any agreement, indenture note, bond, license, permit or instrument to which such
Seller is a party or by which such Seller is bound; or (iv) results in the
creation or imposition of any lien, pledge, security interest, claim, charge or
encumbrance on any of the Shares.
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5.5 TITLE TO SHARES. Each Seller holds of record and beneficially those
Shares listed opposite his or its name on Schedule 1 hereto, in each case free
and clear of all liens, pledges, marital rights, security interests, claims,
charges, restrictions and encumbrances, other than those as are listed on
Schedule 5.5 hereto.
5.6 MARCLIFF BOARD APPROVAL. This Agreement and the consummation of the
transactions contemplated hereby have been approved by the Marcliff Board of
Directors.
5.7 COMPLIANCE WITH CHARTER, OBLIGATIONS AND LAWS. True, correct and
complete copies of the certificates of incorporation or articles of organization
and other relevant constitutive or organizational documents (the "Charters") and
the By-laws, as amended and in effect as of the date hereof of Marcliff and its
Subsidiaries have been made available to the Buyer and the Charter and the
By-laws of Marcliff and each of its Subsidiaries remains in full force and
effect. None of Marcliff or any of its Subsidiaries is (i) in violation of its
Charter or By-laws as amended and in effect as of the date hereof; (ii) in
breach of, or default under, any agreement, lease, indenture, note, bond,
license, permit or instrument to which it is a party or by which it is bound
which could reasonably be expected to have a Material Adverse Effect; or (iii)
in violation of the laws of the United States or the laws of any state
applicable to it or its business or assets or any regulation, administrative
order, or judicial order or decree applicable to it or its business or assets,
which violation could reasonably be expected to have a Material Adverse Effect.
Since January 1, 1995, neither Marcliff nor any of its Subsidiaries has received
notice of any revocation or modification of any federal, state, local or foreign
governmental license, certification, tariff, permit, authorization or approval
material to Marcliff or its Subsidiaries.
5.8 NO CONFLICT. Neither the execution and delivery of this Agreement
by the Sellers or any of the agreements, documents or instruments to be executed
and delivered by the Sellers pursuant to, or as contemplated by, this Agreement,
nor the performance by any of the Sellers of their obligations hereunder or
thereunder, will (i) result in a violation by Marcliff or any of its
Subsidiaries of its Charter or By-laws as amended and in effect as of the date
hereof, (ii) constitute a breach of, or default under, any agreement, lease,
indenture, note, bond, license, permit or instrument to which Marcliff or any of
its Subsidiaries is a party or by which Marcliff or any of its Subsidiaries is
bound, (iii) result in the loss of any material benefit or give rise to any
right of termination, amendment, acceleration or cancellation under any
agreement, lease, indenture, note, bond, license, permit or instrument to which
Marcliff or any of its Subsidiaries is a party or by which Marcliff or any of
its Subsidiaries is bound, (iv) result in the creation of any lien or other
encumbrance upon the assets of Marcliff or any of its Subsidiaries, or (v)
result in a violation of the laws of the United States or the laws of any state
applicable to Marcliff or any of its Subsidiaries or their respective businesses
or assets or any regulation, administrative order or judicial order or decree
applicable to Marcliff or any of its Subsidiaries or their respective businesses
or assets.
5.9 FINANCIAL STATEMENTS.
(a) Attached as Schedule 5.9 hereto are the following
financial statements of Marcliff and its Subsidiaries:
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(i) Audited consolidated balance sheets of Marcliff and
its Subsidiaries with respect to the fiscal years
ended December 31, 1995, December 31, 1996 and
December 31, 1997 and audited consolidated statements
of income, retained earnings and cash flows for the
period then ended, with all required footnotes,
certified by KPMG Peat Marwick, independent public
accounts (the "Audited Financial Statements"); and
(ii) An unaudited consolidated balance sheet of Marson and
Marson Canada as of May 25, 1998 (the "Base Balance
Sheet") and consolidated statements of income,
retained earnings and cash flows for the five (5)
months then ended, certified by Marson's treasurer
(the "Unaudited Financial Statements").
Said financial statements have been prepared in accordance with GAAP applied
consistently during the periods covered thereby, are complete and correct in all
material respects and present fairly in all material respects the financial
condition of Marcliff and its Subsidiaries and Marson and Marson Canada,
respectively, at the dates of said statements and the results of their
operations and cash flows for the periods covered thereby, except that the
Unaudited Financial Statements do not contain the materials and disclosures to
be found in notes to financial statements prepared in accordance with GAAP nor
do they reflect certain non-recurring or year-end adjustments.
(b) As of the date of the Base Balance Sheet, none of Marcliff
or its Subsidiaries had any material liabilities of any nature, whether accrued,
absolute, contingent or otherwise, except liabilities stated or adequately
reserved against on the Base Balance Sheet or reflected in Schedules (including
the Audited Financial Statements) furnished to the Buyer hereunder as of the
date hereof and except for any liabilities not required under GAAP, applied
consistently with the past practice, to be disclosed as a liability on a balance
sheet of Marcliff or its Subsidiaries or in the footnotes thereto.
5.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Base
Balance Sheet Marcliff and each of its Subsidiaries has conducted its business
only in the ordinary course and in a manner consistent with past practice, and
since such date, except as noted on Schedule 5.10, there has not been (i) any
change in the financial condition, results of operations, assets, business or
operations of Marcliff and its Subsidiaries which has had, or could reasonably
be expected to have, a Material Adverse Effect, (ii) any condition, event or
occurrence which, individually or in the aggregate, would have a Material
Adverse Effect, (iii) any damage, destruction or loss (whether or not covered by
insurance) with respect to any assets of Marcliff or its Subsidiaries which has
had, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, (iv) any change by Marcliff or its Subsidiaries in
its accounting methods, principles or practices, (v) any revaluation by Marcliff
or its Subsidiaries of any of its material assets, including but not limited to
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business, (vi) any entry outside the
ordinary course of business by Marcliff or its Subsidiaries into any commitments
or
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transactions material, individually or in the aggregate, to Marcliff or its
Subsidiaries, (vii) any redemption, purchase or other acquisition by Marcliff or
its Subsidiaries of any of its securities, (viii) any issuance of any shares of
capital stock of Marcliff or its Subsidiaries or any grant or issuance of any
options, calls, warrants, or other rights, agreements, arrangements or
commitments of any kind or character relating to the issuance of capital stock
of Marcliff or its Subsidiaries, (ix) any increase in, establishment of or
amendment of any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including without limitation the
granting of stock options, stock appreciation rights, performance awards, or
restricted stock awards), stock purchase or other employee benefit plan or
agreement or arrangement, or any other increase in the compensation payable or
to become payable to any present or former directors, officers or key employees
of Marcliff or its Subsidiaries, except for increases in compensation in the
ordinary course of business consistent with past practice, or, any entry into,
or amendment of, any employment, consulting or severance agreement or
arrangement with any such present or former directors, officers or key
employees, (x) any obligation or liability incurred by Marcliff or any of its
Subsidiaries with respect to the business of Marcliff or any of its
Subsidiaries, other than obligations and liabilities incurred in the ordinary
course of business, or (xi) any change with respect to the management or
supervisory personnel of Marcliff or any of its Subsidiaries.
5.11 TAX MATTERS.
(a) For purposes of this Agreement, "Taxes" shall mean all United
States federal, state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property, real estate, excise, value
added, estimated, stamp, alternative or add-on minimum, environmental,
withholding and any other taxes, duties or assessments, together with all
interest, penalties and additions imposed with respect to such amounts, and "Tax
Return" shall mean any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any Schedule or
attachment thereto, and including any amendment thereof.
(b) Other than those Tax Returns referred to on Schedule 5.11(b), as to
which the Orion Sellers have provided indemnification under Section 12.3(a)(iv)
hereof, all Tax Returns required to be filed by or with respect to Marcliff and
its Subsidiaries have been timely filed, and all such Tax Returns are complete
and correct in all material respects. Marcliff and its Subsidiaries have timely
paid all Taxes that are due, have been claimed or asserted by any taxing
authority to be due or could be due from or with respect to them for all
periods. Marcliff and its Subsidiaries file Tax Returns in all jurisdictions
where required to file Tax Returns.
(c) There are no liens or other encumbrances with respect to Taxes upon
any of the assets or properties of Marcliff and its Subsidiaries, other than
with respect to Taxes not yet due and payable.
(d) Except as noted in Schedule 5.11(d), the Tax Returns of Marcliff
and its Subsidiaries have not been audited or examined by any taxing authority.
Except as noted in Schedule 5.11(d), since December 31, 1995 no issue relating
to Marcliff or its Subsidiaries has
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been raised in writing by any taxing authority in any audit or examination
which, by application of the same or similar principles, would reasonably be
expected to result in a material deficiency for any subsequent period (including
periods subsequent to the Closing). There are no outstanding agreements, waivers
or arrangements extending the statutory period of limitation applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to Marcliff or its Subsidiaries for any taxable period, and no
power of attorney granted by or with respect to Marcliff or its Subsidiaries
relating to Taxes is currently in force. No closing agreement pursuant to
section 7121 of the Internal Revenue Code of 1986, as amended, or any
predecessor provision (the "Code") or any similar provision of any state, local,
or foreign law has been entered into by or with respect to Marcliff or its
Subsidiaries and no ruling has been received by Marcliff or its Subsidiaries
from any taxing authority.
(e) Neither Marcliff nor any of its Subsidiaries is subject to
liability for Taxes to any person other than Marcliff or its Subsidiaries,
including, without limitation, liability arising from the application of
Treasury Regulation Section 1.1502-6 or any analogous provision of state, local
or foreign law.
(f) Except as noted in Schedule 5.11(f), no audit or other proceeding
by any court, governmental or regulatory authority, or similar person is pending
or threatened with respect to any Taxes due from or with respect to Marcliff or
its Subsidiaries or any Tax Return filed by or with respect to Marcliff or its
Subsidiaries. No assessment of Tax not yet paid or accrued in the Base Balance
Sheet has been proposed in writing against Marcliff or its Subsidiaries or any
of their assets or properties.
(g) No consent to the application of section 341(f)(2) of the Code has
been made or filed by or with respect to Marcliff or its Subsidiaries or any of
their assets or properties. None of the assets or properties of Marcliff or its
Subsidiaries is (A) an asset or property that is or will be required to be
treated as described in section 168(f)(8) of the Internal Revenue Code of 1954,
as amended and in effect immediately before the enactment of the Tax Reform Act
of 1986, or (B) tax-exempt use property within the meaning of section 168(h)(1)
of the Code.
(h) Neither Marcliff nor its Subsidiaries has been or is currently in
material violation (or, with or without notice or lapse of time or both, would
be in material violation) of any applicable law or regulation relating to the
payment or withholding of Taxes. Marcliff and its Subsidiaries have in all
material respects duly and timely withheld from employee salaries, wages and
other compensation and paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all periods under all
applicable laws and regulations.
(i) Neither Marcliff nor its Subsidiaries is a party to, is bound by or
has any obligation under any Tax sharing agreement or similar contract or
arrangement or any agreement that obligates any of them to make any payment
computed by reference to the Taxes, taxable income or taxable losses of any
other person.
(j) There is no contract or agreement, plan or arrangement by Marcliff
or its Subsidiaries covering any person that, individually or collectively,
could give rise to the payment
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of any amount that would not be deductible by Marcliff or its Subsidiaries by
reason of section 280G of the Code.
(k) Except as noted on Schedule 5.11(k), neither Marcliff nor its
Subsidiaries is a shareholder of a "controlled foreign corporation" as defined
in section 957 of the Code, is a member of a partnership or other pass-through
entity or is a "personal holding company" as defined in section 542 of the Code.
5.12 TITLE TO PROPERTIES; LIENS .
(a) None of Marcliff or any of its Subsidiaries owns any real property
other than the beneficial interest in the C&L Real Estate to be included among
the Excluded Assets. Schedule 5.12(a) contains a complete and correct list of
all real property leased by Marcliff and its Subsidiaries (the "Leased Real
Property") setting forth the address, landlord and tenant for each lease.
Correct and complete copies of all such leases (the "Real Estate Leases") have
been made available to the Buyer. Each Real Estate Lease is the legal, valid and
binding obligation of Marcliff or one of its Subsidiaries and, to the knowledge
of the Sellers, of each other party thereto and, to the knowledge of the
Sellers, is in full force and effect. None of Marcliff or its Subsidiaries, nor,
to the knowledge of the Sellers, any other party is in material default,
violation or breach in any respect under any such Real Estate Lease, and no
event has occurred and is continuing that constitutes or, with notice or the
passage of time or both, would constitute a material default, violation or
breach in any respect by Marcliff or any of its Subsidiaries or, to the
knowledge of the Sellers, any other party, under any such Real Estate Lease.
Marcliff and its Subsidiaries enjoy peaceful and undisturbed possession under
such Real Estate Leases for the Leased Real Property sufficient for current use
and operations.
(b) There are no eminent domain, condemnation or other similar
proceedings pending or, to the Sellers' knowledge, threatened affecting any
portion of the Leased Real Property. There is no writ, injunction, decree, order
or judgment outstanding, nor any action, claim, suit or proceeding pending or,
to the Sellers' knowledge, threatened relating to the ownership, lease, use or
occupancy by Marcliff or its Subsidiaries of any of the Leased Real Property.
(c) To the Sellers' knowledge, the current use of the Leased Real
Property in the conduct of the business of Marcliff and its Subsidiaries does
not violate in any material respect any instrument of record or agreement
affecting the Leased Real Property. To the Sellers' knowledge, there is no
material violation of any covenant, condition, restriction, easement or order of
any governmental authority having jurisdiction over such property or of any
other person entitled to enforce the same affecting the Leased Real Property or
the use or occupancy thereof.
(d) To the Sellers' knowledge, the Leased Real Property is in
compliance in all material respects with all applicable building, zoning,
subdivision and other land use and similar applicable laws, rules and
regulations affecting the Leased Real Property, and neither Marcliff nor its
Subsidiaries has received any notice of any material violation or claimed
violation of any such laws, rules and regulations within the past three years
which have not been resolved.
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(e) Marcliff or its Subsidiaries has a valid and binding leasehold
interest in the Leased Real Property free and clear of all liens and
encumbrances except (i) liens for Taxes, assessments and other governmental
charges not yet due and payable; (ii) mechanics', workmen's, repairmen's,
warehousemen's, carriers', or other like liens arising or incurred in the
ordinary course of business; (iii) easements, quasi-easements, licenses,
covenants, rights-of-way and other similar restrictions which would be shown by
a current title report; (iv) zoning, building and other similar restrictions;
and (v) subleases and licenses by Marcliff or its Subsidiaries to third parties
listed on Schedule 5.12(e), correct and complete copies of which have been made
available to the Buyer.
(f) The facilities of Marcliff and its Subsidiaries are currently
served by all utility services, including sewer, water, gas and electric power
and telephone service, that are necessary for the operation of the business as
currently conducted thereon. All installation and connection charges for such
facilities are paid in full. The facilities of Marcliff and its Subsidiaries are
in a condition suitable for the operation of the business as currently conducted
thereon. Neither Marcliff nor its Subsidiaries has received notice from any
insurance company providing insurance coverage or from any board of fire
underwriters or other body exercising similar functions that require or
recommend the performance of any repairs or alternations to the facilities of
Marcliff or its Subsidiaries which have not been performed heretofore.
(g) Set forth on Schedule 5.12(g) hereto is (i) a description of all
items of the machinery, equipment and other personal property owned and used by
Marcliff or its Subsidiaries in the operation of its business and having a value
of $50,000 or more ("Machinery and Equipment"). Neither Marcliff nor its
Subsidiaries leases any item of machinery, equipment or other personal property
with respect to which is obligated to make lease, rental or other payments of
$50,000 or more per year. Each lease under which Marcliff or any of its
Subsidiaries lease machinery, equipment or other personal property is a legal,
valid and binding obligation of Marcliff or one of its Subsidiaries and, to the
knowledge of the Sellers, of each other party thereto and, to the knowledge of
the Sellers, is in full force and effect. None of Marcliff or its Subsidiaries,
nor, to the knowledge of the Sellers, any other party is in material default,
violation or breach in any respect under any such lease, and no event has
occurred and is continuing that constitutes or, with notice or the passage of
time or both, would constitute a material default, violation or breach in any
respect by Marcliff or any of its Subsidiaries or, to the knowledge of the
Sellers, any other party, under any such lease.
(h) Marcliff or its Subsidiaries has good title to all of its tangible
personal property, free and clear of all liens and encumbrances except (i) as
set forth in Schedule 5.12(h); (ii) liens for Taxes, assessments and other
governmental charges not yet due and payable; (iii) mechanics', workmen's,
repairmen's, warehousemen's, carriers', or other like liens arising or incurred
in the ordinary course of business; and (iv) subleases and licenses by Marcliff
or its Subsidiaries to third parties listed on Schedule 5.12(h), correct and
complete copies of which have been made available to the Buyer. The machinery
and equipment of Marcliff and its Subsidiaries is, in the aggregate, in a
condition suitable for operation and use in the ordinary course of the business
of Marcliff and its Subsidiaries as presently conducted.
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5.13 COLLECTIBILITY OF ACCOUNTS RECEIVABLE. To the knowledge of the
Sellers, all of the accounts receivable of Marson and Marson Canada shown or
reflected on the Base Balance Sheet, less a reserve for bad debts in the amount
shown on the Base Balance Sheet, are, and those existing at the time of Closing,
less the reserve to be shown on the Closing Balance Sheet, will be, (i) valid
and enforceable claims which arose out of transactions with independent third
parties in the ordinary course of business, (ii) fully collectible in the
ordinary course of business, (iii) subject to no set-off or counterclaim, and
(iv) not subject to any pending bankruptcy or insolvency proceedings.
5.14 INVENTORIES. To the knowledge of the Sellers, all material items
contained in the inventories of Marson and Marson Canada reflected on the Base
Balance Sheet, net of the reserves stated in the Base Balance Sheet, are of a
quality and quantity saleable in the ordinary course of business and do not
include any obsolete items, and those material inventory items existing at the
Closing, net of the reserves stated in the Closing Balance Sheet, will be, of a
quality and quantity saleable in the ordinary course of business and will not
include any obsolete items. The values of the inventories stated in the Base
Balance Sheet reflect the normal inventory valuation policies of Marson and
Marson Canada and were determined in accordance with GAAP. Since the date of the
Base Balance Sheet, no inventory has been sold or disposed of except through
sales in the ordinary course of business. All markings or other identification
of the inventories are, in all material respects, in accordance with industry
standards.
5.15 INTELLECTUAL PROPERTY RIGHTS.
(a) Set forth on Schedule 5.15 hereto is a true and complete
list of all patents, patent applications, trademarks, service marks, trademark
and service mark applications, trade names, and copyrights (all of the foregoing
collectively referred to as "Intellectual Property") presently owned or held by
Marcliff or its Subsidiaries and all licenses of or other rights with respect to
Intellectual Property which are used in connection with the business of Marcliff
or its Subsidiaries. Marcliff or its Subsidiaries own or possess all of the
Intellectual Property which are reasonably necessary to the conduct of the
business of Marcliff and its Subsidiaries as presently conducted and, to the
Sellers' knowledge, the operation of the business as presently conducted by
Marcliff and its Subsidiaries does not infringe any patent, trademark, service
mark, trade name or copyright of any other person.
(b) To the Sellers' knowledge, Marcliff and its Subsidiaries
have the right to use, free and clear of claims or rights of others, all trade
secrets, customer lists and proprietary information required for or incident to
the operation of their business, and to the knowledge of the Sellers, the
business as presently conducted by Marcliff and its Subsidiaries does not cause
Marcliff or any of its Subsidiaries to infringe or violate any intellectual
property rights of any other person.
5.16 MATERIAL CONTRACTS .
Except for contracts, agreements and licenses described in
Schedule 5.16 hereto (the "Material Contracts"), none of Marcliff or any of its
Subsidiaries is a party to or subject to:
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(i) any contract or agreement for the purchase of any
commodity, material, equipment or asset having a purchase price of $50,000 or
more, except purchase orders for raw materials inventory in the ordinary course;
(ii) any other contracts or agreements creating any
obligations of Marcliff or its Subsidiaries after the date of the Base Balance
Sheet of $50,000 or more, other than sales and purchase commitments in the
ordinary course of business;
(iii) any contract or agreement creating any
obligations of Marcliff or its Subsidiaries in excess of $50,000, other than
purchase orders for raw materials inventory in the ordinary course and sales and
purchase commitments in the ordinary course of business;;
(iv) any contract or agreement for the sale or lease
of inventories or equipment not made in the ordinary course;
(v) any contract or agreement containing covenants
limiting the freedom of Marcliff or its Subsidiaries to compete in any line of
business or with any person or entity;
(vi) any franchise contract, agreement or license,
whether as franchisor or franchisee or licensor or licensee;
(vii) any contract or agreement under which any
person would acquire a security interest in, or lien on the assets of Marcliff
or any of its Subsidiaries, other than purchase money security interests or
liens or mechanics', workmen's, repairmen's, warehousemen's, carriers' or other
like liens arising or incurred in the ordinary course of business; or
(viii) any contract or agreement to loan or advance
to, to invest in, or to guarantee any indebtedness or obligation of, or to
borrow from, any individual, partnership, joint venture, corporation, trust,
unincorporated organization or other entity.
Each of the Material Contracts is valid and in full force and effect and no
default exists under any Material Contract other than those which could not
reasonably be expected to have a Material Adverse Effect.
5.17 LABOR AND EMPLOYEE RELATIONS.
(a) Except as shown on Schedule 5.17 hereto, there are no
consulting or employment agreements or other material agreements currently in
effect between Marcliff or its Subsidiaries and its individual employees or
consultants, other than oral employment arrangements between Marcliff or its
Subsidiaries and their respective employees entered into in the ordinary course
of business with respect to the at-will nature of the employment of such
employees by Marcliff or its Subsidiaries. Complete and accurate copies of all
of the written agreements and summaries of all of the oral agreements listed on
Schedule 5.17 have been
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delivered to the Buyer. Schedule 5.17 also sets forth the names and rates of
compensation (including all bonus compensation) of each person currently
employed by Marcliff or its Subsidiaries whose total compensation for the year
ended December 31, 1997 exceeded $50,000.
(b) None of the employees of Marcliff or its Subsidiaries is
covered by any collective bargaining agreement with any trade or labor union,
employees' association or similar association. To the Sellers' knowledge,
Marcliff and each of its Subsidiaries has complied in all material respects with
applicable laws, rules and regulations relating to the employment of its
personnel, including without limitation those relating to wages, hours, unfair
labor practices, discrimination, and payment of social security and similar
taxes. Except as disclosed in Schedule 5.17, neither Marcliff nor its
Subsidiaries has closed any plant or facility, effectuated any layoffs of
employees or implemented any early retirement, separation or window program
within the past three (3) years, nor has Marcliff or its Subsidiaries announced
any such action or program for the future. Neither Marcliff nor its Subsidiaries
has incurred any liability under, and Marcliff and each of its Subsidiaries has
complied in all material respects with, the Worker Adjustment Retraining
Notification Act of 1988 ("WARN"). Marcliff and each of its Subsidiaries is in
compliance in all material respects with all other notification and bargaining
obligations arising under any collective bargaining agreement or applicable
laws, rules and regulations relating to the employment of its personnel. There
are no representation elections, arbitration proceedings, labor strikes,
slowdowns or stoppages or material grievances pending, or, to the knowledge of
the Sellers, overtly threatened, with respect to the employees of Marcliff or
any of its Subsidiaries.
5.18 EMPLOYEE BENEFIT PLANS.
(a) Schedule 5.18(a) contains a true and complete list of each
"employee benefit plan" (within the meaning of section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), stock purchase,
stock option, severance, employment, change-in-control, fringe benefit,
collective bargaining, bonus, incentive, deferred compensation and other
employee benefit plans or written agreements or policies, whether or not subject
to ERISA, under which any employee or former employee of the Company has any
present or future right to any material benefits or under which the Company has
any material liability for present or future payments or benefits. All such
plans, agreements, programs and policies shall be collectively referred to as
the "Plans."
(b) With respect to each Plan, Marson has made available to the Buyer a
current, accurate and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable, (i) any related
trust agreement, annuity contract or other funding instrument; (ii) the most
recent determination letter; (iii) any summary plan description and other
written summaries (or a description of any Plan not in writing) by Marcliff or
its Subsidiaries to its employees concerning the extent of the benefits provided
under a Plan; and (iv) for the three most recent years: (1) the Form 5500 and
attached Schedules; (2) audited financial statements; and (3) actuarial
valuation reports.
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(c) (i) Except as set forth on Schedule 5.18(c) each Plan has been
established and administered in accordance with its terms, and in compliance
with the applicable provisions of ERISA, the Code and other applicable laws,
rules and regulations and if intended to be qualified within the meaning of
section 401(a) of the Code has received a favorable IRS determination letter (or
is eligible to apply for a letter within the remedial amendment period of
section 401(b) of the Code) that it is so qualified and since the date of such
letter the Sellers have no knowledge of any event that would adversely affect
such qualification; (ii) with respect to any Plan, no actions, audits,
investigations, suits or claims (other than routine claims for benefits in the
ordinary course) are pending or, to the Sellers' knowledge, threatened which
could, if adversely determined, result in liability; (iii) none of Marcliff, its
Subsidiaries or any other party has engaged in a prohibited transaction, as such
term is defined under section 4975 of the Code or section 406 of ERISA, which
would subject Marcliff or its Subsidiaries to any taxes, penalties or other
liabilities under section 4975 of the Code or sections 409 or 502(i) of ERISA;
and (iv) no Plan document provides for an increase in benefits on or after the
Closing; except, with respect to items (i) through (iv), to the extent that any
liability arising therefrom, individually or in the aggregate, would not have a
Material Adverse Effect.
(d) (i) No Plan has incurred any "accumulated funding deficiency" as
such term is defined in section 302 of ERISA and section 412 of the Code
(whether or not waived); (ii) except as set forth on Schedule 5.18(d), no
reportable event within the meaning of section 4043 or ERISA has occurred which
could reasonably be expected to result in a material liability to Marcliff or
any member of its Controlled Group (defined as any organization which is a
member of a controlled group of organizations within the meaning of sections
414(b), (c), (m) or (o) of the Code) and no condition exists which could
reasonably be expected to subject Marcliff or any member of its Controlled Group
to a material fine under section 4071 of ERISA; (iii) neither Marcliff nor any
member of its Controlled Group has engaged in a transaction which could
reasonably be expected to subject it to material liability under section 4069 of
ERISA; and (iv) other than premiums owed to the Pension Benefit Guaranty
Corporation and except as noted on Schedule 5.18(e), there is no outstanding
liability under Title IV of ERISA.
(e) Except as noted on Schedule 5.18(e), with respect to each of the
Plans which is not a multiemployer plan within the meaning of section 4001(a)(3)
of ERISA but is subject to Title IV of ERISA, the assets of each such Plan are
at least equal in value to the present value of the accrued benefits (vested and
unvested) of the participants in such Plan on a termination basis, based on the
actuarial methods and assumptions indicated in the most recent actuarial
valuation reports.
(f) Neither Marcliff nor any member of its Controlled Group has any
liability, contingent or otherwise, for, or contributes to, any multiemployer
plans within the meaning of Section 3(37) of ERISA.
(g) Except as specifically set forth on Schedule 5.18(g), no Plan
exists which could result in the payment to any employee of Marcliff or its
Subsidiaries of a material amount of money or other property or rights or
accelerate or provide any other material rights or benefits to any such employee
as a result of the transactions contemplated by this Agreement.
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(h) Except as required by section 4980B of the Code, neither Marcliff
nor any member of its Controlled Group has promised any former employee or other
individual not employed by Marcliff or any member of its Controlled Group
medical or other benefit coverage and neither Marcliff nor any member of its
Controlled Group maintains or contributes to any plan or arrangement providing
medical or life insurance benefits to former employees, their spouses or
dependents or any other individual not employed by Marcliff or any member of its
Controlled Group.
(i) With respect to each Plan, Marcliff or its Subsidiaries has
performed its obligations under such Plans in all material respects in
accordance with ERISA and the Code.
(j) Marson Canada previously had a pension plan for its employees which
was subsequently wound up effective December 31, 1996 by Marson Canada. The
Pension Commission of Ontario effectively consented to the distribution of the
surplus of such plan to Marson Canada on April 22, 1998. Such wind up and
distribution was in accordance with the terms of such plan and in compliance
with the applicable provisions of the Pension Benefits Act of the province of
Ontario and other applicable laws, rules and regulations.
5.19 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Schedule 5.19 hereto:
(i) Marcliff and each of its Subsidiaries is, and within the
period of all applicable statutes of limitation has been, in compliance
with all applicable Environmental Laws (as defined below);
(ii) Marcliff and each of its Subsidiaries holds all
Environmental Permits (as defined below) (each of which is in full
force and effect) required for any of its current operations and for
any property owned, leased, or otherwise operated by it, and Marcliff
and each of its Subsidiaries is, and within the period of all
applicable statutes of limitation have been, in compliance with all
such Environmental Permits;
(iii) no review by, or approval of, any governmental authority
or other person is required under any Environmental Law in connection
with the execution or delivery of this Agreement;
(iv) neither Marcliff nor any of its Subsidiaries has received
any Environmental Claim (as defined below), and, to the knowledge of
the Sellers, no such Environmental Claim is being threatened; and
(v) Hazardous Materials (as defined below) are not present on
or in any property owned, leased, or operated by Marcliff or its
Subsidiaries, that would be reasonably likely to form the basis of any
Environmental Claim against any of them; and, no Hazardous Materials
are present on any other property that would be reasonably likely to
form the basis of any Environmental Claim against Marcliff or its
Subsidiaries (including, without
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limitation, any Environmental Claim against any person whose liability
Marcliff or its Subsidiaries has or may have retained or assumed,
whether contractually, by operation of law or otherwise, or against any
real or personal property formerly owned, leased or operated in whole
or in part, by Marcliff or its Subsidiaries).
(b) For purposes of this Agreement, the terms below shall have the
following meanings:
"Environmental Claim" means any written claim, demand, action, suit,
complaint, proceeding, directive, investigation, lien, demand letter, or notice
of noncompliance, violation, or liability, by any person asserting liability or
potential liability (including without limitation liability or potential
liability for enforcement, investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property damage, personal injury,
fines or penalties) arising out of, relating to, based on or resulting from (i)
the presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, (ii) any violation or alleged violation of
any Environmental Law or Environmental Permit, or (iii) otherwise relating to
obligations or liabilities under any Environmental Law.
"Environmental Laws" means all foreign, federal, state and local
statutes, rules, regulations, ordinances, orders, decrees and common law
regulating in any manner pollution or protection of the environment (including
without limitation indoor air, ambient air, surface water, groundwater, land
surface, subsurface strata, or plant or animal species) or of human health as it
may be affected by exposure to any pollutant, contaminant or similar substance
or by any condition in the environment.
"Environmental Permits" means all permits, licenses, registrations,
exemptions and other filings with or authorizations by any governmental
authority under any Environmental Law.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction thereof),
petroleum products, asbestos, asbestos-containing materials, pollutants,
contaminants, radioactivity, and all other materials and forces, whether or not
defined as such, that are regulated pursuant to any Environmental Law or that
could result in liability under any Environmental Law.
5.20 PERMITS. Marcliff and each of its Subsidiaries holds all material
licenses, permits and franchises which are required to permit it to operate its
business as presently conducted, and all such licenses, permits and franchises
are listed on Schedule 5.20 hereto.
5.21 LITIGATION; PRODUCT LIABILITY CLAIMS.
(a) There is no suit, claim, action, proceeding or governmental
investigation pending or, to the Sellers' knowledge, threatened, against
Marcliff or any of its Subsidiaries, before any court or any governmental
agencies or regulatory authorities which could reasonably be expected to have a
Material Adverse Effect or which seeks to enjoin or otherwise hinder or prevent
the consummation of the transactions contemplated by this Agreement and none of
Marcliff or any
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of its Subsidiaries, is subject to any court or governmental order, decree,
writ, injunction, determination or award relating to or affecting Marcliff or
any of its Subsidiaries or their respective properties, assets, financial
condition or business other than those of general application.
(b) There is no suit, claim, action, proceeding or governmental
investigation pending or, to the Sellers' knowledge, threatened against Marcliff
or any of its Subsidiaries before any court or any governmental agencies or
regulatory authorities which are based upon, arise out of, or relate to, product
liability claims or other claims that any of the products sold by Marcliff or
its Subsidiaries are defective or failed to meet express or implied warranties.
5.22 FINDER'S FEE. None of the Sellers, Marcliff or its Subsidiaries
has incurred or become liable for any broker's commission or finder's fee
relating to or in connection with the transactions contemplated by this
Agreement, other than a fee to be paid by the Sellers to Bowles Hollowell Conner
& Co..
5.23 TRANSACTIONS WITH INTERESTED PERSONS. Except as shown on Schedule
5.23, no Seller nor any officer, supervisory employee, director or stockholder
of Marcliff or any of its Subsidiaries or any of their respective affiliates, or
their respective spouses or children, (i) owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of Marcliff or any of its
Subsidiaries or any organization which has a material contract or arrangement
with Marcliff or any of its Subsidiaries or (ii) has any contract or agreement
with Marcliff or any of its Subsidiaries.
5.24 NO UNDISCLOSED LIABILITIES OR CONTINGENCIES. To the knowledge of
the Sellers, neither Marcliff nor its Subsidiaries has any liabilities of any
nature, whether accrued, absolute, contingent or otherwise, and whether due or
to become due, probable of assertion or not, except liabilities that (i) are
reflected or disclosed in the Audited Financial Statements or the Unaudited
Financial Statements referred in Section 5.9 above or (ii) were incurred after
the date of the Base Balance Sheet in the ordinary course of business and are
consistent in amount and nature with past practice over comparable periods.
5.25 CONDUCT OF BUSINESS. Except as indicated on Schedule 5.25, since
the date of the Base Balance Sheet, neither Marcliff nor its Subsidiaries has:
(a) Granted, incurred or suffered any mortgage, security interest lien
or pledge of, or other encumbrance against, any of its assets or any other
change in condition (financial or otherwise), liabilities or business except
changes in the ordinary course of business which have not had a Material Adverse
Effect;
(b) Made any sale, lease, abandonment or disposition, other than in the
ordinary course of business, of any assets;
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(c) Disposed of or knowingly permitted to lapse any rights to the use
of any Intellectual Property;
(d) Made or become obligated to make, any material loans or advances
(other than advances in respect of expenses in the ordinary course of business)
to any director, officer, or employee of Marcliff or its Subsidiaries;
(e) Canceled any debts owed to or claims held by Marcliff or its
Subsidiaries, including the settlement of any claims or litigation, or waived
any other rights held by Marcliff or its Subsidiaries other than in the ordinary
course of business consistent with past practice or in an amount not in excess
of $50,000 in the aggregate;
(f) Paid any claims against Marcliff or its Subsidiaries, including the
settlement of any claims or litigation against Marcliff or its Subsidiaries or
the payment or settlement of any obligations or liabilities of Marcliff or its
Subsidiaries, other than in the ordinary course of business consistent with past
practice or in an amount not in excess of $50,000 in the aggregate;
(g) Created, incurred or assumed, or agreed to create, incur or assume,
any indebtedness for borrowed money or entered into, as lessee, any capitalized
lease obligations (as defined in Statement of Financial Accounting Standards No.
13) with aggregate payments exceeding $50,000 during the term of such lease;
(h) Accelerated or delayed collection of notes or accounts receivables
in advance of or beyond their regular due dates or the dates when the same would
have been collected in the ordinary course of business consistent with past
practice;
(i) Delayed or accelerated payment of any account payable or other
liability of Marcliff or its Subsidiaries beyond or in advance of its due date
or the date when such liability would have been paid in the ordinary course of
business consistent with past practice;
(j) Undertaken or committed to undertake any capital expenditures
exceeding $50,000 in the aggregate;
(k) Made or agreed to make any payment of cash or distribution of
assets to the Sellers, except for regular payments of wages, salary, and
employee benefits consistent with past practice and the distribution of the
Excluded Assets in redemption of Redemption Shares as provided in Section 1.1
hereof;
(l) Prepared or filed any Tax Return inconsistent with past practice
or, in any such Tax Return, taken any position, made any election or adapted any
method that is inconsistent with positions taken, elections made or methods used
in preparing or filing similar Tax Returns in prior periods; or
(m) Entered into any negotiations or contracts to accomplish any of the
items described in the preceding clauses (a) through (l).
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5.26 INSURANCE.
(a) Schedule 5.26(a) sets forth a list and brief description of all
policies of insurance maintained, owned or held by or for the benefit of
Marcliff and its Subsidiaries on the date hereof. Marcliff and its Subsidiaries
has maintained, and has in effect, such policies of motor vehicle, property,
casualty, workers' compensation, product liability, general liability and other
insurance, including without limitation group insurance and any other life,
health, disability or other insurance for the benefit of employees or their
dependents or both, as are deemed by it to be appropriate. Neither Marcliff nor
its Subsidiaries has given or received any notices of cancellation or nonpayment
of the premiums for such policies and the premiums due thereon have been fully
paid.
(b) Except as set forth on Schedule 5.26(b) hereto, there are no past,
current or pending claims against Marcliff or its Subsidiaries for any workers'
compensation or federal or state occupational disease benefits made within the
past three years. Except as otherwise noted on Schedule 5.26(b), all such
benefits have been paid in full as due.
5.27 CUSTOMERS AND SUPPLIERS.
(a) Schedule 5.27(a) sets forth a list of names and addresses for the
fifteen largest customers (who maintain accounts with Marcliff and its
Subsidiaries as of December 31, 1997) and the ten largest suppliers (measured in
each case by dollar volume of purchases or sales during the year ended December
31, 1997) of Marcliff and its Subsidiaries and the dollar amount of purchase or
sales which each such customer or supplier represented during the fiscal year
ended December 31, 1997.
(b) Except as noted on Schedule 5.27(b), since December 31, 1997,
neither Marcliff nor its Subsidiaries has lost or been notified in writing that
it will lose any customer or group of related customers of Marcliff and its
Subsidiaries that generated (individually or as a related group) sales for the
year ended December 31, 1997 equal to or greater than $50,000.
5.28 DISCLOSURE. None of the representations and warranties of the
Sellers set forth in this Article 5 is false or misleading in any material
respect, or contains any misstatement of fact or, to the Sellers' knowledge,
omits to state any facts required to be stated to make such representations and
warranties not misleading in any material respect.
5.29 KNOWLEDGE. To the extent that any portion of the representations
and warranties made herein were made to the knowledge of the Sellers, such
knowledge shall be understood to mean, as to any Seller who is an individual,
the actual knowledge of such individual and shall mean, as to any Seller who is
not an individual, the actual knowledge of any of the senior executive officers
of such Seller, and in each case shall be qualified by and limited to such
actual knowledge; provided, however, that the actual knowledge of each of Alan
Ritchie, the Chairman of the Board and the Chief Executive Officer of Marcliff
and Marson, Carl A. Annese, Jr., the Treasurer of Marson, Linda Browne, former
Vice President, Human Resources of Marson, Craig Myers, Vice President, Sales of
Marson, John Murphy, National Sales Manager of Marson and Eric Hanson,
Operations Manager of Marson shall be imputed to each of the Sellers.
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5.30 SOLE REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Article 5 are the only representations and
warranties made by the Sellers in connection with the transactions contemplated
hereby and supersede any and all previous written or oral statements by the
Sellers or any of their agents to the Buyer or its agents.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
As a material inducement to the Sellers to enter into this Agreement
and to consummate the transactions contemplated hereby, the Buyer hereby makes
the following representations and warranties:
6.1 ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to own or lease its
properties, to conduct its business in all material respects in the names and in
the places where such properties are owned or leased or such business is
conducted by it and to consummate the transactions contemplated by this
Agreement.
6.2 AUTHORITY. The Buyer has full right, power and authority to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by it or on its behalf pursuant to, or as contemplated by, this
Agreement and to carry out the transactions contemplated hereby and thereby. The
execution and delivery by the Buyer of this Agreement and each such other
agreement, document and instrument, and the performance by the Buyer of its
obligations hereunder and thereunder, has been duly authorized by all necessary
corporate action and no other action is required. This Agreement and each
agreement, document and instrument executed and delivered by the Buyer pursuant
to, or as contemplated by, this Agreement constitute, or when executed and
delivered will constitute, valid and binding obligations of the Buyer
enforceable in accordance with their respective terms, subject to laws of
general application affecting creditors' rights generally.
6.3 NO CONFLICT . Neither the execution and delivery of this Agreement
by the Buyer or any of the agreements, documents or instruments to be executed
and delivered by the Buyer pursuant to, or as contemplated by, this Agreement,
nor the performance by the Buyer of its obligations hereunder or thereunder,
will (i) result in a violation by the Buyer of its certificate of incorporation,
articles of organization or other relevant constitutive or organizational
documents or by-laws, as amended and in effect as of the date hereof, (ii)
constitute a breach of, or default under, any agreement, lease, indenture or
instrument to which the Buyer is a party or by which the Buyer is bound, (iii)
result in a violation of the laws of the United States or the laws of any state
or other jurisdiction applicable to the Buyer or (iv) require the Buyer to
obtain any approval, consent or waiver of, or making any filing with, any person
or entity (governmental or otherwise) that has not been obtained or made.
6.4 INFORMED BUYER. The Buyer and its senior executive officers are
sophisticated investors with experience in the acquisition and valuation of
securities, businesses and properties
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and have been represented in the transactions contemplated hereby by experienced
independent legal counsel. The Buyer has been afforded a full and complete
opportunity to meet with and ask questions of the Sellers and the executive
officers of Marcliff and its Subsidiaries and acknowledges that it has received,
or has had access to, all books, records and other information regarding
Marcliff and its Subsidiaries and their respective properties, assets, financial
condition and business which the Buyer considers necessary or prudent to enable
it to make an informed investment decision concerning its purchase of the
Purchase Shares. The Buyer is purchasing the Purchase Shares for its own account
and not with any view to the resale thereof and understands that the Purchase
Shares are being sold without registration under the federal securities laws in
reliance upon such representation.
6.5 LITIGATION. There is no litigation pending or, to the knowledge of
the Buyer, threatened against the Buyer which seeks to enjoin or otherwise
hinder or prevent the consummation of the transactions contemplated by this
Agreement.
6.6 FINANCIAL RESOURCES; OTHER MATTERS. The Buyer has as of the date
hereof, and will have as of the date of the Closing, sufficient funds, including
cash on hand together with funds available under bank or other credit facilities
currently in place, to purchase and pay for the Purchase Shares pursuant to the
terms of this Agreement and to consummate the transactions contemplated hereby
in accordance with the terms hereof. To the extent that the Buyer will draw upon
funds under existing bank or other credit facilities in order to purchase and
pay for the Purchase Shares and to consummate the transactions contemplated by
this Agreement, the use of such funds for such purposes is permitted under the
terms of such bank or other credit facilities and all consents, waivers or
approvals required for such uses have been obtained. The Buyer is not aware of
any matter which would prevent it from fulfilling its obligations under the
Agreement or consummating the transaction contemplated hereby.
6.7 FINDER'S FEE. The Buyer has not incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
6.8 SOLE REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Article 6 are the only representations and
warranties made by the Buyer in connection with the transactions contemplated
hereby and supersede any and all previous written or oral statements by the
Buyer or its agents to the Sellers or their agents.
ARTICLE 7. COVENANTS OF THE SELLERS.
Each of the Sellers, severally and not jointly, hereby covenants and
agrees with the Buyer as follows:
7.1 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing, Marcliff and each of its Subsidiaries shall:
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(i) conduct its business only in the ordinary course on a
basis consistent with past practice;
(ii) refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business, from
purchasing any capital asset, from closing any plant or facility, and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
assets;
(iii) refrain from entering into any employment contract or
granting any bonus or otherwise making any change in the compensation payable or
to become payable to any of its employees, other than pursuant to compensation
programs existing on the date hereof;
(iv) use reasonable efforts to keep intact the business
organization of Marcliff and each of its Subsidiaries, to keep available to the
Buyer present employees of Marcliff and each of its Subsidiaries and to preserve
the goodwill of all suppliers to, and customers, of Marcliff and each of its
Subsidiaries;
(v) refrain from incurring any contingent liability as a
guarantor or otherwise with respect to the obligations of others, or incur any
other contingent or fixed obligations or liabilities except those that are usual
and normal in the ordinary course of business;
(vi) refrain from any merger, consolidation or other
combination with, and refrain from entering any agreement to merge, consolidate
or otherwise combine with, any other corporation, partnership, limited liability
company or other business organization;
(vii) refrain from authorizing for issuance, issuing, selling
or delivering any additional shares of capital stock or other securities or any
equity interests or other similar rights therein, other than shares of Voting
Common Stock of Marcliff which may be issued and delivered upon exercise of the
outstanding option listed on Schedule 1 hereto;
(viii) refrain from authorizing for issuance, issuing or
granting any option, warrant or other right to purchase any shares of capital
stock or other securities or any equity interests or other similar rights
therein;
(ix) refrain from any split, combination or reclassification
of any shares of capital stock or other securities or any equity interests or
other similar rights therein and from any redemption, repurchase or acquisition,
directly or indirectly any shares of capital stock or other securities or any
equity interests or other similar rights therein of any Subsidiary;
(x) refrain from making any change or incurring any obligation
to make any change in its Charter or By-laws;
(xi) refrain from making any changes in its accounting
methods, principles or practices;
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(xii) maintain at all times all insurance of the type, in the
amounts and with the insurers listed in Schedule 5.26(a) or equivalent insurance
with any substitute insurers approved by the Buyer; or
(xiii) refrain from entering into any agreement or
understanding that would prohibit, restrict or interfere with the transactions
contemplated hereby.
7.2 DUE DILIGENCE. Such Seller shall take such action as may be
reasonably necessary to permit the Buyer and its authorized representatives to
have full access during normal business hours to all properties, assets,
records, tax returns, contracts and documents related to Marcliff and each of
its Subsidiaries and their respective assets and businesses and shall furnish to
the Buyer or its authorized representatives such financial and other information
with respect to Marcliff and its Subsidiaries and their respective assets and
its businesses as the Buyer may from time to time reasonably request.
7.3 WAIVERS, CONSENTS AND APPROVALS. Such Seller shall use commercially
reasonable efforts to perform and fulfill all conditions and obligations on his
or its part to be performed and fulfilled hereunder and to obtain or make, or
cause to be obtained or made, prior to the date of the Closing all waivers,
consents, approvals and filings necessary to the performance of his or its
obligations under this Agreement, and to obtain or cause to be obtained such
other authorizations, waivers, consents, permits, licenses, approvals,
qualifications and orders of governmental authorities and parties to contact as
may be necessary to transfer to the Buyer and/or to retain in full force and
effect subsequent to the date of the Closing, all licenses, permits and
franchises applicable to the business of Marcliff and its Subsidiaries.
7.4 BREACH OF REPRESENTATIONS AND WARRANTIES. Promptly upon becoming
aware of the occurrence of any event which would constitute a material breach of
any of the representations and warranties of the Sellers contained in or
referred to in this Agreement, such Seller shall give detailed written notice
thereof to the Buyer and shall use commercially reasonable efforts to remedy the
same. The delivery of such notice shall not, however, limit or otherwise affect
the remedies available hereunder to the Buyer.
7.5 HART-SCOTT-RODINO ACT. In connection with the transactions
contemplated by this Agreement, the Sellers have previously caused Marcliff to
make certain filings as required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, (the "HSR" Act). Such Seller shall use
commercially reasonable efforts in his or its capacity as a stockholder of
Marcliff to cause Marcliff and its Subsidiaries to furnish to the Buyer such
information and commercially reasonable assistance as the Buyer may reasonably
request in connection with its preparation of any additional necessary filings
or submissions to any governmental agency, including, without limitation, any
additional filings necessary under the HSR Act. Such Seller shall use
commercially reasonable efforts in his or its capacity as a stockholder of
Marcliff to cause Marcliff and its Subsidiaries to keep the Buyer informed of
the status of any inquiries made of any such party by the Federal Trade
Commission, the Antitrust Division of the U. S. Department of Justice or any
other governmental agency or authority or members of their respective staffs
with respect to this Agreement or the transactions contemplated hereby.
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7.6 CONSUMMATION OF AGREEMENT. Such Seller shall use all commercially
reasonable efforts to perform and fulfill all conditions and obligations on his
or its part to be performed and fulfilled under this Agreement, to the end that
the transactions contemplated by this Agreement shall be fully carried out.
7.7 NONDISCLOSURE OF PROPRIETARY DATA. Such Seller shall not, at any
time prior to or following the Closing, make use of, or except as required by
law, divulge or otherwise disclose, directly or indirectly, to any person other
than the Buyer, any trade secret or other confidential or proprietary data
(including, but not limited to, any confidential customer list, know-how, secret
processes, personnel information, technical data, record or financial
information) concerning the business or policies of Marcliff or any of its
Subsidiaries which may have been disclosed or made available to such Seller as a
shareholder, employee, officer or director of Marcliff or any of its
Subsidiaries. The foregoing covenant shall not, however, apply with respect to
any data or other information which is or becomes generally available to the
public other than as a result of disclosure by one of the Sellers.
ARTICLE 8. COVENANTS OF BUYER.
The Buyer hereby covenants and agrees with the Seller as follows:
8.1 WAIVERS CONSENTS AND APPROVALS. The Buyer shall use commercially
reasonable efforts to perform and fulfill all conditions and obligations on its
part to be performed and fulfilled hereunder and to obtain or make, or cause to
be obtained or made, prior to the date of the Closing all waivers, consents,
approvals and filings necessary to the performance of its obligations under this
Agreement.
8.2 BREACH OF REPRESENTATIONS AND WARRANTIES. Promptly upon becoming
aware of the occurrence of any event which would constitute a material breach of
any of the representations and warranties of the Buyer, the Buyer shall give
detailed written notice thereof to the Sellers' Representative and shall use
commercially reasonable efforts to remedy the same. The delivery of such notice
shall not, however, otherwise affect the remedies available hereunder to the
Sellers.
8.3 HART-SCOTT-RODINO ACT. In connection with the transactions
contemplated by this Agreement, the Buyer has previously made certain filings as
required under the HSR Act. The Buyer shall furnish to the Sellers'
Representative such information and commercially reasonable assistance as the
Sellers' Representative may reasonably request in connection with its
preparation of any additional necessary filings or submissions to any
governmental agency, including, without limitation, any additional filings
necessary under the HSR Act. The Buyer shall keep the Sellers' Representative
informed of the status of any inquiries made of the Buyer by the Federal Trade
Commission, the Antitrust Division of the U. S. Department of Justice or any
other governmental agency or authority or members of their respective staffs
with respect to this Agreement or the transactions contemplated hereby.
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8.4 CONSUMMATION OF AGREEMENT. The Buyer shall use all commercially
reasonable efforts to perform and fulfill all conditions and obligations on its
part to be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be fully carried out.
8.5 RESTRICTIONS AS TO CERTAIN POST-CLOSING ENVIRONMENTAL REMEDIAL
ACTIONS. During the three (3) year period following the date of the Closing,
neither the Buyer nor any of its affiliates, agents, employees, officers or
directors, acting on behalf of any of them, shall contact, or cause Marcliff or
any of its Subsidiaries to contact, without the prior written consent of the
Sellers' Representative, any foreign, federal, state or local authority for the
purpose of initiating any investigation or inquiry as to the compliance by
Marcliff or its Subsidiaries with Environmental Laws or Environmental Permits at
Marson's former facilities in either Wolcott, Connecticut or North York,
Ontario, Canada; PROVIDED, HOWEVER that Buyer and any of its affiliates and
Marcliff and any of its Subsidiaries may take any such actions as they
reasonably believe necessary to comply with any foreign, federal, state or local
statutes, rules, regulations, ordinances, decrees or common law. The foregoing
restrictions shall not, however, be deemed to limit or in any way restrict the
right of the Buyer, or any of its affiliates or Marcliff or its Subsidiaries
from responding to, or participating in, inquiries or investigations initiated
by any federal, state or local governmental agencies or authorities or by third
parties. The foregoing restrictions shall also not prohibit Buyer from
initiating any inquiry or investigation, or from initiating or undertaking any
remedial action, under any Environmental Laws if such inquiry, investigation or
remedial action would not result in any Loss (as defined in Section 12.1) which
would be subject to indemnification under Section 12.3 hereof.
ARTICLE 9. CONDITIONS TO OBLIGATIONS OF THE BUYER.
The obligations of the Buyer to consummate the transactions
contemplated by this Agreement are subject to the fulfillment prior to or at the
Closing of the following conditions:
9.1 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Sellers set forth in Article 5 hereof shall be accurate in
all material respects as if made on and as of the date of Closing as well as on
the date hereof, other than with respect to representations and warranties that
refer to or speak as of a certain date, except for changes contemplated by this
Agreement and occurring in the ordinary course of business since the date
hereof, none of which shall have had a Material Adverse Effect, and the Sellers'
Representative shall have certified to such effect to the Buyer in writing. The
Sellers shall have performed in all material respects all of those obligations,
and shall have complied in all material respects with those covenants, required
to be performed or observed at or prior to the Closing, and the Sellers'
Representative shall have certified to such effect to the Buyer in writing.
9.2 RESIGNATIONS. On the date of the Closing the Buyer shall have
received the resignation of Steven A. Kandarian and Robert J. Byrne as directors
of Marcliff and Marson and the resignation of such other officers and directors
of Marcliff, Marson or Marson Canada as the Buyer may request.
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9.3 HSR ACT. All filings required to be made under the HSR Act shall
have been made, and any applicable waiting period thereunder shall have expired.
9.4 OPINIONS OF COUNSEL; ADDITIONAL DOCUMENTS. On the date of the
Closing, the Buyer shall have received (i) an opinion of Brown, Rudnick, Freed &
Gesmer, counsel to the Orion Sellers and Marcliff and its Subsidiaries, dated as
of the Closing and addressed to the Buyer and substantially in the form of
Schedule 9.4.1 hereto, (ii) an opinion of Weir & Foulds, Canadian counsel, dated
as of the Closing and addressed to the Buyer, substantially in the form of
Schedule 9.4.2 hereto, (iii) evidence satisfactory to the Buyer of the due
authorization, execution and delivery of this Agreement and all related
agreements by each of the Sellers and (iv) such other certificates and documents
as the Buyer or its counsel may reasonably request.
9.5 NATIONSCREDIT PAY-OFF LETTER. On the date of the Closing, the Buyer
shall have received a pay-off letter from NationsCredit setting forth the
aggregate amount of the Senior Debt owed to NationsCredit by Marcliff and its
Subsidiaries as of the date of the Closing.
9.6 NO INJUNCTION. There shall not be any injunction, restraining order
or order of any nature issued by any court of competent jurisdiction which
enjoins or otherwise prohibits the consummation of the transactions contemplated
hereby.
9.7 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. On the date of the
Closing, Alan Ritchie shall have executed and delivered to the Buyer both an
Employment Agreement and a Noncompetition Agreement in form and substance
reasonably satisfactory to Mr. Ritchie and the Buyer.
9.8 REDEMPTION . On the date of the Closing, (i) Marcliff and Marson
shall have taken any and all such action as may be necessary to cause C&L Realty
Trust to be merged with and into Chelsea Crescent and the LLC Membership
Interests to be transferred to Marcliff by Marson and by Marcliff to the Sellers
in connection with the redemption of the Redemption Shares in accordance with
Section 1.1 hereof; (ii) Marcliff shall have taken any and all such action as
may be necessary to release and terminate the pledge granted in favor of
Marcliff by Alan Ritchie under that certain Pledge Agreement dated as of July
18, 1996; and such pledge shall have been terminated; and (iii) the Sellers
shall have tendered for redemption, and Marcliff shall have redeemed and
cancelled, all of the Redemption Shares in exchange for the Excluded Assets in
accordance with Section 1.1 hereof.
9.9 TERMINATION OF STOCKHOLDERS AGREEMENT; WAIVER OF RIGHTS . On or
prior to the date of the Closing, that certain Stockholders' Agreement dated as
of June 26, 1995 shall have been terminated and the parties thereto shall have
waived all of their rights individually and jointly thereunder.
9.10 TERMINATION OF STOCK RESTRICTION AGREEMENT . On or prior to the
date of the Closing, the Stock Restriction Agreement dated May 14, 1997 by and
between Marcliff and Carl A. Annese, Jr. shall have been terminated and Carl A.
Annese, Jr. shall have waived all of his rights thereunder.
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9.11 ESCROW AGREEMENT. On the date of the Closing, each of the Sellers
and the Escrow Agent shall have executed and delivered the Escrow Agreement.
9.12 THE BUYER'S FRUSTRATION OF CLOSING CONDITIONS. The Buyer may not
rely on the failure of any condition set forth in this Article 9 to be satisfied
if such failure was caused by the Buyer's failure to act in good faith or to use
all reasonable efforts to cause the Closing to occur, as required under Section
8.5 hereof.
ARTICLE 10. CONDITIONS TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers to consummate the transactions
contemplated by this Agreement are subject to the fulfillment prior to or at the
Closing of the following conditions:
10.1 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations and warranties of the Buyer contained in Article 6 hereof shall
be accurate in all material respects as if made on and as of the date of Closing
as well as on the date hereof, except for changes occurring in the ordinary
course of business since the date hereof, none of which shall be material and an
officer of the Buyer shall have certified to such effect to the Sellers'
Representative in writing. The Buyer shall have performed in all material
respects all of those obligations, and shall have complied in all material
respects with those covenants, required to be performed or observed at or prior
to the Closing, and an officer of the Buyer shall have certified to such effect
to the Sellers' Representative in writing.
10.2 HSR ACT. All filings required to be made under the HSR Act shall
have been made, and any applicable waiting period thereunder shall have expired.
10.3 ADDITIONAL DOCUMENTS. At the Closing, the Sellers shall have
received such other certificates and documents as the Sellers or their counsel
may reasonably request.
10.4 PREPAYMENT OF BROWN AND RITCHIE NOTES. At the Closing, the Brown
and Ritchie Notes and Brown and Ritchie Interest Receivable shall be repaid in
full to the Sellers' Representative or, the Sellers' Representative shall have
received appropriate written authorization and direction from Michael G. Brown
and Alan Ritchie to apply from their proportionate share of Aggregate Purchase
Price funds sufficient to repay the Brown and Ritchie Notes and the Brown and
Ritchie Interest Receivable in full.
10.5 NO INJUNCTION. There shall not be any injunction, restraining
order or order of any nature issued by any court of competent jurisdiction which
enjoins or otherwise prohibits the consummation of the transactions contemplated
hereby.
10.6 ESCROW AGREEMENT. On the date of the Closing, the Buyer shall have
executed and delivered the Escrow Agreement.
10.7 THE SELLERS' FRUSTRATION OF CLOSING CONDITIONS. No Seller may rely
on the failure of any condition set forth in this Article 10 to be satisfied if
such failure was caused by the
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failure of such Seller to act in good faith or to use reasonable efforts to
cause the Closing to occur, as required under Section 7.6 hereof.
ARTICLE 11. TERMINATION OF AGREEMENT.
11.1 TERMINATION. At any time prior to the Closing, this Agreement may
be terminated (i) by mutual consent of the Buyer and the Sellers'
Representative, (ii) by the Buyer if the conditions stated in Article 9 have not
been satisfied at or prior to the Closing, or (iii) by the Sellers'
Representative if the conditions stated in Article 10 have not been satisfied at
or prior to the Closing.
11.2 EFFECT OF TERMINATION. If this Agreement shall be terminated as
above provided, all obligations of the parties hereunder shall terminate but any
breaching party shall remain liable to the non-breaching party for its damages
and out-of-pocket expenses.
11.3 RIGHT TO PROCEED. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Article 9 hereof have not
been satisfied, the Buyer shall have the right to waive the satisfaction of any
such condition and to proceed with the transactions contemplated hereby, and if
any of the conditions specified in Article 10 hereof have not been satisfied,
the Sellers' Representative shall have the right to waive the satisfaction of
any such condition and to proceed with the transactions contemplated hereby.
ARTICLE 12. INDEMNIFICATION
12.1 DEFINITIONS. For purposes of this Article 12:
"Losses" means all losses, damages (other than punitive,
incidental or consequential damages), liabilities, payments and obligations, and
all expenses related thereto. Losses shall include any legal fees and costs
incurred by any of the Indemnified Persons subsequent to the Closing in defense
of or in connection with any alleged or asserted liability, payment or
obligation, whether or not any liability or payment, obligation or judgment is
ultimately imposed against the Indemnified Persons and whether or not the
Indemnified Persons are made or become parties to any such action. The amount of
all Losses shall be calculated net of the tax benefits (assuming the highest
marginal tax rate) which such Losses would provide to a corporate taxpayer
(assuming no limitations based on lack of taxable income against which to deduct
such Losses).
The "Buyer's Indemnified Persons" means the Buyer and any
person that directly or indirectly controls, or is controlled by, or is under
common control with, the Buyer, and their respective directors, officers,
employees, stockholders and agents.
"Indemnified Person" means any person entitled to be
indemnified under this Article 12.
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"Indemnifying Person" means any person obligated to indemnify
another person under this Article 12.
The "Sellers' Indemnified Persons" means each of the Sellers
and any person that directly or indirectly controls, or is controlled by, or is
under common control with, the Seller, and their respective general partners,
limited partners, directors, stockholders, officers, employees, and agents.
"Third Party Action" means any written assertion of a claim,
or the commencement of any action, suit, or proceeding, by a third party as to
which any person believes it may be an Indemnified Person hereunder.
12.2 SURVIVAL OF WARRANTIES. All representations, warranties,
agreements, covenants and obligations herein or in any Schedule, certificate or
financial statement delivered by either party to the other party incident to the
transactions contemplated hereby are material, shall be deemed to have been
relied upon by the other party and shall survive the Closing in accordance with
this Article 12, provided, however, that the covenants and agreements contained
herein to be performed or complied with prior to the Closing shall expire at the
Closing.
12.3 INDEMNIFICATION BY THE SELLERS.
(a) Subject to the limitations in paragraph (c) below, Orion
Capital Holdings, L.P. and M-K I Partnership, L.P. (together, the "Orion
Sellers"), jointly and severally, shall defend, indemnify and hold harmless the
Buyer's Indemnified Persons from and against all Losses directly or indirectly
incurred by or sought to be imposed upon any of them:
(i) resulting from or arising out of any breach of
any of the representations or warranties set forth in Article 5 hereof (other
than those in Sections 5.4, 5.5, 5.11 or 5.19);
(ii) resulting from or arising out of any breach of
any covenant or agreement made by the Sellers in or pursuant to this Agreement
(other than those set forth in Section 7.7 hereof);
(iii) resulting from or arising out of any breach of
the representations or warranties set forth in Section 5.19 hereof; or
(iv) resulting from or arising out of any breach of
the representations or warranties set forth in Section 5.11 hereof or resulting
from or arising out of Marson's failure to file those franchise and/or income
tax returns referred to on Schedule 5.11(b) or to pay any taxes, penalties or
interest which may have been, or which may be, assessed in connection with such
tax returns; or
(b) Subject to the limitations in paragraph (c) below, each of
the Sellers shall indemnify, defend and hold harmless the Buyer's Indemnified
Persons from and against all
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Losses directly or indirectly incurred by or sought to be imposed upon any of
them resulting from or arising out of any breach by such Seller of the
representations or warranties set forth in Sections 5.4 or 5.5 hereof or the
covenants set forth in Section 7.7 hereof.
(c) The right to indemnification under paragraphs (a) or (b)
above is subject to the following limitations:
(i) Neither of the Orion Sellers shall have any
liability under paragraph (a) unless one or more of the Buyer's Indemnified
Persons gives written notice to the Orion Sellers asserting a claim for Losses,
including reasonably detailed facts and circumstances pertaining thereto, before
the expiration of the period set forth below:
(A) for claims under clauses (i) or (ii) of
paragraph (a) above, a period of eighteen (18) months following the date of the
Closing;
(B) for claims under clause (iii) of
paragraph (a) above, a period of three (3) years following the date of the
Closing; and
(C) for all other claims, for so long as any
claim may be made in respect of such matters under any applicable statute of
limitations.
(ii) Indemnification for a Loss under paragraph (a)
above shall be payable by the Orion Sellers hereunder only if and to the extent
that the aggregate amount of all Losses incurred by the Buyer's Indemnified
Persons under paragraph (a) above exceeds One Hundred Seventy Five Thousand
Dollars ($175,000). The maximum aggregate liability of the Orion Sellers for
indemnification for Losses under paragraph (a) above shall not exceed Seven
Million Dollars ($7,000,000). The maximum liability of a Seller for
indemnification for Losses under paragraph (b) above shall not exceed the amount
which such Seller has received in payment for such Seller's Purchase Shares.
(c) The indemnification remedy provided to the Buyer and the
Buyer's Indemnified Persons shall be the exclusive remedy to which the Buyer and
the Buyer's Indemnified Persons shall be entitled after the Closing for any
breach of any representation or warranty or any covenant under this Agreement.
12.4 INDEMNIFICATION BY THE BUYER.
(a) Subject to the limitations in paragraph (b) below, the
Buyer shall defend, indemnify and hold harmless the Sellers' Indemnified Persons
from any and all Losses directly or indirectly incurred by or sought to be
imposed upon any of them:
(i) resulting from or arising out of any breach of
any of the representations or warranties set forth in Article 6 hereof; or
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(ii) resulting from or arising out of any breach of
any covenant or agreement made by the Buyer in or pursuant to this Agreement.
(b) The right to indemnification under paragraph (a) above is
subject to the limitation that the Buyer shall have no liability under paragraph
(a) unless one or more of the Seller's Indemnified Persons gives written notice
to the Buyer asserting a claim for Losses, including reasonably detailed facts
and circumstances pertaining thereto, before the expiration of the eighteen (18)
month period following the date of the Closing.
(c) The indemnification remedy provided to the Sellers and the
Sellers' Indemnified Persons shall be the exclusive remedy to which the Sellers
and the Sellers' Indemnified Persons shall be entitled after the Closing for any
breach of any representation or warranty or any covenant under this Agreement.
12.5 DEFENSE OF THIRD PARTY ACTIONS.
(a) Promptly after receipt of notice of any Third Party
Action, any person who believes he or it may be an Indemnified Person shall give
notice to the potential Indemnifying Person of such action. The omission to give
such notice to the Indemnifying Person will not relieve the Indemnifying Person
of any liability hereunder unless the Indemnifying Person was prejudiced
thereby, nor will it relieve him or it of any liability which he or it may have
other than under this Article 12.
(b) Upon receipt of a notice of a Third Party Action, the
Indemnifying Person shall have the right, at his or its option and at his or its
own expense, to participate in and be present at the defense of such Third Party
Action, but not to control the defense, negotiation or settlement thereof, which
control shall remain with the Indemnified Person, unless the Indemnifying Person
makes the election provided in paragraph (c) below.
(c) By written notice within forty five (45) days after
receipt of a notice of a Third Party Action, an Indemnifying Person may elect to
assume control of the defense, negotiation and settlement thereof, with counsel
reasonably satisfactory to the Indemnified Person; provided, however, that the
Indemnifying Person agrees (i) to promptly indemnify the Indemnified Person for
its expenses to date, and (ii) to hold the Indemnified Person harmless from and
against any and all Losses caused by or arising out of any settlement of the
Third Party Action approved by the Indemnifying Person or any judgment in
connection with that Third Party Action. The Indemnifying Person shall not in
the defense of the Third Party Action enter into any settlement which does not
include as a term thereof the giving by the third party claimant of an
unconditional release of the Indemnified Person in form and substance reasonably
satisfactory to the Indemnified Person and his or its counsel, or consent to
entry of any judgment except with the consent of the Indemnified Person.
(d) Upon assumption of control of the defense of a Third Party
Action under paragraph (c) above, the Indemnifying Person will not be liable to
the Indemnified Person
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hereunder for any legal or other expenses subsequently incurred in connection
with the defense of the Third Party Action, other than reasonable expenses of
investigation.
(e) If the Indemnifying Person does not elect to control the
defense of a Third Party Action under paragraph (c), the Indemnifying Person
shall promptly reimburse the Indemnified Person for expenses incurred by the
Indemnified Person in connection with defense of such Third Party Action, as and
when the same shall be incurred by the Indemnified Person.
(f) Any person who has not assumed control of the defense of
any Third Party Action shall have the duty to cooperate with the party which
assumed such defense.
ARTICLE 13. GENERAL PROVISIONS.
13.1 FEES AND EXPENSES. All fees and expenses incurred by the Buyer in
connection with the negotiation of this Agreement or the consummation of the
transactions contemplated hereby, including, without limitation, all fees
payable in connection with any filing to be made under the HSR Act, shall be
paid by the Buyer. All fees and expenses incurred by the Sellers or the Sellers'
Representative in connection with the negotiation of this Agreement or the
consummation of the transactions contemplated hereby, including, without
limitation, all fees payable to Bowles Hollowell Conner & Co., Brown, Rudnick,
Freed & Gesmer, Weir & Foulds and all other legal counsel retained by the
Sellers' Representative, shall be paid by the Sellers, such fees and expenses to
be borne among the Sellers in proportion to their ownership of Shares of Common
Stock (Voting and Non-Voting) listed on Schedule 1 hereto.
13.2 NOTICES. Any and all notices or other communications required or
permitted to be given in connection with this Agreement shall be in writing (or
in the form of a telegram or facsimile transmission) addressed as provided below
and shall be (i) delivered by hand, (ii) transmitted by telegram or facsimile
with transmission confirmed, (iii) delivered by overnight courier service with
confirmed receipt or (iv) mailed by first class U.S. mail, postage prepaid and
registered or certified, return receipt requested:
If to any of the Sellers to:
The address of such Seller as listed on Schedule 1.1 hereto
with copies to:
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Orion Capital Partners, L.P.
The Wellesley Office Park
20 William Street, Suite 145
Wellesley, Massachusetts 02481-4102
Attention: Steven A. Kandarian
Managing Director
Facsimile Number: (781) 235-8822
and
Paul J. Hartnett, Jr., Esq.
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
Facsimile Number: (617) 856-8201
and
George E. Christodoulo, Esq.
Lawson & Weitzen, LLP
425 Summer Street
Boston, Massachusetts 02210-1736
Facsimile Number: (617) 439-3987
If to the Sellers' Representative to:
Orion Capital Partners, L.P.
The Wellesley Office Park
20 William Street, Suite 145
Wellesley, Massachusetts 02481-4102
Attention: Steven A. Kandarian
Managing Director
Facsimile Number: (781) 235-8822
with a copy to:
Paul J. Hartnett, Jr., Esq.
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, Massachusetts 02111
Facsimile Number: (617) 856-8201
38
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If to the Buyer, to:
Kaynar Technologies Inc.
500 N. State College Blvd., Suite 1000
Orange, California 92868-1638
Attention: Jordan A. Law
Chairman of the Board
Facsimile Number: (714) 712-4908
with a copy to:
C. James Levin, Esq.
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Facsimile Number: (213) 430-6407
and in any case at such other address as the addressee shall have specified by
written notice. Any notice or other communication given in accordance with this
Section 13.2 shall be deemed delivered and effective upon receipt, except those
notices and other communications sent by mail, which shall be deemed delivered
and effective three (3) business days following deposit with the United States
Postal Service. All periods of notice shall be measured from the date of
delivery thereof.
13.3 PUBLICITY AND DISCLOSURES. No press releases or any public
disclosure, either written or oral, of the transactions contemplated by this
Agreement shall be made prior to the Closing without the prior knowledge and
written consent of both the Buyer and the Sellers' Representative.
Notwithstanding the foregoing, however, each party shall be entitled to make
such disclosures which it may determine in good faith to be required under
applicable federal and state securities laws. In the event that any party
determines in good faith that any such disclosure is required, it shall use its
best efforts to provide the other parties hereto with copies of such disclosure
prior to its release to the public.
13.4 FURTHER ASSURANCES. Each of the Sellers and the Buyer hereby
agrees to execute and deliver, both prior to or following the Closing, such
further certificates, agreements and other documents and take such other actions
as the other parties may reasonably request in order to consummate or implement
the transactions contemplated hereby or to evidence or confirm such events or
matters.
13.5 ENTIRE AGREEMENT. This Agreement (including all Schedules appended
to this Agreement, all of which are hereby incorporated herein by reference),
together with the Confidentiality Agreement dated May 21, 1998 between the Buyer
and Marson (which is also hereby incorporated herein by reference), constitute
the entire agreement between the parties, and all promises, representations,
understandings, warranties and agreements with reference to the
39
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subject matter hereof and inducements to the making of this Agreement relied
upon by any party hereto, have been expressed herein or in the documents
incorporated herein by reference.
13.6 SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision hereof.
13.7 ASSIGNABILITY. This Agreement may not be assigned otherwise than
by operation of law (i) by the Buyer without the prior written consent of the
Sellers' Representative, or (ii) by any of the Sellers without the prior written
consent of the Buyer, except that the Buyer may assign any and all of its rights
hereunder (including its right to indemnification) to General Electric Capital
Corporation or to any other lender and their respective successors and assigns,
and the Sellers hereby acknowledge such assignment by the Buyer to General
Electric Capital Corporation. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
13.8 AMENDMENT. This Agreement may be amended only by a written
agreement executed by the Buyer and the Sellers' Representative.
13.9 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
13.10 EFFECT OF TABLE OF CONTENTS AND HEADINGS. The table of contents
and the titles of article and section headings herein contained has been
provided for convenience of reference only and shall not affect the meaning of
construction of any of the provisions hereof.
13.11 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (other than the choice of
law principles thereof).
[SIGNATURE PAGES TO FOLLOW]
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SIGNATURE PAGES
TO
MARCLIFF CORPORATION
MARSON CREATIVE FASTENER, INC.
STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in multiple counterparts as of the date set forth above by their duly authorized
representatives.
KAYNAR TECHNOLOGIES INC.
By: /s/ Jordan A. Law
----------------------------
Jordan A. Law
Chairman of the Board
ORION CAPITAL HOLDINGS, L.P.
By: Orion Capital Partners, L.P.
Its General Partner
By: Eagle Capital Management Limited Partnership
Its General Partner
By: Eagle Capital Holdings, Inc.
Its General Partner
By: /s/ Steven A. Kandarian
-------------------------------
Steven A. Kandarian
President
M-K I PARTNERSHIP, L.P.
By: Orion Capital Partners, L.P.
Its General Partner
By: Eagle Capital Management Limited Partnership
Its General Partner
By: Eagle Capital Holdings, Inc.
Its General Partner
By: /s/ Steven A. Kandarian
-------------------------------
Steven A. Kandarian
President
ALAN RITCHIE
/s/ Alan Ritchie
-------------------------------
Alan Ritchie
MICHAEL G. BROWN
-------------------------------
Michael G. Brown
<PAGE>
SIGNATURE PAGES
TO
MARCLIFF CORPORATION
MARSON CREATIVE FASTENER, INC.
STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in multiple counterparts as of the date set forth above by their duly authorized
representatives.
KAYNAR TECHNOLOGIES INC.
By:
----------------------------
Jordan A. Law
Chairman of the Board
ORION CAPITAL HOLDINGS, L.P.
By: Orion Capital Partners, L.P.
Its General Partner
By: Eagle Capital Management Limited Partnership
Its General Partner
By: Eagle Capital Holdings, Inc.
Its General Partner
By:
-------------------------------
Steven A. Kandarian
President
M-K I PARTNERSHIP, L.P.
By: Orion Capital Partners, L.P.
Its General Partner
By: Eagle Capital Management Limited Partnership
Its General Partner
By: Eagle Capital Holdings, Inc.
Its General Partner
By:
-------------------------------
Steven A. Kandarian
President
ALAN RITCHIE
-------------------------------
Alan Ritchie
MICHAEL G. BROWN
/s/ Michael G. Brown
-------------------------------
Michael G. Brown
<PAGE>
CARL A. ANNESE, JR.
-------------------------------
Carl A. Annese, Jr.
NATIONSCREDIT COMMERCIAL
CORPORATION
By: /s/ Kenneth M. Zoeller
----------------------------
Kenneth M. Zoeller
Authorized Signatory
ORION CAPITAL PARTNERS, L.P.
as the Sellers' Representative
By: Eagle Capital Management Limited Partnership
Its General Partner
By: Eagle Capital Holdings, Inc.
Its General Partner
By:
----------------------------
Steven A. Kandarian
President
MARCLIFF CORPORATION
By:
--------------------------------
Alan Ritchie
Chairman and Chief Executive Officer
<PAGE>
CARL A. ANNESE, JR.
/s/ Carl A. Annese, Jr.
-------------------------------
Carl A. Annese, Jr.
NATIONSCREDIT COMMERCIAL
CORPORATION
By:
----------------------------
ORION CAPITAL PARTNERS, L.P.
as the Sellers' Representative
By: Eagle Capital Management Limited Partnership
Its General Partner
By: Eagle Capital Holdings, Inc.
Its General Partner
By: /s/ Steven A. Kandarian
----------------------------
Steven A. Kandarian
President
MARCLIFF CORPORATION
By: /s/ Alan Ritchie
--------------------------------
Alan Ritchie
Chairman and Chief Executive Officer
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
LIST OF SCHEDULES
Schedule 1 - Names and Addresses of Sellers and their Stock Ownership
Schedule 1.1 - Redemption Shares
Schedule 1.2 - Purchase Shares
Schedule 2.1(a) - Allocation and Distribution of Purchase Price
Schedule 2.1(b) Escrow Agreement
Schedule 5.1 - Jurisdictions of Organization of Marcliff and Its
Subsidiaries
Schedules 5.2 - Subsidiaries and Securities
Schedule 5.3 - Outstanding Marcliff Subscriptions, Options, Warrants,
Commitments, Preemptive Rights, Pledges, Restrictions and
Encumbrances
Schedule 5.5 - Pledges, Security Interests and Encumbrances Upon the
Shares
Schedule 5.9 - Financial Statements of Marcliff and its Subsidiaries;
Liabilities Not Reflected on the Base Balance Sheet
Schedule 5.10 - Certain Changes or Events
Schedule 5.11(b) - Tax Returns
Schedule 5.11(d) - Tax Audit History
Schedule 5.11(f) - Pending Audit
Schedule 5.11(k) - No "Controlled Foreign Corporation"
Schedule 5.12(a) - Real Property Leased by Marcliff and Its Subsidiaries
Schedule 5.12(e) - Liens, Encumbrances or Subleases on Leased Real Property
Schedule 5.12(g) - Machinery, Equipment and Other Property
Schedule 5.12(h) - Title to Machinery and Equipment
Schedule 5.15 - Intellectual Properties of Marcliff and its Subsidiaries
Schedule 5.16 - Material Contracts
Schedule 5.17 - Labor and Employee Relations
1
<PAGE>
Schedule 5.18(a) - Employee Benefit Documentation
Schedule 5.18(c) - Employee Benefit Plans
Schedule 5.18(d) - Reportable Events
Schedule 5.18(e) - Underfunded Plans
Schedule 5.18(g) - Plan Payments or Other Rights on Closing
Schedule 5.19 - Environmental Matters
Schedule 5.20 - Permits
Schedule 5.23 - Transactions with Interested Persons
Schedule 5.25 - Changes Since May 25, 1998
Schedule 5.26(a) - Insurance Policies
Schedule 5.26(b) - Workers' Compensation and Occupational Benefits History
Schedule 5.27(a) - Customers and Suppliers
Schedule 5.27(b) - Loss of Major Customers
Schedule 9.4.1 - Opinion of Brown, Rudnick, Freed & Gesmer
Schedule 9.4.2 - Opinion of Weir & Foulds
2
<PAGE>
Exhibit 10.2(a)
[EXECUTION VERSION]
- --------------------------------------------------------------------------------
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 23, 1998
among
KAYNAR TECHNOLOGIES INC.,
as Borrower,
THE OTHER CREDIT PARTIES SIGNATORY HERETO,
as Credit Parties,
THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,
as Lenders
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent, Co-Agent and Lender
- --------------------------------------------------------------------------------
<PAGE>
[EXECUTION VERSION]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. AMOUNT AND TERMS OF CREDIT...........................................................2
1.1 CREDIT FACILITIES.............................................................2
1.2 LETTERS OF CREDIT.............................................................6
1.3 PREPAYMENTS...................................................................6
1.4 USE OF PROCEEDS...............................................................8
1.5 INTEREST AND APPLICABLE MARGINS...............................................9
1.6. ELIGIBLE ACCOUNTS............................................................11
1.7 ELIGIBLE INVENTORY...........................................................13
1.8 CASH MANAGEMENT SYSTEMS......................................................14
1.9 FEES.........................................................................14
1.10 RECEIPT OF PAYMENTS..........................................................15
1.11 APPLICATION AND ALLOCATION OF PAYMENTS.......................................15
1.12 LOAN ACCOUNT AND ACCOUNTING..................................................16
1.13 INDEMNITY....................................................................16
1.14 ACCESS.......................................................................18
1.15 TAXES........................................................................18
1.16 CAPITAL ADEQUACY; INCREASED COSTS; ILLEGALITY................................19
1.17 SINGLE LOAN..................................................................21
2. CONDITIONS TO LOANS.................................................................21
2.1 CONDITIONS PRECEDENT TO THE INITIAL LOANS....................................21
2.2 FURTHER CONDITIONS PRECEDENT TO EACH LOAN....................................23
2.3 CONDITIONS SUBSEQUENT TO THE INITIAL LOANS...................................23
3. REPRESENTATIONS AND WARRANTIES......................................................24
3.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW.....................................24
3.2 EXECUTIVE OFFICES; FEIN......................................................24
3.3 CORPORATE POWER, AUTHORIZATION, ENFORCEABLE OBLIGATIONS......................24
3.4 FINANCIAL STATEMENTS AND PROJECTIONS.........................................25
3.5 MATERIAL ADVERSE EFFECT......................................................26
3.6 OWNERSHIP OF PROPERTY; LIENS.................................................26
3.7 LABOR MATTERS................................................................26
3.8 VENTURES, SUBSIDIARIES AND AFFILIATES; OUTSTANDING STOCK AND INDEBTEDNESS....27
3.9 GOVERNMENT REGULATION........................................................27
3.10 MARGIN REGULATIONS...........................................................27
3.11 TAXES........................................................................28
3.12 ERISA........................................................................28
3.13 FOREIGN EMPLOYEE BENEFIT MATTERS.............................................28
3.14 NO LITIGATION; NO ADVERSE EFFECTS............................................29
3.15 BROKERS......................................................................29
</TABLE>
6 - i -
<PAGE>
[EXECUTION VERSION]
<TABLE>
<S> <C>
3.16 INTELLECTUAL PROPERTY........................................................29
3.17 FULL DISCLOSURE..............................................................30
3.18 ENVIRONMENTAL MATTERS........................................................30
3.19 INSURANCE....................................................................31
3.20 DEPOSIT AND DISBURSEMENT ACCOUNTS............................................31
3.21 GOVERNMENT CONTRACTS.........................................................31
3.22 CUSTOMER AND TRADE RELATIONS.................................................32
3.23 SOLVENCY.....................................................................32
3.24 YEAR 2000 REPRESENTATIONS....................................................32
3.25 MARSON STOCK PURCHASE DOCUMENTS..............................................32
3.26 ELIGIBLE ACCOUNTS............................................................33
3.27 ELIGIBLE INVENTORY...........................................................33
4. FINANCIAL STATEMENTS AND INFORMATION................................................33
4.1 REPORTS AND NOTICES..........................................................33
4.2 COMMUNICATION WITH ACCOUNTANTS...............................................33
5. AFFIRMATIVE COVENANTS...............................................................34
5.1 MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS.............................34
5.2 PAYMENT OF OBLIGATIONS.......................................................34
5.3 BOOKS AND RECORDS............................................................35
5.4 INSURANCE; DAMAGE TO OR DESTRUCTION OF COLLATERAL............................35
5.5 COMPLIANCE WITH LAWS.........................................................36
5.6 SUPPLEMENTAL DISCLOSURE......................................................37
5.7 INTELLECTUAL PROPERTY........................................................37
5.8 ENVIRONMENTAL MATTERS........................................................37
5.9 LANDLORDS' AGREEMENTS, MORTGAGEE AGREEMENTS AND BAILEE LETTERS...............38
5.10 FURTHER ASSURANCES...........................................................38
5.11 YEAR 2000 PROBLEMS...........................................................39
5.12 ERISA COMPLIANCE.............................................................39
5.13 FOREIGN EMPLOYEE BENEFIT PLAN COMPLIANCE.....................................39
5.14 GOVERNMENT CONTRACT COMPLIANCE...............................................39
5.15 FUTURE LIENS ON REAL PROPERTY................................................39
5.16 NEWLY ACQUIRED SUBSIDIARIES; EXECUTION OF GUARANTY; PLEDGE OF CAPITAL STOCK..40
5.17 ADDITIONAL CREDIT PARTIES....................................................40
5.18 POST-CLOSING COVENANTS.......................................................41
6. NEGATIVE COVENANTS..................................................................41
6.1 MERGERS, SUBSIDIARIES, ETC...................................................41
6.2. INVESTMENTS; LOANS AND ADVANCES..............................................43
6.3 INDEBTEDNESS.................................................................44
6.4 EMPLOYEE LOANS AND AFFILIATE TRANSACTIONS....................................46
</TABLE>
- ii -
<PAGE>
[EXECUTION VERSION]
<TABLE>
<S> <C>
6.5 CAPITAL STRUCTURE AND BUSINESS...............................................46
6.6 ACCOMMODATION OBLIGATIONS....................................................47
6.7 LIENS........................................................................47
6.8 SALE OF STOCK AND ASSETS.....................................................48
6.9 ERISA........................................................................48
6.10 FINANCIAL COVENANTS..........................................................49
6.11 HAZARDOUS MATERIALS..........................................................49
6.12 SALE-LEASEBACKS..............................................................49
6.13 CANCELLATION OF INDEBTEDNESS.................................................50
6.14 RESTRICTED PAYMENTS..........................................................50
6.15 CHANGE OF CORPORATE NAME OR LOCATION; CHANGE OF FISCAL YEAR..................50
6.16 RESTRICTION ON FUNDAMENTAL CHANGES...........................................50
6.17 NO IMPAIRMENT OF INTERCOMPANY TRANSFERS......................................50
6.18 NO SPECULATIVE TRANSACTIONS..................................................51
6.19 CHANGES RELATING TO SUBORDINATED DEBT........................................51
7. TERM................................................................................51
7.1 TERMINATION..................................................................51
7.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING ARRANGEMENTS...........51
8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES..............................................52
8.1 EVENTS OF DEFAULT............................................................52
8.2 REMEDIES.....................................................................54
8.3 WAIVERS BY CREDIT PARTIES....................................................55
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT.................................55
9.1 ASSIGNMENT AND PARTICIPATIONS................................................55
9.2 APPOINTMENT OF AGENT AND CO-AGENT............................................57
9.3 AGENT'S RELIANCE, ETC........................................................58
9.4 AGENT, CO-AGENT AND AFFILIATES...............................................58
9.5 LENDER CREDIT DECISION.......................................................59
9.6 INDEMNIFICATION..............................................................59
9.7 SUCCESSOR AGENT..............................................................59
9.8 SETOFF AND SHARING OF PAYMENTS...............................................60
9.9 ADVANCES; PAYMENTS; NON-FUNDING LENDERS; INFORMATION; ACTIONS IN CONCERT.....61
9.10 THE CO-AGENT.................................................................63
9.11 SUCCESSOR CO-AGENT...........................................................64
10. SUCCESSORS AND ASSIGNS..............................................................64
10.1 SUCCESSORS AND ASSIGNS.......................................................64
11. MISCELLANEOUS.......................................................................64
11.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT................................64
</TABLE>
- iii -
<PAGE>
[EXECUTION VERSION]
<TABLE>
<S> <C>
11.2 AMENDMENTS AND WAIVERS.......................................................65
11.3 FEES AND EXPENSES............................................................67
11.4 NO WAIVER....................................................................68
11.5 REMEDIES.....................................................................68
11.6 SEVERABILITY.................................................................68
11.7 CONFIDENTIALITY..............................................................69
11.8 GOVERNING LAW................................................................69
11.9 CERTAIN CONSENTS AND WAIVERS OF THE BORROWER.................................69
11.10 NOTICES......................................................................71
11.11 SECTION TITLES...............................................................71
11.12 WAIVER OF JURY TRIAL.........................................................71
11.13 PRESS RELEASES...............................................................72
11.14 REINSTATEMENT................................................................72
11.15 COUNTERPARTS; EFFECTIVENESS; INCONSISTENCIES.................................72
11.16 ADVICE OF COUNSEL............................................................73
11.17 NO STRICT CONSTRUCTION.......................................................73
11.18 NO NOVATION..................................................................73
</TABLE>
- iv -
<PAGE>
[EXECUTION VERSION]
INDEX OF APPENDICES
Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii) - Form of Amended and Restated Revolving Note
Exhibit 1.1(b) - Form of Amended and Restated Term Note
Exhibit 1.1(c)(ii) - Form of Swing Line Note
Exhibit 1.5(e) - Form of Notice of Conversion/Continuation
Exhibit 4.1(b) - Form of Borrowing Base Certificate
Exhibit 5.16(a) - Form of Unlimited Guaranty
Exhibit 5.16(b) - Form of Limited Guaranty
Exhibit 5.16(c) - Form of Subsidiary Security Agreement
Exhibit 5.16(d) - Form of Subsidiary Patent Security Agreement
Exhibit 5.16(e) - Form of Subsidiary Trademark Security Agreement
Exhibit 5.16(f) - Form of Subsidiary Pledge Agreement
Exhibit 9.1(a) - Form of Assignment Agreement
Exhibit M - Form of Compliance Certificate
Exhibit O - Form of Omnibus Reaffirmation Agreement
Exhibit P - Form of Collateral Assignment
Schedule 1.1 - Responsible Individual
Schedule 1.4 - Sources and Uses; Funds Flow Memorandum
Schedule 3.2 - Executive Offices; FEIN
Schedule 3.4(a) - Financial Statements
Schedule 3.4(b) - Pro Forma
Schedule 3.4(c) - Projections
Schedule 3.6(a) - Real Estate and Leases
Schedule 3.6(b) - Mortgaged Properties
Schedule 3.7 - Labor Matters
Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding
Stock
Schedule 3.12 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.16 - Intellectual Property
Schedule 3.18 - Environmental Matters
Schedule 3.19 - Insurance
Schedule 3.20 - Deposit and Disbursement Accounts
Schedule 3.21 - Government Contracts
Schedule 5.1 - Trade Names
Schedule 6.3 - Permitted Existing Indebtedness
Schedule 6.6 - Permitted Existing Accommodation Obligations
Schedule 6.7 - Permitted Existing Liens
Annex A (Recitals) - Definitions
Annex B (Section 1.2) - Letters of Credit
- v -
<PAGE>
[EXECUTION VERSION]
Annex C (Section 1.8) - Cash Management System
Annex D (Section 2.1(a)) - Schedule of Additional Closing Documents
Annex E (Section 4.1(a)) - Financial Statements and Projections -- Reporting
Annex F (Section 4.1(b)) - Collateral Reports
Annex G (Section 6.10) - Financial Covenants
Annex H (Section 9.9(a)) - Lenders' Wire Transfer Information
Annex I (Section 11.10) - Notice Addresses
Annex J (From Annex A) - Commitments as of Closing Date
- vi -
<PAGE>
[EXECUTION VERSION]
THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October
23, 1998, among KAYNAR TECHNOLOGIES INC., a Delaware corporation
("BORROWER"); the other Credit Parties signatory hereto; each financial
institution from time to time party hereto as a lender (together with its
successors and permitted assigns, a "LENDER"), GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation (in its individual capacity, "GE CAPITAL"),
for itself, as Lender, as agent for Lenders (in such capacity, "AGENT"), and as
co-agent for Lenders (in such capacity, "CO-AGENT").
RECITALS
WHEREAS, the Borrower and GE Capital, as Lender, entered into the
Credit Agreement dated as of January 3, 1994 (the "FIRST CREDIT AGREEMENT");
WHEREAS, the First Credit Agreement was amended as of December
15, 1994, May 30, 1995, and August 4, 1995 (collectively, the "ORIGINAL
AMENDMENTS;" and the First Credit Agreement, as amended by the Original
Amendments, the "ORIGINAL CREDIT AGREEMENT");
WHEREAS, the Original Credit Agreement was amended and restated
by the Amended and Restated Credit Agreement dated as of August 12, 1996 (the
Original Credit Agreement, as so amended and restated, the "AMENDED AND RESTATED
AGREEMENT");
WHEREAS, the Amended and Restated Agreement was amended as of
December 17, 1996, April 30, 1997, June 25, 1997, October 23, 1997, December 5,
1997, January 21, 1998, May 29, 1998, and June 23, 1998, and subsequently was
further amended and restated as of July 27, 1998 (as so amended and restated,
the "EXISTING CREDIT AGREEMENT");
WHEREAS, the Borrower, the Agent and the Lenders desire to amend
and restate the Existing Credit Agreement in its entirety to give effect to the
terms and provisions set forth in this Third Amended and Restated Credit
Agreement (the Existing Credit Agreement, as so amended and restated, and this
Third Amended and Restated Credit Agreement, as amended, restated, supplemented
or otherwise modified from time to time, collectively, this "AGREEMENT"), it
being understood and agreed that (i) with respect to any date or time period
occurring and ending prior to the Effective Date (as defined below), the rights
and obligations of the parties thereto shall be governed by the provisions of
the Existing Credit Agreement (including, without limitation, the Exhibits and
Schedules thereto) which for such purposes shall remain in full force and effect
and (ii) with respect to any date or time period occurring or ending on or after
the Effective Date, the rights and obligations of the parties hereto shall be
governed by this Agreement (including, without limitation, the Exhibits and
Schedules hereto).
WHEREAS, it is the intent of the Borrower, the Agent, the
Co-Agent and the Lenders that the Agent, the Co-Agent and the Lenders shall be
beneficiaries under each Loan Document executed on or before the date hereof
pursuant to which the Borrower granted a Lien to GE Capital, as Lender, or to
the Agent, for the benefit of itself and the Lenders, in any of Borrower's
Property and that all of the Obligations shall be secured by the Liens on the
Property
<PAGE>
[EXECUTION VERSION]
subject to such Loan Documents, as well as the Liens granted to the Agent, for
the benefit of itself and the Lenders, on all other Collateral on and after the
date hereof.
WHEREAS, capitalized terms used in this Agreement shall have the
meanings ascribed to them in ANNEX A. All Annexes, Disclosure Schedules,
Exhibits and other attachments (collectively, "APPENDICES") hereto, or expressly
identified to this Agreement, are incorporated herein by reference, and taken
together, shall constitute but a single agreement. These Recitals shall be
construed as part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants, representations and warranties herein contained, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 CREDIT FACILITIES.
(a) REVOLVING CREDIT FACILITY.
(i) Subject to the terms and conditions hereof, each
Revolving Lender agrees to make available, from time to time until the
Commitment Termination Date, its Pro Rata Share of advances (each, a
"REVOLVING CREDIT ADVANCE"). The revolving loans outstanding under the
Existing Credit Agreement on the Effective Date shall automatically,
without further action, be deemed to be Revolving Loans outstanding
under this Agreement. The Pro Rata Share of the Revolving Loan of any
Revolving Lender shall not at any time exceed its separate Revolving
Loan Commitment. The obligations of each Revolving Lender hereunder
shall be several and not joint. The aggregate amount of Revolving Credit
Advances outstanding shall not exceed at any time the lesser of (A) the
Maximum Amount and (B) the Borrowing Base, in each case less the sum of
the Letter of Credit Obligations and the Swing Line Loan outstanding at
such time ("BORROWING AVAILABILITY"). Until the Commitment Termination
Date, Borrower may from time to time borrow, repay and reborrow under
this SECTION 1.1(a). Each Revolving Credit Advance shall be made on
notice by Borrower to the representative of Agent identified on SCHEDULE
(1.1) at the address specified thereon. Those notices must be given no
later than (1) 12:00 p.m. (New York time) on the Business Day
immediately preceding the date of the proposed Revolving Credit Advance,
in the case of an Index Rate Loan, or (2) 12:00 p.m. (New York time) on
the date which is three (3) Business Days prior to the proposed
Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice
(a "NOTICE OF REVOLVING CREDIT ADVANCE") must be given in writing (by
telecopy or overnight courier) substantially in the form of EXHIBIT
1.1(a)(i), and shall include the information required in such Exhibit
and such other information as may be required by Agent, including,
without limitation, the amount of such Revolving Credit Advance to be
- 2 -
<PAGE>
[EXECUTION VERSION]
advanced in respect of the KTI Borrowing Base and the amount to be
advanced in respect of the Marson Borrowing Base. If Borrower desires to
have the Revolving Credit Advances bear interest by reference to a LIBOR
Rate, it must comply with SECTION 1.5(e). In lieu of delivering such a
Notice of Revolving Credit Advance, the Borrower may give the
representative of the Agent telephonic notice of any proposed Revolving
Credit Advance by the time required under this SECTION 1.1(a), if it
confirms such notice by delivery of the Notice of Revolving Credit
Advance to the representative of the Agent promptly, but in no event
later than 5:00 p.m. (New York time) on the same day. Any Notice of
Revolving Credit Advance (or telephonic notice in lieu thereof) given
pursuant to this SECTION 1.1(a) shall be irrevocable.
(ii) Borrower shall execute and deliver to each Revolving
Lender a promissory note to evidence the Revolving Loan Commitment of
that Revolving Lender as of the Effective Date. Each note shall be in
the principal amount of the Revolving Loan Commitment of the applicable
Revolving Lender, dated the Effective Date and substantially in the form
of EXHIBIT 1.1(a)(ii) (each a "REVOLVING NOTE" and, collectively, the
"REVOLVING NOTES"). Each Revolving Note shall represent the obligation
of Borrower to pay the amount of each Revolving Lender's Revolving Loan
Commitment or, if less, the applicable Revolving Lender's Pro Rata Share
of the aggregate unpaid principal amount of all Revolving Credit
Advances to Borrower together with interest thereon as prescribed in
SECTION 1.5. The entire unpaid balance of the Revolving Loan and all
other non-contingent Obligations shall be immediately due and payable in
full in immediately available funds on the Commitment Termination Date.
(b) TERM LOAN.
(i) Subject to the terms and conditions hereof, each Term
Lender agrees to make a term loan on the Effective Date to Borrower in a
net amount equal to the sum of (i) the original principal amount of its
Term Loan Commitment (the "TERM LOAN") MINUS (ii) its Pro Rata Share of
the outstanding principal balance of the term loan under the Existing
Credit Agreement, in the amount of $49,900,000. The term loans
outstanding under the Existing Credit Agreement on the Effective Date
shall automatically, without further action, be deemed to be Term Loans
outstanding under this Agreement. The obligations of each Term Lender
hereunder shall be several and not joint. The Term Loan shall be
evidenced by promissory notes substantially in the form of EXHIBIT
1.1(b) (each a "TERM NOTE" and collectively the "TERM NOTES"), and
Borrower shall execute and deliver a Term Note to each Term Lender. Each
Term Note shall represent the obligation of Borrower to pay the amount
of the applicable Term Lender's Term Loan Commitment, together with
interest thereon as prescribed in SECTION 1.5.
(ii) Borrower shall pay the principal amount of the Term
Loan in seventeen (17) consecutive quarterly installments of $425,000
each on the first day of January, April, July and October of each year,
commencing January 1, 1999.
- 3 -
<PAGE>
[EXECUTION VERSION]
Notwithstanding the foregoing, the aggregate outstanding principal
balance of the Term Loan shall be due and payable in full in immediately
available funds on the Commitment Termination Date, if not sooner paid
in full.
(iii) Each payment of principal with respect to the Term
Loan shall be paid to Agent for the ratable benefit of each Term Lender,
ratably in proportion to each such Term Lender's respective Term Loan
Commitment.
(c) SWING LINE FACILITY.
(i) Agent shall notify the Swing Line Lender upon Agent's
receipt of any Notice of Revolving Credit Advance. Subject to the terms
and conditions hereof, the Swing Line Lender may, in its discretion,
make available, from time to time until the Commitment Termination Date,
advances (each, a "SWING LINE ADVANCE") in accordance with any such
notice. The aggregate amount of Swing Line Advances outstanding shall
not exceed the lesser of (A) the Swing Line Commitment and (B) the
lesser of the Maximum Amount and the Borrowing Base, in each case, less
the outstanding balance of the Revolving Loan at such time ("SWING LINE
AVAILABILITY"). Until the Commitment Termination Date, Borrower may from
time to time borrow, repay and reborrow under this SECTION 1.1(c). Each
Swing Line Advance shall be made pursuant to a Notice of Revolving
Credit Advance delivered by Borrower to Agent in accordance with SECTION
1.1(a). Those notices must be given by the Agent to the Swing Line
Lender no later than 12:00 p.m. (New York time) on the Business Day of
the proposed Swing Line Advance. Unless the Swing Line Lender has
received at least one Business Day's prior written notice from Agent or
Requisite Revolving Lenders instructing it not to make the Swing Line
Advance, the Swing Line Lender shall, notwithstanding the failure of any
condition precedent set forth in SECTION 2.2 hereof (other than the
condition precedent set forth in SECTION 2.2(e) hereof), be entitled to
fund such Swing Line Advance and, in connection with such Swing Line
Advance, to have each Revolving Lender make Revolving Credit Advances in
accordance with SECTION 1.1(c)(iii) or to purchase participating
interests in accordance with SECTION 1.1(c)(iv). Notwithstanding any
other provision of this Agreement or the other Loan Documents, the Swing
Line Loan shall constitute an Index Rate Loan. Borrower shall repay the
aggregate outstanding principal amount of the Swing Line Loan upon
demand therefor by Agent.
(ii) Borrower shall execute and deliver to the Swing Line
Lender a promissory note to evidence the Swing Line Commitment. Such
note shall be in the principal amount of the Swing Line Commitment of
the Swing Line Lender, dated the Effective Date and substantially in the
form of EXHIBIT 1.1(c)(ii) (the "SWING LINE NOTE"). The Swing Line Note
shall represent the obligation of Borrower to pay the amount of the
Swing Line Commitment or, if less, the aggregate unpaid principal amount
of all Swing Line Advances made to Borrower together with interest
thereon as prescribed in
- 4 -
<PAGE>
[EXECUTION VERSION]
SECTION 1.5. The entire unpaid balance of the Swing Line Loan and all
other non-contingent Obligations shall be immediately due and payable in
full in immediately available funds on the Commitment Termination Date
if not sooner paid in full.
(iii) REFUNDING OF SWING LINE LOANS. The Swing Line
Lender, at any time and from time to time in its sole and absolute
discretion but no less frequently than once weekly, shall on behalf of
Borrower (and Borrower hereby irrevocably authorizes the Swing Line
Lender to so act on its behalf) request each Revolving Lender (including
the Swing Line Lender) to make a Revolving Credit Advance to Borrower
(which shall be an Index Rate Loan) in an amount equal to such Revolving
Lender's Pro Rata Share of the principal amount of the Swing Line Loan
(the "REFUNDED SWING LINE LOAN") outstanding on the date such notice is
given. Unless any of the events described in SECTIONS 8.1(h) or 8.1(i)
shall have occurred (in which event the procedures of SECTION 1.1(c)(iv)
shall apply) and regardless of whether the conditions precedent set
forth in this Agreement to the making of a Revolving Credit Advance are
then satisfied, each Revolving Lender shall disburse directly to Agent
its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing
Line Lender, prior to 2:00 p.m. (New York time), in immediately
available funds on the Business Day next succeeding the date such notice
is given. The proceeds of such Revolving Credit Advances shall be
immediately paid to the Swing Line Lender and applied to repay the
Refunded Swing Line Loan.
(iv) PARTICIPATION IN SWING LINE LOANS. If, prior to
refunding a Swing Line Loan with a Revolving Credit Advance pursuant to
SECTION 1.1(c)(iii), one of the events described in SECTIONS 8.1(h) or
8.1(i) shall have occurred, then, subject to the provisions of SECTION
1.1(c)(v) below, each Revolving Lender will, on the date such Revolving
Credit Advance was to have been made for the benefit of Borrower,
purchase from the Swing Line Lender an undivided participation interest
in the Swing Line Loan in an amount equal to its Pro Rata Share of such
Swing Line Loan. Upon request, each Revolving Lender will promptly
transfer to the Swing Line Lender, in immediately available funds, the
amount of its participation.
(v) REVOLVING LENDERS' OBLIGATIONS UNCONDITIONAL. Each
Revolving Lender's obligation to make Revolving Credit Advances in
accordance with SECTION 1.1(c)(iii) and to purchase participating
interests in accordance with SECTION 1.1(c)(iv) shall be absolute and
unconditional and shall not be affected by any circumstance, including
(A) any setoff, counterclaim, recoupment, defense or other right which
such Revolving Lender may have against the Swing Line Lender, Borrower
or any other Person for any reason whatsoever; (B) the occurrence or
continuance of any Default or Event of Default; (C) any inability of
Borrower to satisfy the conditions precedent to borrowing set forth in
this Agreement on the date upon which such participating interest is to
be purchased or (D) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing. If any
Revolving Lender does not make available to Agent or the Swing Line
Lender, as applicable, the amount required pursuant to
- 5 -
<PAGE>
[EXECUTION VERSION]
SECTION 1.1(c)(iii) or 1.1(c)(iv), as the case may be, the Swing Line
Lender shall be entitled to recover such amount on demand from such
Revolving Lender, together with interest thereon for each day from the
date of non-payment until such amount is paid in full at the Federal
Funds Rate for the first two Business Days and at the Index Rate
thereafter.
(d) RELIANCE ON NOTICES. Agent shall be entitled to rely upon,
and shall be fully protected in relying upon, any Notice of Revolving Credit
Advance, Notice of Conversion/Continuation or similar notice believed by Agent
to be genuine. Agent may assume that each Person executing and delivering such a
notice was duly authorized, unless the responsible individual acting thereon for
Agent has actual knowledge to the contrary.
1.2 LETTERS OF CREDIT. Subject to and in accordance with the
terms and conditions contained herein and in ANNEX B, Borrower shall have the
right to request, and Revolving Lenders agree to incur, or purchase
participations in, Letter of Credit Obligations in respect of Borrower.
1.3 PREPAYMENTS.
(a) VOLUNTARY PREPAYMENTS. Borrower may at any time on at least
five (5) days' prior written notice to Agent (i) voluntarily prepay all or part
of the Term Loan and/or (ii) voluntarily prepay all or part of the Revolving
Loan and permanently reduce (but not terminate) the Revolving Loan Commitment;
provided that (A) any such prepayments or reductions shall be in a minimum
amount of $1,000,000 and integral multiples of $250,000 in excess of such amount
and (B) the Revolving Loan Commitment shall not be reduced to an amount less
than the greater of (x) $5,000,000 and (y) the L/C Sublimit. Borrower may at any
time on at least ten (10) days' prior written notice to Agent terminate the
Revolving Loan Commitment, provided that upon such termination all Loans and
other Obligations shall be immediately due and payable in full. Any such
voluntary prepayment and any such reduction or termination of the Revolving Loan
Commitment must be accompanied by the payment of any LIBOR funding breakage
costs in accordance with SECTION 1.13(b). Upon any such prepayment and reduction
or termination of the Revolving Loan Commitment, Borrower's right to request
Revolving Credit Advances, or request that Letter of Credit Obligations be
incurred on its behalf, or request Swing Line Advances, shall simultaneously be
permanently reduced or terminated, as the case may be; provided that a permanent
reduction of the Revolving Loan Commitment shall not require a corresponding pro
rata reduction in the L/C Sublimit (as defined in ANNEX B). Each notice of
partial prepayment shall designate the Loan or other Obligations to which such
prepayment is to be applied, provided that any partial prepayments of the Term
Loan made by Borrower shall be applied to prepay the scheduled installments of
the Term Loan in inverse order of maturity.
- 6 -
<PAGE>
[EXECUTION VERSION]
(b) MANDATORY PREPAYMENTS.
(i) If at any time the outstanding balance of the
Revolving Loan exceeds the lesser of (A) the Maximum Amount and (B) the
Borrowing Base, less, in each case, the outstanding Swing Line Loan at
such time, Borrower shall immediately repay the aggregate outstanding
Revolving Credit Advances to the extent required to eliminate such
excess. If any such excess remains after repayment in full of the
aggregate outstanding Revolving Credit Advances, Borrower shall provide
cash collateral for the Letter of Credit Obligations in the manner set
forth in ANNEX B to the extent required to eliminate such excess.
(ii) Immediately upon receipt by any Credit Party of
proceeds of any asset disposition (including condemnation proceeds, but
excluding proceeds of asset dispositions permitted by SECTION 6.8(a)) or
any sale of Stock of any Subsidiary of any Credit Party, Borrower shall
prepay the Loans in an amount equal to all such proceeds, net of (A)
commissions and other reasonable and customary transaction costs, fees
and expenses properly attributable to such transaction and payable by
Borrower in connection therewith (in each case, paid to non-Affiliates),
(B) transfer taxes, (C) amounts payable to holders of senior Liens (to
the extent such Liens constitute Permitted Encumbrances hereunder), if
any, and (D) an appropriate reserve for income taxes in accordance with
GAAP in connection therewith. Any such prepayment shall be applied in
accordance with CLAUSE (c) below.
(iii) Within two (2) Business Days after the Borrower's or
any of its Subsidiaries' receipt of any Excess Proceeds of Issuance of
Stock or Indebtedness, the Borrower shall make or cause to be made a
mandatory prepayment in an amount equal to one hundred percent (100%) of
such Excess Proceeds of Issuance of Stock or Indebtedness. Any such
prepayment shall be applied in accordance with CLAUSE (c) below.
(iv) Until the Termination Date, Borrower shall prepay the
Obligations on the earlier of the date which is ten (10) days after (A)
the date on which Borrower's annual audited Financial Statements for the
immediately preceding Fiscal Year are delivered pursuant to ANNEX E or
(B) the date on which such annual audited Financial Statements are
required to be delivered pursuant to this Agreement, in an amount equal
to seventy-five percent (75%) of Excess Cash Flow for the immediately
preceding Fiscal Year; PROVIDED, HOWEVER, that no such prepayment shall
be required with respect to the Fiscal Year ending December 31, 1998.
Any prepayments from Excess Cash Flow paid pursuant to this CLAUSE (iv)
shall be applied in accordance with CLAUSE (c) below. Each such
prepayment shall be accompanied by a certificate signed by Borrower's
chief financial officer certifying the manner in which Excess Cash Flow
and the resulting prepayment were calculated, which certificate shall be
in form and substance satisfactory to Agent.
(c) APPLICATION OF CERTAIN MANDATORY PREPAYMENTS. Any prepayments
made by Borrower pursuant to CLAUSES (b)(ii), (b)(iii), or (b)(iv) above shall
be applied as follows: FIRST,
- 7 -
<PAGE>
[EXECUTION VERSION]
to Fees and Agent's and Co-Agent's expenses (if any) reimbursable hereunder;
SECOND, to interest on the Swing Line Loan; THIRD, to principal payments on the
Swing Line Loan; FOURTH, to interest on the other Loans, ratably in proportion
to the interest accrued as to each Loan; FIFTH, to principal payments on the
other Loans and to provide cash collateral for Letter of Credit Obligations in
the manner described in ANNEX B, ratably to the aggregate, combined principal
balance of the other Loans and outstanding Letter of Credit Obligations; and
SIXTH, to all other Obligations including expenses of Lenders to the extent
reimbursable under SECTION 11.3. Neither the Revolving Loan Commitment nor the
Swing Line Commitment shall be permanently reduced by the amount of any such
prepayments.
(d) APPLICATION OF PREPAYMENTS FROM INSURANCE PROCEEDS.
Prepayments from insurance proceeds in accordance with SECTION 5.4(c) shall be
applied as follows: insurance proceeds from casualties or losses to cash or
Inventory shall be applied FIRST to the Swing Line Loans and SECOND to the
Revolving Credit Advances; insurance proceeds from casualties or losses to
Equipment, Fixtures and Real Property shall be applied to scheduled installments
of the Term Loan in inverse order of maturity. Neither the Revolving Loan
Commitment nor the Swing Line Loan Commitment shall be permanently reduced by
the amount of any such prepayments. If the precise amount of insurance proceeds
allocable to Inventory as compared to Equipment, Fixtures and Real Property are
not otherwise determined, the allocation and application of those proceeds shall
be determined by Agent, subject to the approval of Requisite Lenders.
(e) Nothing in this SECTION 1.3 shall be construed to constitute
Agent's, Co-Agent's or any Lender's consent to any transaction referred to in
CLAUSES (b)(ii) and (b)(iii) above which is not permitted by other provisions of
this Agreement or the other Loan Documents.
1.4 USE OF PROCEEDS.
(a) Borrower shall utilize that portion of the proceeds of the
Term Loan, the Revolving Loan and the Swing Line Loan advanced on the Effective
Date solely for the Marson Acquisition and Related Transactions Costs and for
the financing of Borrower's ordinary working capital and general corporate needs
(but excluding in any event the making of any Restricted Payment not
specifically permitted by SECTION 6.14). DISCLOSURE SCHEDULE (1.4) contains a
description of Borrower's sources and uses of funds as of the Effective Date,
including Loans and Letter of Credit Obligations to be made or incurred on that
date, and a funds flow memorandum detailing how funds from each source are to be
transferred to particular uses.
(b) Borrower shall utilize that portion of the proceeds of any
Revolving Credit Advance or Swing Line Advance advanced on or after the
Effective Date in respect of the Marson Borrowing Base solely to make the
intercompany loans to Marson permitted under SECTION 6.3(a)(xii).
- 8 -
<PAGE>
[EXECUTION VERSION]
1.5 INTEREST AND APPLICABLE MARGINS.
(a) Borrower shall pay interest to Agent, for the ratable benefit
of Lenders in accordance with the various Loans being made by each Lender, in
arrears on each applicable Interest Payment Date, at the following rates: (i)
with respect to the Revolving Credit Advances, the Index Rate plus the
Applicable Revolver Index Margin per annum or, at the election of Borrower, the
applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based
on the aggregate Revolving Credit Advances outstanding from time to time; (ii)
with respect to the Term Loan, the Index Rate plus the Applicable Term Loan
Index Margin per annum or, at the election of Borrower, the applicable LIBOR
Rate plus the Applicable Term Loan LIBOR Margin per annum; and (iii) with
respect to the Swing Line Loan, the Index Rate plus the Applicable Revolver
Index Margin per annum.
The Applicable Revolver Index Margin, Applicable Revolver LIBOR
Margin, Applicable Term Loan Index Margin, Applicable Term Loan LIBOR Margin and
Applicable Unused Line Fee Margin, will be 0.0%, 1.5%, 0.0%, 1.5% and 0.25% per
annum, respectively, as of the Effective Date. The Applicable Margins will be
adjusted (up or down) prospectively on a quarterly basis as determined by
Borrower's consolidated financial performance for the trailing twelve months
most recently ended, commencing at least five (5) days after the date of
delivery of Borrower's quarterly Financial Statements to Agent for the Fiscal
Quarter ending April 4, 1999. Adjustments in Applicable Margins will be
determined by reference to the following grids:
<TABLE>
<CAPTION>
IF CONSOLIDATED TOTAL FUNDED LEVEL OF
INDEBTEDNESS COVERAGE RATIO IS APPLICABLE MARGINS:
- ------------------------------ -------------------
<S> <C>
less than 2.5:1 Level I
greater than or equal to 2.5:1 but less than or equal to 3.0:1 Level II
greater than 3.0:1 Level III
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE MARGINS
-------------------------------
LEVEL I LEVEL II LEVEL III
------- -------- ---------
<S> <C> <C> <C>
Applicable Revolver Index Margin 0.000% 0.000% 0.000%
Applicable Revolver LIBOR Margin 1.500% 1.750% 2.000%
Applicable Term Loan Index Margin 0.000% 0.000% 0.000%
Applicable Term Loan LIBOR Margin 1.500% 1.750% 2.000%
Applicable Unused Line Fee Margin 0.250% 0.250% 0.375%
</TABLE>
- 9 -
<PAGE>
[EXECUTION VERSION]
All adjustments in the Applicable Margins after April 4, 1999,
will be implemented quarterly on a prospective basis, for each calendar month
commencing at least five (5) days after the date of delivery of the quarterly
unaudited or annual audited (as applicable) Financial Statements of the Credit
Parties evidencing the need for an adjustment. Concurrently with the delivery of
those Financial Statements, Borrower shall deliver to Agent and Lenders a
certificate, signed by its chief financial officer, setting forth in reasonable
detail the basis for the continuance of, or any change in, the Applicable
Margins. If a Default or an Event of Default shall have occurred or be
continuing at the time any reduction in the Applicable Margins is to be
implemented, that reduction shall be deferred until the first day of the first
calendar month following the date on which such Default or Event of Default is
waived or cured.
(b) If any payment on any Loan becomes due and payable on a day
other than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
(c) All computations of Fees calculated on a per annum basis and
interest shall be made by Agent on the basis of a three hundred sixty (360) day
year, in each case for the actual number of days occurring in the period for
which such interest and Fees are payable. The Index Rate shall be determined
each day based upon the Index Rate as in effect each day. Each determination by
Agent of an interest rate and Fees hereunder shall be conclusive, absent
manifest error.
(d) So long as an Event of Default shall have occurred and be
continuing under SECTION 8.1(a), (h) or (i), or so long as any other Default or
Event of Default shall have occurred and be continuing and at the election of
Agent (or upon the written request of Requisite Lenders) confirmed by written
notice from Agent to Borrower, the interest rates applicable to the Loans and
the Letter of Credit Fees shall be increased by two percent (2%) per annum above
the rates of interest or the rate of such Fees otherwise applicable hereunder
("DEFAULT RATE"), and all outstanding Obligations shall bear interest at the
Default Rate applicable to such Obligations. Interest and Letter of Credit Fees
at the Default Rate shall accrue from the initial date of such Default or Event
of Default until that Default or Event of Default is cured or waived and shall
be payable upon demand.
(e) So long as no Default or Event of Default shall have occurred
and be continuing, and subject to the additional conditions precedent set forth
in SECTION 2.2, Borrower shall have the option to (i) request that any Revolving
Credit Advances be made as a LIBOR Loan, (ii) convert at any time all or any
part of outstanding Loans (other than the Swing Line Loan) from Index Rate Loans
to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to
payment of LIBOR breakage costs in accordance with SECTION 1.13(b) if such
conversion is made prior to the expiration of the LIBOR Period applicable
thereto, or (iv) continue all or any portion of any Loan (other than the Swing
Line Loan) as a LIBOR Loan upon the expiration of the applicable LIBOR Period
and the succeeding LIBOR Period of that
- 10 -
<PAGE>
[EXECUTION VERSION]
continued Loan shall commence on the last day of the LIBOR Period of the Loan to
be continued. Any Loan to be made or continued as, or converted into, a LIBOR
Loan must be in a minimum amount of $500,000 and integral multiples of $500,000
in excess of such amount. Any such election must be made by 12:00 p.m. (New York
time) on the third (3rd) Business Day prior to (1) the date of any proposed
Advance which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR
Period with respect to any LIBOR Loans to be continued as such, or (3) the date
on which Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a
LIBOR Period designated by Borrower in such election. If no election is received
with respect to a LIBOR Loan by 12:00 p.m. (New York time) on the third (3rd)
Business Day prior to the end of the LIBOR Period with respect thereto (or if a
Default or an Event of Default shall have occurred and be continuing or the
additional conditions precedent set forth in SECTION 2.2 shall not have been
satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end
of its LIBOR Period. Borrower must make such election by notice to Agent in
writing, by telecopy or overnight courier. In the case of any conversion or
continuation, such election must be made pursuant to a written notice (a "NOTICE
OF CONVERSION/CONTINUATION") in the form of EXHIBIT 1.5(e).
(f) Notwithstanding anything to the contrary set forth in this
SECTION 1.5, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "MAXIMUM LAWFUL RATE"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by Agent, on behalf
of Lenders, is equal to the total interest which would have been received had
the interest rate payable hereunder been (but for the operation of this
paragraph) the interest rate payable since the Effective Date as otherwise
provided in this Agreement. Thereafter, interest hereunder shall be paid at the
rate(s) of interest and in the manner provided in SECTIONS 1.5(a) through (e)
above, unless and until the rate of interest again exceeds the Maximum Lawful
Rate, and at that time this paragraph shall again apply. In no event shall the
total interest received by any Lender pursuant to the terms hereof exceed the
amount which such Lender could lawfully have received had the interest due
hereunder been calculated for the full term hereof at the Maximum Lawful Rate.
If the Maximum Lawful Rate is calculated pursuant to this paragraph, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made. If,
notwithstanding the provisions of this SECTION 1.5(f), a court of competent
jurisdiction shall finally determine that a Lender has received interest
hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent
permitted by applicable law, promptly apply such excess in the order specified
in SECTION 1.11 and thereafter shall refund any excess to Borrower or as a court
of competent jurisdiction may otherwise order.
1.6. ELIGIBLE ACCOUNTS. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its
- 11 -
<PAGE>
[EXECUTION VERSION]
reasonable credit judgment determine which Accounts of Borrower and Marson shall
be "ELIGIBLE ACCOUNTS" for purposes of this Agreement. In determining whether a
particular Account constitutes an Eligible Account, Agent shall not include any
such Account to which any of the exclusionary criteria set forth below applies.
Agent reserves the right, at any time and from time to time after the Effective
Date, to adjust any such criteria, to establish new criteria and to adjust
advance rates with respect to Eligible Accounts, in its reasonable credit
judgment, subject to the approval of Supermajority Revolving Lenders in the case
of adjustments, new criteria or changes in advance rates which have the effect
of making more credit available. Eligible Accounts shall not include any Account
of Borrower or Marson:
(a) which the Account Debtor has failed to pay within ninety (90)
days after the invoice date;
(b) with selling terms of more than sixty (60) days;
(c) with respect to which the Account Debtor is an officer,
employee, Affiliate or agent of such Credit Party;
(d) with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
(e) with respect to which the Account Debtor is not a resident of
the United States, and which are not either (i) covered by credit insurance in
form and amount, and by an insurer, satisfactory to the Agent, or (ii) supported
by one or more letters of credit that are assignable and have been delivered to
the Agent in form, substance, amount and of a tenor, and issued by a financial
institution, acceptable to the Agent;
(f) with respect to which the Account Debtor is the United States
or any department, agency or instrumentality of the United States, any state of
the United States, or any city, town, municipality, or division thereof unless
such Account has been assigned to the Agent for the benefit of the Lenders in
accordance with (A) the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Section 203 ET Seq.) with respect to the United States or any department, agency
or instrumentality of the United States or (B) any similar statute in effect in
any state of the United States, or any city, town, municipality, or division
thereof with respect to such state, city, town, municipality or division;
(g) with respect to which the Account Debtor is a subsidiary of,
related to, has common shareholders, officers or directors with, or otherwise
controls, is controlled by or is under common control with, such Credit Party;
(h) with respect to which such Credit Party is or may become
liable to the Account Debtor for goods sold or services rendered by the Account
Debtor to such Credit Party
- 12 -
<PAGE>
[EXECUTION VERSION]
to the extent of the amount by which such Credit Party is or may be liable to
the Account Debtor for goods sold or services rendered by the Account Debtor;
(i) with respect to an Account Debtor whose total obligations to
such Credit Party exceed ten percent (10%) of the aggregate amount of all
Eligible Accounts of such Credit Party (other than an Account Debtor whose
unsecured debt is rated as investment grade by Standard & Poor's Corporation and
Moody's Investors Service) to the extent of the obligations of such Account
Debtor in excess of such percentage;
(j) which are subject to any unapplied debits, to the extent of
such unapplied debits, and Accounts with respect to which the Account Debtor
otherwise disputes liability or makes any claim with respect thereto, or is
subject to any insolvency proceeding, or becomes insolvent, or goes out of
business;
(k) the collection of which the Agent believes to be doubtful by
reason of the Account Debtor's financial condition;
(l) owed by an Account Debtor that has failed to pay fifty
percent (50%) or more of the aggregate amount of its accounts owed to such
Credit Party within ninety (90) days after the date of the applicable invoices;
or
(m) which are unacceptable to Agent in its reasonable credit
judgment.
1.7 ELIGIBLE INVENTORY. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its reasonable credit judgment determine which Inventory
of Borrower and Marson shall be "ELIGIBLE INVENTORY" for purposes of this
Agreement. In determining whether any particular Inventory constitutes Eligible
Inventory, Agent shall not include any such Inventory to which any of the
exclusionary criteria set forth below applies. Agent reserves the right, at any
time and from time to time after the Effective Date, to adjust any such
criteria, to establish new criteria and to adjust advance rates with to Eligible
Inventory in its reasonable credit judgment, subject to the approval of
Supermajority Revolving Lenders in the case of adjustments, new criteria or
changes in advance rates which have the effect of making more credit available.
Eligible Inventory shall not include any Inventory of Borrower or Marson:
(a) that is not owned by such Credit Party free and clear of all
Liens and rights of any other Person (including the rights of a purchaser that
has made progress payments and the rights of a surety that has issued a bond to
assure such Credit Party's performance with respect to that Inventory), except
Liens in favor of Agent for the benefit of the Lenders;
(b) that is (i) not located on premises owned or leased by such
Credit Party in the District of Columbia or any state of the United States of
America or (ii) is stored with a bailee, warehouseman or similar Person, unless
Agent has given its prior consent thereto and unless (x) a
- 13 -
<PAGE>
[EXECUTION VERSION]
satisfactory bailee letter or landlord waiver has been delivered to Agent, or
(y) reserves satisfactory to Agent have been established with respect thereto,
or (iii) located at any site if the aggregate book value of Inventory at any
such location is less than $100,000;
(c) that is placed on consignment, is in transit or is otherwise
not located on premises owned or leased by such Credit Party;
(d) that is covered by a negotiable document of title, unless
such document and evidence of acceptable insurance covering such Inventory have
been delivered to Agent;
(e) that in Agent's reasonable determination is excess, obsolete,
unsalable, shopworn, seconds, damaged or unfit for sale;
(f) that consists of items other than (i) finished goods or (ii)
raw materials consisting of sheet metal, wire coil and bar stock;
(g) that consists of goods which have been returned by the buyer
for reason of defectiveness or are of a type which cannot be resold at the same
price;
(h) that is not of a type held for sale in the ordinary course of
such Credit Party's business;
(i) as to which Agent's Lien is not a first priority perfected
Lien;
(j) which consists of Contaminants or goods that can be
transported or sold only with licenses that are not readily available;
(k) that is not covered by casualty insurance acceptable to
Agent;
(l) with respect to which all or a portion of the value thereof
is attributable to "freight-in" charges, to the extent of such attributable
value; or
(m) that is otherwise unacceptable to Agent in its reasonable
credit judgment.
1.8 CASH MANAGEMENT SYSTEMS. On or prior to the Effective Date,
Borrower will establish and will maintain until the Termination Date, the cash
management systems described on ANNEX C (the "CASH MANAGEMENT SYSTEMS").
1.9 FEES.
(a) Borrower shall pay to GE Capital, individually, the Fees
specified in that certain fee letter of even date herewith between Borrower and
GE Capital (the "GE CAPITAL FEE LETTER"), at the times specified for payment
therein.
- 14 -
<PAGE>
[EXECUTION VERSION]
(b) As additional compensation for the Revolving Lenders, the
Borrower agrees to pay to the Agent, for the ratable benefit of such Lenders, in
arrears, on the first Business Day of each month prior to the Commitment
Termination Date and on the Commitment Termination Date, a fee for Borrower's
non-use of available funds in an amount equal to the Applicable Unused Line Fee
Margin per annum (calculated on the basis of a 360 day year for actual days
elapsed) multiplied by the difference between (x) the Maximum Amount (as it may
be reduced from time to time) and (y) the average for the period of the daily
closing balances of the Revolving Loan and the Swing Line Loan outstanding
during the period for which such fee is due.
1.10 RECEIPT OF PAYMENTS. Borrower shall make each payment under
this Agreement not later than 12:00 p.m. (New York time) on the day when due in
immediately available funds in Dollars to the Collection Account. For purposes
of computing interest and Fees and determining Borrowing Availability or Net
Borrowing Availability as of any date, all payments shall be deemed received on
the day of receipt of immediately available funds therefor in the Collection
Account prior to 12:00 p.m. (New York time). Payments received after 12:00 p.m.
(New York time) on any Business Day shall be deemed to have been received on the
following Business Day.
1.11 APPLICATION AND ALLOCATION OF PAYMENTS.
(a) So long as no Default or Event of Default shall have occurred
and be continuing, (i) payments consisting of proceeds of Accounts received in
the ordinary course of business shall be applied to the Swing Line Loan and the
Revolving Loan; (ii) payments matching specific scheduled payments then due
shall be applied to those scheduled payments; (iii) voluntary prepayments shall
be applied as determined by Borrower, subject to the provisions of SECTION
1.3(a); and (iv) mandatory prepayments shall be applied as set forth in SECTIONS
1.3(c) and 1.3(d). All payments and prepayments applied to a particular Loan
shall be applied ratably to the portion thereof held by each Lender as
determined by its Pro Rata Share. As to each other payment, and as to all
payments made when a Default or Event or Default shall have occurred and be
continuing or following the Commitment Termination Date, Borrower hereby
irrevocably waives the right to direct the application of any and all payments
received from or on behalf of Borrower, and Borrower hereby irrevocably agrees
that Agent shall have the continuing exclusive right to apply any and all such
payments against the Obligations as Agent may deem advisable notwithstanding any
previous entry by Agent in the Loan Account or any other books and records. In
the absence of a specific determination by Agent with respect thereto, payments
shall be applied to amounts then due and payable in the following order: (1) to
Fees and Agent's or Co-Agent's expenses (if any) reimbursable hereunder; (2) to
interest on the Swing Line Loan; (3) to principal payments on the Swing Line
Loan; (4) to interest on the other Loans, ratably in proportion to the interest
accrued as to each Loan; (5) to principal payments on the other Loans and to
provide cash collateral for Letter of Credit Obligations in the manner described
in ANNEX B, ratably to the aggregate, combined principal balance of the other
Loans and outstanding Letter of Credit Obligations; and (6) to all other
Obligations including expenses of Lenders to the extent reimbursable under
SECTION 11.3.
- 15 -
<PAGE>
[EXECUTION VERSION]
(b) Agent is authorized, with the consent of Supermajority
Revolving Lenders, to charge to the Revolving Loan balance on behalf of Borrower
and cause to be paid all Fees, expenses, Charges, costs (including insurance
premiums in accordance with SECTION 5.4(a)) and interest and principal, other
than principal of the Revolving Loan, owing by Borrower under this Agreement or
any of the other Loan Documents if and to the extent Borrower fails to promptly
pay any such amounts as and when due, even if such charges would cause the
aggregate balance of the Revolving Loan and the Swing Line Loan to exceed
Borrowing Availability. To the extent permitted by law, any charges so made
shall constitute part of the Revolving Loan hereunder.
1.12 LOAN ACCOUNT AND ACCOUNTING. Agent shall maintain a loan
account (the "LOAN ACCOUNT") on its books to record: all Advances and the Term
Loan, all payments made by Borrower, and all other debits and credits as
provided in this Agreement with respect to the Loans or any other Obligations.
All entries in the Loan Account shall be made in accordance with Agent's
customary accounting practices as in effect from time to time. The balance in
the Loan Account, as recorded on Agent's most recent printout or other written
statement, shall, absent manifest error, be presumptive evidence of the amounts
due and owing to Agent, Co-Agent and Lenders by Borrower; provided that any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower's duty to pay the Obligations. Agent shall render to Borrower a
monthly accounting of transactions with respect to the Loans setting forth the
balance of the Loan Account. Unless Borrower notifies Agent in writing of any
objection to any such accounting (specifically describing the basis for such
objection), within thirty (30) days after the date thereof, each and every such
accounting shall, absent manifest error, be deemed final, binding and conclusive
upon Borrower in all respects as to all matters reflected therein. Only those
items expressly objected to in such notice shall be deemed to be disputed by
Borrower. Notwithstanding any provision herein contained to the contrary, any
Lender may elect (which election may be revoked) to dispense with the issuance
of Notes to that Lender and may rely on the Loan Account as evidence of the
amount of Obligations from time to time owing to it.
1.13 INDEMNITY.
(a) Each Credit Party that is a signatory hereto shall jointly
and severally indemnify and hold harmless each of Agent, Co-Agent, Lenders and
their respective Affiliates, and each such Person's respective officers,
directors, employees, attorneys, agents and representatives (each, an
"INDEMNIFIED PERSON"), from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses (including reasonable
attorneys' fees and disbursements and other costs of investigation or defense,
including those incurred upon any appeal) which may be instituted or asserted
against or incurred by any such Indemnified Person as the result of (a) this
Agreement or the other Loan Documents, or any act, event or transaction related
or attendant thereto or to the Marson Acquisition, the making of the Loans or
the issuing, or causing the issuance of, Letters of Credit, the management of
such Loans or Letters of Credit, the use or intended use of the proceeds of the
Loans or Letters of Credit, or any of the other transactions contemplated by the
Related Transactions Documents, or (b) any Environmental Liabilities under
Environmental Laws arising from or in connection with the past, present or
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[EXECUTION VERSION]
future operations of the Borrower, its Subsidiaries or any of their respective
predecessors in interest, or, the past, present or future environmental
condition of any Property, the presence of asbestos-containing materials at any
Property or the Release or threatened Release of any Contaminant (collectively,
the "INDEMNIFIED LIABILITIES"); PROVIDED, HOWEVER, that the Borrower shall have
no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities
to the extent caused by or resulting from the willful misconduct or gross
negligence of the Indemnified Person (or any other Indemnified Person whose
willful misconduct or grossly negligent acts were authorized by the Indemnified
Person claiming indemnification hereunder), as determined by a court of
competent jurisdiction. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, the Borrower shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER
PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY
OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED
UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED
HEREUNDER OR THEREUNDER.
(b) To induce Lenders to provide the LIBOR Rate option on the
terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part
prior to the last day of any applicable LIBOR Period (whether that repayment is
made pursuant to any provision of this Agreement or any other Loan Document or
is the result of acceleration, by operation of law or otherwise); (ii) Borrower
shall default in payment when due of the principal amount of or interest on any
LIBOR Loan; (iii) Borrower shall default in making any borrowing of, conversion
into or continuation of LIBOR Loans after Borrower has given notice requesting
the same in accordance herewith; or (iv) Borrower shall fail to make any
prepayment of a LIBOR Loan after Borrower has given a notice thereof in
accordance herewith, Borrower shall indemnify and hold harmless each Lender from
and against all losses, costs and expenses resulting from or arising from any of
the foregoing. Such indemnification shall include any loss (including loss of
margin) or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate deposits from which such funds were obtained. For the
purpose of calculating amounts payable to a Lender under this subsection, each
Lender shall be deemed to have actually funded its relevant LIBOR Loan through
the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal
to the amount of that LIBOR Loan and having a maturity comparable to the
relevant LIBOR Period; provided, however, that each Lender may fund each of its
LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be
utilized only for the calculation of amounts payable under this subsection. This
covenant shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder. As promptly as practicable under
the circumstances, each Lender shall provide Borrower with its written
calculation of all amounts payable pursuant to this SECTION 1.13(b), and such
calculation shall be
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[EXECUTION VERSION]
binding on the parties hereto unless Borrower shall object in writing within ten
(10) Business Days of receipt thereof, specifying the basis for such objection
in detail.
1.14 ACCESS. Each Credit Party which is a party hereto shall,
during normal business hours, from time to time upon one (1) Business Day's
prior notice as frequently as Agent determines to be appropriate: (a) provide
Agent and any of its officers, employees and agents access to its properties,
facilities, advisors and employees (including officers) of each Credit Party and
to the Collateral, (b) permit Agent, and any of its officers, employees and
agents, to inspect, audit and make extracts from any Credit Party's books and
records, and (c) permit Agent, and its officers, employees and agents, to
inspect, review, evaluate and make test verifications and counts of the
Accounts, Inventory and other Collateral of any Credit Party. If a Default or
Event of Default shall have occurred and be continuing or if access is necessary
to preserve or protect the Collateral as determined by the Agent, each such
Credit Party shall provide such access to Agent, and to each Lender at all times
and without advance notice. Furthermore, so long as any Event of Default shall
have occurred and be continuing, Borrower shall provide Agent and each Lender
with access to its suppliers and customers. Each Credit Party shall make
available to Agent and its counsel, as quickly as is possible under the
circumstances, originals or copies of all books and records which Agent may
request. Each Credit Party shall deliver any document or instrument necessary
for Agent, as it may from time to time request, to obtain records from any
service bureau or other Person which maintains records for such Credit Party,
and shall maintain duplicate records or supporting documentation on media,
including computer tapes and discs owned by such Credit Party. Agent will give
Lenders at least ten (10) days' prior written notice of regularly scheduled
audits. Representatives of other Lenders may accompany Agent's representatives
on regularly scheduled audits at no charge to Borrower.
1.15 TAXES.
(a) PAYMENT OF TAXES. Any and all payments by the Borrower
hereunder or under any Note or other document evidencing any Obligations shall
be made, in accordance with this SECTION 1.15, free and clear of and without
reduction for any and all present or future taxes, levies, imposts, deductions,
charges, withholdings, duties, and all stamp, transaction or documentary taxes,
excise taxes, ad valorem taxes and other taxes imposed on the value of the
Property, charges or levies which arise from the execution, delivery or
registration, or from payment or performance under, or otherwise with respect
to, any of the Loan Documents or the Commitments and all other liabilities with
respect thereto (including any related interest, penalties, fines and expenses
in connection with any of them) excluding taxes imposed on or measured by net
income or overall gross receipts and capital and franchise taxes imposed on
Agent, Co-Agent or any Lender by (i) the United States, (ii) the Governmental
Authority of any jurisdiction in which Agent, Co-Agent or such Lender has an
office or any political subdivision thereof or (iii) the Governmental Authority
in which Agent, Co-Agent or such Lender is organized, managed and controlled or
any political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, Charges, withholdings or duties, and all liabilities with respect
thereto, being hereinafter referred to as "TAXES"). If the Borrower shall be
required by law to withhold or
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[EXECUTION VERSION]
deduct any Taxes from or in respect of any sum payable hereunder or under any
such Note or document to Agent, Co-Agent or any Lender (x) the sum payable to
Agent, Co-Agent or such Lender shall be increased as may be necessary so that
after making all required withholding or deductions (including withholding or
deductions applicable to additional sums payable under this SECTION 1.15) Agent,
Co-Agent or such Lender receives an amount equal to the sum it would have
received had no such withholding or deductions been made, (y) the Borrower shall
make such withholding or deductions, and (z) the Borrower shall pay the full
amount withheld or deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) INDEMNIFICATION. The Borrower will indemnify Agent, Co-Agent
and each Lender against, and reimburse Agent, Co-Agent and each Lender on demand
for, the full amount of all Taxes (including, without limitation, any Taxes
imposed by any Governmental Authority on amounts payable under this SECTION 1.15
and any additional income or franchise taxes resulting therefrom) incurred or
paid by Agent, Co-Agent or such Lender or any of their respective Affiliates and
any liability (including penalties, additions to tax, interest, and
out-of-pocket expenses paid to third parties) arising therefrom or with respect
thereto, whether or not such Taxes were lawfully payable. A certificate as to
any additional amount payable to any Person under this SECTION 1.15 submitted by
such Person to the Borrower shall, absent manifest error, be final, conclusive
and binding upon all parties hereto. Agent, Co-Agent and each Lender agrees,
within a reasonable time after receiving a written request from the Borrower, to
provide the Borrower with such certificates as are reasonably required, and take
such other actions as are reasonably necessary to claim such exemptions as such
Person may be entitled to claim in respect of all or a portion of any Taxes
which are otherwise required to be paid or deducted or withheld pursuant to this
SECTION 1.15 in respect of any payments under this Agreement or under the Notes.
(c) RECEIPTS. Within thirty (30) days after the date of any
payment of Taxes by the Borrower, it will furnish to the Agent, at its address
referred to in SECTION 11.10, the original or a certified copy of a receipt
evidencing payment thereof.
(d) FOREIGN LENDERS. Each Lender organized under the laws of a
jurisdiction outside the United States (a "FOREIGN LENDER") as to which payments
to be made under this Agreement or under the Notes are exempt from United States
withholding tax under an applicable statute or tax treaty shall provide to
Borrower and Agent a properly completed and executed IRS Form 4224 or Form 1001
or other applicable form, certificate or document prescribed by the IRS or the
United States certifying as to such Foreign Lender's entitlement to such
exemption (a "CERTIFICATE OF EXEMPTION"). Any foreign Person that seeks to
become a Lender under this Agreement shall provide a Certificate of Exemption to
Borrower and Agent prior to becoming a Lender hereunder. No foreign Person may
become a Lender hereunder if such Person is unable to deliver a Certificate of
Exemption.
1.16 CAPITAL ADEQUACY; INCREASED COSTS; ILLEGALITY.
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[EXECUTION VERSION]
(a) If any Lender shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law), in each case, adopted after the Effective Date, from any
central bank or other Governmental Authority increases or would have the effect
of increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall from time to time upon demand by such Lender (with a copy of such demand
to Agent) pay to Agent, for the account of such Lender, additional amounts
sufficient to compensate such Lender for such reduction. A certificate as to the
amount of that reduction and showing the basis of the computation thereof
submitted by such Lender to Borrower and to Agent shall, absent manifest error,
be final, conclusive and binding for all purposes.
(b) If, due to either (i) the introduction of or any change in
any law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case
adopted after the Effective Date, there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining any Loan, then
Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to Agent), pay to Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to Borrower and
to Agent by such Lender, shall be conclusive and binding on Borrower for all
purposes, absent manifest error. Each Lender agrees that, as promptly as
practicable after it becomes aware of any circumstances referred to above which
would result in any such increased cost, the affected Lender shall, to the
extent not inconsistent with such Lender's internal policies of general
application, use reasonable commercial efforts to minimize costs and expenses
incurred by it and payable to it by Borrower pursuant to this SECTION 1.16(b).
(c) Notwithstanding anything to the contrary contained herein, if
the introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender's
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to agree to make or to make or to continue to
fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith
prepay in full all outstanding LIBOR Loans owing to such Lender, together with
interest accrued thereon, unless Borrower, within five (5) Business Days after
the delivery of such notice and demand, converts all such Loans into an Index
Rate Loan.
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[EXECUTION VERSION]
(d) REPLACEMENT OF LENDER IN RESPECT OF INCREASED COSTS. Within
fifteen (15) days after receipt by Borrower of written notice and demand from
any Lender (an "AFFECTED LENDER") for payment of additional amounts or increased
costs as provided in SECTION 1.15(a), 1.16(a) or 1.16(b), Borrower may, at its
option, notify Agent and such Affected Lender of its intention to replace the
Affected Lender. So long as no Default or Event of Default shall have occurred
and be continuing, Borrower, with the consent of Agent, may obtain, at
Borrower's expense, a replacement Lender ("REPLACEMENT LENDER") for the Affected
Lender, which Replacement Lender must be satisfactory to Agent. If Borrower
obtains a Replacement Lender within ninety (90) days following notice of its
intention to do so, the Affected Lender must sell and assign its Loans and
Commitments to such Replacement Lender for an amount equal to the principal
balance of all Loans held by the Affected Lender and all accrued interest and
Fees with respect thereto through the date of such sale, provided that Borrower
shall have reimbursed such Affected Lender for the additional amounts or
increased costs that it is entitled to receive under this Agreement through the
date of such sale and assignment. Notwithstanding the foregoing, Borrower shall
not have the right to obtain a Replacement Lender if the Affected Lender
rescinds its demand for increased costs or additional amounts within fifteen
(15) days following its receipt of Borrower's notice of intention to replace
such Affected Lender. Furthermore, if Borrower gives a notice of intention to
replace and does not so replace such Affected Lender within ninety (90) days
thereafter, Borrower's rights under this SECTION 1.16(d) shall terminate and
Borrower shall promptly pay all increased costs or additional amounts demanded
by such Affected Lender pursuant to SECTIONS 1.15(a), 1.16(a) and 1.16(b).
1.17 SINGLE LOAN. All Loans to Borrower and all of the other
Obligations of Borrower arising under this Agreement and the other Loan
Documents shall constitute one general obligation of Borrower secured, until the
Termination Date, by all of its Collateral.
2. CONDITIONS TO LOANS
2.1 CONDITIONS PRECEDENT TO THE INITIAL LOANS.
No Lender shall be obligated to make any Loan or incur any Letter
of Credit Obligations on the Effective Date, or to take, fulfill, or perform any
other action hereunder, until the following conditions have been satisfied or
provided for in a manner satisfactory to Agent, or waived in writing by Agent
and Lenders:
(a) CREDIT AGREEMENT; LOAN DOCUMENTS. This Agreement or
counterparts hereof shall have been duly executed by, and delivered to,
Borrower, Agent, Co-Agent and Lenders; and Agent shall have received such
documents, instruments, agreements and legal opinions as Agent shall reasonably
request in connection with the transactions contemplated by this Agreement and
the other Loan Documents, including all those identified in the Closing
Checklist attached hereto as ANNEX D as conditions precedent to the initial
loans, each in form and substance satisfactory to Agent.
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[EXECUTION VERSION]
(b) REPAYMENT OF PRIOR LENDER OBLIGATIONS; SATISFACTION OF
OUTSTANDING L/cs. (i) Agent shall have received a fully executed original of a
pay-off letter satisfactory to Agent confirming that all of the Prior Lender
Obligations will be repaid in full from the proceeds of the Term Loan and the
initial Revolving Credit Advance and all Liens upon any of the property of
Borrower or any of its Subsidiaries in favor of Prior Lender shall be terminated
by Prior Lender immediately upon such payment; and (ii) all letters of credit
issued or guaranteed by Prior Lender shall have been cash collateralized,
supported by a guaranty of Agent or supported by a Letter of Credit issued
pursuant to ANNEX B, as mutually agreed upon by Agent, Borrower and Prior
Lender.
(c) APPROVALS. Agent shall have received (i) satisfactory
evidence that the Credit Parties have obtained all required consents and
approvals of all Persons including all requisite Governmental Authorities, to
the execution, delivery and performance of this Agreement and the other Loan
Documents and the consummation of the Related Transactions or (ii) an officer's
certificate in form and substance satisfactory to Agent affirming that no such
consents or approvals are required.
(d) OPENING AVAILABILITY. The Eligible Accounts and Eligible
Inventory supporting the initial Revolving Credit Advance and the initial Letter
of Credit Obligations incurred and the amount of the Reserves to be established
on the Effective Date shall be sufficient in value, as determined by Agent, to
provide Borrower with Net Borrowing Availability, after giving effect to the
initial Revolving Credit Advance, the incurrence of any initial Letter of Credit
Obligations and the consummation of the Related Transactions (on a pro forma
basis, with trade payables being paid currently, and expenses and liabilities
being paid in the ordinary course of business and without acceleration of sales)
of at least $5,000,000.
(e) PAYMENT OF FEES. Borrower shall have paid the Fees required
to be paid on the Effective Date in the respective amounts specified in SECTION
1.9 (including the Fees specified in the GE Capital Fee Letter), and shall have
reimbursed Agent and Co-Agent for all fees, costs and expenses of closing (if
any) presented as of the Effective Date.
(f) CAPITAL STRUCTURE: OTHER INDEBTEDNESS. The capital structure
of each Credit Party and the terms and conditions of all Indebtedness of each
Credit Party shall be acceptable to Agent in its sole discretion.
(g) CONSUMMATION OF RELATED TRANSACTIONS. Agent shall have
received fully executed copies of the Marson Stock Purchase Documents and each
of the other Related Transactions Documents, each of which shall be in form and
substance satisfactory to Agent and its counsel. The Marson Acquisition and the
other Related Transactions shall have been consummated in accordance with the
terms of the Marson Stock Purchase Documents and the other Related Transactions
Documents but for the payment of the cash purchase price payable on the
Effective Date pursuant to the Marson Stock Purchase Documents.
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[EXECUTION VERSION]
2.2 FURTHER CONDITIONS PRECEDENT TO EACH LOAN. Except as
otherwise expressly provided herein, no Lender shall be obligated to fund any
Loan, convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit
Obligation, if, as of the date thereof:
(a) Any representation or warranty by any Credit Party contained
herein or in any of the other Loan Documents shall be untrue or incorrect as of
such date, except to the extent that such representation or warranty expressly
relates to an earlier date and except for changes therein expressly permitted or
expressly contemplated by this Agreement, and Agent or Requisite Revolving
Revolvers shall have determined not to make such Loan, convert or continue such
Loan as a LIBOR Loan or incur such Letter of Credit Obligation due to the fact
that such warranty or representation is untrue or incorrect; or
(b) Any event or circumstance having a Material Adverse Effect
shall have occurred since the date hereof as determined by the Requisite
Revolving Lenders; or
(c) Any Default or Event of Default shall have occurred and be
continuing or would result after giving effect to any Loan or the incurrence of
any Letter of Credit Obligation, and Agent or Requisite Revolving Lenders shall
have determined not to make such Loan, convert or continue such Loan as a LIBOR
Loan or incur such Letter of Credit Obligation on the basis of such Default or
Event of Default; or
(d) After giving effect to any Advance (or the incurrence of any
Letter of Credit Obligations), the outstanding principal amount of the Revolving
Loan would exceed the lesser of the Borrowing Base and the Maximum Amount, less,
in each case, the then outstanding principal amount of the Swing Line Loan; or
(e) After giving effect to any Swing Line Advance, the
outstanding principal amount of the Swing Line Loan would exceed Swing Line
Availability. The request and acceptance by Borrower of the proceeds of any
Loan, the incurrence of any Letter of Credit Obligations or the conversion or
continuation of any Loan into, or as, a LIBOR Loan, as the case may be, shall be
deemed to constitute, as of the date of such request or acceptance, (i) a
representation and warranty by Borrower that the conditions in this SECTION 2.2
have been satisfied and (ii) a reaffirmation by Borrower of the granting and
continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the
Collateral Documents.
2.3 CONDITIONS SUBSEQUENT TO THE INITIAL LOANS. In addition to
the conditions precedent described in SECTION 2.1, the following items must be
received by Agent in form and substance satisfactory to Agent on the Effective
Date:
(a) all items identified in the Closing Checklist attached hereto
as ANNEX D as conditions subsequent to the initial loans;
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[EXECUTION VERSION]
(b) counterparts of this Agreement delivered to Agent pursuant to
SECTION 5.17(b) hereof; and
(c) an intercompany note made by Marson in favor of Borrower
evidencing the NationsCredit Payoff Loan, such note to be delivered to Agent on
the Effective Date pursuant to the Pledge Agreement.
3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans and to incur Letter of Credit
Obligations, the Credit Parties executing this Agreement, jointly and severally,
make the following representations and warranties to Agent, Co-Agent and each
Lender with respect to all Credit Parties, each and all of which shall survive
the execution and delivery of this Agreement.
3.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Credit Party
(a) is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation; (b) is duly qualified to conduct
business and is in good standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a Material Adverse
Effect; (c) has the requisite corporate power and authority and the legal right
to own, pledge, mortgage or otherwise encumber and operate its properties, to
lease the property it operates under lease and to conduct its business as now,
heretofore and proposed to be conducted; and (d) subject to specific
representations set forth herein regarding ERISA, Environmental Laws, tax and
other laws, is in compliance with all applicable Requirements of Law, except
where the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
3.2 EXECUTIVE OFFICES; FEIN. As of the Effective Date, the
current location of each Credit Party's chief executive office and principal
place of business is set forth in DISCLOSURE SCHEDULE (3.2), and none of such
locations have changed within the twelve (12) months preceding the Effective
Date. In addition, DISCLOSURE SCHEDULE (3.2) lists the federal employer
identification number of each Credit Party.
3.3 CORPORATE POWER, AUTHORIZATION, ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Person's corporate power; (b) have been duly authorized by all
necessary or proper corporate and shareholder action; (c) do not contravene any
provision of such Person's Organizational Documents; (d) do not violate any
Requirements of Law; (e) do not conflict with or result in the breach or
termination of, constitute a default under or accelerate or permit the
acceleration of any performance required by, any indenture, mortgage, deed of
trust, lease, material agreement or other material instrument to which such
Person is a party or by which such Person or any of its property is bound; (f)
do not result in the creation or imposition of any Lien upon any of the property
of such Person other than
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[EXECUTION VERSION]
those in favor of Agent, on behalf of itself and Lenders, pursuant to the Loan
Documents; and (g) do not require the consent or approval of any Governmental
Authority or any other Person, except those referred to in SECTION 2.1(c), all
of which will have been duly obtained, made or complied with prior to the
Effective Date. The grant and perfection of the security interest in the Stock
of the Subsidiaries of the Borrower constituting a portion of the Collateral, as
contemplated by the terms of the Loan Documents, is not made in violation of the
registration provisions of the Securities Act, any applicable provisions of
other federal securities laws, state securities or "Blue Sky" law, foreign
securities law, or applicable general corporation, limited liability company,
unlimited liability company or partnership law or in violation of any other
Requirements of Law. On or prior to the Effective Date, each of the Loan
Documents shall have been duly executed and delivered by each Credit Party party
thereto and each such Loan Document shall then constitute a legal, valid and
binding obligation of such Credit Party enforceable against it in accordance
with its terms.
3.4 FINANCIAL STATEMENTS AND PROJECTIONS. Except for the
Projections, all Financial Statements concerning Borrower and its Subsidiaries
which are referenced below have been prepared in accordance with GAAP
consistently applied throughout the periods covered (except as disclosed therein
and except, with respect to unaudited Financial Statements, for the absence of
footnotes and normal year-end audit adjustments) and present fairly in all
material respects the financial position of the Persons covered thereby as at
the dates thereof and the results of their operations and cash flows for the
periods then ended.
(a) FINANCIAL STATEMENTS. The following Financial Statements have
been delivered on or prior to the date hereof:
(i) The audited consolidated and consolidating balance
sheets at December 31, 1996 and 1997, and the related statements of
income and cash flows of Borrower and its Subsidiaries for the Fiscal
Years then ended, certified by Arthur Andersen, LLP.
(ii) The unaudited balance sheet(s) at June 28, 1998, and
the related statement(s) of income and cash flows of Borrower and its
Subsidiaries for the Fiscal Quarter ended June 28, 1998.
(b) PRO FORMA. The Pro Forma delivered on or prior to the date
hereof was prepared by Borrower giving pro forma effect to the Related
Transactions, was based on the unaudited consolidated and consolidating balance
sheets of Borrower and its Subsidiaries dated as of September 27, 1998, and was
prepared in accordance with GAAP, with only such adjustments thereto as would be
required in accordance with GAAP.
(c) PROJECTIONS. The Projections delivered on or prior to the
date hereof have been prepared by Borrower in light of the past operations of
its businesses, but including future payments of known contingent liabilities
reflected on the balance sheet, and reflect projections for
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the one-year period beginning on December 31, 1997, on a year by year basis. The
Projections are based upon estimates and assumptions stated therein, all of
which Borrower believes to be reasonable and fair in light of current conditions
and current facts known to Borrower and, as of the Effective Date, reflect
Borrower's good faith and reasonable estimates of the future financial
performance of Borrower and of the other information projected therein for the
period set forth therein.
3.5 MATERIAL ADVERSE EFFECT. Between December 31, 1997, and the
Effective Date no event has occurred, which alone or together with other events,
could reasonably be expected to have a Material Adverse Effect.
3.6 OWNERSHIP OF PROPERTY; LIENS. As of the Effective Date, the
Real Property listed on DISCLOSURE SCHEDULE (3.6(a)) constitutes all of the Real
Property owned, leased, subleased, or used by any Credit Party and the addresses
thereof. Each Credit Party owns good and marketable fee simple title to all of
its owned Real Property, and valid and marketable leasehold interests in all of
its leased Real Property. Each Credit Party also has good and marketable title
to, or valid leasehold interests in, all of its personal properties and assets.
As of the Effective Date, none of the properties and assets of any Credit Party
are subject to any Liens other than Permitted Encumbrances and the M&M Liens,
and there are no facts, circumstances or conditions known to any Credit Party
that may result in any Liens (including Liens arising under Environmental Laws)
other than Permitted Encumbrances. Each Credit Party has received all deeds,
assignments, waivers, consents, non-disturbance and recognition or similar
agreements, bills of sale and other documents, and has duly effected all
recordings, filings and other actions necessary to establish, protect and
perfect such Credit Party's right, title and interest in and to all such Real
Property and other properties and assets. As of the Effective Date, no portion
of any Credit Party's Real Property has suffered any material damage by fire or
other casualty loss which has not heretofore been repaired and restored in all
material respects to its original condition or otherwise remedied. As of the
Effective Date, all material permits required to have been issued or appropriate
to enable the Real Property to be lawfully occupied and used for all of the
purposes for which they are currently occupied and used have been lawfully
issued and are in full force and effect.
3.7 LABOR MATTERS. Except as set forth in DISCLOSURE SCHEDULE
(3.7), as of the Effective Date (a) no strikes or other material labor disputes
against any Credit Party are pending or, to any Credit Party's knowledge,
threatened; (b) hours worked by and payment made to employees of each Credit
Party comply with the Fair Labor Standards Act and each other federal, state,
local or foreign law applicable to such matter; (c) all payments due from any
Credit Party for employee health and welfare insurance have been paid or accrued
as a liability on the books of such Credit Party; (d) no Credit Party is a party
to or bound by any collective bargaining agreement (and true and complete copies
of any agreements described on DISCLOSURE SCHEDULE (3.7) have been delivered to
Agent); (e) there is no organizing activity involving any Credit Party pending
or, to any Credit Party's knowledge, threatened by any labor union or group of
employees; (f) there are no representation proceedings pending or, to any Credit
Party's
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knowledge, threatened with the National Labor Relations Board, and no labor
organization or group of employees of any Credit Party has made a pending demand
for recognition; and (g) there are no complaints or charges against any Credit
Party which are pending or, to the knowledge of any Credit Party, threatened to
be filed with any Governmental Authority or arbitrator and which are based on,
arising out of, in connection with, or otherwise relating to the employment or
termination of employment by any Credit Party of any individual and which have a
reasonable risk of being determined adversely to any Credit Party and which, if
so determined, could have a Material Adverse Effect.
3.8 VENTURES, SUBSIDIARIES AND AFFILIATES; OUTSTANDING STOCK AND
INDEBTEDNESS. DISCLOSURE SCHEDULE (3.8) sets forth (i) the correct legal name
and jurisdiction of incorporation, and the jurisdictions in which qualified to
transact business as a foreign corporation, of each Credit Party, (ii) the
authorized, issued and outstanding shares of each class of capital Stock of each
Credit Party and the owners of such shares (other than the owners of the shares
of common stock of Borrower), and (iii) a summary of the direct and indirect
partnership, joint venture, or other equity interests, if any, of the Borrower
and each of its Subsidiaries in any Person that is not a corporation. All of the
issued and outstanding Stock of each Credit Party other than Borrower is owned
by each of the stockholders and in the amounts set forth on DISCLOSURE SCHEDULE
(3.8). Other than the Stock Incentive Plan, there are no outstanding rights to
purchase, options, warrants or similar rights or agreements pursuant to which
any Credit Party may be required to issue, sell, repurchase or redeem any of its
Stock or other equity securities or any Stock or other equity securities of its
Subsidiaries.
3.9 GOVERNMENT REGULATION. No Credit Party is an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940 as amended. No Credit Party is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or any other foreign, federal or state statute that
restricts or limits its ability to incur Indebtedness or to perform its
obligations hereunder.
3.10 MARGIN REGULATIONS. No Credit Party is engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
security" as such terms are defined in Regulation U or G of the Federal Reserve
Board as now and from time to time hereafter in effect (such securities being
referred to herein as "MARGIN STOCK"). No Credit Party owns any Margin Stock,
and none of the proceeds of the Loans or other extensions of credit under this
Agreement will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry any Margin
Stock or for any other purpose which might cause any of the Loans or other
extensions of credit under this Agreement to be considered a "purpose credit"
within the meaning of Regulation G, T, U or X of the Federal Reserve Board.
No Credit Party will take or permit to be taken any action which might cause
any Loan Document to violate any regulation of the Federal Reserve Board.
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3.11 TAXES. Except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect, all tax returns,
reports and statements, including information returns, required by any
Governmental Authority to be filed by any Credit Party have been filed with the
appropriate Governmental Authority and all Charges have been paid prior to the
date on which any fine, penalty, interest or late charge may be added thereto
for nonpayment thereof (or any such fine, penalty, interest, late charge or loss
has been paid), excluding Charges or other amounts being contested in good faith
by appropriate proceedings and for which such Credit Party shall have set aside
on its books adequate reserves. Proper and accurate amounts have been withheld
by each Credit Party from its respective employees for all periods in full and
complete compliance with all applicable Requirements of Law and such
withholdings have been timely paid to the respective Governmental Authorities.
3.12 ERISA.
(a) Except with respect to Multiemployer Plans, each Qualified
Plan has been determined by the IRS to qualify under Section 401 of the IRC, and
the trusts created thereunder have been determined to be exempt from tax under
the provisions of Section 501 of the IRC, and nothing has occurred which would
cause the loss of such qualification or tax-exempt status. Each Plan is in
compliance with the applicable provisions of ERISA and the IRC, including the
filing of reports required under the IRC or ERISA. No Credit Party or ERISA
Affiliate has failed to make any contribution or pay any amount due as required
by the IRC or ERISA or the terms of any such Plan. No Credit Party or ERISA
Affiliate has engaged in a prohibited transaction, as defined in Section 4975 of
the IRC, in connection with any Plan, which would subject any Credit Party to a
material tax on prohibited transactions imposed by Section 4975 of the IRC.
(b) Except as set forth in DISCLOSURE SCHEDULE (3.12): (i) no
Benefit Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any Benefit Plan has
occurred or is reasonably expected to occur; (iii) there are no pending, or to
the knowledge of any Credit Party, threatened claims (other than claims for
benefits in the normal course), sanctions, actions or lawsuits, asserted or
instituted against any Plan or any Person as fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to
incur any liability as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years no Benefit Plan with Unfunded
Pension Liabilities has been transferred outside of the "controlled group"
(within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party or
ERISA Affiliate; and (vi) no liability under any Benefit Plan has been satisfied
with the purchase of a contract from an insurance company that is not rated AAA
by the Standard & Poor's Corporation or the equivalent by another nationally
recognized rating agency.
3.13 FOREIGN EMPLOYEE BENEFIT MATTERS. Each Foreign Employee
Benefit Plan is in compliance in all material respects with all laws,
regulations and rules applicable thereto and the respective requirements of the
governing documents for such Plan. The aggregate of the liabilities to provide
all of the accrued benefits under any Foreign Pension Plan does not exceed
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the current Fair Market Value of the assets held in the trust or other funding
vehicle for such Plan. With respect to any Foreign Employee Benefit Plan
maintained or contributed to by any Credit Party or any ERISA Affiliate (other
than a Foreign Pension Plan), reasonable reserves have been established to the
extent required by prudent business practice or where required by ordinary
accounting practices in the jurisdiction in which such Plan is maintained. The
aggregate unfunded liabilities, after giving effect to any reserves for such
liabilities, with respect to such Plans does not exceed the current Fair Market
Value of the assets held in the trust or other funding vehicle (or reserves) for
such Plan. There are no actions, suits or claims (other than routine claims for
benefits) pending or threatened against any Credit Party or any ERISA Affiliate
with respect to any Foreign Employee Benefit Plan.
3.14 NO LITIGATION; NO ADVERSE EFFECTS.
(a) No action, claim, lawsuit, demand, investigation or
proceeding is now pending or, to the knowledge of any Credit Party, threatened
against any Credit Party, before any Governmental Authority or before any
arbitrator or panel of arbitrators (collectively, "LITIGATION"), (i) which
challenges any Credit Party's right or power to enter into or perform any of its
obligations under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (ii)
which has a reasonable risk of being determined adversely to any Credit Party
and which, if so determined, could have a Material Adverse Effect. Except as set
forth on DISCLOSURE SCHEDULE (3.14), as of the Effective Date there is no
Litigation pending or threatened which seeks injunctive relief or alleges
criminal misconduct of any Credit Party or would otherwise have, or be
reasonably likely to have, a Material Adverse Effect.
(b) There is no material loss contingency within the meaning of
GAAP which has not been reflected in the consolidated financial statements of
the Borrower. No Credit Party is (i) in violation of any applicable Requirements
of Law which violation would have or would be reasonably likely to have a
Material Adverse Effect, or (ii) subject to or in default with respect to any
final judgment, writ, injunction, restraining order or order of any nature,
decree, rule or regulation of any court or Governmental Authority which would
have or would be reasonably likely to have a Material Adverse Effect.
3.15 BROKERS. No broker or finder acting on behalf of any Credit
Party brought about the obtaining, making or closing of the Loans or the Related
Transactions, and no Credit Party has any obligation to any Person in respect of
any finder's or brokerage fees in connection therewith.
3.16 INTELLECTUAL PROPERTY. As of the Effective Date, each Credit
Party owns or has rights to use all Intellectual Property necessary to continue
to conduct its business as now or heretofore conducted by it or proposed to be
conducted by it, and each Patent, Trademark, Copyright and License is listed,
together with application or registration numbers, as applicable, in
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[EXECUTION VERSION]
DISCLOSURE SCHEDULE (3.16) hereto. Each Credit Party conducts its business and
affairs without infringement of or interference with any Intellectual Property
of any other Person.
3.17 FULL DISCLOSURE. No information contained in this Agreement,
any of the other Loan Documents, any Projections, Financial Statements or
Collateral Reports or other reports from time to time delivered hereunder or any
written statement furnished by or on behalf of any Credit Party to Agent,
Co-Agent or any Lender pursuant to the terms of this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. The Liens
granted to Agent, on behalf of itself and Lenders, pursuant to the Collateral
Documents will at all times be fully perfected first priority Liens in and to
the Collateral described therein, subject, as to priority, only to Permitted
Encumbrances with respect to the Collateral other than Accounts.
3.18 ENVIRONMENTAL MATTERS
(a) As of the Effective Date, except as disclosed on DISCLOSURE
SCHEDULE (3.18), to the knowledge of any Credit Party: (i) the Real Property is
free of contamination from any Hazardous Material except for such contamination
that would not adversely impact the value or marketability of such Real Property
and which would not result in Environmental Liabilities which could reasonably
be expected to exceed $500,000; (ii) no Credit Party has caused or suffered to
occur any Release of Hazardous Materials on, at, in, under, above, to, from or
about any of its Real Property which (A) require Remedial Action to be
undertaken where such Remedial Action is subject to review or approval by any
Governmental Authority or (B) would require a report to be made to any
Governmental Authority; (iii) the Credit Parties are and have been in compliance
with all Environmental Laws, except for such noncompliance which would not
result in Environmental Liabilities which could reasonably be expected to exceed
$500,000; (iv) the Credit Parties have obtained or applied for, and are in
compliance with, all Environmental Permits required by Environmental Laws for
the operations of their respective businesses as presently conducted or as
proposed to be conducted, except where the failure to so obtain or comply with
such Environmental Permits would not result in Environmental Liabilities which
could reasonably be expected to exceed $500,000, and all such Environmental
Permits are valid, uncontested and in good standing; (v) no Credit Party is
involved in operations or knows of any facts, circumstances or conditions,
including any Releases of Hazardous Materials, that are likely to result in any
in Environmental Liabilities of such Credit Party which could reasonably be
expected to exceed $500,000; and (vi) no notice has been received by any Credit
Party identifying it as a "potentially responsible party" or requesting
information under CERCLA or analogous state statute, and to the actual knowledge
of the Credit Parties, there are no facts, circumstances or conditions that may
result in any Credit Party being identified as a "potentially responsible party"
under CERCLA or analogous state statutes.
(b) Each Credit Party hereby acknowledges and agrees that none of
Agent, Co-Agent or any Lender (i) is now, or has ever been, in control of any of
the Real Property or any
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Credit Party's affairs, nor (ii) has the capacity through the provisions of the
Loan Documents or otherwise to influence any Credit Party's conduct with respect
to the ownership, operation or management of any of its Real Property or
compliance with Environmental Laws or Environmental Permits.
3.19 INSURANCE. DISCLOSURE SCHEDULE (3.19) lists all insurance
policies of any nature maintained, as of the Effective Date, for current
occurrences by each Credit Party, as well as a summary of the terms of each such
policy, specifying (i) the amount thereof, (ii) the risks insured against
thereby, (iii) the name of the insurer and each insured party thereunder, (iv)
the policy or other identification number thereof, (v) the expiration date
thereof and (vi) the annual premium with respect thereto. Such insurance
policies and programs are in amounts sufficient to cover the replacement value
of the respective Property and assets of the Credit Parties.
3.20 DEPOSIT AND DISBURSEMENT ACCOUNTS. DISCLOSURE SCHEDULE
(3.20) lists all banks and other financial institutions at which any Credit
Party maintains deposits and/or other accounts as of the Effective Date,
including any Disbursement Accounts, and such Schedule correctly identifies the
name, address and telephone number of each depository, the name in which the
account is held, a description of the purpose of the account, and the complete
account number.
3.21 GOVERNMENT CONTRACTS. Except as set forth in DISCLOSURE
SCHEDULE (3.21), as of the Effective Date:
(i) The Credit Parties are in compliance with all material
terms and conditions of all applicable Requirements of Laws and all
Contractual Obligations pertaining to any Government Contract;
(ii) No termination for default, termination for
convenience, cure notice or show cause notice is currently in effect
with respect to any Government Contract;
(iii) To the best of the Borrower's knowledge, no cost
incurred pertaining to any Government Contract has been questioned or
challenged, is the subject of any investigation or has been disallowed
by any United States Governmental Authority;
(iv) To the best of the Borrower's knowledge, no money due
to any Credit Party pertaining to any Government Contract has been
withheld, or has been the subject of an attempt to withhold, or reduced
through exercise of a right of set-off or otherwise;
(v) There exist (A) no outstanding material Claims against
any Credit Party or any Property, either by a United States Governmental
Authority or by any prime contractor, subcontractor, vendor or other
third party, arising under or relating to any Government Contract; and
(B) no material disputes between the Borrower or any of its
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Subsidiaries, on the one hand, and any United States Governmental
Authority, any prime contractor, subcontractor, vendor or other third
party, on the other hand, arising under or relating to any Government
Contract;
(vi) The Borrower's cost accounting and procurement
systems with respect to Government Contracts are in compliance in all
material respects with all applicable Requirements of Law; and
(vii) All Government Contracts and bids (A) are being
performed or were submitted, as the case may be, in the ordinary course
of business and (B) are or would be, as the case may be, capable of
performance in accordance with their terms without loss (determined in
accordance with GAAP, consistently applied).
3.22 CUSTOMER AND TRADE RELATIONS. As of the Effective Date,
there exists no actual or, to the knowledge of any Credit Party, threatened
termination or cancellation of, or any material adverse modification or change
in: (i) the business relationship of any Credit Party with any customer or group
of customers whose purchases during the preceding twelve (12) months caused them
to be ranked among the ten largest customers of such Credit Party; or (ii) the
business relationship of any Credit Party with any supplier material to its
operations.
3.23 SOLVENCY. Both before and after giving effect to (a) the
Loans and Letter of Credit Obligations to be made or extended on the Effective
Date or such other date as Loans and Letter of Credit Obligations requested
hereunder are made or extended, (b) the disbursement of the proceeds of such
Loans pursuant to the instructions of Borrower, (c) the Marson Acquisition and
the consummation of the other Related Transactions and (d) the payment and
accrual of all transaction costs in connection with the foregoing, each Credit
Party is Solvent.
3.24 YEAR 2000 REPRESENTATIONS. Each Credit Party (other than the
Marcliff Subsidiaries) has completed and delivered to Agent a Year 2000
Assessment and a Year 2000 Corrective Plan.
3.25 MARSON STOCK PURCHASE DOCUMENTS. As of the Effective Date,
Borrower has delivered to Agent complete and correct copies of the Marson Stock
Purchase Documents (including all schedules, exhibits, amendments, supplements,
modifications, assignments and all other documents delivered pursuant thereto or
in connection therewith). No Credit Party and no other Person party thereto is
in default in the performance or compliance with any provisions thereof. The
Marson Stock Purchase Documents comply with, and the Marson Acquisition will be
consummated in accordance with, all applicable Requirements of Law. The Marson
Stock Purchase Documents are in full force and effect as of the Effective Date
and have not been terminated, rescinded or withdrawn. All requisite approvals by
Governmental Authorities having jurisdiction over Sellers, any Credit Party and
other Persons referenced therein, with respect to the transactions contemplated
by the Marson Stock Purchase Documents, have been obtained, and no such
approvals impose any conditions to the consummation of the transactions
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contemplated by the Marson Stock Purchase Documents or to the conduct by any
Credit Party of its business thereafter. To the best of each Credit Party's
knowledge, none of the Sellers' representations or warranties in the Marson
Stock Purchase Documents contain any untrue statement of a material fact or omit
any fact necessary to make the statements therein not misleading. Each of the
representations and warranties given by each applicable Credit Party in the
Marson Stock Purchase Documents are true and correct in all material respects.
3.26 ELIGIBLE ACCOUNTS. From and after the Effective Date, the
Eligible Accounts are, as of the date as of which any Revolving Loan is made or
requested or any Letter of Credit is issued hereunder or a Borrowing Base
Certificate is delivered, bona fide existing obligations created by the sale and
delivery of Inventory or the rendition of services to Account Debtors in the
ordinary course of the Borrower's or Marson's business, as the case may be,
unconditionally owed to such Person without defenses, disputes, offsets,
counterclaims or rights of return other than in the ordinary course of business.
The property giving rise to such Eligible Accounts has been delivered to the
Account Debtor, or to the Account Debtor's agent for immediate shipment to and
unconditional acceptance by the Account Debtor. Neither the Borrower nor Marson,
as the case may be, has received notice of actual or imminent bankruptcy,
insolvency, or the material impairment of the financial condition of any Account
Debtor at the time an Eligible Account due from such Account Debtor is created
or first included in the Borrowing Base.
3.27 ELIGIBLE INVENTORY. From and after the Effective Date, all
Eligible Inventory is, as of the date as of which any Revolving Loan is made or
requested or any Letter of Credit is issued hereunder or a Borrowing Base
Certificate is delivered, of good and merchantable quality, free from material
defects.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 REPORTS AND NOTICES.
(a) Borrower hereby agrees that from and after the Effective Date
and until the Termination Date, it shall deliver to Agent, Co-Agent and/or
Lenders, as required, the Financial Statements, notices, Projections and other
information at the times, to the Persons and in the manner set forth in ANNEX E.
(b) Borrower hereby agrees that from and after the Effective Date
and until the Termination Date, it shall deliver to Agent, Co-Agent and/or
Lenders, as required, the various Collateral Reports (including Borrowing Base
Certificates in the form of EXHIBIT 4.1(b)) at the times, to the Persons and in
the manner set forth in ANNEX F.
4.2 COMMUNICATION WITH ACCOUNTANTS. Each Credit Party executing
this Agreement authorizes Agent and, so long as a Default or Event of Default
shall have occurred and be continuing, Co-Agent and each Lender, to communicate
directly with its independent
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certified public accountants, including Arthur Andersen, LLP, and authorizes and
shall instruct those accountants and advisors to disclose and make available to
Agent, Co-Agent and each Lender any and all Financial Statements and other
supporting financial documents, schedules and information relating to any Credit
Party (including copies of any issued management letters) with respect to the
business, financial condition and other affairs of any Credit Party.
5. AFFIRMATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties that from and after the date hereof and until
the Termination Date:
5.1 MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. Each Credit
Party shall: (a) do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and its rights and
franchises; (b) continue to conduct its business substantially as now conducted
or as otherwise permitted hereunder; (c) at all times maintain, preserve and
protect all of its assets and properties used or useful in the conduct of its
business, and keep the same in good repair, working order and condition in all
material respects (taking into consideration ordinary wear and tear) and from
time to time make, or cause to be made, all necessary or appropriate repairs,
replacements and improvements thereto consistent with industry practices; and
(d) transact business only in such corporate and trade names as are set forth in
DISCLOSURE SCHEDULE (5.1).
5.2 PAYMENT OF OBLIGATIONS.
(a) Subject to SECTION 5.2(b), each Credit Party shall pay and
discharge or cause to be paid and discharged promptly all Charges payable by it,
including (i) Charges imposed upon it, its income and profits, or any of its
property (real, personal or mixed) and all Charges with respect to tax, social
security and unemployment withholding with respect to its employees, and (ii)
lawful claims for labor, materials, supplies and services or otherwise, before
any thereof shall become past due.
(b) Each Credit Party may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges or claims described in
SECTION 5.2(a); provided, that (i) adequate reserves with respect to such
contest are maintained on the books of such Credit Party, in accordance with
GAAP, (ii) no Lien shall be imposed to secure payment of such Charges that is
superior to any of the Liens securing payment of the Obligations and such
contest is maintained and prosecuted continuously and with diligence and
operates to suspend collection or enforcement of such Charges, (iii) none of the
Collateral becomes subject to forfeiture or loss as a result of such contest,
(iv) such Credit Party shall promptly pay or discharge such contested Charges or
claims and all additional charges, interest, penalties and expenses, if any, and
shall deliver to Agent evidence acceptable to Agent of such compliance, payment
or discharge, if such contest is terminated or discontinued adversely to such
Credit Party or the conditions set forth in this SECTION 5.2(b) are no longer
met, and (v) Agent has not advised Borrower in writing that
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Agent reasonably believes that nonpayment or nondischarge thereof could have or
result in a Material Adverse Effect.
5.3 BOOKS AND RECORDS. Each Credit Party shall keep adequate
books and records with respect to its business activities in which proper
entries, reflecting all financial transactions, are made in accordance with GAAP
and on a basis consistent with the Financial Statements attached as DISCLOSURE
SCHEDULE (3.4(A)).
5.4 INSURANCE; DAMAGE TO OR DESTRUCTION OF COLLATERAL.
(a) The Credit Parties shall, at their sole cost and expense,
maintain the policies of insurance described on DISCLOSURE SCHEDULE (3.19) as in
effect on the date hereof or otherwise in form and amounts and with insurers
acceptable to Agent. If any Credit Party at any time or times hereafter shall
fail to obtain or maintain any of the policies of insurance required above or to
pay all premiums relating thereto, Agent may at any time or times thereafter
obtain and maintain such policies of insurance and pay such premiums and take
any other action with respect thereto which Agent deems advisable. Agent shall
have no obligation to obtain insurance for any Credit Party or pay any premiums
therefor. By doing so, Agent shall not be deemed to have waived any Default or
Event of Default arising from any Credit Party's failure to maintain such
insurance or pay any premiums therefor. All sums so disbursed, including
attorneys' fees, court costs and other charges related thereto, shall be payable
on demand by Borrower to Agent and shall be additional Obligations hereunder
secured by the Collateral.
(b) Agent reserves the right at any time upon any change in any
Credit Party's risk profile (including any change in the product mix maintained
by any Credit Party or any laws affecting the potential liability of such Credit
Party) to require additional forms and limits of insurance to, in Agent's
opinion, adequately protect any of Agent's, Co-Agent's and Lenders' interests in
all or any portion of the Collateral and to ensure that each Credit Party is
protected by insurance in amounts and with coverage customary for its industry.
If requested by Agent, each Credit Party shall deliver to Agent from time to
time a report of a reputable insurance broker, satisfactory to Agent, with
respect to its insurance policies.
(c) Each Credit Party shall deliver to Agent, in form and
substance satisfactory to Agent, endorsements to (i) all "All Risk" and business
interruption insurance naming Agent, on behalf of itself and Lenders, as loss
payee, and (ii) all general liability and other liability policies naming Agent,
on behalf of itself and Lenders, as additional insured. Each Credit Party
irrevocably makes, constitutes and appoints Agent (and all officers, employees
or agents designated by Agent), so long as any Default or Event of Default shall
have occurred and be continuing or the anticipated insurance proceeds exceed
$5,000,000, as such Credit Party's true and lawful agent and attorney-in-fact
for the purpose of making, settling and adjusting claims under such "All Risk"
policies of insurance, endorsing the name of such Credit Party on any check or
other item of payment for the proceeds of such "All Risk" policies of insurance
and for making all determinations and decisions with respect to such "All Risk"
policies of insurance. Agent shall
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have no duty to exercise any rights or powers granted to it pursuant to the
foregoing power-of-attorney. Each Credit Party shall promptly notify Agent of
any loss, damage, or destruction to the Collateral in the amount of $1,000,000
or more, whether or not covered by insurance. After deducting from such proceeds
the expenses, if any, incurred by Agent in the collection or handling thereof,
Agent may, at its option, apply such proceeds to the reduction of the
Obligations in accordance with SECTION 1.3(d), provided that in the case of
insurance proceeds pertaining to any Credit Party other than Borrower, such
insurance proceeds shall be applied to the Loans owing by Borrower, or permit or
require such Credit Party to use such money, or any part thereof, to replace,
repair, restore or rebuild the Collateral in a diligent and expeditious manner
with materials and workmanship of substantially the same quality as existed
before the loss, damage or destruction. Notwithstanding the foregoing, if the
casualty giving rise to such insurance proceeds would not reasonably be expected
to have a Material Adverse Effect and such insurance proceeds do not exceed
$5,000,000 in the aggregate, Agent shall permit the applicable Credit Party to
replace, restore, repair or rebuild the property; provided that if such Credit
Party has not completed or entered into binding agreements to complete such
replacement, restoration, repair or rebuilding within 180 days of such casualty,
Agent may apply such insurance proceeds to the Obligations in accordance with
SECTION 1.3(d); provided further that in the case of insurance proceeds
pertaining to any Credit Party other than Borrower, such insurance proceeds
shall be applied to the Loans owing by Borrower. All insurance proceeds which
are to be made available to Borrower to replace, repair, restore or rebuild the
Collateral shall be applied by Agent to reduce the outstanding principal balance
of the Revolving Loan (which application shall not result in a permanent
reduction of the Revolving Loan Commitment) and upon such application, Agent
shall establish a Reserve against the Borrowing Base in an amount equal to the
amount of such proceeds so applied. All insurance proceeds made available to any
Credit Party that is not a Borrower to replace, repair, restore or rebuild
Collateral shall be deposited in a cash collateral account. Thereafter, such
funds shall be made available to such Credit Party to provide funds to replace,
repair, restore or rebuild the Collateral as follows: (i) Borrower shall request
a Revolving Credit Advance be made to such Credit Party in the amount requested
to be released; (ii) so long as the conditions set forth in SECTION 2.2 have
been met, Revolving Lenders shall make such Revolving Credit Advance; and (iii)
in the case of insurance proceeds applied against the Revolving Loan, the
Reserve established with respect to such insurance proceeds shall be reduced by
the amount of such Revolving Credit Advance. To the extent not used to replace,
repair, restore or rebuild the Collateral, such insurance proceeds shall be
applied in accordance with SECTION 1.3(d); provided that in the case of
insurance proceeds pertaining to any Credit Party other than Borrower, such
insurance proceeds shall be applied to the Loans owing by Borrower.
5.5 COMPLIANCE WITH LAWS. Each Credit Party shall comply with all
federal, state, local and foreign laws, rules and regulations applicable to such
Credit Party and to its property, assets and operations, including those laws,
rules and regulations relating to ERISA and labor matters and Environmental Laws
and Environmental Permits, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
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5.6 SUPPLEMENTAL DISCLOSURE. From time to time as may be
requested by Agent (which request will not be made more frequently than once
each year absent the occurrence and continuance of a Default or an Event of
Default), the Credit Parties shall supplement each Disclosure Schedule hereto,
or any representation herein or in any other Loan Document, with respect to any
matter hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedule or as an exception to such representation or which is
necessary to correct any information in such Disclosure Schedule or
representation which has been rendered inaccurate thereby (and, in the case of
any supplements to any Disclosure Schedule, such Disclosure Schedule shall be
appropriately marked to show the changes made therein); provided that (a) no
such supplement to any such Disclosure Schedule or representation shall be or be
deemed a waiver of any Default or Event of Default resulting from the matters
disclosed therein, except as consented to by Agent and Requisite Lenders in
writing; and (b) no supplement shall be required as to representations and
warranties that relate solely to the Effective Date.
5.7 INTELLECTUAL PROPERTY. Each Credit Party will conduct its
business and affairs without infringement of or interference with any
Intellectual Property of any other Person in any material respect.
5.8 ENVIRONMENTAL MATTERS. Each Credit Party shall and shall
cause each Person within its control to: (a) conduct its operations and keep and
maintain its Real Property in compliance with all Environmental Laws and
Environmental Permits other than noncompliance which could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions which are appropriate
or necessary to maintain the value and marketability of the Real Property or to
otherwise comply with Environmental Laws and Environmental Permits pertaining to
the presence, generation, treatment, storage, use, disposal, transportation or
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of its Real Property; (c) notify Agent promptly after such Credit Party
becomes aware of any violation of Environmental Laws or Environmental Permits or
any Release on, at, in, under, above, to, from or about any Real Property which
is reasonably likely to result in Environmental Liabilities in excess of
$25,000; and (d) promptly forward to Agent a copy of any order, notice, request
for information or any communication or report received by such Credit Party in
connection with any such violation or Release or any other matter relating to
any Environmental Laws or Environmental Permits that could reasonably be
expected to result in Environmental Liabilities in excess of $250,000, in each
case whether or not the Environmental Protection Agency or any Governmental
Authority has taken or threatened any action in connection with any such
violation, Release or other matter. If Agent at any time has a reasonable basis
to believe that there may be a violation of any Environmental Laws or
Environmental Permits by any Credit Party or any Environmental Liability arising
thereunder, or a Release of Hazardous Materials on, at, in, under, above, to,
from or about any of its Real Property, which, in each case, could reasonably be
expected to have a Material Adverse Effect, then each Credit Party shall, upon
Agent's written request (i) cause the performance of such environmental audits
including subsurface sampling of soil and groundwater, and preparation of
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such environmental reports, at Borrower's expense, as Agent may from time to
time reasonably request, which shall be conducted by reputable environmental
consulting firms reasonably acceptable to Agent and shall be in form and
substance acceptable to Agent, and (ii) permit Agent or its representatives to
have access to all Real Property for the purpose of conducting such
environmental audits and testing as Agent deems appropriate, including
subsurface sampling of soil and groundwater. Borrower shall reimburse Agent for
the costs of such audits and tests and the same will constitute a part of the
Obligations secured hereunder.
5.9 LANDLORDS' AGREEMENTS, MORTGAGEE AGREEMENTS AND BAILEE
LETTERS. Each Credit Party (other than, prior to the Refinancing Date, M&M)
shall obtain a landlord's agreement, mortgagee agreement or bailee letter, as
applicable, from the lessor of each leased property or mortgagee of owned
property or with respect to any warehouse, processor or converter facility or
other location where Collateral is located, which agreement or letter shall
contain a waiver or subordination of all Liens or claims that the landlord,
mortgagee or bailee may assert against the Inventory or Collateral at that
location, and shall otherwise be satisfactory in form and substance to Agent.
With respect to such locations or warehouse space leased or owned as of the
Effective Date and thereafter, if Agent has not received a landlord or mortgagee
agreement or bailee letter as of the Effective Date (or, if later, as of the
date such location is acquired or leased), Borrower's Eligible Inventory at that
location shall, in Agent's discretion, be excluded from the Borrowing Base or be
subject to such Reserves as may be established by Agent in its reasonable credit
judgment. After the Effective Date, no real property or warehouse space shall be
leased or acquired by any Credit Party and no Inventory shall be shipped to a
processor or converter under arrangements established after the Effective Date
without the prior written consent of Agent (which consent, in Agent's
discretion, may be conditioned upon the exclusion from the Borrowing Base of
Eligible Inventory at that location or the establishment of Reserves acceptable
to Agent) or, unless and until a satisfactory landlord or mortgagee agreement or
bailee letter, as appropriate, shall first have been obtained with respect to
such location. Each Credit Party shall timely and fully pay and perform its
obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral is or may be located.
5.10 FURTHER ASSURANCES. Each Credit Party executing this
Agreement agrees that it shall and shall cause each other Credit Party to, at
such Credit Party's expense and upon request of Agent, duly execute and deliver,
or cause to be duly executed and delivered, to Agent such further instruments
and do and cause to be done such further acts as may be necessary or proper in
the reasonable opinion of Agent to carry out more effectively the provisions and
purposes of this Agreement or any other Loan Document. Without limiting the
generality of the foregoing, each Credit Party hereby agrees and covenants to
amend, supplement or otherwise modify, within ninety (90) days after the
Effective Date, all Collateral Documents and financing statements entered into
in connection with the Existing Credit Agreement which create or perfect a Lien
under the laws, rules or regulations of any foreign jurisdiction, in order to
continue the perfection of the Liens of Agent, on behalf of Lenders, in the
Collateral subject to such Liens.
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[EXECUTION VERSION]
5.11 YEAR 2000 PROBLEMS.
(a) On or prior to March 31, 1999, the Marcliff Subsidiaries
shall complete and deliver to the Agent a Year 2000 Assessment, and on or prior
to April 30, 1999, the Marcliff Subsidiaries shall complete and deliver to Agent
a Year 2000 Corrective Plan. On or prior to May 31, 1999, the Marcliff
Subsidiaries shall complete Year 2000 Corrective Actions. On or before June 30,
1999, the Marcliff Subsidiaries shall complete Year 2000 Implementation Testing.
On or before July 30, 1999, the Marcliff Subsidiaries shall eliminate all Year
2000 Problems, except where the failure to correct the same could not reasonably
be expected to have a Material Adverse Effect, individually or in the aggregate.
(b) On or prior to November 30, 1998, each Credit Party (other
than the Marcliff Subsidiaries) shall complete Year 2000 Corrective Actions. On
or before January 29, 1999, each Credit Party (other than the Marcliff
Subsidiaries) shall complete Year 2000 Implementation Testing. On or before
March 31, 1999, each Credit Party (other than the Marcliff Subsidiaries) shall
eliminate all Year 2000 Problems, except where the failure to correct the same
could not reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate.
5.12 ERISA COMPLIANCE. Each Credit Party shall, and shall cause
each of its Domestic Subsidiaries and ERISA Affiliates to, establish, maintain
and operate all Plans to comply in all material respects with the provisions of
ERISA, the Internal Revenue Code, all other applicable laws, and the regulations
thereunder and the respective requirements of the governing documents for such
Plans.
5.13 FOREIGN EMPLOYEE BENEFIT PLAN COMPLIANCE. Each Credit Party
shall cause each of its Foreign Subsidiaries and ERISA Affiliates to, establish,
maintain and operate all Foreign Employee Benefit Plans to comply in all
material respects with all laws and regulations applicable thereto and the
respective requirements of the governing documents for such Plans.
5.14 GOVERNMENT CONTRACT COMPLIANCE. Each Credit Party shall (a)
maintain all Permits pertaining to Government Contracts required to operate such
Credit Party's business as it is currently conducted, including, without
limitation, (i) all Facility Security Clearance(s) and Personnel Security
Clearance(s), (ii) all certifications of products manufactured by such Credit
Party which are on the "Qualified Products List" of any United States
Governmental Authority, and (iii) all Export Licenses and other similar Permits;
and (b) comply in all material respects with all applicable Requirements of Law
and Contractual Obligations pertaining to each Government Contract.
5.15 FUTURE LIENS ON REAL PROPERTY. Each Credit Party (other
than, prior to the Refinancing Date, M&M) shall execute and deliver to the
Agent, immediately upon the acquisition or leasing of any Real Property, a
mortgage, deed of trust, assignment or other appropriate instrument evidencing a
Lien upon any such Real Property, lease or interest, together
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[EXECUTION VERSION]
with such title insurance policies (mortgagee's form), certified surveys,
appraisals, and local counsel opinions with respect thereto and such other
agreements, documents and instruments which the Agent deems necessary or
desirable, the same to be in form and substance substantially the same as the
mortgages and other Loan Documents relating to Real Property executed and
delivered in connection with the Existing Credit Agreement, and to be subject
only to (a) Liens permitted under SECTION 6.7 and (b) such other Liens as the
Agent may reasonably approve, it being understood that the granting of such
additional security for the Obligations is a material inducement to the
execution and delivery of this Agreement by the Agent, the Co-Agent and the
Lenders.
5.16 NEWLY ACQUIRED SUBSIDIARIES; EXECUTION OF GUARANTY; PLEDGE
OF CAPITAL STOCK. The Borrower shall cause each Domestic Subsidiary that the
Borrower acquires directly or indirectly on or after the Effective Date (and, on
or prior to the Refinancing Date, shall cause M&M) to execute and deliver to the
Agent, promptly after such Domestic Subsidiary is so acquired, a Guaranty, a
Subsidiary Security Agreement and any other security document requested by the
Agent. The Borrower or the Subsidiary of the Borrower that directly acquires the
new Subsidiary shall, promptly after such new Subsidiary is so acquired, pledge
all of the capital Stock of, and other equity interests in, such Subsidiary to
the Agent for the benefit of the Lenders pursuant to the Borrower Pledge
Agreement (if the new Subsidiary is acquired directly by the Borrower) or other
agreement with terms and conditions substantially identical thereto, and shall
promptly execute such stock powers, deliver such certificates and take such
other action as the Agent shall reasonably request in order to allow the Agent
to perfect its security interest in such capital Stock or other equity
interests.
5.17 ADDITIONAL CREDIT PARTIES.
(a) The initial Credit Parties shall be such of the Borrower and
such of its Domestic Subsidiaries as are signatories hereto on the date hereof.
From time to time subsequent to the date hereof, additional Subsidiaries of the
Borrower, including but not limited to the Marcliff Subsidiaries, may become
parties hereto, as additional Credit Parties (each an "ADDITIONAL CREDIT
PARTY"), by executing a counterpart of this Agreement, including supplemental
Disclosure Schedules with respect to such Additional Credit Party. Upon delivery
of any such counterpart to Agent, notice of which is hereby waived by the Credit
Parties, each such Additional Credit Party shall be a Credit Party and shall be
fully a party hereto as of the date of execution of such counterpart, including,
without limitation, with respect to the making, as of such date, of the
representations and warranties and the entering into of the covenants and
agreements set forth herein. Each Credit Party expressly agrees that its
obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Credit Party hereunder, nor by any election of
Agent not to cause any Subsidiary of the Borrower to become an Additional Credit
Party hereunder. This Agreement shall be fully effective as to any Credit Party
that is or becomes a party hereto regardless of whether any other Person becomes
or fails to become or ceases to be a Credit Party hereunder.
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[EXECUTION VERSION]
(b) On the Closing Date and immediately upon the consummation of
the Marson Acquisition, the Marcliff Subsidiaries will become parties hereto by
executing and delivering to Agent a counterpart of this Agreement, together with
all appropriate supplemental Disclosure Schedules and the documents set forth in
SECTION 2.3.
5.18 POST-CLOSING COVENANTS.
(a) Within thirty (30) days after the Effective Date, the
Marcliff Subsidiaries shall have established and shall maintain Cash Management
Systems complying with ANNEX C, and shall have delivered duly executed tri-party
blocked account and lock box agreements, satisfactory to Agent, as required by
ANNEX C.
(b) Within ten (10) days after the Effective Date, the Marcliff
Subsidiaries shall have delivered insurance certificates with respect to the
insurance policies required by SECTION 5.4., showing loss payable and/or
additional insured clauses or endorsements, as requested by Agent, in favor of
Agent, on behalf of itself and Lenders.
(c) Marson shall use its best efforts to wind-up and dissolve
Marson Canada, and to cause all of the assets of Marson Canada to be distributed
to Marson, within one hundred eighty (180) days after the Effective Date.
6. NEGATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties that, without the prior written consent of Agent
and the Requisite Lenders, from and after the date hereof until the Termination
Date:
6.1 MERGERS, SUBSIDIARIES, ETC.
(a) No Credit Party shall directly or indirectly, by operation of
law or otherwise, form or acquire any Subsidiary or merge with, consolidate
with, acquire all or substantially all of the assets or capital stock of, or
otherwise combine with or acquire, any Person, other than as contemplated by the
Marson Acquisition. Notwithstanding the foregoing prohibition, Borrower or any
wholly owned Domestic Subsidiary of Borrower may acquire all or substantially
all of the assets or capital Stock of any Person (the "TARGET") (in each case, a
"PERMITTED ACQUISITION") subject to the satisfaction of each of the following
conditions:
(i) the Agent shall receive at least thirty (30) Business
Days' prior written notice of such proposed Permitted Acquisition, which
notice shall include a reasonably detailed description of such proposed
Permitted Acquisition (including, without limitation, a summary of any
environmental, health or safety claims, liabilities and costs resulting
from the proposed Permitted Acquisition);
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[EXECUTION VERSION]
(ii) such Permitted Acquisition shall only involve a
business, or those assets of a business, located in the United States or
Canada and comprising a business, or those assets of a business, of the
type engaged in by the Borrower as of the Effective Date (but in no
event shall such acquired business engage primarily in the treatment,
recycling, storage or disposal of any Contaminant), and which acquired
business would not subject the Agent, Co-Agent or any Lender to
regulatory or third party approvals in connection with the exercise of
its rights and remedies under this Agreement or any other Loan Documents
other than approvals applicable to the exercise of such rights and
remedies with respect to the Borrower prior to such Permitted
Acquisition;
(iii) such Permitted Acquisition shall be consensual and
shall have been approved by the Target's board of directors and
shareholders (or equivalent governing bodies), as necessary;
(iv) no additional Indebtedness, Accommodation
Obligations, contingent obligations or other liabilities shall be
incurred, assumed or otherwise be reflected on a consolidated balance
sheet of Borrower and Target after giving effect to such Permitted
Acquisition, except (A) Loans made hereunder, (B) ordinary course trade
payables, accrued expenses and unsecured Indebtedness of the Target to
the extent no Default or Event of Default shall have occurred and be
continuing or would result after giving effect to such Permitted
Acquisition and (C) Indebtedness assumed pursuant to a Permitted
Acquisition, PROVIDED that (x) the aggregate principal amount of such
Indebtedness shall be included in determining the amount of the
Investment in such Permitted Acquisition and (y) such Indebtedness shall
be paid in full on or before the second Business Day after the closing
of such Permitted Acquisition;
(v) the amount of the Investment in such Permitted
Acquisition shall not exceed $3,000,000 nor shall the aggregate amount
of all Investments in Permitted Acquisitions in any Fiscal Year exceed
$10,000,000;
(vi) the business and assets acquired in such Permitted
Acquisition shall be free and clear of all Liens (other than Permitted
Encumbrances and Liens which (A) do not apply to any Property of the
Borrower or its Subsidiaries other than the assets acquired in the
Permitted Acquisition and (B) are removed no later than the second
Business Day after the closing of the Permitted Acquisition);
(vii) at or prior to the closing of any Permitted
Acquisition, Agent will be granted a first priority perfected Lien
(subject to Permitted Encumbrances and other Liens described in CLAUSE
(vi) of this SECTION 6.1(a)) in all assets acquired pursuant thereto or
in the assets and capital stock of the Target, and Borrower and the
Target shall have executed such documents and taken such actions as may
be required by Agent in connection therewith;
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[EXECUTION VERSION]
(viii) within twenty (20) Business Days after the date of
such Permitted Acquisition, the Agent shall have received the agreements
entered into in connection with the Permitted Acquisition and all
opinions, certificates, lien search results, environmental reports,
title insurance policies, evidence of compliance with (or exemption
from) bulk sales laws, surveys, zoning letters, certificates of
occupancy, appraisals and other documents reasonably requested by the
Agent, including an assignment of rights in respect of the Borrower's
rights under the related Permitted Acquisition agreements, which
assignment shall be expressly permitted under such Permitted Acquisition
agreement or shall have been consented to by the Target in writing; and
(ix) at the time of such Permitted Acquisition and after
giving effect thereto, no Potential Event of Default or Event of Default
shall have occurred and be continuing or would result therefrom.
Notwithstanding the foregoing, the Accounts and Inventory of the
Target shall not be included in Eligible Accounts and Eligible Inventory without
the prior written consent of Agent and Requisite Revolving Lenders.
(b) The Credit Parties shall not, and shall cause their Foreign
Subsidiaries (other than Kaynar Femipari) not to, increase the value of any such
Subsidiary's assets by more than 25% of the value of such Subsidiary as of the
Effective Date unless the Credit Parties shall have taken, and shall have caused
such Subsidiaries to have taken, all actions requested by the Agent to register
and otherwise perfect the Lenders' security interest in 65% of the capital Stock
of such Subsidiaries under applicable Requirements of Law.
(c) The Credit Parties shall not, and shall cause Kaynar Femipari
not to, allow the value of Kaynar Femipari's assets to exceed $3,000,000 at any
time.
6.2. INVESTMENTS; LOANS AND ADVANCES. Except as otherwise
expressly permitted by this SECTION 6, no Credit Party shall make or permit to
exist any Investment in, or make, accrue or permit to exist loans or advances of
money to, any Person, through the direct or indirect lending of money, holding
of securities or otherwise, except:
(i) so long as Agent has not delivered an Activation
Notice, Borrower may make Investments in the aggregate, subject to
Control Letters in favor of Agent for the benefit of Lenders or
otherwise subject to a perfected security interest in favor of Agent for
the benefit of Lenders, in Cash Equivalents; PROVIDED that at any time
Revolving Loans are outstanding, the amount of such Investments shall
not exceed $1,000,000;
(ii) Investments received in connection with the
bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
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[EXECUTION VERSION]
(iii) contributions to and payments of benefits under any
Plan (in accordance with the terms of the Plan) permitted by this
Agreement;
(iv) Investments arising from intercompany loans which are
permitted under SECTIONS 6.3(a)(ix) through (xii);
(v) Investments (in an aggregate unrecovered amount not to
exceed $5,000,000) by the Borrower in Kaynar U.K. and by Kaynar U.K. in
Recoil U.K., including, without limitation, the Borrower's ownership of
the Stock of Kaynar U.K. and Kaynar U.K.'s ownership of the Stock of
Recoil U.K.;
(vi) Investments (in each case in an aggregate unrecovered
amount not to exceed $16,000,000) by the Borrower in Recoil Holdings and
Recoil Australia Holdings and by Recoil Holdings and Recoil Australia
Holdings in Recoil, including, without limitation, the Borrower's
ownership of the Stock of Recoil Holdings and Recoil Australia Holdings
and Recoil Holdings's and Recoil Australia Holdings's ownership of the
Stock of Recoil;
(vii) Investments (in an aggregate unrecovered amount not
to exceed $3,000,000) by the Borrower in Kaynar Femipari, including,
without limitation, the Borrower's ownership of the Stock of Kaynar
Femipari;
(viii) Investments (in an aggregate unrecovered amount not
to exceed $100,000) by the Borrower in Recoil Delaware, including,
without limitation, the Borrower's ownership of the Stock of Recoil
Delaware;
(ix) Investments (in an aggregate unrecovered amount not
to exceed $1,000,000) by the Borrower in Recoil Holdings and Recoil
Australia Holdings and by Recoil Holdings and Recoil Australia Holdings
in Recoil Thailand and Recoil Singapore, including, without limitation,
the Borrower's ownership of the Stock of Recoil Holdings and Recoil
Australia Holdings and the ownership by Recoil Holdings and Recoil
Australia Holdings of the Stock of Recoil Thailand and Recoil Singapore;
(x) Investments in the Borrower's Subsidiaries (other than
those permitted by CLAUSES (v) through (ix)) in existence, and in the
unrecovered amounts, on the Effective Date; and
(xi) Permitted Acquisitions.
6.3 INDEBTEDNESS.
(a) No Credit Party shall create, incur, assume or permit to
exist any Indebtedness, except (without duplication):
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[EXECUTION VERSION]
(i) the Obligations;
(ii) trade payables, wages and other accrued expenses
incurred in the ordinary course of business;
(iii) Related Transactions Costs;
(iv) to the extent permitted by ANNEX G or SECTION
6.7(iii) and in any event in an aggregate amount not to exceed
$25,000,000 at any time, Capital Leases and purchase money Indebtedness
incurred to finance the acquisition of fixed assets, and Indebtedness
incurred to refinance such Capital Leases and purchase money
Indebtedness;
(v) Indebtedness in respect of taxes, assessments,
governmental charges and claims for labor, materials or supplies, to the
extent that payment thereof is not required pursuant to SECTION 1.15;
(vi) Indebtedness constituting Accommodation Obligations
permitted by SECTION 6.6;
(vii) Indebtedness with respect to reasonable and
customary warranties and indemnities made under any agreements for asset
sales permitted under SECTION 6.8;
(viii) Permitted Existing Indebtedness;
(ix) Indebtedness arising from intercompany loans from any
of Borrower's wholly owned Subsidiaries to the Borrower, PROVIDED, that
all such Indebtedness shall be evidenced by promissory notes and shall
be subordinated in right of payment to the Obligations;
(x) Indebtedness arising from intercompany loans from the
Borrower to Recoil of up to $6,000,000 as evidenced by a promissory note
dated May 29, 1998 which has been delivered to the Lender pursuant to
the Security Agreement, together with an endorsement in blank relating
thereto;
(xi) Indebtedness of M&M in an aggregate amount not to
exceed $11,000,000 assumed in connection with the M&M Acquisition; and
(xii) Indebtedness arising from (A) the NationsCredit
Payoff Loan and (ii) other intercompany loans from the Borrower to
Marson in an aggregate amount which may not exceed, as of any date of
determination, the amount set forth in the Marson Borrowing Base section
of the most recent Borrowing Base Certificate delivered by Borrower to
Agent, such intercompany loans to be evidenced by a promissory note
dated
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[EXECUTION VERSION]
October 27, 1998, which will be delivered to the Lender on the Effective
Date pursuant to the Borrower Pledge Agreement, together with an
endorsement in blank relating thereto.
(b) No Credit Party shall, directly or indirectly, voluntarily
purchase, redeem, defease or prepay any principal of, premium, if any, interest
or other amount payable in respect of any Indebtedness, other than (i) the
Obligations, (ii) Indebtedness secured by a Permitted Encumbrance, if the asset
securing such Indebtedness has been sold or otherwise disposed of in accordance
with SECTIONS 6.8(b) or 6.8(c), (iii) other Indebtedness (excluding Subordinated
Debt) not in excess of $3,000,000 and (iv) Indebtedness of a Credit Party to the
Borrower.
6.4 EMPLOYEE LOANS AND AFFILIATE TRANSACTIONS. No Credit Party
shall directly or indirectly enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder or holders of more
than five percent (5%) of any class of equity Securities of the Borrower, or
with any Affiliate of the Borrower which is not its Subsidiary, on terms that
are less favorable to the Borrower or any of its Subsidiaries, as applicable,
than those that might be obtained in an arm's length transaction at the time
from Persons who are not such a holder or Affiliate. Nothing contained in this
SECTION 6.4 shall prohibit (i) any transaction expressly permitted by SECTIONS
6.3, 6.6 or 6.14; (ii) increases in compensation and benefits for officers and
employees of a Credit Party which are customary in the industry or consistent
with the past business practice of such Credit Party, PROVIDED that no Default
or Event of Default has occurred and is continuing; (iii) payment of customary
directors' fees and indemnities; (iv) performance of any obligations arising
under the Related Transactions Documents; (v) transactions between the Borrower
and any of its Subsidiaries, PROVIDED that no Default or Event of Default
results therefrom; or (vi) the grant of Awards to Eligible Persons under (and,
in each case, as defined in) the Stock Incentive Plan, PROVIDED that no Default
or Event of Default results therefrom.
6.5 CAPITAL STRUCTURE AND BUSINESS. Other than the Related
Transactions, no Credit Party shall (a) make any changes in any of its business
objectives, purposes or operations which could in any way adversely affect the
repayment of the Loans or any of the other Obligations or could reasonably be
expected to have or result in a Material Adverse Effect, (b) make any change in
its capital structure as described on DISCLOSURE SCHEDULE (3.8), including the
issuance of any shares of Stock, warrants or other securities convertible into
Stock or any revision of the terms of its outstanding Stock, except that
Borrower may (i) issue Stock in connection with a Permitted Acquisition, (ii)
issue shares of unregistered common Stock, with an aggregate Fair Market Value
of not more than $10,000,000, in connection with the M&M Acquisition, (iii)
repurchase outstanding shares of its common Stock with an aggregate Fair Market
Value of not more than $10,000,000 and (iv) make a Public Offering of its common
Stock so long as (A) the proceeds thereof are applied in prepayment of the
Obligations as required by SECTION 1.3(b)(iii), and (B) no Change of Control
occurs after giving effect thereto or (c) amend its Organizational Documents in
a manner which would adversely affect Agent, Co-Agent or Lenders or such Credit
Party's duty or ability to repay the Obligations. No Credit Party shall
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engage in any business other than the businesses currently engaged in by it or
businesses reasonably related thereto.
6.6 ACCOMMODATION OBLIGATIONS. No Credit Party shall directly or
indirectly create or become or be liable with respect to any Accommodation
Obligation, except:
(i) recourse obligations resulting from endorsement of
negotiable instruments for collection in the ordinary course of
business;
(ii) Accommodation Obligations of the Borrower with
respect to Indebtedness of M&M assumed in connection with the M&M
Acquisition (to the extent permitted by SECTION 6.3(a)(x)); PROVIDED
that such Accommodation Obligations shall be terminated and
unconditionally released no later than January 25, 1999;
(iii) Permitted Existing Accommodation Obligations; and
(iv) Accommodation Obligations arising under the Loan
Documents.
6.7 LIENS. No Credit Party shall create, incur, assume or permit
to exist any Lien on or with respect to its Accounts or any of its other
properties or assets (whether now owned or hereafter acquired) except:
(i) Liens created by the Loan Documents;
(ii) Permitted Encumbrances;
(iii) purchase money Liens (including the interest of a
lessor under a Capital Lease or an Operating Lease having substantially
the same economic effect and Liens to which any Property is subject at
the time of the Credit Party's purchase thereof) securing an amount not
to exceed $3,000,000 in the aggregate at any time or from time to time,
PROVIDED, that such Liens shall not apply to any Property of the
Borrower or its Subsidiaries other than that purchased or subject to
such Capital Lease;
(iv) M&M Liens; and
(v) Permitted Existing Liens.
In addition, no Credit Party shall become a party to any agreement, note,
indenture or instrument, or take any other action, which would prohibit the
creation of a Lien on any of its properties or other assets in favor of Agent,
on behalf of itself and Lenders, as additional collateral for the Obligations,
except operating leases, Capital Leases or Licenses which prohibit Liens upon
the assets that are subject thereto or (in the case of M&M) Indebtedness
permitted by SECTION 6.3(a)(xi).
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6.8 SALE OF STOCK AND ASSETS. No Credit Party shall sell,
transfer, convey, assign or otherwise dispose of any of its Property or other
assets, including the capital Stock of any of its Subsidiaries (whether in a
public or a private offering or otherwise) or any of their Accounts, other than:
(i) the sale of Property having an aggregate Fair Market
Value of not more than $1,000,000 in any Fiscal Year for cash
consideration not less than the Fair Market Value thereof, PROVIDED that
the Borrower complies with the mandatory prepayment provisions set forth
in SECTION 1.3;
(ii) the transfer of Property from a Subsidiary of the
Borrower to the Borrower;
(iii) the sale of Inventory in the ordinary course of
business;
(iv) the disposition of Equipment if (A) such Equipment is
obsolete or no longer useful in the ordinary course of the Borrower's or
such Subsidiary's business, PROVIDED, that the aggregate Fair Market
Value of all such Equipment disposed of in any Fiscal Year shall not
exceed $500,000, or (B) within six (6) months after such disposition,
the proceeds therefrom are either (I) used to finance the purchase of
replacement Equipment and the Borrower delivers to the Agent evidence of
such use and that the replacement Equipment is free and clear of all
Liens except those created under the Loan Documents or (II) delivered to
the Agent for application to the repayment of the Obligations;
(v) the licensing of General Intangibles as permitted by
the Loan Documents; and
(vi) any Investment permitted under SECTION 6.2.
6.9 ERISA. No Credit Party shall:
(i) engage, or permit any ERISA Affiliate to engage, in
any prohibited transaction described in Sections 406 of ERISA or 4975 of
the IRC for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the Department
of Labor;
(ii) permit to exist any accumulated funding deficiency
(as defined in Sections 302 of ERISA and 412 of the IRC), with respect
to any Benefit Plan, whether or not waived;
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(iii) fail, or permit any ERISA Affiliate to fail, to pay
timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan;
(iv) establish, maintain or otherwise become liable with
respect to, or permit any ERISA Affiliate to establish, maintain or
otherwise become liable with respect to, any Benefit Plan;
(v) fail to make any contribution or payment to any
Multiemployer Plan which Borrower or any ERISA Affiliate is required to
make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto;
(vi) fail, or permit any ERISA Affiliate to fail, to pay
any required installment or any other payment required under Section 412
of the IRC on or before the due date for such installment or other
payment;
(vii) amend, or permit any ERISA Affiliate to amend, a
Benefit Plan resulting in an increase in current liability for the plan
year such that the Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC;
(viii) permit any unfunded liabilities with respect to any
Foreign Pension Plan; or
(ix) fail, or permit any of its Subsidiaries or ERISA
Affiliates to fail, to pay any required contributions or payments to a
Foreign Pension Plan on or before the due date for such required
installment or payment.
6.10 FINANCIAL COVENANTS. Borrower shall not breach or fail to
comply with any of the Financial Covenants (the "FINANCIAL COVENANTS") set forth
in ANNEX G.
6.11 HAZARDOUS MATERIALS. No Credit Party shall cause or permit a
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of the Real Property where such Release would (a) violate in any respect, or
form the basis for any Environmental Liabilities under, any Environmental Laws
or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Property or any of the Collateral, other than
such violations or Environmental Liabilities which could not reasonably be
expected to have a Material Adverse Effect.
6.12 SALE-LEASEBACKS. No Credit Party shall become liable,
directly, by assumption or by Accommodation Obligation, with respect to any
lease, whether an Operating Lease or a Capital Lease, of any Property (whether
real or personal or mixed) (i) which it or one of its Subsidiaries sold or
transferred or is to sell or transfer to any other Person, or (ii) which it or
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one of its Subsidiaries intends to use for substantially the same purposes as
any other Property which has been or is to be sold or transferred by it or one
of its Subsidiaries to any other Person in connection with such lease.
6.13 CANCELLATION OF INDEBTEDNESS. No Credit Party shall cancel
any claim or debt owing to it, except for reasonable consideration negotiated on
an arm's-length basis and in the ordinary course of its business consistent with
past practices.
6.14 RESTRICTED PAYMENTS. No Credit Party shall make any
Restricted Payment, except (a) intercompany loans and advances between Borrower
and Guarantors to the extent permitted by SECTION 6.3 above, (b) dividends and
distributions by Subsidiaries of Borrower paid to Borrower, (c) employee loans
permitted under SECTION 6.4 above and (d) the grant of Awards to Eligible
Persons under (and, in each case, as defined in) the Stock Incentive Plan.
6.15 CHANGE OF CORPORATE NAME OR LOCATION; CHANGE OF FISCAL YEAR.
No Credit Party shall (a) change its corporate name, or (b) change its chief
executive office, principal place of business, corporate offices or warehouses
or locations at which Collateral is held or stored, or the location of its
records concerning the Collateral, in any case without at least thirty (30) days
prior written notice to Agent and after Agent's written acknowledgment that any
reasonable action requested by Agent in connection therewith, including to
continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in
any Collateral, has been completed or taken. Without limiting the foregoing, no
Credit Party shall change its name, identity or corporate structure in any
manner which might make any financing or continuation statement filed in
connection herewith seriously misleading within the meaning of Section 9-402(7)
of the Code or any other then applicable provision of the Code except upon prior
written notice to Agent and Lenders and after Agent's written acknowledgment
that any reasonable action requested by Agent in connection therewith, including
to continue the perfection of any Liens in favor of Agent, on behalf of Lenders,
in any Collateral, has been completed or taken. No Credit Party shall change its
Fiscal Year.
6.16 RESTRICTION ON FUNDAMENTAL CHANGES. No Credit Party shall
enter into any merger or consolidation, or liquidate, wind-up or dissolve (or
suffer any liquidation or dissolution), or convey, lease, sell, transfer or
otherwise dispose of, in one transaction or series of transactions, all or
substantially all of such Credit Party's business or Property, whether now or
hereafter acquired, except for (i) transactions required under SECTION 5.18 or
permitted under SECTION 6.8 and (ii) a merger of Recoil Holdings and Recoil
Australia Holdings, PROVIDED that such merger will not result in any adverse tax
consequences to Recoil Holdings, Recoil Australia Holdings, Recoil or the
Lenders.
6.17 NO IMPAIRMENT OF INTERCOMPANY TRANSFERS. No Credit Party
shall directly or indirectly enter into or become bound by any agreement,
instrument, indenture or other obligation (other than this Agreement and the
other Loan Documents) which could directly or indirectly restrict, prohibit or
require the consent of any Person with respect to the payment of
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dividends or distributions or the making or repayment of intercompany loans by a
Subsidiary of Borrower to Borrower.
6.18 NO SPECULATIVE TRANSACTIONS. No Credit Party shall engage in
any transaction involving commodity options, futures contracts or similar
transactions, except solely to hedge against fluctuations in the prices of
commodities owned or purchased by it and the values of foreign currencies
receivable or payable by it and interest swaps, caps or collars.
6.19 CHANGES RELATING TO SUBORDINATED DEBT. No Credit Party shall
change or amend the terms of any Subordinated Debt (or any indenture or
agreement in connection therewith) if the effect of such amendment is to: (a)
increase the interest rate on such Subordinated Debt; (b) change the dates upon
which payments of principal or interest are due on such Subordinated Debt other
than to extend such dates; (c) change any default or event of default other than
to delete or make less restrictive any default provision therein, or add any
covenant with respect to such Subordinated Debt; (d) change the redemption or
prepayment provisions of such Subordinated Debt other than to extend the dates
therefor or to reduce the premiums payable in connection therewith; (e) grant
any security or collateral to secure payment of such Subordinated Debt; or (f)
change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights to
the holder of such Subordinated Debt in a manner adverse to any Credit Party,
Agent, Co-Agent or any Lender.
7. TERM
7.1 TERMINATION. The financing arrangements contemplated hereby
shall be in effect until the Commitment Termination Date, and the Loans and all
other Obligations shall be automatically due and payable in full on such date.
7.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING
ARRANGEMENTS. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of the Credit Parties or the rights of
Agent, Co-Agent and Lenders relating to any unpaid portion of the Loans or any
other Obligations, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is required after the Commitment Termination
Date. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon the Credit Parties, and all rights of Agent,
Co-Agent and each Lender, all as contained in the Loan Documents, shall not
terminate or expire, but rather shall survive any such termination or
cancellation and shall continue in full force and effect until the Termination
Date; provided however, that in all events the provisions of SECTION 11, the
payment obligations under SECTIONS 1.15 and 1.16, and the indemnities contained
in the Loan Documents shall survive the Termination Date.
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8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "EVENT
OF DEFAULT" hereunder:
(a) Borrower (i) fails to make any payment of principal of, or
interest on, or Fees owing in respect of, the Loans or any of the other
Obligations when due and payable, or (ii) fails to pay or reimburse Agent,
Co-Agent or Lenders for any expense reimbursable hereunder or under any other
Loan Document within ten (10) days following Agent's demand for such
reimbursement or payment of expenses.
(b) Any Credit Party shall fail or neglect to perform, keep or
observe any of the provisions of SECTIONS 1.14, 2.3, 5.1, 5.8 or 6, or any of
the provisions set forth in ANNEX G, respectively.
(c) Any Credit Party shall fail or neglect to perform, keep or
observe any other provision of this Agreement or of any of the other Loan
Documents (other than any provision embodied in or covered by any other clause
of this SECTION 8.1) and the same shall remain unremedied for fifteen (15) days
or more.
(d) A default or breach shall occur under any other agreement,
document or instrument to which any Credit Party is a party which is not cured
within any applicable grace period, and such default or breach (i) involves the
failure to make any payment when due in respect of any Indebtedness (other than
the Obligations) of any Credit Party in excess of $100,000 in the aggregate, or
(ii) causes, or permits any holder of such Indebtedness or a trustee to cause,
Indebtedness or a portion thereof in excess of $100,000 in the aggregate to
become due prior to its stated maturity or prior to its regularly scheduled
dates of payment, regardless of whether such default is waived, or such right is
exercised, by such holder or trustee.
(e) Any information contained in any Borrowing Base Certificate
is untrue or incorrect in any respect, or any representation or warranty herein
or in any Loan Document or in any written statement, report, financial statement
or certificate (other than a Borrowing Base Certificate) made or delivered to
Agent, Co-Agent or any Lender by any Credit Party is untrue or incorrect in any
material respect as of the date when made or deemed made.
(f) Any Change of Control shall occur.
(g) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) An involuntary case shall be commenced against any
Credit Party and the petition shall not be dismissed, stayed, bonded or
discharged within sixty (60) days after commencement of the case; or a
court having jurisdiction in the premises shall enter a decree or order
for relief in respect of any Credit Party in an involuntary case, under
any
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applicable bankruptcy, insolvency or other similar law now or
hereinafter in effect; or any other similar relief shall be granted
under any applicable Requirements of Law; or the board of directors of
any Credit Party (or any committee thereof) adopts any resolution or
otherwise authorizes any action to approve any of the foregoing.
(ii) A decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers
over any Credit Party or over all or a substantial part of the Property
of any Credit Party shall be entered; or an interim receiver, trustee or
other custodian of any Credit Party or of all or a substantial part of
the Property of any Credit Party shall be appointed or a warrant of
attachment, execution or similar process against any substantial part of
the Property of any Credit Party shall be issued and any such event
shall not be stayed, dismissed, bonded or discharged within sixty (60)
days after entry, appointment or issuance; or the board of directors of
any Credit Party (or any committee thereof) adopts any resolution or
otherwise authorizes any action to approve any of the foregoing.
(h) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. Any
Credit Party shall commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall consent to
the entry of an order for relief in an involuntary case, or to the conversion of
an involuntary case to a voluntary case, under any such law, or shall consent to
the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its Property; or any Credit Party
shall make any assignment for the benefit of creditors or shall be unable or
fail, or admit in writing its inability, to pay its debts as such debts become
due.
(i) JUDGMENTS AND ATTACHMENTS. Any money judgment (other than a
money judgment covered by insurance as to which the insurance company has
acknowledged coverage), writ or warrant of attachment, or similar process
against any Credit Party or any of their respective assets involving in any case
an amount in excess of $500,000 is entered and shall remain undischarged,
unvacated, unbonded or unstayed for a period of sixty (60) days or in any event
later than five (5) days prior to the date of any proposed sale thereunder.
(j) DISSOLUTION. Any order, judgment or decree shall be entered
against any Credit Party decreeing its involuntary dissolution or split up and
such order shall remain undischarged and unstayed for a period in excess of
sixty (60) days; or any Credit Party shall otherwise dissolve or cease to exist
except as specifically permitted by this Agreement.
(k) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any
reason, (i) any Loan Document ceases to be in full force and effect or any
Credit Party party thereto seeks to repudiate its obligations thereunder and the
Liens intended to be created thereby are, or any Credit Party seeks to render
such Liens, invalid and unperfected, or (ii) Liens in favor of the Agent
contemplated by the Loan Documents shall, at any time, for any reason, be
invalidated or
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otherwise cease to be in full force and effect, or such Liens shall be
subordinated or shall not have the priority contemplated by this Agreement or
the Loan Documents.
(l) ERISA EVENT. Any ERISA Event occurs which the Agent believes
could reasonably be expected to subject either the Borrower or any ERISA
Affiliate to liability in excess of $250,000.
(m) WAIVER APPLICATION. The plan administrator of any Benefit
Plan applies under Section 412(d) of the IRC for a waiver of the minimum funding
standards of Section 412(a) of the IRC and the Agent believes that the
substantial business hardship upon which the application for the waiver is based
could subject either the Borrower or any ERISA Affiliate to liability in excess
of $250,000.
(n) SUSPENSIONS, DEBARMENT. Any suspension or debarment with
respect to Government Contracts is imposed on the Borrower, any of its
Subsidiaries or any of their respective directors, officers, employees,
consultants or agents.
(o) MATERIAL ADVERSE CHANGE. An event shall exist which has a
Material Adverse Effect.
An Event of Default shall be deemed "continuing" until cured or
waived in writing in accordance with SECTION 11.2.
8.2 REMEDIES.
(a) If any Default or Event of Default shall have occurred and be
continuing, Agent may (and at the written request of Requisite Revolving
Lenders, shall), without notice, suspend the Revolving Loan facility with
respect to further Advances and/or the incurrence of further Letter of Credit
Obligations whereupon any further Advances and the incurrence of further Letter
of Credit Obligations shall be made or extended in Agent's sole discretion (or
in the sole discretion of the Requisite Revolving Lenders, if such suspension
occurred at their direction) so long as such Default or Event of Default is
continuing. If any Default or Event of Default shall have occurred and be
continuing, Agent may (and at the written request of Requisite Lenders shall),
without notice except as otherwise expressly provided herein, increase the rate
of interest applicable to the Loans and the Letter of Credit Fees to the Default
Rate.
(b) If any Event of Default shall have occurred and be
continuing, Agent may (and at the written request of the Requisite Lenders
shall), without notice: (i) terminate the Revolving Loan facility with respect
to further Advances or the incurrence of further Letter of Credit Obligations;
(ii) declare all or any portion of the Obligations, including all or any portion
of any Loan to be forthwith due and payable, and require that the Letter of
Credit Obligations be cash collateralized as provided in ANNEX B, all without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by Borrower and each other Credit Party;
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and (iii) exercise any rights and remedies provided to Agent under the Loan
Documents and/or at law or equity, including all remedies provided under the
Code; provided, however, that upon the occurrence of an Event of Default
specified in SECTIONS 8.1(g), (h) or (i), the Revolving Loan facility shall be
immediately terminated and all of the Obligations, including the Revolving Loan,
shall become immediately due and payable without declaration, notice or demand
by any Person.
8.3 WAIVERS BY CREDIT PARTIES. Except as otherwise provided for
in this Agreement or by applicable law, each Credit Party waives: (a)
presentment, demand and protest and notice of presentment, dishonor, notice of
intent to accelerate, notice of acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by Agent on which any Credit Party may in
any way be liable, and hereby ratifies and confirms whatever Agent may do in
this regard, (b) all rights to notice and a hearing prior to Agent's taking
possession or control of, or to Agent's replevy, attachment or levy upon, the
Collateral or any bond or security which might be required by any court prior to
allowing Agent to exercise any of its remedies, and (c) the benefit of all
valuation, appraisal, marshaling and exemption laws.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 ASSIGNMENT AND PARTICIPATIONS.
(a) The Credit Parties signatory hereto consent to any Lender's
assignment of, and/or sale of participations in, at any time or times, the Loan
Documents, Loans, Letter of Credit Obligations and any Commitment or of any
portion thereof or interest therein, including any Lender's rights, title,
interests, remedies, powers or duties thereunder, whether evidenced by a writing
or not. Any assignment by a Lender shall (i) require the consent of Agent (which
shall not be unreasonably withheld or delayed) and the execution of an
assignment agreement (an "ASSIGNMENT AGREEMENT") substantially in the form
attached hereto as EXHIBIT 9.1(a) and otherwise in form and substance
satisfactory to, and acknowledged by, Agent; (ii) be conditioned on such
assignee Lender representing to the assigning Lender and Agent that it is
purchasing the applicable Loans to be assigned to it for its own account, for
investment purposes and not with a view to the distribution thereof; (iii) if a
partial assignment, be in an amount at least equal to $5,000,000 and, after
giving effect to any such partial assignment, the assigning Lender shall have
retained Commitments in an amount at least equal to $5,000,000; and (iv) include
a payment to Agent of an assignment fee of $3,500. In the case of an assignment
by a Lender under this SECTION 9.1, the assignee shall have, to the extent of
such assignment, the same rights, benefits and obligations as it would if it
were a Lender hereunder. The assigning Lender shall be relieved of its
obligations hereunder with respect to its Commitments or assigned portion
thereof from and after the date of such assignment. Borrower hereby acknowledges
and agrees that any assignment will give rise to a direct obligation of Borrower
to the assignee and that the assignee shall be considered to be a "Lender." In
all instances, each Lender's liability to make Loans hereunder shall be several
and not joint and shall be limited to such Lender's Pro Rata Share of the
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applicable Commitment. In the event Agent, Co-Agent or any Lender assigns or
otherwise transfers all or any part of the Obligations, Agent, Co-Agent or any
such Lender shall so notify Borrower and Borrower shall, upon the request of
Agent, Co-Agent or such Lender, execute new Notes in exchange for the Notes, if
any, being assigned. Notwithstanding the foregoing provisions of this SECTION
9.1(a), any Lender may at any time pledge the Obligations held by it and such
Lender's rights under this Agreement and the other Loan Documents to a Federal
Reserve Bank, and any lender that is an investment fund may assign the
Obligations held by it and such Lender's rights under this Agreement and the
other Loan Documents to another investment fund managed by the same investment
advisor; provided, however, that no such pledge to a Federal Reserve Bank shall
release such Lender from such Lender's obligations hereunder or under any other
Loan Document.
(b) Any participation by a Lender of all or any part of its
Commitments shall be made with the understanding that all amounts payable by
Borrower hereunder shall be determined as if that Lender had not sold such
participation, and that the holder of any such participation shall not be
entitled to require such Lender to take or omit to take any action hereunder
except actions directly affecting (i) any reduction in the principal amount of,
or interest rate or Fees payable with respect to, any Loan in which such holder
participates, (ii) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder participates or the final maturity date
thereof, and (iii) any release of all or substantially all of the Collateral
(other than in accordance with the terms of this Agreement, the Collateral
Documents or the other Loan Documents). Solely for purposes of SECTIONS 1.13,
1.15, 1.16 and 9.8, Borrower acknowledges and agrees that a participation shall
give rise to a direct obligation of Borrower to the participant and the
participant shall be considered to be a "Lender". Except as set forth in the
preceding sentence neither Borrower nor any other Credit Party shall have any
obligation or duty to any participant. Neither Agent, Co-Agent nor any Lender
(other than the Lender selling a participation) shall have any duty to any
participant and may continue to deal solely with the Lender selling a
participation as if no such sale had occurred.
(c) Except as expressly provided in this SECTION 9.1, no Lender
shall, as between Borrower and that Lender, or Agent and that Lender, or
Co-Agent and that Lender, be relieved of any of its obligations hereunder as a
result of any sale, assignment, transfer or negotiation of, or granting of
participation in, all or any part of the Loans, the Notes or other Obligations
owed to such Lender.
(d) Each Credit Party executing this Agreement shall assist any
Lender permitted to sell assignments or participations under this SECTION 9.1 as
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the preparation of informational materials for, and the participation of
management in meetings with, potential assignees or participants. Each Credit
Party executing this Agreement shall certify the correctness, completeness and
accuracy of all descriptions of the Credit Parties and their affairs contained
in any selling materials provided by it and all other
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information provided by it and included in such materials, except that any
Projections delivered by Borrower shall only be certified by Borrower as having
been prepared by Borrower in compliance with the representations contained in
SECTION 3.4(c).
(e) A Lender may furnish any information concerning Credit
Parties in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants). Each Lender
shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in SECTION 11.7.
9.2 APPOINTMENT OF AGENT AND CO-AGENT.
(a) GE Capital is hereby appointed to act on behalf of all
Lenders as initial Agent under this Agreement and the other Loan Documents. GE
Capital is hereby appointed to serve as Co-Agent and to replace the Agent during
any period in which the Agent then serving is unwilling or unable to serve as
Agent (such period, to be declared by the Agent at any time and from time to
time, in its sole discretion, a "RECUSAL PERIOD") or upon the resignation of the
Agent pursuant to SECTION 9.7 and pending the appointment of a successor Agent;
PROVIDED, HOWEVER, that the Agent may at any time during a Recusal Period, in
its sole discretion (unless the Agent has resigned as Agent in accordance with
SECTION 9.7), resume its duties and responsibilities as Agent by giving not less
than five (5) days' prior written notice thereof to Co-Agent, Lenders and
Borrower. The provisions of this SECTION 9.2(a) are solely for the benefit of
the Agent, Co-Agent and Lenders and no Credit Party nor any other Person shall
have any rights as a third party beneficiary of any of the provisions hereof.
(b) In performing its functions and duties under this Agreement
and the other Loan Documents, Agent shall act solely as an agent of Lenders and
does not assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for any Credit Party or any other
Person. Agent shall have no duties or responsibilities except for those
expressly set forth in this Agreement and the other Loan Documents. The duties
of Agent shall be mechanical and administrative in nature and Agent shall not
have, or be deemed to have, by reason of this Agreement, any other Loan Document
or otherwise a fiduciary relationship in respect of any Lender. Neither Agent
nor any of its Affiliates nor any of their respective officers, directors,
employees, agents or representatives shall be liable to any Lender for any
action taken or omitted to be taken by it hereunder or under any other Loan
Document, or in connection herewith or therewith, except for damages caused by
its or their own gross negligence or willful misconduct.
(c) If Agent or Co-Agent shall request instructions from
Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders
or all affected Lenders with respect to any act or action (including failure to
act) in connection with this Agreement or any other Loan Document, then Agent or
Co-Agent, as the case may be, shall be entitled to refrain from such act or
taking such action unless and until such Person shall have received instructions
from Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving
Lenders or all
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affected Lenders, as the case may be, and neither Agent nor Co-Agent shall incur
liability to any Person by reason of so refraining. Each of Agent and Co-Agent
shall be fully justified in failing or refusing to take any action hereunder or
under any other Loan Document (a) if such action would, in the opinion of such
Person, be contrary to law or the terms of this Agreement or any other Loan
Document, (b) if such action would, in the opinion of such Person, expose such
Person to Environmental Liabilities or (c) if Agent or Co-Agent, as the case may
be, shall not first be indemnified to its satisfaction against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against Agent or Co-Agent, as the case
may be, as a result of such Person acting or refraining from acting hereunder or
under any other Loan Document in accordance with the instructions of Requisite
Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all
affected Lenders, as applicable.
9.3 AGENT'S RELIANCE, ETC. Neither Agent nor any of its
Affiliates, nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or the other Loan Documents, except for
damages caused by its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, Agent: (a) may treat the
payee of any Note as the holder thereof until Agent receives written notice of
the assignment or transfer thereof signed by such payee and in form satisfactory
to Agent; (b) may consult with legal counsel, independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to
Co-Agent or any Lender and shall not be responsible to Co-Agent or any Lender
for any statements, warranties or representations made in or in connection with
this Agreement or the other Loan Documents; (d) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or the other Loan Documents on the
part of any Credit Party or to inspect the Collateral (including the books and
records) of any Credit Party; (e) shall not be responsible to Co-Agent or any
Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto; and (f) shall incur
no liability under or in respect of this Agreement or the other Loan Documents
by acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopy, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
9.4 AGENT, CO-AGENT AND AFFILIATES. With respect to their
respective Commitments hereunder, each of Agent and Co-Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any other
Lender and may exercise the same as though it were not Agent or Co-Agent, as the
case may be; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include Agent or Co-Agent, as applicable, in its individual
capacity. Agent, Co-Agent and their respective Affiliates may lend money to,
invest in, and generally engage in any kind of business with, any Credit Party,
any of their
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Affiliates and any Person who may do business with or own securities of any
Credit Party or any such Affiliate, all as if Agent were not Agent and Co-Agent
were not Co-Agent and without any duty to account therefor to Lenders. Agent,
Co-Agent and their respective Affiliates may accept fees and other consideration
from any Credit Party for services in connection with this Agreement or
otherwise without having to account for the same to Agent, Co-Agent or Lenders.
Co-Agent and each Lender acknowledges the potential conflict of interest between
GE Capital as a Lender holding disproportionate interests in the Loans, GE
Capital as a stockholder of Borrower, and GE Capital as Agent.
9.5 LENDER CREDIT DECISION. Co-Agent and each Lender acknowledges
that it has, independently and without reliance upon Agent, Co-Agent or any
Lender and based on the Financial Statements referred to in SECTION 3.4(a) and
such other documents and information as it has deemed appropriate, made its own
credit and financial analysis of the Credit Parties and its own decision to
enter into this Agreement. Co-Agent and each Lender also acknowledges that it
will, independently and without reliance upon Agent, Co-Agent or any Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement. Each Lender acknowledges the potential conflict of
interest of each other Lender as a result of Lenders holding disproportionate
interests in the Loans, and expressly consents to, and waives any claim based
upon, such conflict of interest.
9.6 INDEMNIFICATION. Lenders agree to indemnify Agent and
Co-Agent (to the extent not reimbursed by Credit Parties and without limiting
the obligations of Borrower hereunder), ratably according to their respective
Pro Rata Shares, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against Agent or Co-Agent, as the case may be, in any way relating to
or arising out of this Agreement or any other Loan Document or any action taken
or omitted by Agent or Co-Agent, as applicable, in connection therewith;
provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Agent's or Co-Agent's gross
negligence or wilful misconduct. Without limiting the foregoing, each Lender
agrees to reimburse Agent and Co-Agent, as the case may be, promptly upon demand
for its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by Agent or Co-Agent, as applicable, in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
and each other Loan Document, to the extent that Agent or Co-Agent is not
reimbursed for such expenses by Credit Parties.
9.7 SUCCESSOR AGENT. The Agent may temporarily recuse itself or
permanently resign as Agent at any time by giving not less than five (5) days'
prior written notice thereof to Co-Agent, Lenders and Borrower; upon such
recusal or resignation, Co-Agent shall automatically become the Agent pending
the end of the Recusal Period or the appointment of a successor
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Agent, as the case may be, subject to SECTION 9.2(a) hereof. Any subsequent
Agent (other than GE Capital) may resign (but not recuse itself) at any time by
giving not less than thirty (30) days' prior written notice thereof to Lenders
and Borrower. Upon any such subsequent resignation, the Requisite Lenders shall
have the right to appoint a successor Agent and the Co-Agent shall resume its
duties and responsibilities as Co-Agent. If no successor Agent shall have been
so appointed by the Requisite Lenders and shall have accepted such appointment
within 30 days after the resigning Agent's giving notice of resignation, then
the resigning Agent may, on behalf of Lenders, appoint a successor Agent, which
shall be a Lender, if a Lender is willing to accept such appointment, or
otherwise shall be a commercial bank or financial institution or a subsidiary of
a commercial bank or financial institution if such commercial bank or financial
institution is organized under the laws of the United States of America or of
any State thereof and has a combined capital and surplus of at least
$300,000,000. If no successor Agent has been appointed pursuant to the
foregoing, by the 30th day after the date such notice of resignation was given
by the resigning Agent, such resignation shall become effective and the
Requisite Lenders shall thereafter perform all the duties of Agent hereunder
until such time, if any, as the Requisite Lenders appoint a successor Agent as
provided above. Any successor Agent appointed by Requisite Lenders hereunder
shall be subject to the approval of Borrower, such approval not to be
unreasonably withheld or delayed; provided that such approval shall not be
required if a Default or an Event of Default shall have occurred and be
continuing. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall succeed to and become vested with
all the rights, powers, privileges and duties of the resigning Agent. Upon the
earlier of the acceptance of any appointment as Agent hereunder by a successor
Agent or the effective date of the resigning Agent's resignation, the resigning
Agent shall be discharged from its duties and obligations as Agent under this
Agreement and the other Loan Documents, except that any indemnity rights or
other rights in favor of such resigning Agent shall continue. After any
resigning Agent's resignation hereunder, the provisions of this SECTION 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement and the other Loan Documents. Agent may be
removed at the written direction of the Lenders holding two-thirds or more of
the Commitments; provided that in so doing, such Lenders shall be deemed to have
waived and released any and all claims they may have against Agent.
9.8 SETOFF AND SHARING OF PAYMENTS. In addition to any rights now
or hereafter granted under applicable law and not by way of limitation of any
such rights, upon the occurrence and during the continuance of any Event of
Default, each Lender and each holder of any Note is hereby authorized at any
time or from time to time, without notice to any Credit Party or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all balances held by it at any of its offices
for the account of Borrower or any Guarantor (regardless of whether such
balances are then due to Borrower or any Guarantor) and any other properties or
assets any time held or owing by that Lender or that holder to or for the credit
or for the account of Borrower or any Guarantor against and on account of any of
the Obligations which are not paid when due. Any Lender or holder of any Note
exercising a right to set off or otherwise receiving any payment on account of
the Obligations in excess of its Pro Rata Share thereof shall purchase for cash
(and the other Lenders or holders shall sell) such
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participations in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share the amount so
set off or otherwise received with each other Lender or holder in accordance
with their respective Pro Rata Shares. Each Lender's obligation under this
SECTION 9.8 shall be in addition to and not in limitation of its obligations to
purchase a participation in an amount equal to its Pro Rata Share of the Swing
Line Loans under SECTION 1.1. Borrower and each Guarantor agrees, to the fullest
extent permitted by law, that (a) any Lender or holder may exercise its right to
set off with respect to amounts in excess of its Pro Rata Share of the
Obligations and may sell participations in such amount so set off to other
Lenders and holders and (b) any Lender or holders so purchasing a participation
in the Loans made or other Obligations held by other Lenders or holders may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender or holder were a
direct holder of the Loans and the other Obligations in the amount of such
participation. Notwithstanding the foregoing, if all or any portion of the
set-off amount or payment otherwise received is thereafter recovered from the
Lender that has exercised the right of set-off, the purchase of participations
by that Lender shall be rescinded and the purchase price restored without
interest.
9.9 ADVANCES; PAYMENTS; NON-FUNDING LENDERS; INFORMATION; ACTIONS
IN CONCERT.
(a) ADVANCES; PAYMENTS.
(i) Revolving Lenders shall refund or participate in the
Swing Line Loan in accordance with CLAUSES (iii) and (iv) of SECTION
1.1(c). If the Swing Line Lender declines to make a Swing Line Loan or
if Swing Line Availability is zero, Agent shall notify Revolving
Lenders, promptly after receipt of a Notice of Revolving Advance and in
any event prior to 1:00 p.m. (New York time) on the date such Notice of
Revolving Advance is received, by telecopy, telephone or other similar
form of transmission. Each Revolving Lender shall make the amount of
such Lender's Pro Rata Share of such Revolving Credit Advance available
to Agent in same day funds by wire transfer to Agent's account as set
forth in ANNEX H not later than 3:00 p.m. (New York time) on the
requested funding date, in the case of an Index Rate Loan and not later
than 11:00 a.m. (New York time) on the requested funding date in the
case of a LIBOR Loan. After receipt of such wire transfers (or, in the
Agent's sole discretion, before receipt of such wire transfers), subject
to the terms hereof, Agent shall make the requested Revolving Credit
Advance to Borrower. All payments by each Revolving Lender shall be made
without setoff, counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day of each calendar
week or more frequently as aggregate cumulative payments in excess of
$2,000,000 are received with respect to the Loans (other than the Swing
Line Loan) (each, a "SETTLEMENT DATE"), Agent will advise each Lender by
telephone, or telecopy of the amount of such Lender's Pro Rata Share of
principal, interest and Fees paid for the benefit of Lenders with
respect to
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[EXECUTION VERSION]
each applicable Loan. Provided that such Lender has funded all payments
and Advances required to be made by it and purchased all participations
required to be purchased by it under this Agreement and the other Loan
Documents as of such Settlement Date, Agent will pay to each Lender such
Lender's Pro Rata Share of principal, interest and Fees paid by Borrower
since the previous Settlement Date for the benefit of that Lender on the
Loans held by it. To the extent that any Lender (a "NON-FUNDING LENDER")
has failed to fund all such payments and Advances or failed to fund the
purchase of all such participations, Agent shall be entitled to set off
the funding short-fall against that Non-Funding Lender's Pro Rata Share
of all payments received from Borrower. Such payments shall be made by
wire transfer to such Lender's account (as specified by such Lender in
ANNEX H or the applicable Assignment Agreement) not later than 1:00 p.m.
(New York time) on the next Business Day following each Settlement Date.
(b) AVAILABILITY OF LENDER'S PRO RATA SHARE. Agent may assume
that each Revolving Lender will make its Pro Rata Share of each Revolving Credit
Advance available to Agent on each funding date. If such Pro Rata Share is not,
in fact, paid to Agent by such Revolving Lender when due, Agent will be entitled
to recover such amount on demand from such Revolving Lender without set-off,
counterclaim or deduction of any kind. If any Revolving Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly
notify Borrower and Borrower shall immediately repay such amount to Agent.
Nothing in this SECTION 9.9(b) or elsewhere in this Agreement or the other Loan
Documents shall be deemed to require Agent to advance funds on behalf of any
Revolving Lender or to relieve any Revolving Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that Borrower may
have against any Revolving Lender as a result of any default by such Revolving
Lender hereunder. To the extent that Agent advances funds to Borrower on behalf
of any Revolving Lender and is not reimbursed therefor on the same Business Day
as such Advance is made, Agent shall be entitled to retain for its account all
interest accrued on such Advance until reimbursed by the applicable Revolving
Lender.
(c) RETURN OF PAYMENTS.
(i) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been
or will be received by Agent from Borrower and such related payment is
not received by Agent, then Agent will be entitled
to recover such amount from such Lender on demand without set-off,
counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount
received by Agent under this Agreement must be returned to Borrower or
paid to any other Person pursuant to any insolvency law or otherwise,
then, notwithstanding any other term or condition of this Agreement or
any other Loan Document, Agent will not be required to distribute any
portion thereof to any Lender. In addition, each Lender will repay to
Agent on demand any portion of such amount that Agent has distributed to
such Lender, together with
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interest at such rate, if any, as Agent is required to pay to Borrower
or such other Person, without set-off, counterclaim or deduction of any
kind.
(d) NON-FUNDING LENDERS. The failure of any Non-Funding Lender to
make any Revolving Credit Advance or any payment required by it hereunder, or to
purchase any participation in any Swing Line Loan to be made or purchased by it
on the date specified therefor shall not relieve any other Revolving Lender
(each such other Revolving Lender, an "OTHER LENDER") of its obligations to make
such Advance or purchase such participation on such date, but neither any Other
Lender nor Agent nor Co-Agent shall be responsible for the failure of any
Non-Funding Lender to make an Advance or to purchase a participation required
hereunder. Notwithstanding anything set forth herein to the contrary, a
Non-Funding Lender shall not have any voting or consent rights under or with
respect to any Loan Document or constitute a "Lender" or a "Revolving Lender"
(or be included in the calculation of "Requisite Lenders, " "Requisite Revolving
Lenders" or "Supermajority Revolving Lenders" hereunder) for any voting or
consent rights under or with respect to any Loan Document.
(e) DISSEMINATION OF INFORMATION. Agent will use reasonable
efforts to provide Lenders with any notice of Default or Event of Default
received by Agent from, or delivered by Agent to, any Credit Party, with notice
of any Event of Default of which Agent has actually become aware and with notice
of any action taken by Agent following any Event of Default; provided, however,
that Agent shall not be liable to any Lender for any failure to do so, except to
the extent that such failure is attributable to Agent's gross negligence or
willful misconduct. Lenders acknowledge that Borrower is required to provide
Financial Statements and Collateral Reports to Lenders in accordance with
ANNEXES E and F hereto and agree that Agent shall have no duty to provide the
same to Lenders.
(f) ACTIONS IN CONCERT. Anything in this Agreement to the
contrary notwithstanding, each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights arising out of
this Agreement or the Notes (including exercising any rights of set-off) without
first obtaining the prior written consent of Agent and Requisite Lenders, it
being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Notes shall be taken in concert and at the
direction or with the consent of Agent.
9.10 THE CO-AGENT. The Co-Agent shall not have, and the Co-Agent
hereby expressly disclaims, any rights or duties hereunder beyond those of a
Lender. Except with respect to its rights and duties as a Lender, neither the
Co-Agent nor any of its officers, directors, employees or agents shall be liable
to any Person for any action taken or omitted by them hereunder or under any of
the Loan Documents. Without limitation of the generality of the foregoing,
Co-Agent: (a) may consult with legal counsel, independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (b) makes no warranty or representation to
Agent or any Lender and shall not be responsible to Agent or
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any Lender for any statements, warranties or representations made in or in
connection with this Agreement or the other Loan Documents; (c) shall not have
any duty to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions of this Agreement or the other Loan
Documents on the part of any Credit Party or to inspect the Collateral
(including the books and records) of any Credit Party; (d) shall not be
responsible to Agent or any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or the other
Loan Documents or any other instrument or document furnished pursuant hereto or
thereto; and (e) shall incur no liability under or in respect of this Agreement
or the other Loan Documents by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopy, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
9.11 SUCCESSOR CO-AGENT. The Co-Agent may resign as Co-Agent at
any time by giving not less than thirty (30) days' prior written notice thereof
to Agent, Lenders and Borrower. Upon any resignation by a Co-Agent, the Agent
may, on behalf of Lenders, appoint a successor Co-Agent, which shall be a
Lender, if a Lender is willing to accept such appointment. Upon the earlier of
the acceptance of any appointment as Co-Agent hereunder by a successor Co-Agent
or the effective date of the resigning Co-Agent's resignation, the resigning
Co-Agent shall be discharged from its duties and obligations as Co-Agent under
this Agreement and the other Loan Documents, except that any indemnity rights or
other rights in favor of such resigning Co-Agent shall continue. After any
resigning Co-Agent's resignation hereunder, the provisions of this SECTION 9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Co-Agent under this Agreement and the other Loan Documents.
10. SUCCESSORS AND ASSIGNS
10.1 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of each Credit
Party, Agent, Co-Agent, Lenders and their respective successors and assigns
(including, in the case of any Credit Party, a debtor-in-possession on behalf of
such Credit Party), except as otherwise provided herein or therein. No Credit
Party may assign, transfer, hypothecate or otherwise convey its rights,
benefits, obligations or duties hereunder or under any of the other Loan
Documents without the prior express written consent of Agent and Lenders. Any
such purported assignment, transfer, hypothecation or other conveyance by any
Credit Party without the prior express written consent of Agent and Lenders
shall be void. The terms and provisions of this Agreement are for the purpose of
defining the relative rights and obligations of each Credit Party, Agent,
Co-Agent and Lenders with respect to the transactions contemplated hereby and no
Person shall be a third party beneficiary of any of the terms and provisions of
this Agreement or any of the other Loan Documents.
11. MISCELLANEOUS
11.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof
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and may not be modified, altered or amended except as set forth in SECTION 11.2
below. Any letter of interest, commitment letter and/or fee letter (other than
the GE Capital Fee Letter) between any Credit Party and Agent, Co-Agent or any
Lender or any of their respective affiliates, predating this Agreement and
relating to a financing of substantially similar form, purpose or effect shall
be superseded by this Agreement.
11.2 AMENDMENTS AND WAIVERS.
(a) Except for actions expressly permitted to be taken by Agent,
no amendment, modification, termination or waiver of any provision of this
Agreement or any of the Notes, or any consent to any departure by any Credit
Party therefrom, shall in any event be effective unless the same shall be in
writing and signed by Agent and Borrower, and by Requisite Lenders, Requisite
Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders, as
applicable. Except as set forth in CLAUSES (b), (c) and (d) below, all such
amendments, modifications, terminations or waivers requiring the consent of any
Lenders shall require the written consent of Requisite Lenders.
(b) No amendment, modification, termination or waiver of or
consent with respect to any provision of this Agreement which increases the
percentage advance rates set forth in the definition of the Borrowing Base, or
which makes less restrictive the nondiscretionary criteria for exclusion from
Eligible Accounts and Eligible Inventory set forth in SECTIONS 1.6 and 1.7,
shall be effective unless the same shall be in writing and signed by Agent,
Supermajority Revolving Lenders and Borrower. No amendment, modification,
termination or waiver of or consent with respect to any provision of this
Agreement which waives compliance with the conditions precedent set forth in
SECTION 2.2 to the making of any Loan or the incurrence of any Letter of Credit
Obligations shall be effective unless the same shall be in writing and signed by
Agent, Requisite Revolving Lenders and Borrower. Notwithstanding anything
contained in this Agreement to the contrary, no waiver or consent with respect
to any Default or any Event of Default shall be effective for purposes of the
conditions precedent to the making of Loans or the incurrence of Letter of
Credit Obligations set forth in SECTION 2.2 unless the same shall be in writing
and signed by Agent, Requisite Revolving Lenders and Borrower.
(c) No amendment, modification, termination or waiver shall,
unless in writing and signed by Agent and each Lender directly affected thereby,
do any of the following: (i) increase the principal amount of any Lender's
Commitment (which action shall be deemed to directly affect all Lenders); (ii)
reduce the principal of, rate of interest on or Fees payable with respect to any
Loan or Letter of Credit Obligations of any affected Lender; (iii) extend any
scheduled payment date or final maturity date of the principal amount of any
Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone any
payment of interest or Fees as to any affected Lender; (v) release any Guaranty
or, except as otherwise permitted herein or in the other Loan Documents,
release, or permit any Credit Party to sell or otherwise dispose of, any
Collateral with a value exceeding $5,000,000 in the aggregate (which action
shall be deemed to directly affect all Lenders); (vi) change the percentage of
the Commitments or of the aggregate
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unpaid principal amount of the Loans which shall be required for Lenders or any
of them to take any action hereunder; and (vii) amend or waive this SECTION 11.2
or the definitions of the terms "Requisite Lenders", "Requisite Revolving
Lenders" or "Supermajority Revolving Lenders" insofar as such definitions affect
the substance of this SECTION 11.2. Furthermore, no amendment, modification,
termination or waiver affecting the rights or duties of Agent under this
Agreement or any other Loan Document shall be effective unless in writing and
signed by GE Capital and Agent in addition to Lenders required hereinabove to
take such action. Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for Agent to take additional Collateral pursuant to any Loan Document.
No amendment, modification, termination or waiver of any provision of any Note
shall be effective without the written concurrence of the holder of that Note.
No notice to or demand on any Credit Party in any case shall entitle such Credit
Party or any other Credit Party to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, termination, waiver
or consent effected in accordance with this SECTION 11.2 shall be binding upon
each holder of the Notes at the time outstanding and each future holder of the
Notes.
(d) If, in connection with any proposed amendment, modification,
waiver or termination (a "PROPOSED CHANGE"):
(i) requiring the consent of all affected Lenders, the
consent of Requisite Lenders is obtained, but the consent of
other Lenders whose consent is required is not obtained (any such
Lender whose consent is not obtained as described this CLAUSE (i)
and in CLAUSES (ii), (iii) AND (iv) below being referred to as a
"NON-CONSENTING LENDER"), or
(ii) requiring the consent of Supermajority Revolving
Lenders, the consent of Requisite Revolving Lenders is obtained,
but the consent of Supermajority Revolving Lenders is not
obtained,
then, so long as Agent is not a Non-Consenting Lender, at Borrower's request
Agent, or a Person acceptable to Agent, shall have the right with Agent's
consent and in Agent's sole discretion (but shall have no obligation) to
purchase from such Non-Consenting Lenders, and such NonConsenting Lenders agree
that they shall, upon Agent's request, sell and assign to Agent or such Person,
all of the Commitments of such Non-Consenting Lender for an amount equal to the
principal balance of all Loans held by the Non-Consenting Lender and all accrued
interest and Fees with respect thereto through the date of sale, such purchase
and sale to be consummated pursuant to an executed Assignment Agreement.
(d) Upon indefeasible payment in full in cash and performance of
all of the Obligations (other than indemnification Obligations under SECTION
1.13), termination of the Commitments and a release of all claims against Agent,
Co-Agent and Lenders, and so long as no suits, actions proceedings, or claims
are pending or threatened against any Indemnified Person
- 66 -
<PAGE>
[EXECUTION VERSION]
asserting any damages, losses or liabilities that are Indemnified Liabilities,
Agent shall deliver to Borrower termination statements, mortgage releases and
other documents necessary or appropriate to evidence the termination of the
Liens securing payment of the Obligations.
11.3 FEES AND EXPENSES. Borrower shall reimburse Agent and
Co-Agent for all out-of-pocket expenses (if any) incurred in connection with the
preparation of the Loan Documents (including the reasonable fees and expenses of
all of its special loan counsel, advisors, consultants and auditors retained in
connection with the Loan Documents and the Related Transactions and advice in
connection therewith). Borrower shall reimburse Agent and Co-Agent (and, with
respect to CLAUSES (c) and (d) below, all Lenders) for all fees, costs and
expenses (if any), including the reasonable fees, costs and expenses of counsel
or other advisors (including environmental and management consultants and
appraisers) for advice, assistance, or other representation in connection with:
(a) the forwarding to Borrower or any other Person on behalf of
Borrower by Agent of the proceeds of the Loans;
(b) any amendment, modification or waiver of, or consent with
respect to, any of the Loan Documents or Related Transactions Documents or
advice in connection with the administration of the Loans made pursuant hereto
or its rights hereunder or thereunder;
(c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Agent, Co-Agent, any Lender, Borrower or any other
Person) in any way relating to the Collateral, any of the Loan Documents or any
other agreement to be executed or delivered in connection therewith or herewith,
whether as party, witness, or otherwise, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against Borrower or any other Person that
may be obligated to Agent by virtue of the Loan Documents; including any such
litigation, contest, dispute, suit, proceeding or action arising in connection
with any work-out or restructuring of the Loans during the pendency of one or
more Events of Default; provided that in the case of reimbursement of counsel
for Lenders other than Agent, such reimbursement shall be limited to one counsel
for all such Lenders;
(d) any attempt to enforce any remedies of Agent, Co-Agent or any
Lender against any or all of the Credit Parties or any other Person that may be
obligated to Agent, Co-Agent or any Lender by virtue of any of the Loan
Documents; including any such attempt to enforce any such remedies in the course
of any work-out or restructuring of the Loans during the pendency of one or more
Events of Default; provided that in the case of reimbursement of counsel for
Lenders other than Agent, such reimbursement shall be limited to one counsel for
all such Lenders;
(e) any work-out or restructuring of the Loans during the
pendency of one or more Events of Default;
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<PAGE>
[EXECUTION VERSION]
(f) efforts to (i) monitor the Loans or any of the other
Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their
respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;
including, as to each of CLAUSES (a) through (f) above, all attorneys' and other
professional and service providers' fees arising from such services, including
those in connection with any appellate proceedings; and all expenses, costs,
charges and other fees incurred by such counsel and others in any way or respect
arising in connection with or relating to any of the events or actions described
in this SECTION 11.3 shall be payable, on demand, by Borrower to Agent. Without
limiting the generality of the foregoing, such expenses, costs, charges and fees
may include: fees, costs and expenses of accountants, environmental advisors,
appraisers, investment bankers, management and other consultants and paralegals;
court costs and expenses; photocopying and duplication expenses; court reporter
fees, costs and expenses; long distance telephone charges; air express charges;
telegram or telecopy charges; secretarial overtime charges; and expenses for
travel, lodging and food paid or incurred in connection with the performance of
such legal or other advisory services.
11.4 NO WAIVER. Agent's or any Lender's failure, at any time or
times, to require strict performance by the Credit Parties of any provision of
this Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of SECTION 11.2, none of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer of or other authorized employee of
Agent and the applicable required Lenders and directed to Borrower specifying
such suspension or waiver.
11.5 REMEDIES. Agent's, Co-Agent's and Lenders' rights and
remedies under this Agreement shall be cumulative and nonexclusive of any other
rights and remedies which Agent, Co-Agent or any Lender may have under any other
agreement, including the other Loan Documents, by operation of law or otherwise.
Recourse to the Collateral shall not be required.
11.6 SEVERABILITY. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
- 68 -
<PAGE>
[EXECUTION VERSION]
11.7 CONFIDENTIALITY. Agent, Co-Agent and each Lender agree to
use commercially reasonable efforts (equivalent to the efforts Agent, Co-Agent
or such Lender applies to maintain the confidentiality of its own confidential
information) to maintain as confidential all confidential information provided
to them by the Credit Parties and designated as confidential for a period of two
(2) years following receipt thereof, except that Agent, Co-Agent and each Lender
may disclose such information (a) to Persons employed or engaged by Agent,
Co-Agent or such Lender in evaluating, approving, structuring or administering
the Loans and the Commitments; (b) to any bona fide assignee or participant or
potential assignee or participant that has agreed to comply with the covenant
contained in this SECTION 11.7 (and any such bona fide assignee or participant
or potential assignee or participant may disclose such information to Persons
employed or engaged by them as described in CLAUSE (a) above); (c) as required
or requested by any Governmental Authority or reasonably believed by Agent,
Co-Agent or such Lender to be compelled by any court decree, subpoena or legal
or administrative order or process; (d) as, on the advise of Agent's Co-Agent's
or such Lender's counsel, required by law; (e) in connection with the exercise
of any right or remedy under the Loan Documents or in connection with any
Litigation to which Agent, Co-Agent or such Lender is a party; or (f) which
ceases to be confidential through no fault of Agent, Co-Agent or such Lender.
11.8 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
11.9 CERTAIN CONSENTS AND WAIVERS OF THE BORROWER.
(a) PERSONAL JURISDICTION.
(i) EACH OF THE AGENT, CO-AGENT, EACH LENDER AND THE
BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY CALIFORNIA STATE COURT
OR FEDERAL COURT SITTING IN LOS ANGELES, CALIFORNIA, AND ANY COURT
HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY
ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH
THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH
- 69 -
<PAGE>
[EXECUTION VERSION]
STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.
THE BORROWER IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION AS ITS
AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO
BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. THE PARTIES HERETO
AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER WAIVES IN
ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING THE DISPUTE.
(ii) THE BORROWER AGREES THAT THE AGENT, THE CO-AGENT AND
ANY LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS
PROPERTY IN A COURT IN ANY LOCATION WHICH IS NECESSARY OR DESIRABLE TO
ENABLE THE AGENT, CO-AGENT OR SUCH LENDER TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT, CO-AGENT OR SUCH
LENDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE AGENT, CO-AGENT OR ANY
LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE AGENT, CO-AGENT OR SUCH LENDER. THE BORROWER WAIVES ANY OBJECTION
THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT,
CO-AGENT OR ANY LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS
SECTION.
(b) SERVICE OF PROCESS. THE BORROWER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE PROCESS AGENT OR THE BORROWER'S NOTICE ADDRESS SPECIFIED
BELOW, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) DAYS AFTER SUCH MAILING. THE
BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
- 70 -
<PAGE>
[EXECUTION VERSION]
RIGHT OF THE AGENT, CO-AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
11.10 NOTICES. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other parties, or whenever any of the parties desires to
give or serve upon any other parties any communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be deemed to have been validly
served, given or delivered (a) upon the earlier of actual receipt and four (4)
Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (b) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this SECTION
11.10) or (c) when delivered, if hand-delivered by reputable overnight courier
or messenger, all of which shall be addressed to the party to be notified and
sent to the address or facsimile number indicated on ANNEX I or to such other
address (or facsimile number) as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower or Agent) designated on ANNEX I
to receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
11.11 SECTION TITLES. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
11.12 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, CO-AGENT, LENDERS AND ANY
CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
- 71 -
<PAGE>
[EXECUTION VERSION]
11.13 PRESS RELEASES. Each Credit Party executing this Agreement
agrees that neither it nor its Affiliates will in the future issue any press
releases or other public disclosure using the name of GE Capital or its
affiliates or referring to this Agreement or the other Loan Documents without at
least two (2) Business Days' prior notice to GE Capital and without the prior
written consent of GE Capital unless (and only to the extent that) such Credit
Party or Affiliate is required to do so under law and then, in any event, such
Credit Party or Affiliate will consult with GE Capital before issuing such press
release or other public disclosure. Each Credit Party consents to the
publication by Agent, Co-Agent or any Lender of a tombstone or similar
advertising material relating to the financing transactions contemplated by this
Agreement. Agent, Co-Agent or such Lender shall provide a draft of any such
tombstone or similar advertising material to each Credit Party for review and
comment prior to the publication thereof. Agent reserves the right to provide to
industry trade organizations information necessary and customary for inclusion
in league table measurements with Borrower's consent which shall not be
unreasonably withheld or delayed.
11.14 REINSTATEMENT. This Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Borrower for liquidation or reorganization, should Borrower become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of
Borrower's assets, and shall continue to be effective or to be reinstated, as
the case may be, if at any time payment and performance of the Obligations, or
any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
11.15 COUNTERPARTS; EFFECTIVENESS; INCONSISTENCIES. This
Agreement and any amendments, waivers, consents, or supplements hereto may be
executed in counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument. This Agreement shall become effective, as to the
signatories hereto, as of the date when all of the conditions set forth in
SECTION 2.1 have been satisfied or duly waived in accordance with SECTION 11.2
(the "EFFECTIVE DATE"), and shall become effective as to each Additional Credit
Party upon the execution of a counterpart hereof by such Additional Credit Party
(whether or not a counterpart hereof shall have been executed by any other
Additional Credit Party) and delivery thereof to Agent. Subject to the
provisions of this Agreement (including, without limitation, the preliminary
statements hereto), this Agreement and each of the other Loan Documents shall be
construed to the extent reasonable to be consistent one with the other, but to
the extent that the terms and conditions of this Agreement are actually
inconsistent with the terms and conditions of any other Loan Document, this
Agreement shall govern.
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<PAGE>
[EXECUTION VERSION]
11.16 ADVICE OF COUNSEL. Each of the parties represents to each
other party hereto that it has discussed this Agreement and, specifically, the
provisions of SECTIONS 11.9 and 11.12, with its counsel.
11.17 NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
11.18 NO NOVATION. This Agreement is an amendment and restatement
of the Existing Credit Agreement. The parties hereto hereby acknowledge and
agree as follows:
(a) The Term Notes delivered by the Borrower to Agent on the
Effective Date (i) are given in renewal of and rearrangement and substitution,
but not in payment, for the "Term Note" (as defined in the Existing Credit
Agreement) and (ii) evidence the additional Term Loan made on the Effective
Date.
(b) The Revolving Notes delivered by the Borrower to Agent on the
Effective Date (i) are given in renewal of and rearrangement and substitution,
but not in payment, for that portion of the "Revolving Credit Note" (as defined
in the Existing Credit Agreement) evidencing the revolving loans under the
Existing Credit Agreement and (ii) evidence the Revolving Loan Commitment as of
the Effective Date.
(c) This Agreement and the delivery of the substitute Term Notes
and Revolving Notes pursuant hereto are in no way intended to constitute a
novation of the Existing Credit Agreement, such "Term Note," such "Revolving
Credit Note" or the outstanding principal amount of the Indebtedness evidenced
by any of them.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of
the date first written above.
BORROWER: KAYNAR TECHNOLOGIES INC.
By:
--------------------------------
Name:
Title:
AGENT AND CO-AGENT: GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Charles D. Chiodo
--------------------------------
Name: Charles D. Chiodo
Authorized Signatory
LENDER: GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Charles D. Chiodo
--------------------------------
Name: Charles D. Chiodo
Authorized Signatory
S-1
<PAGE>
The following Persons are signatories to this Agreement in their
capacity as Credit Parties and not as Borrowers.
CREDIT PARTIES: RECOIL INC.
By: /s/ David A. Werner
--------------------------------
Name: David A. Werner
Title: V. P.
RECOIL HOLDINGS, INC.
By: /s/ David A. Werner
--------------------------------
Name: David A. Werner
Title: V. P.
RECOIL HOLDINGS AUSTRALIA, INC.
By: /s/ David A. Werner
--------------------------------
Name: David A. Werner
Title: V. P.
M&M MACHINE & TOOL CO.
By: /s/ David A. Werner
--------------------------------
Name: David A. Werner
Title: V. P.
S-2
<PAGE>
The following additional Persons are signatory to this Agreement,
in their capacity as Credit Parties and not as Borrowers, as of the 27th day of
October 1998.
CREDIT PARTIES: MARCLIFF CORPORATION
By: /s/ David A. Werner
--------------------------------
Name: David A. Werner
Title: V. P.
MARSON CREATIVE FASTENER, INC.
By: /s/ David A. Werner
--------------------------------
Name: David A. Werner
Title: V. P.
S-3
<PAGE>
Exhibit 10.2(b)
[EXECUTION VERSION]
FIRST AMENDMENT
AND
LIMITED WAIVER
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THE FIRST AMENDMENT AND LIMITED WAIVER TO THIRD AMENDED AND RESTATED
CREDIT AGREEMENT, dated as of December 14, 1998 (this "Amendment"), to the Third
Amended and Restated Credit Agreement dated as of October 23, 1998 (as the same
may be amended, supplemented, restated or otherwise modified from time to time,
the "Credit Agreement") is entered into among Kaynar Technologies Inc., a
Delaware corporation (the "Borrower"), the other Credit Parties, the Co-Agent
and the Lenders (each as defined in the Credit Agreement) from time to time
party to the Credit Agreement and General Electric Capital Corporation, a New
York corporation, individually and as agent (in such capacity, "Agent") for
itself and the Lenders. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrower, the other Credit Parties, the Agent, the
Co-Agent and the Lenders have entered into the Credit Agreement; and
WHEREAS, the Borrower and the other Credit Parties have requested that
the Agent, the Co-Agent and the Lenders amend the Credit Agreement to (i) extend
the final date permitted for the termination and unconditional release of all
Accommodation Obligations of the Borrower with respect to Indebtedness of M&M
assumed in connection with the M&M Acquisition from January 25, 1999, to March
31, 1999, and (ii) amend the Restricted Payment covenant to permit the
repurchase of shares of the Borrower's common Stock with an aggregate Fair
Market Value of up to $10,000,000;
WHEREAS, the Borrower and the other Credit Parties have requested that
the Agent, the Co-Agent and the Lenders grant limited waivers of the following
sections of the Credit Agreement:
(i) Section 5.18(a) of the Credit Agreement with respect to Cash
Management Systems for the Marcliff Subsidiaries;
(ii) Section 5.18(b) of the Credit Agreement with respect to loss
payable and additional insured endorsements of the Marcliff Subsidiaries;
(iii) Paragraphs (a) and (b) of Annex C to the Credit Agreement with
respect to establishment of Lock Boxes and tri-party blocked account
agreements, and
<PAGE>
[EXECUTION VERSION]
Paragraph 1 (E) of Annex D to the Credit Agreement with respect to delivery
of evidence relating to Cash Management Systems, in each case in connection
with Borrower Accounts at Michigan National Bank, Bank of America/Anaheim
Hills Branch, Union Bank, CoreStates Bank of Delaware and CoreStates
Bank/Philadelphia;
(iv) Paragraph 1 (J) of Annex D to the Credit Agreement with respect to
delivery of the GE Capital Fee Letter;
(v) Paragraph 1 (P) of Annex D to the Credit Agreement with respect to
delivery of the Collateral Assignments;
(vi) Paragraph 2(G) of Annex D to the Credit Agreement with respect to
delivery of landlord waivers and bailee letters for the Marcliff
Subsidiaries;
WHEREAS, the Agent and the Lenders are willing to enter into such
amendments and waivers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the above premises, the Borrower,
the other Credit Parties, the Agent, the Co-Agent and the Lenders agree as
follows:
1. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Effective Date" (as
defined in Section 4 below), the Credit Agreement is hereby amended as follows:
a. AMENDMENT TO SECTION 6.6(ii). Section 6.6(ii) of the Credit
Agreement is amended by deleting the date "January 25, 1999" and
substituting in lieu thereof the date "March 31, 1999."
b. AMENDMENT TO SECTION 6.14(d). Section 6.14(d) is hereby amended by
deleting the phrase "and (d)" at the end of clause (c) thereof and
substituting the following in lieu thereof:
", (d) repurchases of Stock permitted by SECTION 6.5(b)(iii) above and
(e)"
2. Limited Waivers. Upon the Effective Date, the Agent, the Co-Agent
and the Lenders hereby grant, subject to the terms and conditions set forth
herein, the following limited waivers:
a. A limited waiver, until December 21, 1998, of the provisions of
Paragraph 1(J) of Annex D to the Credit Agreement with respect to (and only
with respect to) delivery by the Borrower of a duly executed original of
the GE Capital Fee Letter.
2
<PAGE>
[EXECUTION VERSION]
b. A limited waiver, until December 30, 1998, of the provisions of
Section 5.18(a) of the Credit Agreement with respect to (and only with
respect to) delivery by the Marcliff Subsidiaries of duly executed
tri-party blocked account and lock-box agreements in accordance with
Annex C to the Credit Agreement.
c. A limited waiver, until December 30, 1998, of the provisions of
Section 5.18(b) of the Credit Agreement with respect to (and only with
respect to) delivery by the Marcliff Subsidiaries of insurance
certificates with respect to the insurance polices required by Section 5.4
of the Credit Agreement, showing loss payable and/or additional insured
clauses or endorsements.
d. A limited waiver, until February 15, 1999, of the provisions of
Paragraphs (a) and (b) of Annex C to the Credit Agreement with respect to
(and only with respect to) the establishment by Borrower of Lock Boxes and
tri-party blocked account agreements, and Paragraph 1(E) of Annex D to the
Credit Agreement with respect to Borrower's delivery of evidence relating
to Cash Management Systems, in each case in connection with Borrower
Accounts at Michigan National Bank, Bank of America/Anaheim Hills Branch,
Union Bank, CoreStates Bank of Delaware and CoreStates Bank/Philadelphia.
e. A limited waiver, until February 15, 1999, of the provisions of
Paragraph 1(P) of Annex D to the Credit Agreement with respect to (and only
with respect to) delivery by the Borrower of duly executed copies of the
Collateral Assignments.
f. A limited waiver, until February 15, 1999, of the provisions of
Paragraph 2(G) of Annex D to the Credit Agreement with respect to (and only
with respect to) delivery by the Marcliff Subsidiaries of a duly executed
landlord waiver and consent with respect to the leased property in
Stoughton, Massachusetts.
3. REPRESENTATIONS AND WARRANTIES. The Credit Parties hereby jointly and
severally represent and warrant to the Agent, the Co-Agent and the Lenders
that, as of the Effective Date and after giving effect to this Amendment:
a. All of the representations and warranties of the Credit Parties
contained in this Amendment, the Credit Agreement and the other Loan
Documents are true and correct in all material respects on and as of the
Effective Date, as if then made (other than representations and warranties
which expressly speak as of a different date, which shall be true and
correct in all material respects as of that date); and
b. Except with respect to provisions of the Credit Agreement expressly
waived herein, no Default of Event of Default has occurred or is
continuing or will result after giving effect to this Amendment.
3
<PAGE>
[EXECUTION VERSION]
4. EFFECTIVE DATE. This Amendment shall become effective as of the date
first written above (the "EFFECTIVE DATE") upon the satisfaction of each of the
following conditions:
a. The Agent shall have received each of the following documents, in
each case in form and substance satisfactory to the Agent, prior to 5:00
p.m. (New York time) on December 23, 1998:
i. counterparts hereof executed by the Credit Parties;
ii. a certificate of an officer of each of the Credit Parties
certifying that all conditions precedent to the effectiveness of this
Amendment have been satisfied;
iii. a certificate of the Secretary or Assistant Secretary of each
of the Credit Parties dated the Effective Date certifying (A) that the
By-laws of such Credit Party have not been amended or otherwise
modified since the date of the most recent certification thereof by the
Secretary or Assistant Secretary of such Credit Party delivered to the
Agent and remain in full force and effect as of the Effective Date, (B)
that the Articles of Incorporation of such Credit Party have not been
amended or otherwise modified since the date of the most recent
certification thereof by the Secretary of State of such Credit Party's
jurisdiction of incorporation delivered to the Agent and remain in full
force and effect as of the Effective Date and (C) that the execution,
delivery and performance of this Amendment have been approved and
authorized by all necessary corporate action; and
iv. such additional documentation as the Agent may reasonably
request;
b. No law, regulation, order, judgment or degree of any Governmental
Authority shall, and the the Agent shall not have received any notice that
litigation is pending or threatened which is likely to, enjoin, prohibit or
restrain the consummation of the transactions contemplated by this
Amendment, except for such laws, regulations, orders or degrees, or pending
or threatened litigation that in the aggregate could not reasonably be
expected to result in a Material Adverse Effect;
c. All of the representations and warranties of the Credit Parties
contained in this Amendment, the Credit Agreement and the other Loan
Documents shall be true and correct in all material respects on and as of
the Effective Date, as if then made (other than representations and
warranties which expressly speak as of a different date, which shall be
true and correct in all material respects as of that date);
4
<PAGE>
[EXECUTION VERSION]
d. All corporate and other proceedings, and all documents, instruments
and other legal matters in connection with the transactions contemplated by
this Amendment shall be satisfactory in all respects in form and substance
to the Agent; and
e. No Default or Event of Default shall have occurred and be continuing
on the Effective Date or will result after giving effect to this Amendment.
5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS
a. Upon the Effective Date, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import, and each
reference in the other Loan Documents to the Credit Agreement, shall mean
and be a reference to the Credit Agreement as amended and supplemented
hereby.
b. Except to the extent specifically set forth herein, the respective
provisions of the Credit Agreement and the other Loan Documents shall not
be amended, modified, waived, impaired or otherwise affected hereby, and
such documents and the Obligations under each of them are hereby confirmed
as being in full force and effect.
c. This Amendment shall be limited solely to the matters expressly
set forth herein and shall not (i) constitute an amendment or waiver of
any other term or condition of the Credit Agreement or any other Loan
Document, (ii) prejudice any right or rights which the Agent or any
Lender may now have or may have in the future under or in connection
with the Credit Agreement or any other loan Document, (iii) require the
Agent or any Lender to agree to a similar transaction on a future
occasion or (iv) create any rights herein to another Person or other
beneficiary or otherwise, except to he extent specifically provided
herein.
6. MISCELLANEOUS. This Amendment is a Loan Document. The headings herein
are for convenience of reference only and shall not alter or otherwise affect
the meaning hereof.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE INTERPRETED, AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK.
5
<PAGE>
[EXECUTION VERSION]
9. NO STRICT CONSTRUCTION. The parties hereto have participated jointly in
the negotiation and drafting of this Amendment. In the event an ambiguity or
question of intent or interpretation arises, this Amendment shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Amendment.
6
<PAGE>
[EXECUTION VERSION]
IN WITNESS WHEREOF, the Credit Parties, the Agent, the Co-Agent and the
Lenders have caused this Amendment to be executed by their respective officers
thereunto duly authorized as of the date first above written.
KAYNAR TECHNOLOGIES INC.
M&M MACHINE & TOOL CO.
MARCLIFF CORPORATION
MARSON CREATIVE FASTENER, INC.
RECOIL INC.
RECOIL HOLDINGS, INC.
RECOIL HOLDINGS AUSTRALIA, INC.
By: /s/ David A. Werner
----------------------------------------
David A. Werner
Authorized Signatory
GENERAL ELECTRIC CAPITAL CORPORATION, as
Agent, Co-Agent and Lender
By:
----------------------------------------
Name:
Authorized Signatory
7
<PAGE>
[EXECUTION VERSION]
IN WITNESS WHEREOF, the Credit Parties, the Agent, the Co-Agent and the
Lenders have caused this Amendment to be executed by their respective officers
thereunto duly authorized as of the date first above written.
KAYNAR TECHNOLOGIES INC.
M&M MACHINE & TOOL CO.
MARCLIFF CORPORATION
MARSON CREATIVE FASTENER, INC.
RECOIL INC.
RECOIL HOLDINGS, INC.
RECOIL HOLDINGS AUSTRALIA, INC.
By: /s/ David A. Werner
----------------------------------------
David A. Werner
Authorized Signatory
GENERAL ELECTRIC CAPITAL CORPORATION, as
Agent, Co-Agent and Lender
By: /s/ Charles D. Chiodo
----------------------------------------
Name: Charles D. Chiodo
Authorized Signatory
8
<PAGE>
Exhibit 10.2(c)
[EXECUTION VERSION]
SECOND AMENDMENT
AND
LIMITED WAIVER
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT AND LIMITED WAIVER TO THIRD AMENDED AND
RESTATED CREDIT AGREEMENT, dated as of December 31, 1998 (this "AMENDMENT"), to
the Third Amended and Restated Credit Agreement dated as of October 23, 1998, as
amended by the First Amendment and Limited Waiver, dated as of December 14, 1998
(as the same may be further amended, supplemented, restated or otherwise
modified from time to time, and together with all Annexes, Exhibits and
Schedules thereto, the "CREDIT AGREEMENT") is entered into among Kaynar
Technologies Inc., a Delaware corporation (the "BORROWER"), the other Credit
Parties, the Co-Agent and the Lenders (each as defined in the Credit Agreement)
from time to time party to the Credit Agreement and General Electric Capital
Corporation, a New York corporation, individually and as agent (in such
capacity, "AGENT") for itself and the Lenders. Capitalized terms used and not
otherwise defined herein have the meanings assigned to them in the Credit
Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the other Credit Parties, the Agent, the
Co-Agent and the Lenders have entered into the Credit Agreement; and
WHEREAS, the Borrower and the other Credit Parties have requested
that the Agent, the Co-Agent and the Lenders amend the Credit Agreement to
extend the final date permitted for each of the completion of Year 2000
Corrective Actions, the completion of Year 2000 Implementation Testing, and the
elimination of all Year 2000 Problems;
WHEREAS, the Borrower and the other Credit Parties have requested
that the Agent, the Co-Agent and the Lenders grant limited waivers of the
following sections of the Credit Agreement:
(i) Section 5.18(a) of the Credit Agreement with respect to
delivery by the Marcliff Subsidiaries of duly executed tri-party blocked
account and lock-box agreements in accordance with Annex C to the Credit
Agreement;
(ii) Paragraphs (a) and (b) of Annex C to the Credit Agreement
with respect to the establishment of Lock Boxes and tri-party blocked
account agreements, and Paragraph 1(E) of Annex D to the Credit
Agreement with respect to delivery of evidence relating to Cash
Management Systems, in each case in connection with Borrower
<PAGE>
[EXECUTION VERSION]
Accounts at Michigan National Bank, Bank of America/Anaheim Hills
Branch, Union Bank, CoreStates Bank of Delaware and CoreStates
Bank/Philadelphia; and
(iii) Paragraph 2(G) of Annex D to the Credit Agreement with
respect to delivery by the Marcliff Subsidiaries of a duly executed
landlord waiver and consent with respect to the leased property in
Stoughton, Massachusetts;
WHEREAS, the Agent and the Lenders are willing to enter into such
amendments and waivers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the above premises, the
Borrower, the other Credit Parties, the Agent, the Co-Agent and the Lenders
agree as follows:
1. AMENDMENTS TO SECTION 5.11(B) THE CREDIT AGREEMENT. Upon the
Effective Date (as defined in SECTION 4 below), Section 5.11(b) of the Credit
Agreement is hereby amended by deleting the date "November 30, 1998" and
substituting in lieu thereof the date "March 31, 1999"; by deleting the date
"January 29, 1999" and substituting in lieu thereof the date "April 30, 1999";
and by deleting the date "March 31, 1999" and substituting in lieu thereof the
date "May 31, 1999".
2. LIMITED WAIVERS. Upon the Effective Date, the Agent, the Co-Agent and
the Lenders hereby grant, subject to the terms and conditions set forth herein,
the following limited waivers:
a. A limited waiver, until March 31, 1999, of the provisions of
Section 5.18(a) of the Credit Agreement with respect to (and only with
respect to) delivery by the Marcliff Subsidiaries of duly executed
tri-party blocked account and lock-box agreements in accordance with
Annex C to the Credit Agreement.
b. A limited waiver, until March 31, 1999, of the provisions of
Paragraphs (a) and (b) of Annex C to the Credit Agreement with respect
to (and only with respect to) the establishment by Borrower of Lock
Boxes and tri-party blocked account agreements, and Paragraph 1(E) of
Annex D to the Credit Agreement with respect to Borrower's delivery of
evidence relating to Cash Management Systems, in each case in connection
with Borrower Accounts at Michigan National Bank, Bank of
America/Anaheim Hills Branch, Union Bank, CoreStates Bank of Delaware
and CoreStates Bank/Philadelphia.
c. A limited waiver, until March 31, 1999, of the provisions of
Paragraph 2(G) of Annex D to the Credit Agreement with respect to (and
only with respect to) delivery by the Marcliff Subsidiaries of a duly
executed landlord waiver and consent with respect to the leased property
in Stoughton, Massachusetts.
2
<PAGE>
[EXECUTION VERSION]
3. REPRESENTATIONS AND WARRANTIES. The Credit Parties hereby jointly and
severally represent and warrant to the Agent, the Co-Agent and the Lenders that,
as of the Effective Date and after giving effect to this Amendment:
a. All of the representations and warranties of the Credit
Parties contained in this Amendment, the Credit Agreement and the other
Loan Documents are true and correct in all material respects on and as
of the Effective Date, as if then made (other than representations and
warranties which expressly speak as of a different date, which shall be
true and correct in all material respects as of that date); and
b. Except with respect to provisions of the Credit Agreement
expressly waived herein, no Default or Event of Default has occurred or
is continuing or will result after giving effect to this Amendment.
4. EFFECTIVE DATE. This Amendment shall become effective as of the date
first written above (the "EFFECTIVE DATE") upon the satisfaction of each of the
following conditions:
a. The Agent shall have received each of the following documents,
in each case in form and substance satisfactory to the Agent, prior to
5:00 p.m. (New York time) on February 5, 1999:
i. counterparts hereof executed by the Credit Parties;
ii. a certificate of an officer of each of the Credit
Parties certifying that all conditions precedent to the
effectiveness of this Amendment have been satisfied;
iii. a certificate of the Secretary or Assistant Secretary
of each of the Credit Parties dated the Effective Date certifying
(A) that the By-laws of such Credit Party have not been amended
or otherwise modified since the date of the most recent
certification thereof by the Secretary or Assistant Secretary of
such Credit Party delivered to the Agent and remain in full force
and effect as of the Effective Date, (B) that the Articles or
Certificate of Incorporation of such Credit Party have not been
amended or otherwise modified since the date of the most recent
certification thereof by the Secretary of State of such Credit
Party's jurisdiction of incorporation delivered to the Agent and
remain in full force and effect as of the Effective Date and (C)
that the execution, delivery and performance of this Amendment
have been approved and authorized by all necessary corporate
action; and
iv. such additional documentation as the Agent may
reasonably request;
3
<PAGE>
[EXECUTION VERSION]
b. No law, regulation, order, judgment or decree of any
Governmental Authority shall, and the Agent shall not have received any
notice that litigation is pending or threatened which is likely to,
enjoin, prohibit or restrain the consummation of the transactions
contemplated by this Amendment, except for such laws, regulations,
orders or decrees, or pending or threatened litigation that in the
aggregate could not reasonably be expected to result in a Material
Adverse Effect;
c. All of the representations and warranties of the Credit
Parties contained in this Amendment, the Credit Agreement and the other
Loan Documents shall be true and correct in all material respects on and
as of the Effective Date, as if then made (other than representations
and warranties which expressly speak as of a different date, which shall
be true and correct in all material respects as of that date);
d. All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Amendment shall be satisfactory in all respects in
form and substance to the Agent; and
e. No Default or Event of Default shall have occurred and be
continuing on the Effective Date or will result after giving effect to
this Amendment.
5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
a. Upon the Effective Date, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like
import, and each reference in the other Loan Documents to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as
amended and supplemented hereby.
b. Except to the extent specifically set forth herein, the
respective provisions of the Credit Agreement and the other Loan
Documents shall not be amended, modified, waived, impaired or otherwise
affected hereby, and such documents and the Obligations under each of
them are hereby confirmed as being in full force and effect.
c. This Amendment shall be limited solely to the matters
expressly set forth herein and shall not (i) constitute an amendment or
waiver of any other term or condition of the Credit Agreement or any
other Loan Document, (ii) prejudice any right or rights which the Agent
or any Lender may now have or may have in the future under or in
connection with the Credit Agreement or any other Loan Document, (iii)
require the Agent or any Lender to agree to a similar transaction on a
future occasion or (iv) create any rights herein to another Person or
other beneficiary or otherwise, except to the extent specifically
provided herein.
4
<PAGE>
[EXECUTION VERSION]
6. MISCELLANEOUS. This Amendment is a Loan Document. The headings herein
are for convenience of reference only and shall not alter or otherwise affect
the meaning hereof.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE INTERPRETED, AND THE RIGHTS
AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAW OF
THE STATE OF NEW YORK.
9. NO STRICT CONSTRUCTION. The parties hereto have participated jointly
in the negotiation and drafting of this Amendment. In the event an ambiguity or
question of intent or interpretation arises, this Amendment shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Amendment.
5
<PAGE>
[EXECUTION VERSION]
IN WITNESS WHEREOF, the Credit Parties, the Agent, the Co-Agent
and the Lenders have caused this Amendment to be executed by their respective
officers thereunto duly authorized as of the date first above written.
KAYNAR TECHNOLOGIES INC.
M&M MACHINE & TOOL CO.
MARCLIFF CORPORATION
MARSON CREATIVE FASTENER, INC.
RECOIL INC.
RECOIL HOLDINGS, INC.
RECOIL HOLDINGS AUSTRALIA, INC.
By: /s/ David A. Werner
-----------------------------
David A. Werner
Authorized Signatory
GENERAL ELECTRIC CAPITAL CORPORATION, as
Agent, Co-Agent and Lender
By: /s/ Charles D. Chiodo
-----------------------------
Name: Charles D. Chiodo
Authorized Signatory
6
<PAGE>
[Kaynar Technologies Inc. Letterhead]
January 13, 1999
HAND DELIVERED
Boeing Commercial Airplane Group
Material Division
P.O. Box 3707
Seattle, Washington 98124-2207
Attention: Brian E. Schmidt
Re: GENERAL TERMS AGREEMENT NO. BCA-65751-029
Dear Mr. Schmidt:
Kaynar Technologies Inc. ("KTI") has recently entered into a merger
agreement with The Fairchild Corporation ("Fairchild"), and its wholly owned
subsidiary, Dah-Dah, Inc. (the "Fairchild Sub"). Upon satisfaction of the
conditions set forth in the merger agreement, the Fairchild Sub will merge into
KTI and KTI will become a wholly owned subsidiary of Fairchild.
KTI has previously entered into the General Terms Agreement, No.
BCA-65751-029, dated as of September 20, 1996 (the "Agreement") with The Boeing
Company ("Boeing"). This notice and request for consent is provided in
accordance with sections 25.1 and 25.3 of the Agreement. In particular, we
request that Boeing waive its right to exercise the license rights in the
Licensed Property (as defined in the Agreement) under subsection 24.0(b) of the
Agreement, a copy of which is attached hereto, as a result of the merger with
the Fairchild Sub. We understand that the waiver (i) is conditioned upon the
acquisition of Kaynar by Fairchild (or a subsidiary of Fairchild) on or before
June, 1999, after which date the waiver will expire unless it has been extended
in writing by an authorized representative of Boeing, and (ii) applies to
subsection 24.0(b) only. To confirm your acknowledgment, and waiver with respect
to the transactions contemplated by the merger agreement, please execute and
return this document to my attention.
<PAGE>
Your prompt attention to this matter would be greatly appreciated. If
you need any additional information, please call me. Because we are in the
process of completing a merger involving publicly traded corporations, we ask
that you keep this request confidential.
Very truly yours,
/s/ Jordan A. Law
Jordan A. Law
Chairman and Chief Executive Officer
ACCEPTED AND AGREED:
THE BOEING COMPANY
by and through its division
Boeing Commercial Airplane Group
By: /S/ BRIAN E. SCHMIDT
-------------------------------
Name: BRIAN E. SCHMIDT
-----------------------------
Title: CONTRACT ADMINISTRATOR
----------------------------
<PAGE>
Exhibit 10.9(b)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the
"Agreement") is entered into by and between KAYNAR TECHNOLOGIES INC., a
Delaware corporation, (the "Company") ____________ and ("Employee"), as of
the 9th day of December, 1998.
WHEREAS, the Company and Employee entered into an Employment
Agreement dated as of May 6, 1997 under which the Employee has been employed as
______________________________________________________________________________
__________ (the "Original Agreement"); and
WHEREAS, the Company and Employee now believe that it is in their
mutual best interests to amend and restate the Original Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto, intending
to be legally bound, do hereby agree to amend the Original Agreement, pursuant
to Section XV thereof and to restate the Original Agreement, as amended, in its
entirety, as follows:
I. EMPLOYMENT.
The Company hereby employs Employee and Employee hereby accepts
such employment, upon the terms and conditions hereinafter set forth.
II. TERMS.
This Agreement shall be effective from the date hereof to
December 31, 1998; provided, however, that on June 30, 1997, eighteen months
before expiration and every six months thereafter ("Renewal Date"), this
Agreement shall be extended for two additional years unless, at least 30 days
prior to the Renewal Date (which shall be either June 30 or December 31), the
Company shall have delivered to Employee or Employee shall have delivered to the
Company written notice that the Agreement shall not be so extended.
III. DUTIES.
A. Employee shall serve during the course of his employment as
Chairman of the Board of Directors, President and Chief Executive Officer of the
Company, and shall have such other duties and responsibilities as the Board of
Directors of the Company shall determine from time to time.
B. Employee agrees to devote substantially all of his time,
energy and ability to the business of the Company. Nothing herein shall prevent
Employee, upon approval of the Board of Directors of the Company, from serving
as a director or trustee of other corporations or businesses which are not in
competition with the business of the Company or in competition with any present
or future affiliate of the Company, provided such service does not materially
interfere with Employee's duties hereunder.
<PAGE>
IV. COMPENSATION.
A. The Company will pay to Employee a base salary at the rate of
__________ per year. Such salary shall be earned monthly and shall be payable in
periodic installments no less frequently than monthly in accordance with the
Company's customary practices. Amounts payable shall be reduced by standard
withholding and other authorized deductions. The Company will review Employee's
salary at least annually. The Company may in its discretion increase Employee's
salary but it may not reduce it during the term of this Agreement.
B. ANNUAL BONUS, INCENTIVE, SAVINGS AND RETIREMENT PLANS.
Employee shall be entitled to participate in all annual bonus, incentive, stock
incentive, savings and retirement plans, defined contribution plans, practices,
policies and programs applicable generally to other executives of the Company.
C. WELFARE BENEFIT PLANS. Employee and/or his family, as the case
may be, shall be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent such plan,
practices, and programs are applicable generally to executives of the Company,
such as Employee.
D. EXPENSES. Employee shall be entitled to receive prompt
reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures as in effect generally
with respect to other executives of the Company.
E. FRINGE BENEFITS. Employee shall be entitled to fringe benefits
in accordance with the plans, practices, programs and policies as in effect
generally with respect to other executives of the Company.
F. VACATION. Employee shall be entitled to paid vacation time in
accordance with the plans, policies, programs and practices as in effect with
respect to other employees of the Company.
G. PLAN AMENDMENTS. The Company reserves the right to modify,
suspend or discontinue any and all of its employee plans, practices, policies
and programs at any time without recourse by Employee so long as such action is
taken generally with respect to other similarly situated executives and does not
single out Employee.
V. TERMINATION.
A. DEATH OR DISABILITY. Employee's employment shall terminate
automatically upon Employee's death. If the Company determines in good faith
that a Disability of Employee has occurred (as Disability is defined below), it
may give to Employee written notice in accordance with Section XX of its
intention to terminate Employee's employment. In such event, Employee's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by Employee, provided that, within the 30 days after such
receipt, Employee shall not have returned to full-time performance of his
duties. For purposes of this Agreement, "Disability" shall mean the absence of
Employee from his duties with the Company
2
<PAGE>
on a full-time basis (1) for a period of two consecutive months as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to Employee or his legal representative (such agreement as to acceptability not
to be withheld unreasonably) or (2) for shorter periods aggregating 130 or more
business days in any twelve (12) month period. "Incapacity" as used herein shall
be limited only to such Disability which substantially prevents the Company from
availing itself of the services of Employee or substantially impairs the
Employee's ability to perform services to the standard reasonably expected by
the Company for Employee's office.
B. CAUSE, ETC. The Company also may terminate such employment, at
any time, whether before or after a Change in Control, for Employee's breach of
the provisions of Sections VIII (Noncompetition), IX (Antisolicitation) or XII
(Confidential Information) or as set forth in paragraph A above. Following a
Change in Control, as defined in Section VI below, during the term of this
Agreement remaining after such Change in Control, the parties agree that the
Company may terminate Employee's employment only for Cause, as "Cause" is
defined below. Prior to the occurrence of a Change in Control (and so long as
such termination is not made in connection therewith) the Company may terminate
Employee's employment, at any time, with or without Cause. For purposes of this
Agreement, "Cause" shall mean that the Company, acting in good faith based upon
the information then known to the Company, determines that Employee has: (1)
repeatedly failed to perform in a material respect his obligations under the
Agreement without proper reason and has not cured such failure in a reasonable
time after receiving notice from the Company, (2) been convicted of a felony, or
(3) committed a material act of fraud or dishonesty which is materially
injurious to the Company. Sections VII through XII will continue in effect in
the event this Employee's employment is terminated for Cause.
C. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
1. DEATH OR DISABILITY. If Employee's employment is terminated by
reason of Employee's Death or Disability, this Agreement shall
not be subject to any further extension pursuant to Section II
hereof.
2. CAUSE, ETC. If Employee's employment is terminated by the
Company pursuant to Section V-B, this Agreement shall terminate
without further obligations to Employee other than for (a)
payment of the sum of Employee's annual base salary through the
date of termination and any accrued vacation pay to the extent
not theretofore paid, which shall be paid to Employee or his
estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the date of termination; (b) payment of any
compensation previously earned and deferred by Employee (together
with any accrued interest or earnings thereon), which shall be
paid to Employee or his estate or beneficiary at the times
provided in, and pursuant to terms of, the plan or agreement
under which such compensation was deferred; and (c) payment to
Employee or his estate or beneficiary, as applicable, any amounts
due pursuant to the terms of any applicable welfare benefit
plans. The payments described in clauses (a) and (b) shall
hereinafter be referred to as the "Accrued Obligations." If it is
subsequently determined that the Company did not have the right
to terminate Employee under Section V-B, then the Company's
3
<PAGE>
decision to terminate shall be deemed to have been made under
Section V-C-3 and the amounts payable thereunder shall be the
only amounts Employee may receive for his termination.
3. OTHER. If the Company breaches this Agreement by terminating
Employee's employment other than pursuant to Sections V-A or V-B,
the Company (a) shall continue paying the Employee's base salary
in effect immediately prior to Employee's termination of
employment, less standard withholdings and other authorized
deductions, for the next two years and payable in customary
periodic amounts and (b) shall timely pay to Employee the Accrued
Obligations. Employee shall have no duty to mitigate damages and
none of the payments provided in this Section V-C-3 shall be
reduced by any amounts earned or received by Employee from a
third party at any time. Employee shall be bound by the
provisions of Sections VII through XII of this Agreement only for
so long as Employee continues to receive payments from the
Company hereunder.
4. EXCLUSIVE REMEDY. Employee agrees that the payments
contemplated by this Agreement shall constitute the exclusive and
sole remedy for any termination of his employment and Employee
covenants not to assert or pursue any other remedies, at law or
in equity, with respect to any termination of employment.
VI. CHANGE IN CONTROL.
A. Notwithstanding anything to the contrary in this Agreement, if
a Change in Control (as defined below) of the Company occurs during the term of
this Agreement, and if within one year following such Change in Control either
the Company terminates Employee's employment without Cause, or if employee
terminates his employment for Good Reason (as defined below), the Company shall
pay to Employee by cashier's check immediately upon Employee's termination of
employment with the Company an amount equal to two times the sum of (1) the
amount of the highest annual base salary paid to Employee during the three most
recent calendar years ending prior to the year in which the Change in Control
occurs and (2) the amount of the highest bonus (or bonuses) paid to Employee for
any calendar year ending prior to the year in which the Change in Control
occurs. This payment shall be in lieu of the payment otherwise payable under
Section V-C-3(a), but shall be in addition to the timely payment of the Accrued
Obligations. In addition, the Company shall continue to provide all benefits
under the welfare benefit plans as set forth in Section IV-C until the earlier
of (1) Employee's reciept of benefits substantially similar in scope and nature
from another employer or (2) two years after the most recent Renewal Date.
Employee shall have no duty to mitigate damages and none of the payments
provided in this Section VI-A shall be reduced by any amounts earned or received
by Employee from a third party at any time. Notwithstanding anything to the
contrary in this Section IV, if, in connection with a Change in Control
transaction, Employee voluntarily enters a new written employment agreement with
the Company or its successor, Employee may no longer rely upon the provisions of
this Section VI.
B. Notwithstanding anything in this Agreement to the contrary,
any "parachute payments" to be made to or for Employee's benefit, whether
pursuant to this
4
<PAGE>
Agreement or otherwise, shall be modified to the extent necessary so that the
requirements of one of the two subparagraphs below are satisfied:
1. The aggregate "present value" of all "parachute payments"
payable to Employee or for Employee's benefit, whether pursuant
to this Agreement or otherwise, shall be less than three (3)
times Employee's "base amount"; or
2. Each "parachute payment" payable to Employee or for Employee's
benefit, whether pursuant to this Agreement or otherwise, shall
be in an amount which does not exceed the "reasonable
compensation" allocable to such "parachute payment."
C. For purposes of this Section VI:
1. A "Change in Control" of the Company means any of the
following:
(1) Approval by the shareholders of the Company of the
dissolution or liquidation of the Company;
(2) Approval by the shareholders of the Company of an agreement
to merge or consolidate, or otherwise reorganize, with or into one or more
entities that are not subsidiaries or other affiliates, as a result of which
less than 40% of the outstanding voting securities of the surviving or resulting
entity immediately after the reorganization are, or will be, owned, directly or
indirectly, by shareholders of the Company immediately before such
reorganization (assuming for purposes of such determination that there is no
change in the record ownership of the Company's securities from the record date
for such approval until such reorganization and that such record owners hold no
securities of the other parties to such reorganization, but including in such
determination any securities of the other parties to such reorganization held by
affiliates of the Company);
(3) Approval by the shareholders of the Company of the sale of
substantially all of the Company's business and/or assets to a person or entity
which is not a subsidiary or other affiliate; or
(4) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") but excluding
any person described in and satisfying the conditions of Rule 13d-1(b)(1)
thereunder), other than General Electric Capital Corporation and its affiliates,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing more
than 40% of the combined voting power of the Company's then outstanding
securities entitled to then vote generally in the election of directors of the
Company; or
(5) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company cease to constitute at least a majority thereof, unless
the election, or the nomination for election by the Corporation's shareholders,
of each new Board member was approved by a vote of at least three-fourths of the
Board members then still in office who were Board members at the beginning of
5
<PAGE>
such period (including for these purposes, new members whose election or
nomination was so approved).
2. "Good Reason" shall mean, without obtaining Employee's prior
written consent thereto, (a) an adverse and significant change in Employee's
position, duties, responsibilities, or status with the Company, (b) a change in
Employee's office location to a point more than 50 miles from Employee's office
immediately prior to a Change in Control, (c) the taking of any action by the
Company to eliminate benefit plans without providing substitutes which, in
overall, provide a substantially similar aggregate value of benefits, to reduce
benefits thereunder or to substantially diminish the aggregate value of
incentive awards or other fringe benefits, (d) any reduction in Employee's base
salary or (e) breach of this Agreement by the Company. "Good Reason" shall also
mean and include, without limitation, any termination by the Employee of his
employment with the Company at any time within one year following a Change in
Control, whether with or without reason.
3. The term "base amount" shall have the meaning ascribed to it
under Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code");
4. The term "parachute payment" shall have the meaning ascribed
in Section 280G(b)(2)(A) of the Code, without regard to Section
280G(b)(2)(A)(ii) of the Code but with regard to Section 280G(b)(4)(A);
5. "Present value" shall be determined in accordance with Section
280G(d)(4) of the Code;
6. The term "reasonable compensation" shall have the meaning
ascribed to it under Section 280G(b)(4)(B) of the Code (for personal services
actually rendered before the date of the Change in Control of the Company); and
7. The portion of the "base amount" and the amount of "reasonable
compensation" allocable to any "parachute payment" shall be determined in
accordance with Section 280G(b)(3) of the Code and Section 280G(b)(4)(B) of the
Code, respectively.
D. In the event the amount of any of "parachute payments" which
would be payable to Employee or for Employee's benefit without regard to this
Section must be modified to comply with this Section VI, Employee shall direct
which "parachute payments" are to be a waived or modified; provided, however,
that no change in timing of the payments shall be made without the consent of
the Company.
E. All determinations required by this Section VI, including
without limitation the determination of whether any benefit or payment would
constitute a parachute payment, the calculation of the value of any parachute
and whether any benefit or payment constitutes reasonable compensation, shall be
made by an independent accounting firm (other than the Company's outside
auditing firm) having nationally recognized expertise in such matters selected
by the Compensation Committee of the Board of Directors of the Company and
acceptable to Employee. Any such determination by such accounting firm shall be
binding on the Company and Employee.
6
<PAGE>
F. Payment of amounts pursuant to this Agreement shall not,
unless directed by Employee, be delayed pending determination of the status of a
payment as a "parachute payments" by the Internal Revenue Service, court or
similar body of competent jurisdiction.
VII. ARBITRATION.
Any controversy or claim arising out of or relating to this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration, to be held in Orange County, California in accordance
with the Voluntary Labor Arbitration Rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitration may be entered
in any court in the State of California, or in any other court of competent
jurisdiction. In the event either party institutes arbitration under this
Agreement arising prior to a Change in Control of the Company, the party
prevailing in any such litigation shall be entitled, in addition to all other
relief, the reasonable attorneys' fees relating to such arbitration, and the
nonprevailing party shall be responsible for all costs of the arbitration,
including but not limited to, the arbitration fees, court reporter fees, etc. In
the case of any arbitration or subsequent judicial proceedings arising after a
Change in Control of the Company, Employee shall be awarded his costs, including
attorneys' fees.
VIII. NONCOMPETITION.
A. Employee agrees that, during the term of this Agreement, and
for a period of one year thereafter, he will not, directly or indirectly,
without the prior written consent of the Board of Directors of the Company,
provide consultative service with or without pay, own, manage, operate, join,
control, participate in, or be connected as a stockholder, partner, or otherwise
with, any business, individual, partner, firm, corporation, or other entity
which is then in the business of producing metal fasteners (or related products)
for the aerospace industry anywhere (including both in the United States and
abroad). However, this Section VIII-A will not apply if Employee's only
relationship to such business is by ownership of less than 4% of the outstanding
voting securities of a publicly-traded company.
B. It is expressly agreed that the Company will or would suffer
irreparable injury if Employee were to compete with the business of the Company
or any subsidiary of the Company in violation of this Agreement and that the
Company would by reason of such competition be entitled to injunctive relief in
a court of appropriate jurisdiction. Employee consents and stipulates to the
entry of such injunctive relief in such a court prohibiting him from competing
with the Company or any subsidiary of the Company in violation of this
Agreement.
IX. ANTISOLICITATION.
Employee promises and agrees that during the term of this
Agreement, and for a period of one year thereafter, he will not influence or
attempt to influence customers of the Company or any of its present
subsidiaries, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary of the Company.
7
<PAGE>
X. JOINING FORMER COMPANY EMPLOYEES.
Employee promises and agrees that for one year following his
termination of employment, other than pursuant to Section V-C or VI above or
Disability above or expiration of this Agreement, he will not enter business or
work with any person who was employed with the Company, and who earned annually
$80,000 or more as a Company employee during the last six months of his or her
own employment, in any business, partnership, firm, corporation or other entity
then in competition with the business of the Company or any subsidiary of the
Company.
XI. SOLICITING EMPLOYEES.
Employee promises and agrees that he will not, for a period of
one year following termination of his employment or the expiration of this
Agreement, directly or indirectly solicit any of the Company employees who
earned annually $80,000 or more as a Company employee during the last six months
of his or her own employment to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with the business of the
Company or any subsidiary of the Company.
XII. CONFIDENTIAL INFORMATION.
A. Employee shall hold in a fiduciary capacity for the benefit of
the Company all secret or confidential information, knowledge or data relating
to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by Employee during his employment by
the Company or any of its affiliated companies and which shall not be or become
public knowledge (other than by acts by Employee or his representatives in
violation of this Agreement). After termination of Employee's employment with
the Company, he shall not, without the prior written consent of the Company, or
as may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it; PROVIDED, however, that the Employee will not be so bound if
following a Change in Control employee is terminated without Cause or if
employee terminates his employment for Good Reason.
B. Employee agrees that all lists, materials, books, files,
reports, correspondence, records, and other documents ("Company material") used,
prepared, or made available to Employee, shall be and shall remain the property
of the Company. Upon the termination of employment or the expiration of this
Agreement, all Company materials shall be returned immediately to the Company,
and Employee shall not make or retain any copies thereof.
XIII. SUCCESSORS.
A. This Agreement is personal to Employee and shall not, without
the prior written consent of the Company, be assignable by Employee.
B. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns and any such successor or
assignee shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" and "assignee" shall
include any person, firm, corporation or other business entity which at any
time, whether by purchase, merger or otherwise, directly or indirectly acquires
8
<PAGE>
the stock of the Company or to which the Company assigns this Agreement by
operation of law or otherwise.
XIV. WAIVER.
No waiver of any breach of any term or provision of this
Agreement shall be construed to be, nor shall be, a waiver of any other breach
of this Agreement. No waiver shall be binding unless in writing and signed by
the party waiving the breach.
XV. MODIFICATION.
This Agreement may not be amended or modified other than by a
written agreement executed by the Employee and the Company.
XVI. SAVINGS CLAUSE.
If any provision of this Agreement or the application thereof is
held invalid, the invalidity shall not affect other provisions or applications
of the Agreement which can be given effect without the invalid provisions or
applications and to this end the provisions of this Agreement are declared to be
severable.
XVII. COMPLETE AGREEMENT.
This instrument constitutes and contains the entire agreement and
understanding concerning Employee's employment and other subject matters
addressed herein between the parties, and supersedes and replaces all prior
negotiations and all agreements proposed or otherwise, whether written or oral,
concerning the subject matter hereof. This is an integrated agreement.
XVIII. GOVERNING LAW.
This Agreement shall be deemed to have been executed and
delivered within the State of California, and the rights and obligations of the
parties hereunder shall be construed and enforced in accordance with, and
governed by, by the laws of the State of California without regard to principles
of conflict of laws.
XIX. CONSTRUCTION.
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
XX. COMMUNICATIONS.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered in
person, by telecopy, telex or equivalent form of written telecommunication or if
sent by registered or certified mail, return receipt requested, postage prepaid,
as follows:
9
<PAGE>
To Company: Kaynar Technologies Inc.
500 North State College Boulevard
Suite 1000
Orange, California 92868
Attention: Corporate Secretary
With copy to: O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Attention: C. James Levin, Esq.
To Employee:
Either party may change the address at which notice shall be given by written
notice given in the above manner. All notices required or permitted hereunder
shall be deemed duly given and received on the date of delivery, if delivered in
person or by telex, telecopy or other written telecommunication on a regular
business day and within normal business hours or on the fifth day next
succeeding the date of mailing, if sent by certified or registered mail.
XXI. EXECUTION.
This Agreement is being executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Photographic copies of such signed
counterparts may be used in lieu of the originals for any purpose.
XXII. LEGAL COUNSEL.
The Employee and the Company recognize that this is a legally
binding contract and acknowledge and agree that they have had the opportunity to
consult with legal counsel of their choice.
10
<PAGE>
XXIII. SURVIVAL.
The provisions of this Agreement shall survive the term of this
Agreement to the extent necessary to accommodate full performance of all such
terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
- -------------------------- -----------------------
KAYNAR TECHNOLOGIES INC.
By
-----------------------
Its
11
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
KAYNAR TECHNOLOGIES LTD.
Jurisdiction of Incorporation: United Kingdom
K.T.I. FEMIPARI KFT
Jurisdiction of Incorporation: Hungary
KT INTERNATIONAL SALES CORP.
Jurisdiction of Incorporation: Barbados
MARCLIFF CORPORATION
Jurisdiction of Incorporation: Delaware
MARSON CANADA, INC.
Jurisdiction of Incorporation: Canada
MARSON CREATIVE FASTENER, INC.
Jurisdiction of Incorporation: Delaware
M & M MACHINE & TOOL CO.
Jurisdiction of Incorporation: Delaware
RECOIL AUSTRALIA HOLDINGS, INC.
Jurisdiction of Incorporation: Delaware
RECOIL (EUROPE) LTD.
Jurisdiction of Incorporation: United Kingdom
RECOIL HOLDINGS, INC.
Jurisdiction of Incorporation: Delaware
RECOIL INC.
Jurisdiction of Incorporation: Delaware
RECOIL LIMITED
Jurisdiction of Incorporation: Thailand
RECOIL MARKETING BVBA
Jurisdiction of Incorporation: Belgium
RECOIL PTE LTD.
Jurisdiction of Incorporation: Singapore
RECOIL PTY
Jurisdiction of Incorporation: Victoria, Australia
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statement No. 333-45185.
ARTHUR ANDERSEN LLP
Orange County, California
February 5, 1999
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