SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to _____________________
Commission File Number 0-23938
SAFETY COMPONENTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0596831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3190 Pullman Street 92626
Costa Mesa, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (714) 662-7756
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(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 at least the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ([section]229.405) is not contained herein, and
will not be contained, to the best of the 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 common stock held by persons other than
affiliates of the registrant, as of July 11, 1996, was approximately
$42,382,518.
The number of shares outstanding of each of the registrant's classes of
common stock as of July 11, 1996, is as follows:
Class Number of Shares
----- ----------------
Common Stock, par value $.01 per share 5,025,008
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 1996
annual meeting of stockholders (the "Proxy Statement") are incorporated by
reference into Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Safety Components International, Inc., a Delaware corporation (the
"Company" or "Safety Components"), is an international manufacturer of
automotive airbags and a supplier of military ordnance products. The Company
is organized into two divisions: Automotive and Defense. The Automotive
Division manufactures passenger and driver side airbags for final installation
in various vehicle models sold in North America, Europe and, to a lesser
extent, Asia. The Defense Division is a leading United States supplier of
projectiles and other metal components for small to medium caliber military
ammunition and is also a systems integrator for the U.S. Army for the delivery
of 120 millimeter mortar cartridges.
During the past several years, the demand for automotive airbags has
grown rapidly in the North American, European and Asian markets. This
worldwide growth is expected to continue due to several factors, including
increased consumer demand, the introduction of new products such as side
impact airbags, existing government regulations in the U.S. and the increasing
affordability of airbag systems. The Automotive Division's primary strategy is
to increase its airbag sales to current and prospective customers by being the
lowest cost supplier of automotive airbags worldwide. As a result of this
strategy, the Company was awarded a purchase order in September 1995 from
Delphi Interior and Lighting ("Delphi"), a subsidiary of General Motors
Corporation ("GM"), pursuant to which Delphi has committed to purchase from
the Company approximately 50% of Delphi's requirements for passenger side
airbags for its C/K Truck models for model year 1997 (the "Delphi Purchase
Order"). Consistent with its growth strategy, the Company plans to
significantly increase its airbag manufacturing capacity during the next 18
months. As part of its expansion plan, the Company is constructing a new
manufacturing facility in the Czech Republic and intends to expand its
manufacturing capacity at its existing facilities in the United Kingdom and
Mexico. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." In June 1996, the
Company entered into a purchase agreement (the "Phoenix Purchase Agreement")
to acquire Phoenix Airbag GmbH, a major European airbag manufacturer based in
Hildesheim, Germany. See "-Automotive Division" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources." The Company was formed as a Delaware corporation on
January 12, 1994 as a wholly-owned subsidiary of Valentec International
Corporation, a Delaware corporation ("Valentec").
Automotive Division
Safety Components presently manufactures airbags at production
facilities located in the U.K. and Mexico and under two sub-contracting
arrangements in the Czech Republic. The Company manufactures airbags for TRW
Vehicle Safety Systems Inc. ("TRW-U.S."), one of the largest worldwide
suppliers of automotive airbag systems, for sale in the North American and
Asian markets and for TRW Repa GmbH ("TRW-Europe"; together with TRW-U.S.,
"TRW") for sale in the European market. Safety Components
2
<PAGE>
currently is TRW's largest external supplier of passenger side airbags and
believes that it is presently supplying approximately 30% of TRW's overall
passenger side airbag requirements. The Company currently manufactures airbags
under agreements with TRW (the "TRW Agreements") for various GM, Ford,
Chrysler, Toyota, Mazda, Nissan and KIA models for the North American and
Asian markets and various Mercedes, BMW, Volkswagen, Rover and Audi models for
the European market. Safety Components recently commenced manufacturing
passenger side airbags for Delphi under the Delphi Purchase Order.
In June 1996, the Company entered into the Phoenix Purchase Agreement
with Phoenix AG of Hamburg, Germany to purchase Phoenix AG's subsidiary,
Phoenix Airbag GmbH ("Phoenix"), a major European airbag manufacturer. Under
the Phoenix Purchase Agreement, the Company initially would acquire eighty
percent (80%) of Phoenix AG's interest in Phoenix for a purchase price of
approximately $22 million, subject to a net worth adjustment. The Company
would acquire the remaining twenty percent (20%) effective December 31, 1998,
but would be entitled to all of the income of Phoenix from the date of the
acquisition. The purchase price of up to approximately $7.5 million for the
remaining twenty percent (20%) interest is contingent on Phoenix meeting
certain revenue targets. If those targets are met, the contingent purchase
price would be paid in three annual installments commencing April 30, 1997. If
the targets are not met, the Company would acquire the remaining twenty
percent (20%) without the payment of any additional consideration.
Additionally, the Company would, under certain circumstances, be required to
provide a bank guaranty, in August 1997, to secure the payment of up to
approximately $4.0 million of the contingent purchase price. The Company has
provided Phoenix AG a deposit of approximately $1.65 million with respect to
the acquisition of Phoenix. Under the terms of the Phoenix Purchase Agreement,
if the acquisition is not consummated by August 15, 1996, Phoenix AG would not
be required to consummate the transaction and the Company would forfeit its
deposit. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Phoenix currently supplies driver side, passenger side and side
impact airbags to two major European airbag system suppliers for inclusion in
various vehicle models manufactured by several European automobile
manufacturers, including Mercedes, BMW, Audi, Opel, Volkswagen and Porsche.
Phoenix has a highly automated manufacturing facility located in Hildesheim,
Germany. In addition to manufacturing the airbags, Phoenix is involved in
research and development relating to the design of new airbag products. The
acquisition of Phoenix is expected to significantly enhance and increase the
customer base and revenues of the Company's European operations. The preceding
sentence includes a forward looking statement which is contingent upon the
continuation of historical trends and certain volume assumptions.
Automotive Airbag Industry
The worldwide market for airbags has grown rapidly in recent years.
Global demand for airbags is expected to continue to increase substantially in
the future. In the U.S., the unit sales of airbags has grown rapidly due to
legislated vehicle safety requirements and increasing consumer demand for
airbag systems as a result of the demonstrated effectiveness of airbags at
saving lives and helping to prevent serious injuries. Existing U.S.
legislation requires the installation of both driver and passenger side
airbags in 100% of all new passenger cars sold in the U.S. by model year 1998
and 100% of all light trucks, buses
3
<PAGE>
and multi-purpose passenger vehicles sold in the U.S. by model year 1999. In
response to consumer demand, side impact airbags have recently been added to
certain automobiles and the addition of rear seat airbags is anticipated in
the future. The demand for these new airbag products, in conjunction with new
occupant sensing and crash detection technology, is expected to result in
continued growth in the automotive airbag market. The Company continues to
actively seek to position itself to participate in the growth of the worldwide
airbag market through obtaining new customers, geographic expansion and joint
ventures and acquisitions. The Company is not aware of any foreign
governmental legislation mandating the use of automotive airbags, but believes
that airbag sales in Europe and Asia will continue to increase primarily in
response to consumer demand. While the Company believes that these and other
factors will contribute to the growth of the worldwide airbag market, the
foregoing constitutes a forward looking statement and there can be no assurance
that historical growth trends will be an accurate indicator of future growth. As
a supplier to the automotive industry, the Company's airbag business is
dependent on many factors including the level of vehicle sales in each market,
which are cyclical and dependent on, among other things, consumer spending,
potential work stoppages, adverse weather conditions, potential problems with
obtaining supplies and other risks of production.
Suppliers
The Company's customers, TRW and Delphi, generally approve all
suppliers of major airbag components. These suppliers are approved after
undergoing a rigorous qualification process on their products and
manufacturing capabilities. In many cases, only one approved source of supply
exists for certain airbag components. In the event that a sole source supplier
experiences prolonged delays in product shipments or no longer qualifies as a
supplier, the Company would work together with its customers to identify
another qualified source of supply. Although alternative sources of supply
exist, a prolonged delay in the approval by the Company's customers of any
such alternative sources of supply could adversely affect the Company's
operating results. Under the Company's agreements with its customers, any
changes in the cost of major components are passed through to the customers.
Capacity
The Company's Mexican facility currently manufactures passenger side
and driver side airbags over two shifts at a current rate of approximately
2,600,000 airbags per year. The U.K. facility, in conjunction with its
subcontracting arrangements in the Czech Republic, currently manufactures
passenger side and driver side airbags at a current rate of approximately
800,000 airbags per year. The Company anticipates that the Czech facility,
upon completion, will have initial capacity to manufacture between 2 and 3
million airbags per year.
Qualification and Quality Control
The Company successfully completed the rigorous process of qualifying
as a supplier to TRW in 1992. Each of the Company's airbags manufactured for
TRW is required to pass design validation and process validation tests
established by the automobile manufacturers and supervised by TRW relating to
the product's design and manufacture. TRW participates in these design and
process validations and must be satisfied with the product's reliability and
performance prior to awarding a production order. The
4
<PAGE>
Company satisfies the QPS-0100 standard set by TRW for design and process
validation, which qualifies it to be a supplier to TRW. The Company underwent
similar, rigorous design validation and process validation tests in order to
qualify as a supplier to Delphi.
The Company's U.K. and Czech subcontracting facilities operate under
TRW's quality system which meets or exceeds ISO 9000, an international
standard for quality. This qualification has enabled the Company's European
operations to manufacture airbags under the Company's agreement with TRW-
Europe. As is the case in the U.S., however, the automobile manufacturers may
conduct their own design and process validation tests of the Company's
operations.
The Company has extensive quality control systems in its airbag
manufacturing facilities, including the inspection and testing of all
products. The Company also undertakes process capability studies to determine
that the Company's manufacturing processes have the capability of producing at
the quality levels required by its customers.
Sales and Marketing
The Company conducts its sales and marketing through the efforts of
its management and through Champion Sales & Service Co. ("Champion"), an
outside marketing firm engaged by the Company since May 1992. Champion and Mr.
Zummo, the Company's Chief Executive Officer, were instrumental in
establishing the Company's relationship with TRW. The Company currently is
obligated to pay Champion a commission of 2% on all sales to TRW. The Company
and Champion are in the process of renegotiating the terms of Champion's
Representation Agreement with respect to TRW. Under its current Representation
Agreements with the Company, Champion is restricted from selling or marketing
products of other companies which compete with the products sold by the
Company. During fiscal year 1996, the Company established a direct sales force
to market to customers other than TRW. This sales force currently includes a
newly hired vice-president of marketing, as well as certain affiliates of
Champion.
Customers
Prior to the Company's obtaining the Delphi Purchase Order, TRW-U.S.
and TRW-Europe were the Company's only customers for automotive airbags. Sales
to TRW-U.S. and TRW-Europe accounted for approximately 30% and 19%,
respectively, of the Company's total sales in the fiscal year ended March 31,
1996. No significant deliveries were made under the Delphi Purchase Order
during fiscal year 1996. The Company's contractual relations with its
customers are described in detail below.
TRW.
---
The U.S. Agreement. The Company's agreement with TRW-U.S. (the
"U.S. Agreement") is a requirements contract, under which TRW-U.S. has agreed
to purchase airbags from the Company in amounts sufficient to satisfy
TRW-U.S.'s requirements for inclusion in certain automobile models, provided
that the Company's prices, technology, delivery, performance and quality
remain competitive. The U.S. Agreement does not obligate TRW-U.S. to purchase
a specified number of passenger side airbags, but
5
<PAGE>
instead contains quantity estimates of TRW-U.S.'s requirements for passenger
side airbags for specified models in model years 1993 through 1997. These
quantity estimates increase to a level of approximately 2,000,000 units for
model year 1997. The quantity estimates contained in the U.S. Agreement are
provided solely for the Company's planning purposes and do not constitute a
commitment or obligation on the part of TRW to purchase such quantities.
Pursuant to the U.S. Agreement, the Company is required to maintain the
capacity to manufacture and ship to TRW-U.S. 25% more airbags than the actual
quantity estimates for each model year and specified models covered by such
agreement. The existing orders for driver side airbags were placed pursuant to
purchase orders and are not subject to the terms of the U.S. Agreement.
The U.S. Agreement contains price adjustment provisions contemplating
upward or downward adjustments for changes in the cost of fabric and contains
other provisions concerning the pricing of materials. In addition, the U.S.
Agreement calls for certain reductions in the Company's pricing to TRW- U.S.
to reflect increases in the Company's productivity, including but not limited
to reductions in direct labor usage and overhead. The U.S. Agreement grants
TRW the right to terminate such agreement upon the occurrence of any of the
following events: the Company's failure to comply with any term of such
agreement; the Company's bankruptcy, insolvency or dissolution; the Company's
failure to give TRW-U.S. reasonable assurances of the Company's future
performance pursuant to a request for such assurances; or any other event
which causes reasonable doubt as to the Company's ability to render due
performance under such agreement. Under the U.S. Agreement, the Company is not
precluded from manufacturing and selling automotive airbags to other
manufacturers of airbag systems that compete with TRW-U.S. Such manufacture
and sale may not be conducted within the same facility used by the Company to
manufacture airbags for TRW-U.S., however, and also is subject to customary
restrictions regarding confidential and proprietary information.
The Company is in discussions with TRW regarding the extension of the
U.S. Agreement. While the Company believes that it will reach an agreement
with TRW for such an extension, no understanding has been reached to date and
there can be no assurance that such an understanding will be reached. The
Company believes that, should the U.S. Agreement expire, the Company will
compete for additional passenger side airbag business on a model-by-model
annual purchase order basis, similar to the arrangement currently in place for
driver side airbags. This type of arrangement is consistent with automotive
industry practice.
The European Agreement. The initial term of the Company's agreement
with TRW-Europe (the "European Agreement") commenced with the initiation of
deliveries on January 1, 1994 and ended December 31, 1995. Thereafter, the
European Agreement automatically extended for a four month term and continues
to extend for successive three month terms thereafter until either party gives
the other party three months' written notice of termination.
The European Agreement provides that TRW-Europe will purchase 100% of
its requirements of passenger side airbags for specified models at specified
prices from the Company.
The European Agreement provides that if the Company is unable, due to
its own fault, to manufacture and deliver the quantities of airbags as
required in such agreement, the Company shall pay
6
<PAGE>
TRW-Europe 5,000 German Marks per week of delay for each specified model of
airbags covered by the European Agreement. The prices contained in the
European Agreement have been, and may in the future be, revised by the parties
from time to time in accordance with certain terms of the agreement, which
provide that if the exchange rate of German Marks to British Pounds moves
above or below certain agreed-upon exchange rates, the prices will be adjusted
accordingly. Under the European Agreement, the Company is not precluded from
manufacturing and selling automotive airbags to other manufacturers of airbag
systems that compete with TRW-Europe.
Delphi.
------
In September 1995, the Company received the Delphi Purchase Order,
pursuant to which Delphi has committed to purchase from the Company
approximately 50% of Delphi's requirements for passenger side airbags for its
C/K Truck models for model year 1997. The Company believes, based upon recent
market publications, that Delphi will manufacture approximately 1,200,000 C/K
Trucks for model year 1997, and, accordingly, the Company estimates that it
will supply approximately 600,000 passenger side airbags to Delphi under the
Delphi Purchase Order. The foregoing estimate includes a forward looking
statement and no assurance can be given that Delphi will purchase that number
of airbags from the Company. Factors which may result in a lower number of
airbags manufactured pursuant to the Delphi Purchase Order include a lack of
demand for C/K Trucks, a general slowdown in the automotive industry or a
labor dispute. Delphi is not obligated to purchase a minimum number of airbags
from the Company.
Competition
The Company competes with several independent suppliers of automotive
airbags in the U.S. and Europe as well as TRW and Delphi, each of which are
integrated manufacturers which produce a substantial portion of their own
airbags. While TRW does not generally manufacture airbags for the same vehicle
models that the Company manufactures for TRW, Delphi does manufacture airbags
for the same models that the Company manufactures under the Delphi Purchase
Order. Delphi, like many other airbag system suppliers, generally subcontracts
a portion of its requirements for automotive airbags. The Company believes
that its good working relationship with its customers, the Company's high
volume and low cost manufacturing capability, the existence of the agreements
with TRW, the lengthy process necessary to qualify as a supplier to an
automobile manufacturer and the desire in the automotive industry to avoid
changes in established suppliers create certain barriers to entry for
potential competitors for the airbag business of the Company's customers.
There can be no assurance, however, that TRW, Delphi or other automotive
suppliers, which have greater financial resources than the Company, will not
in the future increase their manufacturing capabilities with the view to
replacing the demand for the Company's automotive airbags or that they will
not turn to other suppliers of airbags for either existing or new models.
The automotive airbag and airbag systems markets are highly
competitive. Some of the Company's current and potential competitors have
greater financial and other resources than the Company. The Company competes
primarily on the basis of its price, product quality, reliability, and
capability to produce a high volume of many models of passenger side and
driver side airbags. Increased competition , as well as price reductions of
airbag systems, would adversely affect the Company's revenues and
profitability.
7
<PAGE>
Governmental Regulations
Airbag systems installed in automobiles sold in the U.S. must comply
with government regulations, including Federal Motor Vehicle Safety Standard
208, promulgated by the U.S. Department of Transportation. The Company's
customers are required to self-certify that airbag systems installed in
vehicles sold in the U.S. satisfy these requirements. The Company's operations
are subject to various environmental, employee safety and wage and
transportation related statutes and regulations. The Company believes that it
is in substantial compliance with existing laws and regulations and has
obtained or applied for the necessary permits to conduct its business
operations.
Product Liability
The Company is engaged in a business which could expose it to
possible claims for injury resulting from the failure of products sold by it.
To date, however, the Company has not been named as a defendant in any product
liability lawsuit nor threatened with any such lawsuit. The Company maintains
product liability insurance coverage which management believes to be adequate.
However, a successful claim brought against the Company resulting in a final
judgment in excess of its insurance coverage could have a material adverse
effect on the Company.
Defense Division
The Defense Division is a supplier of military ordnance and other
related products. In September 1994, the Company was awarded a systems
contract for $60 million by the U.S. Army for the delivery of 120 mm mortar
cartridges (the "Systems Contract"). The Defense Division is also a leading
U.S. supplier of projectiles and other metal components for small to medium
caliber training and tactical ammunition. The Defense Division is currently a
sole source supplier of many of the projectiles and other metal components it
manufactures.
Systems Contract
In September 1994, the Defense Division was awarded the Systems
Contract by the U.S. Army. The mortar cartridges sold by the Company to the
U.S. Army will be utilized in free standing, long-range artillery weapons in
support of infantry units. As a systems integrator, the Company does not
manufacture the mortar cartridges itself, but is a prime contractor,
coordinating the manufacture and assembly of the product components by various
subcontractors. Accordingly, the Systems Contract has not necessitated a
significant investment in capital equipment. Under the Systems Contract, the
Company coordinates and oversees the manufacture and assembly of the
components for the mortar cartridges, the loading of the explosives at a
loading facility, the testing of the completed product and the delivery of the
completed and fully tested product to the U.S. Army. In coordinating these
functions, the Company is responsible for conducting quality control
inspections and ensuring that the contract is fulfilled in a timely and
efficient manner.
8
<PAGE>
As a prime contractor, the Company generally is subject to the risk
that its subcontractors will not perform in a timely and satisfactory manner,
thereby causing delays in the delivery of completed mortar cartridges to the
U.S. Army. The deliveries of completed mortar cartridges were initially
expected to begin in September 1995, and the Systems Contract was expected to
be completed by September 1996. Due to a delay by one of its subcontractors,
the Company has experienced delays in the shipment of mortar cartridges
against the original shipment schedule. The delay relates to matters between
such subcontractor and the U.S. Army. As a result of these issues, the U.S.
Army has extended the time for delivery under the Systems Contract, and the
Company now anticipates that the initial deliveries of mortar cartridges will
commence in September 1996.
In December 1995, the Company submitted a bid for a follow-on order to
the Systems Contract of approximately $20 million, which was unsuccessful. While
the Company continues to bid on other systems contract opportunities, the
Company's failure to receive the award for the follow-on order could adversely
affect the level of sales in the Company's Defense Division upon completion of
the current Systems Contract.
Ammunition Components
The Defense Division manufactures projectiles and other metal
components primarily for 20 millimeter ammunition and to a lesser extent for
25 and 30 millimeter ammunition used by the U.S. Armed Forces. This ammunition
is fired from guns mounted on aircraft, naval vessels and armored vehicles.
The metal components manufactured by the Company are shipped to a loading
facility, operated either by the U.S. Government or a prime defense
contractor, which loads the explosives, assembles the rounds and packages the
ammunition for use.
The Defense Division primarily manufactures components that are used
in training rounds, which are similar to tactical rounds but do not contain
the same explosive or incendiary devices contained in tactical rounds. Because
of the continuous use of training ammunition, the majority of the rounds
purchased by the U.S. Armed Forces on an ongoing basis are training rounds.
The U.S. Armed Forces regularly replenishes its inventory of training
ammunition. The procurement of training ammunition generally is not dependent
upon military conflicts, as is the case with the procurement of tactical
ammunition.
Commercial Products
The Defense Division continues to diversify its product base by
utilizing its existing manufacturing capacity to manufacture metal components
for sale in the consumer products and automotive industries. The Company
intends to capitalize on its existing manufacturing capacity and its
relationships developed through its automotive business to continue to expand
its commercial sales. Some capital improvements in machinery and equipment may
be required in the future in order to continue to pursue certain commercial
opportunities.
9
<PAGE>
Markets and Customers
Virtually all of the Company's defense related sales are to the U.S.
Armed Forces or certain prime defense contractors. For fiscal year 1996,
approximately 81% of the Defense Division's sales were made directly to one or
more of the branches of the U.S. Armed Forces and approximately 13% were to
prime defense contractors.
The Defense Division currently is a principal or sole source supplier
for many of the projectiles and other metal components it manufactures. There
can be no assurance, however, that other companies will not begin to
manufacture such products in the future and replace part or all of the sales
by the Company of these products. In 1994, Olin Corporation acquired the
Aerojet Ordnance Division from Gencorp Inc. Aerojet has manufacturing
capability for small to medium caliber ammunition. The Company believes that
as a result of such acquisition, the Defense Division's volume of new orders
for projectiles and parts from Olin Corporation could be adversely affected.
To date, sales to Olin Corporation have not been materially adversely
affected.
Changes in the strategic direction of defense spending, the timing of
defense procurements and specific defense program appropriation decisions may
adversely affect the performance of the Defense Division, and therefore the
Company, in future years. The precise impact of these matters will depend on
the timing and size of the changes and decisions, and the Company's ability to
mitigate their impact with new business and/or cost reductions. In view of the
continuing uncertainty regarding the size, content and priorities of the
annual Department of Defense budget, the historical financial information
relating to the Company's Defense Division may not be indicative of future
performance.
While the Company has sold limited quantities of ammunition
components to foreign customers in the past, the Company does not anticipate
that foreign sales will constitute a substantial portion of its sales in the
future.
Manufacturing and Production
The Company manufactures projectiles and other metal components for
inclusion in small to medium caliber ammunition utilizing primarily
multi-spindle screw machines at its manufacturing facility in Galion, Ohio.
The manufacturing process includes the impact extrusion of steel bars to form
the blank or rough form shape of the metal components, the machining of the
inside and outside of the metal components to form their final shape, various
heat and phosphate treatments and painting. The Company believes that its
manufacturing equipment, machinery and processes are sufficient for its
current needs and for its needs in the foreseeable future, with minimal
preventive maintenance.
Suppliers
The Company believes that adequate supplies of the raw materials used
in the manufacture of its small to medium caliber products are available from
existing and, in most cases, alternative sources,
10
<PAGE>
although the Company is frequently limited to procuring such materials and
components from sources approved by the U.S. Government.
Quality Control
The Defense Division employs Statistical Process Controls extensively
throughout its manufacturing process to ensure that required quality levels
are maintained and that products are manufactured in accordance with
specifications. The Company satisfies the U.S. Government quality control
standard Mil-Q-9858A. Under the Systems Contract, the Company is responsible
for conducting inspections of the subcontractors for the program to ensure
that they meet these same standards.
Competition
The Defense Division competes for contracts with other potential
suppliers based on price and the ability to manufacture superior quality
products to required specifications and tolerances. The Company believes that
it has certain competitive advantages including its high volume,
cost-efficient manufacturing capability, its co-development of new products
with its customers, and the U.S. Government's inclination to remain with
long-term reliable suppliers. Since the Company's processes do not include a
significant amount of proprietary information, however, there can be no
assurance that other companies will not, in time, be able to duplicate the
Company's manufacturing processes.
U.S. Government Contracts and Regulations
Virtually all of the Company's defense related contracts, including
the Systems Contract, are firm fixed price contracts with the U.S. Government
or certain of the U.S. Government's prime contractors. Under fixed price
contracts, the Company agrees to perform certain work for a fixed price and,
accordingly, realizes all of the benefit or detriment resulting from decreases
or increases in the costs of performing the contract. Fixed price contracts
carry certain inherent risks, including problems with underestimating costs,
the introduction of new technologies and potential economic and other changes
that may occur over the contract period. Because of economies of scale that
may be realized during the contract term, however, fixed price contracts may
offer significant profit potential.
A majority of the Company's manufacturing agreements with the U.S.
Armed Forces and its prime defense contractors are for the provision of
components for a one year term (two years in the case of the Systems
Contract), subject, in certain cases, to the right of the U.S. Government to
renew the contract for an additional term. Renewals of U.S. Government
contracts depend upon annual Congressional appropriations and the current
requirements of the U.S. Armed Forces. See "- Markets and Customers." U.S.
Government contracts and contracts with defense contractors are, by their
terms, subject to termination by the U.S. Government for its convenience.
Fixed price contracts provide for payment upon termination for items delivered
to and accepted by the U.S. Government, and, if the termination is for
convenience, for payment of the contractor's costs incurred through the date
of termination plus the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable profit on the costs
incurred.
11
<PAGE>
As a government contractor, the Company is subject to extensive and
complex U.S. Government procurement laws and regulations, which provide for
ongoing government reviews of contract procurement, performance and
administration, including routine audits by the Defense Contract Audit Agency
(the "DCAA"). Failure to comply, even inadvertently, with these laws and
regulations could subject the Company or the Defense Division to civil and
criminal penalties, and under certain circumstances, suspension and debarment
from future government contracts for a specified period of time. Recent audits
conducted by the DCAA have not identified any material overcharges or
discrepancies.
Seasonality
The Automotive Division's business is subject to the seasonal
characteristics of the automotive industry in which there are seasonal plant
shutdowns in the third and fourth quarters of each calendar year. Although the
Systems Contract is not seasonal in nature, there have been and will continue
to be variations in revenues from the Systems Contract based upon costs
incurred by the Company in fulfilling the Systems Contract in each quarter.
The majority of the Defense Division's manufacturing under its agreements with
the U.S. Government and prime defense contractors has historically occurred
from January through September and there is generally a lower level of
manufacturing and sales during the fourth quarter of the calendar year.
Backlog
The Company does not reflect an order for airbags in backlog until it
has received a purchase order and a material procurement release which
specifies the quantity ordered and specific delivery dates. Generally, these
orders are shipped within four to eight weeks of receipt of the purchase order
and material release. As a result, the Company does not believe backlog is a
reliable measure of future airbag sales.
As of March 31, 1996, the Defense Division had backlog of
approximately $26,300,000, of which $22,600,000 is expected to be completed
before the end of fiscal year 1997. As of March 31, 1995, the amount of the
Defense Division's backlog was approximately $62,800,000, reflecting the
receipt of the Systems Contract in fiscal year 1995.
Currency Risk
Certain of the Company's operations generate net sales and incur
expenses in foreign currencies. The Company's financial results from
international operations may be affected by fluctuations in currency exchange
rates. Certain exchange rate risks to the Company are limited by contractual
clauses in the European Agreement. Material fluctuations in certain currency
exchange rates could adversely affect the Company's financial results.
12
<PAGE>
Employees
At March 31, 1996, the Company employed approximately 790 employees
in its Automotive Division and 100 employees in its Defense Division. The
Company's hourly employees in Mexico are unionized and, in addition, are
entitled to a federally-regulated minimum wage, which is adjusted, at minimum,
every two years. None of the Company's other employees are unionized. The
Company has not experienced any work stoppages related to its work force and
considers its relations with its employees to be good.
Environmental Matters
The Company has identified two areas of underground contamination at
the Company's facility in Galion, Ohio. One area involves a localized plating
solution spill which currently is being handled by the existing waste water
treatment system. The second area involves a chlorinated solvent spill in the
vicinity of a former above ground storage area. The Company has retained
environmental consultants to quantify the extent of this problem; such
environmental consultants have estimated that the Company's voluntary plan of
remediation will take three to five years to complete. In the opinion of
management, no material expenditures will be required for its environmental
control efforts and the final outcome of these matters will not have a
material adverse effect on the Company's results of operations or financial
position. The Company believes that it currently is in compliance with
applicable environmental regulations in all material respects. See Note 8 to
Notes to the Company's Consolidated Financial Statements included elsewhere in
this Report.
ITEM 2. PROPERTIES
Headquarters. The Company currently maintains its corporate
headquarters at Valentec's leased facility in Costa Mesa, California. Under a
Corporate Services Agreement with Valentec, the Company pays its pro rata
portion of the rental costs and related expenses.
Automotive Division. The Company's airbag manufacturing plant in
Ensenada, Mexico is occupied under a three year lease expiring in 1998 with
two one-year renewal options. The Mexican plant has approximately 97,000
square feet of office, manufacturing and research and development space. The
Company's Automotive Division also maintains a 7,900 square foot finished
goods distribution center in Otay Mesa, California under a three year lease
expiring in 1998. In addition, the Company has a 2,750 square foot office in
Scottsdale, Arizona under a three year lease expiring in 1998.
The Company's U.K. subsidiary is located in Gwent, Wales. Through the
Welsh Development Agency, the U.K. government built a 20,000 square foot
addition to the existing facility of Valentec International Limited, a majority
owned subsidiary of Valentec ("VIL") for use by the Company. The Company
currently occupies this space pursuant to a sublease with VIL that expires in
2003. VIL has leased the premises from the Welsh Development Agency under a
ten year lease which also expires in 2003. In equipping its U.K. facility, the
Company is benefitting from the U.K. Industrial Development Act 1982, pursuant
to which the Company is receiving a grant equal to 37.5% of the capital cost
of equipping the facility up to a maximum of [pound]935,000 against an
investment of [pound]2,490,000.
13
<PAGE>
In April 1996, the Company commenced construction of a manufacturing
facility in the Czech Republic, and expects to complete construction of this
facility in fiscal year 1998. The facility initially will include 100,000 square
feet of office and manufacturing space.
Defense Division. The Company currently leases a 3,600 square foot
office in Mt. Arlington, New Jersey for the administration of the Systems
Contract. The Company's defense production facility is located in Galion,
Ohio, where the Company currently owns and occupies a manufacturing plant and
administrative offices totaling approximately 97,000 square feet. The Defense
Division facilities are adequate for the current and anticipated levels of
production.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4a. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The executive officers and members of the Board of Directors of the
Company and their respective ages and positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert A. Zummo 55 Chairman of the Board, President and Chief Executive Officer
Victor Guadagno 56 President, Defense Division - Systems
John L. Hakes 56 President, European Automotive Operations
W. Hardy Myers 32 Director, Chief Financial Officer and Secretary
Paul L. Sullivan 50 President, North American Automotive Operations
Richard R. Vande Voorde 52 President, Defense Division - Galion
Joseph J. DioGuardi 55 Director
Francis X. Suozzi 55 Director
Robert J. Torok 65 Director
</TABLE>
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock is listed on the Nasdaq National Market (Nasdaq
symbol: ABAG). The following table sets forth the high and low reported sale
prices of the Common Stock on the Nasdaq National Market for the period
commencing on May 6, 1994, the day the Common Stock was first publicly traded,
through March 31, 1996.
High Low
---- ---
Year Ended March 31, 1996
First Quarter $ 20 3/4 $ 16 1/2
Second Quarter $ 21 1/4 $ 15
Third Quarter $ 19 1/2 $ 13 3/4
Fourth Quarter $ 15 3/4 $ 12 1/2
Year Ended March 31, 1995
First Quarter $ 13 1/2 $ 9 1/4
Second Quarter $ 19 1/4 $ 10 3/4
Third Quarter $ 22 $ 16
Fourth Quarter $ 22 1/2 $ 16 1/2
As of July 12, 1996, there were approximately 102 holders of record
of the Common Stock. Based upon information available to it, the Company
believes that there are at least 3,200 beneficial holders of the Common Stock.
The Company has, to date, not paid any cash dividends to its
stockholders and presently intends to continue its policy of retaining its
earnings to support the growth and development of its business. The Company's
existing credit agreement restricts the Company's ability to pay dividends.
15
<PAGE>
Item 6. Selected Financial Data
The selected financial data as of and for the fiscal years ended March
31, 1996 and March 31, 1995, for the periods from April 28, 1993 through March
31, 1994 and January 1, 1993 through April 27, 1993 and for each year in the
two year period ended December 31, 1992 are derived from the combined and
consolidated financial statements of the Company and the Automotive and Galion
divisions of Valentec (the "Valentec Divisions") which have been audited by
Price Waterhouse LLP, independent accountants. The selected financial data as
of and for the period from January 1, 1992 through April 30, 1992 are derived
from unaudited financial statements of the Valentec Divisions, but in the
opinion of management, contain all adjustments, consisting only of normal,
recurring adjustments, which are necessary for a fair statement of the results
of such periods. Subsequent to the management buy-out of Valentec on April 27,
1993 (the "Management Buy-Out"), Valentec and the Company changed their
respective fiscal year ends from December 31 to March 31. The accounting bases
of the Valentec Divisions subsequent to the Valentec Management Buy-Out on
April 27, 1993 differs from the historical accounting bases of these
divisions. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto, included elsewhere in this Report.
<TABLE>
<CAPTION>
Years Ended Eleven Years Ended
March 31, Months Four Months December 31,
----------- ------ ----------- ------------
April 28, January 1, January 1,
1993 1993 1992
through through through
March 31, April 27, April 30,
1996 (1) 1995(1) 1994 1993 1992 1992 1991
-------- ------- ---- ---- ---- ---- ----
(in thousands, except share and per share data and footnotes)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net sales........................... $94,942 $51,779 $22,444 $4,580 $2,097 $7,061 $5,932
Cost of goods sold.................. 81,908 44,553 18,895 4,436 1,443 6,223 4,689
------ ------ -------- -------- ------- ------- ------
Gross profit........................ 13,034 7,226 3,549 144 654 838 1,243
Selling, general and
administrative expenses.......... 5,430 4,050 2,738 538 207 828 512
Non-recurring consulting charge..... - - 1,250(2) - - - -
----- ----- --------- ---------- --------- ---------- ------
Operating income (loss)............. 7,604 3,176 (439) (394) 447 10 731
Other expense (income).............. (229) (366) (83) 13 - - -
Interest expense (income), net...... (197) 126 235 10 11 39 27
----- ---- --------- ---------- ------- ---------- -------
Income (loss) before income
taxes............................ 8,030 3,416 (591) (417) 436 (29) 704
Income tax provision (benefit) 3,116 1,283 (207) (167) 174 (11) 282
----- ------ --------- -------- ------ -------- ------
Net income (loss)................... $4,914 $2,133 $ (384) $ (250) $ 262 $ (18) $ 422
====== ====== ========= ======= ========= ========= ======
Per Share Data
Pro forma earnings per share(3) $0.99 $0.53 - - - - -
Pro forma weighted average
common and common equivalent
shares outstanding.............. 4,980,884 4,030,787 - - - - -
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
-------- -----------
April 27,
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(in thousands)
--------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet
Working capital................................... $25,067 $ 8,206 $1,504 $ 749 $1,076 $ 401
Total assets...................................... 49,831 28,311 12,837 4,943 4,800 2,886
Long-term debt, net of current portion............ 3,087 2,043 4,760 - 64 24
Division equity (deficit)......................... - - 866 (1,223) (973) (955)
Stockholders' equity.............................. 35,344 15,971 - - - -
</TABLE>
- -----
(1) The Company did not declare dividends during fiscal year 1995 or 1996.
(2) As more fully described in Note 5 to Notes to the Company's
Consolidated Financial Statements, the Valentec Divisions incurred a
$1,250,000 non-recurring, non-cash expense related to the issuance of
shares of Common Stock to certain stockholders and affiliates of
Champion.
(3) The pro forma weighted average number of common and common equivalent
shares outstanding includes the weighted average of the pro forma
number of shares assumed issued prior to the Company's initial public
offering in May 1994 to retire intercompany and other indebtedness.
The Valentec Divisions did not have a defined capital structure and,
as a result, earnings per share amounts are not presented for the
periods prior to the fiscal year ended March 31, 1995.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Due to the Company's historical and anticipated growth, the
Company believes that period-to-period comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication
of future performance. The following discussion should be read in conjunction
with the Company's consolidated financial statements and notes thereto,
appearing elsewhere in this Report.
Automotive Division. The Automotive Division commenced
operations as part of Valentec in May 1992. Product qualification and initial
production began in July 1992 with the first significant sales occurring in
October 1992. In March 1993, the Company signed a five-year requirements
contract with TRW, contemplating increasing deliveries of airbags over the
term of the contract. In order to obtain the five-year contract, the Company
had to position itself to meet TRW's delivery schedules. As a result, the
Company incurred significant start-up costs in 1992 and 1993 and continues to
incur start-up costs as it expands its operations. As a result of these costs,
the operating results of the Automotive Division are not necessarily
indicative of future operating results. The Company signed a two-year
agreement and commenced manufacturing of passenger side airbags in Europe for
TRW in December 1993 and also received orders and commenced manufacturing
driver side airbags in the U.S. for TRW in April 1994.
As the Company continues to expand worldwide, it will
continue to experience variability in its operating results. During fiscal
year 1995, the Company operated a temporary facility in Germany in order to
meet TRW-Europe's rapidly growing demand for airbags, which adversely affected
the Company's operating profits during that fiscal year. The Company currently
subcontracts certain aspects of the manufacturing process for airbags in
Europe to two subcontractors in the Czech Republic. The Company expects to
replace the functions of these subcontractors with its own facility currently
under construction in the Czech Republic. The Automotive Division's business
is also subject to the seasonal characteristics of the automotive industry in
which there are plant shutdowns in the third and fourth quarters of each
calendar year, typically resulting in lower shipments of airbags during these
quarters. Additionally, the Company's operating results could be impacted by
the timing of the introduction of new models of automobiles for which the
Company manufactures airbags, changes in consumer vehicle preferences and
major labor disputes in the automobile industry.
Defense Division. Historically, the demand for the Defense
Division's products has been driven primarily by the U.S. Government's
purchase of small and medium caliber military ammunition. In September 1994,
the Company was awarded the Systems Contract. Under the Systems Contract, the
Company serves as the prime contractor coordinating the manufacture and
assembly of the product components by various subcontractors. The Systems
Contract is accounted for on the percentage of completion basis. Accordingly,
the Company will experience variability in revenues from the Systems Contract
because revenues are based upon the costs incurred in fulfilling this
contract. In December
18
<PAGE>
1995, the Company submitted a bid for a $20 million follow-on order to the
Systems Contract, which was unsuccessful. While the Company continues to bid
on other systems contract opportunities, the Company's failure to receive the
award for the follow-on order could adversely affect the level of sales in the
Company's Defense Division upon completion of the current Systems Contract.
Results of Operations
Year Ended March 31, 1996 Compared to Year Ended March 31, 1995
Net Sales. Net sales for the Automotive Division increased to
$49,091,000 for the year ended March 31, 1996 from $43,073,000 for the same
period in the prior year. The Automotive Division's unit sales increased
approximately 23% over the prior year, while overall sales increased by 14%.
The Company's unit sales continued to increase reflecting higher sales of both
passenger and driver side airbags. Sales were unfavorably impacted in the
current period by the softening U.S. automotive market and a changing product
mix in Europe, and to a lesser extent, decreases in material prices, delays on
certain model year 1996 programs by certain original equipment manufacturers
and the GM labor dispute in the fourth quarter of fiscal year 1997.
Net sales for the Defense Division increased to $45,851,000 for the
year ended March 31, 1996 from $8,706,000 for the same period in the prior
year. Sales increased period to period as a result of significantly higher
revenues from the Systems Contract and, to a lesser extent, increased
shipments of metal ordnance components. Due to certain delays in the Systems
Contract, the Company expects to experience variability quarter to quarter in
fiscal year 1997. Sales for the Defense Division are expected to be generally
lower in fiscal year 1997.
Gross Profit. Gross profit for the Automotive Division increased to
$7,134,000 for the year ended March 31, 1996 from $5,361,000 for the prior
year. The improvement in gross profit resulted primarily from the increased
sales volume, and to a lesser extent from greater efficiencies related to
higher levels of production. Gross profit was unfavorably impacted in the
current fiscal year by certain program delays and the GM labor dispute in the
fourth fiscal quarter. During the year ended March 31, 1995, the continued
improvement in the gross profit of the Automotive Division's North American
operations was partially offset by certain expenses related to the expansion
of the Automotive Division's European operations. Specifically, during the
year ended March 31, 1995, TRW-Europe's accelerated demand for airbags in
Europe required the Company to operate, on a temporary basis, a high cost
facility in Germany pending the transfer of certain manufacturing operations
to two Czech subcontractors. Margins in Europe are expected to remain lower
than in the U.S. until the Company transitions its European passenger airbag
manufacturing to its facility in the Czech Republic currently under
construction. The Company expects this transition to occur in fiscal 1998.
Certain costs relating to the launching of new programs in North America and
Europe have been capitalized and will be amortized over the estimated lives of
such programs.
Gross profit for the Defense Division increased to $5,900,000 for the
year ended March 31, 1996 from $1,865,000 for the prior year. Gross profit
increased primarily as a result of higher sales from the
19
<PAGE>
Systems Contract, partially offset by changes in the metal ordnance component
product mix, with decreased sales of several older, higher margin defense
programs and higher sales of newer, lower margin defense and commercial
programs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the Automotive Division increased to $3,476,000
for the year ended March 31, 1996 from $2,964,000 for the prior year. The
increase resulted primarily from greater expenditures related to the continued
expansion of the Company's automotive operations, including additional support
personnel, increased marketing and professional services and higher corporate
overhead expenses.
Selling, general and administrative expenses for the Defense Division
increased to $1,954,000 for the year ended March 31, 1996 from $1,086,000 for
the prior year, reflecting increased expenses related to the Systems Contract,
higher bid and proposal costs associated with potential future contracts and
higher corporate overhead expenses.
The higher corporate overhead expense allocated to the Automotive and
Defense Divisions in the current period resulted principally from increased
expenses for administration, marketing and professional services associated
with the continued growth and expansion of the Company's operations, including
increased staffing, legal, accounting and insurance expenses.
Operating Income. The Automotive Division had operating income of
$3,658,000 for the year ended March 31, 1996 from $2,397,000 for the prior
year. The increase resulted primarily from the continued improvement in the
profitability of the manufacturing operations due to higher sales volume and
greater efficiencies, partially offset by increased expenses for
administrative, marketing and professional services supporting the ongoing
expansion of the Company's automotive operations.
Operating income for the Defense Division increased to $3,946,000 for
the year ended March 31, 1996, compared to $779,000 for the prior year.
Operating income increased as a result of higher income from the Systems
Contract, partially offset by higher corporate overhead expenses and, to a
lesser extent, lower margins on metal ordnance components.
Net Income. Net income increased to $4,914,000 for the year ended
March 31, 1996 from $2,133,000 for the prior year. The decline in other income
is attributable to lower translation gains on foreign currency transactions,
while the increase in interest income is attributable to the Company's
increased cash balances.
Year Ended March 31, 1995 Compared to the Period from April 28, 1993 through
March 31, 1994 (the "Eleven Months")
Net Sales. Net Sales for the Automotive Division increased
to $43,073,000 for the year ended March 31, 1995 from $14,970,000 for the
Eleven Months. Sales to TRW continued to grow dramatically in the fiscal year
ended March 31, 1995 with the first significant shipments of driver side
airbags for the North American market and passenger side airbags for the
European market. Passenger
20
<PAGE>
side airbag production for the North American and Asian markets continued to
increase in the fiscal year ended March 31, 1995 as the Company produced
passenger side airbags for additional vehicle platforms.
Net sales for the Defense Division increased to $8,706,000
for the year ended March 31, 1995 from $7,474,000 for the Eleven Months. The
Defense Division's sales increased as a result of initial revenues from
performance of the Systems Contract, partially offset by lower demand for
metal ordnance components.
Gross Profit. Gross profit of the Automotive Division
increased to $5,361,000 for the year ended March 31, 1995 from $1,155,000 for
the Eleven Months. The improvement in gross profit resulted primarily from the
increased sales volume, and to a lesser extent from greater efficiencies
related to higher levels of production. The Eleven Months was negatively
impacted by expenses incurred to achieve initial volume production in the
Mexican facility. During the year ended March 31, 1995, the continued
improvement in the gross profit of the Automotive Division's North American
operations was partially offset by certain expenses related to the expansion
of the Automotive Division's European operations. Specifically, accelerated
demand for airbags in Europe by TRW required the Company during the year ended
March 31, 1995, to operate, on a temporary basis, a high cost facility in
Germany pending the transfer of certain manufacturing operations to a Czech
subcontractor. Certain costs relating to the launching of new programs in
North America and Europe have been capitalized and will be amortized over the
estimated lives of such programs.
Gross profit for the Defense Division decreased to
$1,865,000 for the year ended March 31, 1995 from $2,394,000 for the Eleven
Months. The gross profit declined as a result of lower margin sales from new
defense and commercial programs and the phase-out of several older, higher
margin defense programs. Additionally, lower sales period to period at the
Galion facility impacted the Division's fixed overhead absorption, further
impacting gross profit.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the Automotive Division decreased to
$2,964,000 for the year ended March 31, 1995 from $3,443,000 for the Eleven
Months. The decrease from period to period was due primarily to a $1,250,000
non-recurring, non-cash expense in the earlier period related to the issuance
of shares of Common Stock to the Champion Holders (see Note 5 to the Company's
consolidated financial statements), offset, to a large extent, by higher
expenses in the current period related to the continued expansion of the
Company's businesses. This expansion necessitated an increase in the number of
support personnel, higher corporate overhead expenses as a result of being a
public company and increased marketing expenses on higher sales volumes.
Selling, general and administrative expenses for the Defense
Division increased to $1,086,000 for the year ended March 31, 1995 from
$545,000 for the Eleven Months, reflecting increased expenses related to the
Systems Contract.
Operating Income. The Automotive Division had operating
income of $2,397,000 for the year ended March 31, 1995, compared to an
operating loss of $2,288,000 for the Eleven Months.
21
<PAGE>
The increase from period to period resulted primarily from the continued
improvement in the profitability of the manufacturing operations due to higher
sales volume and greater efficiencies, partially offset by certain expenses
related to the Automotive Division's European expansion and higher corporate
overhead expenses. The prior period also included a $1,250,000 non-recurring,
non-cash expense related to the issuance of shares of Common Stock to the
Champion Holders.
Operating income for the Defense Division declined to
$779,000 for the year ended March 31, 1995, compared to $1,849,000 for the
Eleven Months. Operating margins in the current period were negatively
impacted by lower sales volume at the Division's Galion facility, a changing
product mix reflecting the phase-out of several older, higher margin defense
programs which were replaced by new lower margin defense and commercial work
and higher administration expenses related to the Systems Contract.
Net Income. Net income increased to $2,133,000 for the year
ended March 31, 1995 from a loss of $384,000 for the Eleven Months as the
higher net income of the Automotive Division exceeded the decline in the
income of the Defense Division. In addition, other income increased in the
current period as a result of favorable foreign currency movements. Interest
expense also declined period to period reflecting lower borrowings, while
income tax expense increased reflecting the Company's shift to taxable
earnings.
Period from January 1, 1993 through April 27, 1993 Compared to the Period from
January 1, 1992 through April 30, 1992 (each referred to as a "Four Month
Period")
Net Sales. Net sales for the Automotive Division were
$1,527,000 for the Four Month Period ended April 27, 1993, as the Company
qualified as a supplier of airbags to TRW-U.S., signed a five-year
requirements contract for passenger side airbags in March 1993, received
initial orders for delivery and commenced shipments to TRW-U.S. There were no
sales for the Automotive Division during the Four Month Period ended April 30,
1992.
The Defense Division's net sales increased to $3,053,000 for
the Four Month Period ended April 27, 1993 from $2,097,000 for the Four Month
Period ended April 30, 1992, primarily due to the shipment of a foreign order
of $825,000.
Gross Profit. Gross profit (loss) of the Automotive Division
for the Four Month Period ended April 27, 1993 was $(630,000), while there
were no results of operations for the Four Month Period ended April 30, 1992.
Cost of sales of the Automotive Division of $2,157,000 for the Four Month
Period ended April 27, 1993 exceeded net sales for such period as the Company
incurred significant start-up costs including expenses incurred in qualifying
the airbag products, hiring of management, installation of facilities and
equipment in advance of customer orders and manufacturing start-up costs.
Gross profit for the Defense Division increased to $774,000
for the Four Month Period ended April 27, 1993 from $654,000 for the Four
Month Period ended April 30, 1992. The increase in
22
<PAGE>
net sales was partially offset by higher material costs on certain products
and an increase in overhead expenses.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses were $258,000 for the Automotive Division
for the Four Month Period ended April 27, 1993, while there were no such
expenses for the Four Month Period ended April 30, 1992. These continued
increases in selling, general and administrative expenses were due primarily
to higher salary and benefit costs related to additional operational and
administrative personnel hired to manage the expansion of the Automotive
Division, and, to a lesser extent, higher commissions on higher sales volumes
and increased corporate overhead allocations.
Selling, general and administrative expenses for the Defense
Division increased to $280,000 for the Four Month Period ended April 27, 1993
from $207,000 for the Four Month Period ended April 30, 1992. This increase is
attributable primarily to a higher corporate overhead allocation.
Operating Income. The Company had an operating loss of
$394,000 for the Four Month Period ended April 27, 1993 compared to operating
income of $447,000 for the Four Month Period ended April 30, 1992. The
operating loss in the later period is attributable to the Automotive
Division's continued start-up costs, offset in part by Galion's operating
income.
Net Income. The Company incurred a net loss of $250,000 for
the Four Month Period ended April 27, 1993 compared with net income of
$262,000 for the Four Month Period ended April 30, 1992. The income tax
provision (benefit) was calculated based upon the combined results of
operations of the Valentec Divisions and using a 40% combined federal and
state income tax rate.
Liquidity and Capital Resources
As the Company's business has grown, overall cash
requirements for equipment and working capital have historically been met
through a combination of the proceeds from the Company's public offerings,
cash flow from operations, equipment financing and revolving credit
borrowings. The Company's expects its equipment and working capital
requirements to continue to increase as a result of the anticipated growth of
the Automotive Division.
On June 21, 1995, the Company completed an additional equity
offering which resulted in net proceeds to the Company of approximately
$16,500,000, including the underwriters' exercise of the over-allotment
option. The Company has and will continue to use the net proceeds from this
offering to expand and enhance its existing worldwide airbag manufacturing
operations, to construct a new facility in the Czech Republic and enhance
research and development and prototype capabilities.
On March 15, 1996, the Company terminated its $3.5 million
credit facility with Congress Financial Corporation, (see Note 6 to Notes to
the Company's Consolidated Financial Statements) and entered into a $10.0
million credit facility with Citicorp USA, Inc., to be used for working
capital purposes (the "Credit Facility"). Indebtedness under the Credit
Facility is secured by substantially all the
23
<PAGE>
assets of the Company and bears interest at the prime rate. The Credit
Facility contains certain financial covenants, including limitations on
indebtedness and liens, minimum interest and fixed charge coverage ratios,
maximum leverage, minimum tangible net worth and limitation on the payment of
dividends.
In June 1996, the Company entered into the Phoenix Purchase Agreement
to purchase Phoenix Airbag GmbH, a major European airbag manufacturer. The
purchase price for the acquisition is approximately $22 million, subject to a
net worth adjustment, plus a contingent purchase price of approximately $7.5
million. The contingent purchase price would be paid in three annual
installments commencing April 30, 1997 if certain targets are met by Phoenix.
Under the Phoenix Purchase Agreement, the Company would, under certain
circumstances, be required to provide a bank guaranty in August 1997 with
respect to up to approximately $4.0 million of the contingent purchase price.
The Company has provided to Phoenix AG a deposit of approximately $1.65
million with respect to the acquisition of Phoenix. Under the terms of the
Phoenix Purchase Agreement, if the acquisition is not consummated by August
15, 1996, Phoenix AG would not be required to consummate the transaction and
the Company would forfeit its deposit.
The Company has received a proposal letter from a U.S. bank to
provide financing for the acquisition of Phoenix in the form of a $20 million
term loan, amortizing over a period of four years. The proposal does not
constitute a commitment, which would be subject, among other conditions, to
the completion of due diligence by the bank. In connection with such term
loan, the Company would obtain a new $6 million revolving credit facility
(replacing the existing Credit Facility) and a non- revolving stand-by letter
of credit facility to secure payment, if necessary, of the contingent purchase
price for the acquisition of Phoenix. (The term loan, revolving credit
facility and stand-by letter of credit facility are collectively referred to
as the "New Credit Facility".) The New Credit Facility would bear interest at
the prime rate and be secured by substantially all the assets of the Company.
The New Credit Facility would contain certain financial covenants, including
limitation on additional indebtedness and liens, fixed charge coverage ratios,
maximum leverage, minimum ratio of current assets to current liabilities and
minimum tangible net worth. The Company anticipates that the New Credit
Facility will be available prior to August 15, 1996. The Company is also in
discussions with other potential financing sources relating to the
acquisition. There can be no assurance, however, that the New Credit Facility
will be obtained by August 15, 1996, or if it is not obtained, that
alternative sources will be available.
New Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of " (FAS 121). FAS 121 requires the Company to review long-lived assets and
certain intangible assets for impairment when events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
In the event the sum of the expected undiscounted future cash flows resulting
from the use of the asset is less than the carrying amount of the asset, an
impairment loss equal to the excess of the asset's carrying value over its
fair value is recorded. FAS 121 also requires that long-lived assets and
certain intangible assets to be disposed of be recorded at the lower of
carrying value or fair value less disposal costs. Management has deferred
adoption of FAS 121,
24
<PAGE>
which is effective for the Company beginning in the fiscal year ending March
31, 1997. Due to the complexities of the calculations that are required to
implement FAS 121, the effect on the Company's consolidated financial
statements of adopting this statement is not yet known nor reasonably
estimable.
Seasonality and Inflation
The Automotive Division's business is subject to the
seasonal characteristics of the automotive industry in which there are
seasonal plant shutdowns in the third and fourth calendar quarters of each
year. Although the Systems Contract is not seasonal in nature, there will be
variations in revenues from the Systems Contract based upon costs incurred by
the Company in fulfilling the Systems Contract in each quarter. The majority
of the Defense Division's ordnance manufacturing for U.S. Government and prime
defense contractors occurs from January through September and there is
generally a lower level of manufacturing and sales during the fourth calendar
quarter. The Company does not believe that its operations to date have been
materially affected by inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item appears in Item 14(a)(1) and (2)
of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 AND 13.
Except for information included in Item 4a of this report,
the information called for by Items 10, 11, 12 and 13 of this Report is
incorporated by reference to those portions of the Company's 1996 Proxy
Statement which contain such information.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) The financial statements, related notes thereto and
report of independent accountants required by Item 8 are
listed on page F-1 herein.
25
<PAGE>
(2) All financial statement schedules are omitted because
they are not applicable or the required information is
shown in the Company's consolidated financial statements
or the notes thereto.
(3) Exhibits:
2.1 Agreement, dated June 6, 1996, among AB 9607
Verwaltungs GmbH & Co. KG., Phoenix
Aktiengesellschaft and Phoenix Airbag GmbH (the
"Phoenix Purchase Agreement") (confidential treatment
requested as to part)
2.2 Amendment Agreement, dated June 28, 1996, to the
Phoenix Purchase Agreement
3.1(1) Certificate of Incorporation of Safety Systems
International, Inc.
3.2(1) Amended and Restated Certificate of Incorporation of
Safety Systems International, Inc.
3.3(1) Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of Safety Systems
International, Inc.
3.4(11) Certificate of Amendment to the Amended and Restated
Certificate of Safety Components International, Inc.
("Safety Components")
3.5(1) By-laws of Safety Components
4.1(2) Warrant Agreement, dated as of May 13, 1994 between
Hampshire Securities Corporation and Safety Components
10.2(3) Airbag Purchase Agreement by and between TRW Vehicle
Safety Systems, Inc. and Valentec International
Corporation ("Valentec") dated March 31, 1993
(confidential treatment granted as to part)
10.3(3) Long-Term Contract for the Supply of Airbags by and
between TRW REPA GmbH and Valentec International
Limited ("VIL"), dated September 20, 1993 (confidential
treatment granted as to part)
26
<PAGE>
10.4(2) Representation Agreement, effective as of May 13, 1994,
by and between Automotive Safety Components
International, Inc. ("Automotive Safety") and Champion
Sales and Service Co. ("Champion")
*10.5(4) Employment Agreement, effective as of May 13, 1994,
between Safety Components and Robert A. Zummo
*10.6(4) Employment Agreement, effective as of May 13, 1994,
between Safety Components and W. Hardy Myers
*10.7(4) Stock Option Plan of Safety Components
10.8(2) Master Asset Transfer Agreement, dated May 13, 1994,
among Valentec, Safety Components, Galion, Inc.
("Galion"), and Automotive Safety
10.9(2) Asset Purchase Agreement, dated May 13, 1994, between
VIL and Automotive Safety Components International
Limited ("Automotive Limited")
10.10(9) Corporate Services Agreement, dated as of April 1, 1995,
between Valentec and Safety Components
10.11(2) Facility Agreement, dated May 13, 1994, between
Valentec and Automotive Safety
10.12(2) Facility Agreement, dated May 13, 1994, between VIL and
Automotive Limited
10.13(2) Representation Agreement, effective as of May 13, 1994,
by and between Automotive Limited and Champion
10.14(5) Form of Sublease Agreement, dated May 13, 1994,
between VIL and Automotive Limited
*10.15(6) Employment Agreement, dated as of September 29, 1994
by and between Safety Components and Paul L. Sullivan
10.16(7) Contract DAAA09-94-C-0532 (Systems Contract)
between Safety Components and the U.S. Army (the
"Systems Contract")
*10.17(8) Employment Agreement, effective as of September 19,
1994, between Safety Components and Victor Guadagno
27
<PAGE>
10.18(8) Lease Agreement, dated February 15, 1995 between
Inmobiliara Calibert, S.A. de C.V. and Automotive Safety
Components International SA. de C.V.
10.19 Credit Agreement, dated as of March 15, 1996, among
Safety Components, Automotive Safety, Galion, Valentec
Systems, Inc. and CUSA
10.20 Pledge and Security Agreement, dated as of March 15,
1996, made by Safety Components, Automotive Safety,
Galion and Valentec Systems in favor of CUSA
10.21(10) Employment agreement, dated June 1, 1995, between
Automotive Limited and John Laurence Hakes
10.22(10) Underwriting Agreement, dated June 15, 1995, among BT
Securities Corporation, Prime Charter Ltd., Safety
Components, Valentec and the other selling stockholders
named therein
11 Statement of Computation of Per Share Earnings
21.1 Subsidiaries of Safety Components
23.1 Consent of Price Waterhouse LLP
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
-----------------------------------------------
* Indicates exhibits relating to executive compensation.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (the "1994 Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") on February 11,
1994.
(2) Incorporated by reference to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1994, filed with the Commission.
(3) Incorporated by reference to Amendment No. 2 to the 1994
Registration Statement, filed with the Commission on March 18, 1994.
28
<PAGE>
(4) Incorporated by reference to Amendment No. 3 to the 1994 Registration
Statement, filed with the Commission on April 20, 1994.
(5) Incorporated by reference to Amendment No. 4 to the 1994 Registration
Statement, filed with the Commission on May 3, 1994.
(6) Incorporated by reference to the Company's Report on Form 10-Q for
the quarter ended September 30, 1994 filed with the Commission.
(7) Incorporated by reference to the Company's Report on Form 10-Q for
the quarter ended December 31, 1994, filed with the Commission.
(8) Incorporated by reference to the Company's Report on Form 10-K for
the fiscal year ended March 31, 1995.
(9) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed with the Commission on
May 19, 1995.
(10) Incorporated by reference to the Company's Report on Form 10-Q for
the quarter ended June 30, 1995
(11) Incorporated by reference to the Company's Report on Form 10-Q for
the quarter ended September 30, 1995
29
APITAL PRINTING SYSTEMS]
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SAFETY COMPONENTS INTERNATIONAL, INC.
By: /s/Robert A. Zummo
-------------------------------------
Robert A. Zummo
Chairman of the Board, President
and Chief Executive Officer
Date: July 15, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Name and Signature Title Date
------------------ ----- ----
/s/Robert A. Zummo
------------------
Robert A. Zummo Chairman of the Board, July 15, 1996
President and Chief Executive
Officer (Principal Executive
Officer)
/s/W. Hardy Myers
------------------
W. Hardy Myers Director, Chief Financial Officer July 15, 1996
and Treasurer (Principal
Financial and Accounting
Officer)
/s/Joseph J. DioGuardi
------------------
Joseph J. DioGuardi Director July 15, 1996
/s/Francis X. Suozzi
------------------
Francis X. Suozzi Director July 15, 1996
/s/Robert J. Torok
------------------
Robert J. Torok Director July 15, 1996
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants. F-2
Consolidated Balance Sheets as of March 31, 1996 and March 31, 1995 F-3
Consolidated Statements of Operations for the Years ended March 31,
1996 and March 31, 1995, for the Period from April 28, 1993 through
March 31, 1994 and for the Period from January 1 through
April 27, 1993. F-4
Consolidated Statements of Stockholders' Equity for the Years ended
March 31, 1996 and March 31, 1995, for the Period from April 28, 1993
through March 31, 1994 and for the Period from January 1 through
April 27, 1993. F-5
Consolidated Statements of Cash Flows for the Years ended
March 31, 1996 and March 31, 1995, for the Period from
April 28, 1993 through March 31, 1994 and for the Period from
January 1 through April 27, 1993. F-6
Notes to Consolidated Financial Statements. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Safety Components International, Inc.
In our opinion, the consolidated financial statements of Safety Components
International, Inc. and Safety Components International, a division of Valentec
International Corporation (Successor Division), listed in the accompanying index
appearing under Item 14(a)(1) and (2) on page F-1, present fairly in all
material respects, the financial position of Safety Components International,
Inc. and its subsidiaries at March 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, and the period from
April 28, 1993 through March 31, 1994, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
In our opinion, the consolidated financial statements of Safety Components
International, a division of Valentec International Corporation (Predecessor
Division), listed in the accompanying Index appearing under Item 14(a)(1) and
(2) on page F-1, present fairly. In all material respects, the results of
operations and cash flows of Safety Components International, a division of
Valentec International Corporation (Predecessor Division), for the period from
January 1, 1993 through April 27, 1993, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
April 30, 1996, except as to Note 12, which is as of July 11, 1996
F-2
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 12,033 $ 3,846
Accounts receivable (Notes 2 and 4) .................. 16,614 7,109
Inventories (Notes 2 and 4) .......................... 5,315 5,948
Prepaid and other .................................... 925 658
-------- --------
Total current assets .............................. 34,887 17,561
Property, plant and equipment (Notes 2 and 4) ........... 12,192 8,908
Other assets (Note 2) ................................... 2,752 1,842
-------- --------
Total assets ...................................... $ 49,831 $ 28,311
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 8,066 $ 7,454
Accrued liabilities (Note 4) ......................... 1,057 1,532
Current portion of long-term obligations
(Note 6) .......................................... 697 369
-------- --------
Total current liabilities ......................... 9,820 9,355
Long-term obligations (Note 6) .......................... 3,087 2,043
Other long-term liabilities (Note 4) .................... 1,580 942
-------- --------
Total liabilities ................................. 14,487 12,340
Commitments and contingencies (Note 8)
Stockholders' equity (Notes 1, 3 and 11):
Preferred stock, $.10 par value per share,
authorized 2,000,000 shares, no shares
issued..............................................
Common stock, $.01 par value per share,
authorized 10,000,000 shares, issued and
outstanding 5,048,500 shares and 4,060,000
shares at March 31, 1996 and 1995,
respectively ....................................... 51 41
Common stock warrants ................................ 1 1
Additional paid-in capital ........................... 30,058 13,595
Treasury stock, 90,000 shares, at cost ............... (1,379)
Retained earnings .................................... 6,979 2,065
Cumulative translation adjustment .................... (366) 269
-------- --------
Total stockholders' equity ........................ 35,344 15,971
-------- --------
Total liabilities and stockholders' equity ........ $49,831 $ 28,311
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Period from Period from
Year Year April 28, 1993 January 1, 1993
ended ended through through
March 31, 1996 March 31, 1995 March 31, 1994 April 27, 1993
-------------- -------------- -------------- --------------
(The Company) (The Company) (Successor (Predecessor
Division) Division)
<S> <C> <C> <C> <C>
Net sales ........................ $ 94,942 $ 51,779 $ 22,444 $ 4,580
Cost of sales .................... 81,908 44,553 18,895 4,436
----------- ----------- ----------- -----------
Gross profit ................... 13,034 7,226 3,549 144
Selling and marketing expense .... 1,102 894 402 68
General and administrative expense 4,328 3,156 2,336 470
Non-recurring consulting charge
(Note 5) ....................... 1,250
----------- ----------- ----------- -----------
Operating income (loss) ........ 7,604 3,176 (439) (394)
Other expense (income) ........... (229) (366) (83) 13
Interest income .................. 578 118
Interest expense ................. 381 244 235 10
----------- ----------- ----------- -----------
Income (loss) before income taxes 8,030 3,416 (591) (417)
Provision (benefit) for income
taxes (Notes 2 and 7) .......... 3,116 1,283 (207) (167)
----------- ----------- ----------- -----------
Net income (loss) .............. $ 4,914 $ 2,133 $ (384) $ (250)
=========== =========== =========== ===========
Earnings per common and common
equivalent share (Note 2) ...... $ .99 $ .53
=========== ===========
Weighted average common
and common equivalent shares ... 4,980,884 4,030,787
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
Common Common Common Additional Cumulative
Stock Stock Stock Paid-in Treasury Retained Translation Division
Shares Amount Warrants Capital Stock Earnings Adjustment Equity
------ ------ -------- ------- ----- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR DIVISION
Balances at December 31, 1992................ $ (973)
Net loss for the period from
January 1, 1993 to April 27, 1993.......... (250)
-------
Balances at April 27, 1993................... $(1,223)
=======
SUCCESSOR DIVISION AND
THE COMPANY
Issuance of common stock..................... 2,400,000 $24 $ $ $ $ $ $
Settlement of obligation to issue
stock (Note 5)............................. 1,250
Net loss for the period from April 28,
1993 to March 31, 1994..................... (384)
--------- ---- --- ------- -------- ------ ----- ------
Balances at March 31, 1994................... 2,400,000 24 866
Net income for the period from
April 1, 1994 to May 13, 1994.............. 68
Transfer of assets (Note 3).................. 934 (934)
Capital contribution from Valentec
(Note 3)................................... (100,000) (1)
Issuance of common stock (Note 3)............ 1,760,000 18 12,661
Issuance of warrants for 128,000
shares of common stock (Note 3)............ 1
Net income for the period from
May 14, 1994 to March 31, 1995............. 2,065
Foreign currency translation adjustment...... 269
--------- ---- --- ------- -------- ------ ----- ------
Balances at March 31, 1995................... 4,060,000 41 1 13,595 2,065 269 $ 0
======
Issurance of common stock.................... 1,078,500 10 16,557
Purchase of treasury stock................... (90,000) (1,379)
Re-purchase of warrants for 23,600
shares of common stock..................... (94)
Net income for the year ended
March 31, 1996............................. 4,914
Foreign currency translation adjustment...... (635)
--------- ---- --- ------- -------- ------ -----
Balances at March 31, 1996................... 5,048,500 $51 $1 $30,058 $(1,379) $6,979 $(366)
========== ==== === ======= ======== ====== =====
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Period from Period from
Year Year April 28, 1993 January 1, 1993
ended ended through through
March 31, 1996 March 31, 1995 March 31, 1994 April 27, 1993
-------------- ------------- -------------- --------------
(The Company) (The Company) (Successor (Predecessor
Division) Division)
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) .................................. $ 4,914 $ 2,133 $ (384) $ (250)
Adjustments to reconcile net income:
(loss) to net cash provided by (used
for) operating activities:
Depreciation ................................ 1,104 743 314 146
Non-recurring consulting charge ............. 1,250
Changes in assets and liabilities:
Accounts receivable ....................... (9,662) (4,607) (1,108) 161
Inventories ............................... 532 (3,024) (816) (235)
Prepaid and other current assets .......... (268) (60) (554) (2)
Accounts payable .......................... 749 4,938 1,112 224
Accrued liabilities ....................... (429) 476 264 227
Other assets and liabilities .............. (440) (1,500) 30 (78)
-------- -------- -------- --------
Net cash provided by (used
for) operating activities ..................... (3,500) (901) 108 193
-------- -------- -------- --------
Cash flow used for investing activities:
Additions to property, plant and
equipment ..................................... (4,588) (2,473) (3,710) (198)
-------- -------- -------- --------
Cash flow provided by financing activities:
Net proceeds from sale of common stock ............. 16,568 14,564
Purchase of treasury stock ......................... (1,379)
Repurchase of common stock warrants ................ (94)
Payment to parent company in consideration
for transfer of assets ........................ (1,885)
Net borrowing (repayments) under
long-term obligations ......................... 1,460 (3,269) 4,196 (64)
Changes in intercompany accounts ................... (2,326) (591) 84
-------- -------- -------- --------
Net cash provided by financing activities ..... 16,555 7,084 3,605 20
-------- -------- -------- --------
Effect of exchange rate changes on cash .............. (280) 96
-------- -------- -------- --------
Change in cash and cash equivalents .................. 8,187 3,806 3 15
Cash and cash equivalents, beginning of period ....... 3,846 40 28 13
-------- -------- -------- --------
Cash and cash equivalents, end of period ............. $ 12,033 $ 3,846 $ 31 $ 28
======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period
for:
Interest ........................................... $ 381 $ 134 $ 17
Income taxes ....................................... 2,344 993
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of the businesses of Safety Components International, Inc. (the Company) and
its subsidiaries. The Company was formed for the purpose of acquiring the
assets and assuming the liabilities of certain divisions of Valentec
International Corporation (Valentec), including the Galion Division, the U.S.
Automotive Division (including Valentec's Mexican subsidiary, Valentec de
Mexico S.A. de C.V.) and the U.K. Automotive Division of Valentec's U.K.
subsidiary, Valentec International Limited (VIL) in conjunction with its
initial public offering (the Initial Public Offering) (see Note 3) completed
on May 13, 1994.
On April 27, 1993, RAZ Acquisition Corporation acquired all of the
outstanding common stock of Valentec (the Acquisition) from Insilco
Corporation (Insilco). Subsequent to the Acquisition, Valentec was merged into
RAZ Acquisition Corporation which subsequently changed its name to Valentec
International Corporation. The Acquisition was accounted for as a purchase.
The financial statements of the Division prior to the Acquisition as presented
for the period January 1, 1993 to April 27, 1993 are identified as
"Predecessor Division" and subsequent to the Valentec Acquisition, but prior
to the Initial Public Offering of the Company as "Successor Division."
The accompanying consolidated financial statements for the periods
subsequent to the Initial Public Offering include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
The accompanying financial statements for the periods prior to the Initial
Public Offering include the accounts of Safety Components International (the
Division), which was created by combining the U.S. Automotive and Galion
Divisions of Valentec and the U.K. Automotive Division of VIL.
The Company's Automotive Division manufactures automotive airbags for
specific models of several domestic and foreign automobile manufacturers under
contracts with major airbag systems producers. To date, TRW Vehicle Safety
Systems, Inc. (TRW) and its affiliates have been the Company's major
automotive airbag customer.
The Defense Division consists of two main operating units: Galion and
Systems. Galion manufactures projectiles and other metal components for small
to medium caliber training and tactical ammunition for the U.S. Armed Forces.
Galion also manufactures metal components for use in the automotive and
consumer products industries. Systems was established in June 1994 to serve as
the prime contractor under a $60 million systems contract for mortar
cartridges (the Systems Contract) for the U.S. Army, coordinating the
manufacture and assembly of components supplied by various subcontractors.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Revenues are generally recognized as units are shipped to customers.
The Company accounts for certain long-term contracts under the
percentage of completion method, whereby progress toward contract completion
is measured on a cost incurred basis (including direct labor, materials and
allocable indirect manufacturing overhead and general and administrative
costs). Losses on long-term contracts are recognized in the period when such
losses are identified. On certain contracts with the U.S. Government, contract
costs, including indirect costs, are subject to audit and adjustment by
negotiations between the Company and government representatives. Contract
revenues have been recorded in amounts which are expected to be realized upon
final settlement.
F-7
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues from major customers
Revenues from major customers were as follows (in thousands):
Period from Period from
Year Year April 28, 1993 January 1, 1993
ended ended through through
March 31, 1996 March 31, 1995 March 31, 1994 April 27, 1993
-------------- -------------- -------------- --------------
(The Company) (The Company) (Successor (Predecesor
Division) Division)
TRW ...................... $46,038 $43,004 $14,970 $ 1,527
Direct sales to the U.S.
Government ............. 37,145 2,553 1,699 842
Indirect sales to the U.S.
Government ............. 5,954 5,213 5,387 2,104
Concentration of credit risk
The Company is potentially subject to a concentration of credit risk
consisting of its trade receivables, a significant portion of which are due
from TRW, the U.S. Government and certain prime defense contractors. The
Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains reserves for potential
losses for uncollectible accounts and such losses have historically been
within management's expectations.
Environmental expenditures
Environmental expenditures that pertain to current operations and relate
to future revenues are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations that will not contribute to
current or future revenues are expensed. Liabilities are recognized for
remedial activities when the cleanup is probable and the cost can be
reasonably estimated.
Inventories
Inventories represent direct labor, materials and overhead costs
incurred for products not yet delivered and are stated at the lower of cost
(first-in, first-out) or market. Estimated losses resulting from changes in
contract cost estimates are recognized in the period such losses are
identified by management.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of
the assets, which range from 3 to 25 years.
Expenditures for repairs and maintenance are charged to expense as
incurred. Renewals or betterments of significant items are capitalized. When
assets are sold or otherwise disposed of, the cost and related accumulated
depreciation or amortization are removed from the respective accounts and any
resulting gain or loss is recognized.
F-8
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121). FAS
121 requires the Company to review long-lived assets and certain intangible
assets for impairment when events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. In the event the sum of
the expected undiscounted future cash flows resulting from the use of the
asset is less than the carrying amount of the asset, an impairment loss equal
to the excess of the asset's carrying value over its fair value is recorded.
FAS 121 also requires that long-lived assets and certain intangible assets to
be disposed of be recorded at the lower of carrying value or fair value less
disposal costs. Management has deferred adoption of FAS 121, which is
effective for the Company beginning in the fiscal year ending March 31, 1997.
Due to the complexities of the calculations that are required to implement FAS
121, the effect on the Company's consolidated financial statements of adopting
this statement is not yet known nor reasonably estimable.
Product launch costs
The Company capitalizes certain product launch costs, to the extent such
costs are recoverable over estimated contractual production cycles. Such costs
are amortized on a straight-line basis over the lesser of the related
estimated contractual production cycle or five years. Deferred product launch
costs totaled $1,977,000 and $1,819,000 for the years ended March 31, 1996 and
March 31, 1995, respectively, and are included in other assets; such costs
were insignificant at March 31, 1994.
Foreign currency translation
The Company follows the principle of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation," (FAS 52) in accounting for
foreign operations. The financial statements of the Company's subsidiary in
the U.K., whose functional currency is the British pound, have been translated
into U.S. dollars. The financial statements of the Company's subsidiary in
Mexico, whose functional currency is the U.S. dollar, are remeasured into U.S.
dollars.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). Under the liabilities method specified by FAS 109, the deferred tax
assets and liabilities are measured each year based on the difference between
the financial statement and tax bases of assets and liabilities at the
applicable enacted tax rates. Additionally, a valuation allowance is recorded
for that portion of deferred tax assets for which it is more likely than not
that the assets will not be realized. The deferred tax provision is the result
of changes in the deferred tax assets and liabilities.
For periods prior to the Initial Public Offering, the Company's taxable
income (loss) is included in the consolidated and combined tax returns of
Valentec (subsequent to the Acquisition) or Valentec's former parent, Insilco
(prior to the Acquisition). Historically, Valentec allocated a portion of the
consolidated income tax provision to the Company in an amount generally
equivalent to the provision which would result if the Company filed a separate
income tax return, without regard to net operating loss carryover limitations.
Cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F-9
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings per share
Earnings per share amounts are computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during the period. The weighted average number of common and common equivalent
shares outstanding includes the weighted average of the number of shares
assumed issued prior to the Initial Public Offering necessary to retire all
outstanding intercompany and other indebtedness. Earnings per share amounts
are not presented for the period from April 28, 1993 through March 31, 1994 or
the period from January 1, 1993 through April 27, 1993 as they are not
meaningful.
Fiscal year
Concurrent with the Acquisition, Valentec and the Company adopted a
fiscal year which ends March 31.
Reclassifications
Certain reclassifications have been made to the consolidated financial
statements for prior periods to conform to the March 31, 1996 presentation.
Estimates
The financial statements have been prepared in conformity with Generally
Accepted Accounting Principles, which require management to make estimates and
assumptions that effect the amounts and disclosures reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3.PUBLIC OFFERINGS
Initial Public Offering
On May 13, 1994, the Company completed its Initial Public Offering by
selling 1,600,000 shares of previously unissued common stock at $10.00 per
share (the Initial Public Offering Price). In conjunction with the Initial
Public Offering, the underwriter was granted warrants to purchase 128,000
shares of the Company's common stock at 130% of the Initial Public Offering
Price ($13.00) exercisable over a four-year period commencing one year after
the effective date of the registration statement (May 6, 1994). The net
proceeds to the Company from the Initial Public Offering of approximately
$14,600,000 (including the proceeds received pursuant to the exercise of the
over allotment option described below) were used to retire the Company's
portion of Valentec's short and long-term debt, pay off its intercompany debt
balances with Valentec (such debt balances were assumed in connection with the
transfer of assets described in Note 1) and pay cash consideration to Valentec
for the transfer of assets. The remaining proceeds have been used to fund the
additional growth of the business. In conjunction with the Initial Public
Offering, the underwriter was granted a 30 day option to purchase up to an
aggregate of 240,000 additional shares (of which 80,000 were to be sold by
Valentec) at the Initial Public Offering Price, less underwriting discounts
and accountable expenses. The entire option was exercised within the 30 day
period.
Additional Offering
On June 21, 1995, the Company completed an additional offering (the
Offering) of 1,500,000 shares of common stock at $17.00 per share (the
Offering Price), of which the Company sold 1,000,000 shares of previously
unissued common stock and Valentec and other selling shareholders sold 500,000
shares. The net proceeds to the Company from the Offering of approximately
$16,500,000 (including the proceeds received pursuant to the exercise of the
over allotment option described below) has been, and will continue to be, used
to fund the future growth of the business. In conjunction with the Offering, the
underwriter was granted a 30 day option to purchase up to an aggregate of
225,000 additional shares (of which 75,000 shares and 150,000 shares were to be
sold by the Company and Valentec and other selling shareholders respectively) at
the Offering Price, less underwriting discounts. The entire option was exercised
within the 30 day period.
F-10
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.COMPOSITION OF CERTAIN CONSOLIDATED BALANCE SHEET COMPONENTS (IN THOUSANDS)
March 31, March 31,
1996 1995
---- ----
Accounts receivable:
Billed receivables ................................. $ 4,779 $ 4,947
Unbilled receivables (net of unliquidated
progress payments of $30,945 and $1,351
in 1996 and 1995, respectively) .................. 8,588 1,007
Other ............................................ 3,247 1,155
-------- --------
$ 16,614 $ 7,109
======== ========
Inventories:
Raw materials .................................... $ 2,297 $ 2,878
Work-in-process .................................. 1,958 2,126
Finished goods ................................... 1,060 944
-------- --------
$ 5,315 $ 5,948
======== ========
Property, plant and equipment:
Land and building ................................ $ 1,241 $ 1,150
Machinery and equipment .......................... 10,001 8,135
Furniture and fixtures ........................... 749 425
Construction in process .......................... 2,373 256
-------- --------
14,364 9,966
Accumulated depreciation and amortization ........ (2,172) (1,058)
-------- --------
$ 12,192 $ 8,908
======== ========
Accrued liabilities:
Accrued salaries and related benefits ............ $ 471 $ 641
Accrued property and sales taxes ................. 486 520
Other ............................................ 100 371
-------- --------
$ 1,057 $ 1,532
======== ========
Other long-term liabilities:
Long-term environmental reserve .................. $ 250 $ 350
Deferred income taxes ............................ 1,310 579
Other ............................................ 20 13
-------- --------
$ 1,580 $ 942
======== ========
5.RELATED PARTY TRANSACTIONS
For periods prior to the Initial Public Offering, the Company was
allocated a portion of Valentec's corporate general and administrative
expenses (excluding interest) based on a formula of revenue, fixed assets and
payroll costs. In the opinion of management, the allocation method used was
reasonable. There were no corporate charges for the year ended March 31, 1996.
Corporate charges totaled $60,000, $488,000 and $170,000 for the year ended
March 31, 1995, the period from April 28, 1993 through March 31, 1994 and the
period from January 1, 1993 through April 27, 1993, respectively.
F-11
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company purchases certain components used in its products from
affiliates. Purchases from affiliates totaled $774,000, $1,330,000, $1,419,000
and $245,000 for the years ended March 31, 1996, March 31, 1995, the period
from April 28, 1993 through March 31, 1994, and for the period from January 1,
1993 through April 27, 1993, respectively.
The Company sells certain components to affiliates for use in their
products. Sales to affiliates totaled $4,257,000 and $1,001,000 for the years
ended March 31, 1996 and March 31, 1995, respectively. There were no sales to
affiliates for periods prior to the year ended March 31, 1995.
The Company occasionally rents certain equipment to affiliates at rates
equivalent to its depreciation expense. Rental income totaled $89,000 for the
period from April 28, 1993 through March 31, 1994. There was no rental income
for the years ended March 31, 1996 and March 31, 1995 or for the period from
January 1, 1993 through April 27, 1993.
The Company subleases space from VIL for its European automotive
operations. Sublease payments for the years ended March 31, 1996 and March 31,
1995 were $121,000 and $112,000, respectively. In addition, the Company is
allocated its pro-rata portion of certain manufacturing overhead expenses
based on square footage. The Company also pays a pro-rata portion of shared
general and administrative expenses, such costs totaled $254,000 and $248,000
for the years ended March 31, 1996 and March 31, 1995, respectively.
In September 1993, in order to recognize the Company's key sales and
marketing representatives' contribution to the growth of the Company's
Automotive Division and to incentivize them to continue serving in that
capacity, Valentec agreed to issue common stock in the Company at an aggregate
price lower than the fair value of the shares at the time (as determined by an
independent appraiser) by $1,250,000. The aggregate number of shares of stock
issued was 268,800, representing a fair market value of $4.65 per share, as
determined by the independent appraiser. Accordingly, this amount was recorded
as an expense in the period from April 28, 1993 through March 31, 1994. The
shares of common stock were issued during the period from April 28, 1993
through March 31, 1994.
6.LONG-TERM DEBT
Long-term debt outstanding as of March 31, 1996 and March 31, 1995 is as
follows (in thousands):
March 31, March 31,
1996 1995
---- ----
Capital equipment notes payable, due
in monthly installments with interest at
9.16% to 11.32% maturing at various dates
through May 2001, secured by machinery
and equipment .................................... $ 3,020 $ 1,601
Note payable, principal due in annual
installments of $185,500 beginning
January 12, 1999 to January 12, 2002,
with interest at 7.22% in semiannual
installments beginning June 12, 1994,
secured by the general assets of the
Company's U.K subsidiary ......................... 764 811
------- -------
Total debt ......................................... 3,784 2,412
Less current portion ............................. (697) (369)
------- -------
Long-term debt, less current portion ............... $ 3,087 $ 2,043
======= =======
F-12
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate maturities of long-term debt are as follows (in thousands):
1997............................. $ 697
1998............................. 785
1999............................. 954
2000............................. 625
2001............................. 723
------
$3,784
======
The Company entered into a new credit agreement with its bank on March
15, 1996. Substantially all of the assets of the Company are pledged as
collateral under this revolving credit agreement which has a $10 million
maximum limit, repayable at the discretion of the Company, expiring March 15,
1999. Interest is payable monthly at the US prime rate (8.25% at March 31,
1996). There were no amounts outstanding under this facility at March 31,
1996. The provisions of the credit agreement require the Company to maintain
certain financial covenants, including limitations or restrictions on among
other things new indebtedness and liens, disposition of assets and payment of
dividends or other distributions.
Prior to the completion of the Initial Public Offering, the Company was
allocated a portion of Valentec's available credit facilities based on a
formula of collateralized assets. Valentec's credit facilities consisted of a
$7.0 million revolving credit agreement and a $3.5 million term note.
7.INCOME TAXES
Income (loss) before income taxes comprises the following (in
thousands):
Period from Period from
Year Year April 28, 1993 January 1, 1993
Ended Ended through through
March 31, 1996 March 31, 1995 March 31, 1994 April 27, 1993
-------------- -------------- -------------- --------------
(The Company) (The Company) (Successor (Predecessor
Division) Division)
Domestic......... $6,291 $2,379 $(486) $(417)
Foreign.......... 1,739 1,037 (105)
----- ------ ----- -----
$8,030 $3,416 $(591) $(417)
====== ====== ===== =====
F-13
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax provision (benefit) comprises the following (in
thousands):
Period from Period from
Year Year April 28, 1993 January 1, 1993
Ended Ended through through
March 31, 1996 March 31, 1995 March 31, 1994 April 27, 1993
-------------- -------------- -------------- --------------
(The Company) (The Company) (Successor (Predecessor
Division) Division)
Taxes currently
payable (receivable):
Federal............. $1,934 $ 602 $ (36) $(142)
State............... 327 114 (6) (25)
Foreign............. 124 372 (165)
------ ------ ----- -----
2,385 1,088 (207) (167)
------ ------ ----- -----
Deferred taxes:
Federal............. 311 148
State............... 47 47
Foreign............. 373
------ ------ ----- -----
731 195
------ ------ ----- -----
$3,116 $1,283 $(207) $(167)
====== ====== ===== =====
The income tax provision (benefit) differs from the amount computed by
applying the federal income tax rate to income (loss) before income taxes as
follows:
Period from Period from
Year Year April 28, 1993 January 1, 1993
Ended Ended through through
March 31, 1996 March 31, 1995 March 31, 1994 April 27, 1993
-------------- ------------- -------------- --------------
(The Company) (The Company) (Successor (Predecessor
Division) Division)
Expected taxes at
federal statutory rate.. 34% 34% (34)% (34)%
State income taxes, net
of federal benefits..... 5 5 (1) (6)
Foreign earnings taxed
at different rates...... 1
Change in deferred tax
asset valuation
allowance............... (4)
Other, net................ 2
-- -- --- ---
39% 38% (35)% (40)%
== == === ===
F-14
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The primary components of deferred taxes are as follows (in thousands):
March 31, March 31,
1996 1995
---- ----
(The Company) (The Company)
Deferred tax assets (liabilities):
Net operating loss....... $ 0 $ 307
Accrued liabilities...... 37 59
Inventory................ 203 73
Property, plant and equipment (862) (377)
Deferred product launch costs (688) (641)
----- -----
Net deferred tax balance.... $(1,310) $(579)
======= =====
No taxes have been provided relating to the possible distribution of
approximately $1,580,000 of undistributed earnings considered to be
permanently reinvested, primarily in the United Kingdom. The amount of such
additional taxes that would be payable if such earnings were distributed is
estimated to be approximately $257,000.
8.COMMITMENTS AND CONTINGENCIES
Operating leases
The Company has several noncancelable operating leases for office space
that expire at various dates through 1998. Certain of the lease payments are
subject to adjustment for inflation. The Company incurred rent expense of
$612,000, $272,000, $208,000 and $29,000 for the years ended March 31, 1996
and March 31, 1995, the period from April 28, 1993 through March 31, 1994 and
for the period January 1, 1993 through April 27, 1993, respectively.
Future minimum lease payments for all noncancelable operating leases
having a remaining term in excess of one year at March 31, 1996 are as follows
(in thousands):
1997........................... $ 648
1998........................... 652
1999........................... 99
2000........................... 70
2001........................... 35
------
$1,504
======
Environmental issues
This Company has identified two areas of underground contamination at
its facility in Galion, Ohio. One area involves a localized plating solution
spill which is currently being handled by the existing waste water treatment
system. The second area involves a chlorinated solvent spill in the vicinity
of a former above ground storage area. The Company has retained environmental
consultants to quantify the extent of this problem. The Company has accrued
$250,000 for the estimated cost of additional testing and remediation.
The Company's environmental consultants estimate that the Company's voluntary
plan of remediation will take three to five years to complete. In the opinion
of management, the final outcome of these matters will not have a material
adverse effect on the Company's results of operations or financial position.
F-15
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Legal proceedings
From time to time, the Company is the subject of legal proceedings for
various matters. There are no material claims currently pending.
9.BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into two business segments:
automotive and defense. See Note 1 for description of business segments.
Summarized financial information by business segment is as follows (in
thousands):
Period from Period from
Year Year April 28, 1993 January 1, 1993
Ended Ended through through
March 31, 1996 March 31, 1995 March 31, 1994 April 27, 1993
-------------- -------------- -------------- --------------
(The Company) (The Company) (Successor (Predecessor
Division) Division)
Net sales:
Automotive........... $49,091 $43,073 $14,970 $1,527
Defense.............. 45,851 8,706 7,474 3,053
------ ------ ------ ------
$94,942 $51,779 $22,444 $4,580
======= ======= ======= ======
Operating income (loss):
Automotive........... $3,658 $2,397 $(2,288) $ (888)
Defense.............. 3,946 779 1,849 494
------ ------ ------ ------
$7,604 $3,176 $ (439) $ (394)
====== ====== ====== ======
Total assets at period end:
Automotive........... $21,518 $20,072 $8,945
Defense.............. 16,924 5,899 3,892
Corporate............ 11,389 1,983
------ ------ ------
$49,831 $27,954 $12,837
======= ======= =======
Depreciation and amortizion:
Automotive........... $ 796 $ 489 $ 110 $ 32
Defense.............. 308 254 204 114
------ ------ ------ ------
$1,104 $ 743 $ 314 $ 146
====== ====== ====== ======
Capital expenditures:
Automotive........... $3,863 $1,979 $3,628 $ 198
Defense.............. 725 494 82
------ ------ ------ ------
$4,588 $2,473 $3,710 $ 198
====== ====== ====== ======
F-16
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information by geographic area is as follows (in
thousands):
Period from Period from
Year Year April 28, 1993 January 1, 1993
Ended Ended through through
March 31, 1996 March 31, 1995 March 31, 1994 April 27, 1993
-------------- ------------- -------------- --------------
(The Company) (The Company) (Successor (Predecessor
Division) Division)
Net sales:
North America .. $ 77,333 $ 34,274 $ 22,139 $ 4,580
Europe ......... 17,609 17,505 305
-------- -------- -------- --------
$ 94,942 $ 51,779 $ 22,444 $ 4,580
======== ======== ======== ========
Operating income (loss):
North America .....$ 6,555 $ 3,143 $ 22 $ (394)
Europe ............ 1,049 33 (461)
-------- -------- -------- --------
$ 7,604 $ 3,176 (439) $ (394)
======== ======== ======== ========
Total assets at period end:
North America .....$ 37,974 $ 15,894 $ 10,327
Europe ............ 11,857 12,060 2,510
-------- -------- --------
$ 49,831 $ 27,954 $ 12,837
======== ======== ========
10. PROFIT SHARING AND OTHER BENEFIT PLANS
SCI participates in Valentec's defined contribution plan qualified under
Section 401(k) of the Internal Revenue Code for eligible employees. The plan
provides for discretionary employer contributions. The Company made no
employer contributions during any of the periods presented in the consolidated
financial statements.
11.STOCK OPTIONS
In conjunction with the Initial Public Offering, SCI established a stock
option plan (The Plan). The Plan provides for the issuance of options to
purchase up to 400,000 shares of SCI's common stock to key officers, employees
of SCI or its affiliates, directors and consultants. Each award is determined
by the Compensation Committee of the Board of Directors on an individual
basis, except for awards to non-officer directors, which are determined pursuant
to a formula.
F-17
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There was no option activity prior to consummation of the Initial Public
Offering. Option activity for the years ended March 31, 1996 and March 31,
1995 are as follows:
Number of Shares Exercise Price
---------------- --------------
Options granted in connection
with the Offering .................. 231,000 $10.00 - 11.00
Other options granted .............. 8,000 19.50
Options cancelled .................. (33,000) 10.00
-------
Balance, March 31, 1995 ............ 206,000 $10.00 - 19.50
Other options granted .............. 84,500 $14.38 - 21.73
Options cancelled .................. (6,375)
-------
Balance, March 31, 1996 ............ 284,125 $10.00 - 21.73
=======
At March 31, 1996, 50,750 options were exercisable. No options were
exercisable at March 31, 1995. Options for the purchase of 115,875 shares and
194,000 shares were available for grant at March 31, 1996 and March 31, 1995,
respectively.
12. SUBSEQUENT EVENT
On June 7, 1996 the Company entered into a definitive Sale and Transfer
Agreement for the purchase of Phoenix Airbag GmbH, an airbag manufacturer
located in Germany. The agreement calls for a base purchase price of
approximately $22 million, subject to a net worth adjustment, plus a contingent
purchase price of up to an additional $7.5 million if Phoenix Airbag GmbH
attains certain revenue performance objectives over the calendar years 1996
through 1998. Under the terms of the purchase agreement the Company would,
under certain circumstances, be required to provide a bank guaranty in August
1997 with respect to the contingent purchase price of up to approximately $4
million. The Company has provided the seller a non-refundable deposit of $1.65
million. Under the terms of the purchase agreement, if the acquisition is not
consummated by August 15, 1996, the seller would not be required to consummate
the transaction and the Company would forfeit its deposit. In conjunction with
the acquisition, the Company has received a proposal letter from a U.S. bank to
provide financing for the acquisition in the form of a $20 million term loan,
amortizing over a period of four years. In connection with such term loan, the
Company would obtain a new $6 million revolving credit facility, replacing its
existing Credit Facility, and a non-revolving stand-by letter of credit facility
to secure payment, if necessary, of the contingent purchase price. The proposal
calls for interest at the prime rate and would be secured by substantially all
the assets of the Company.
F-18
<PAGE>
Translation
Role of Deeds No. 89/1996
Recorded
in Frankfurt am Main on June 6, 1996
Before me, the undersigned notary
Klaus M. Kubel
with office in Frankfurt am Main
the following persons appeared today in the offices of the law firm Beiten
Burkhardt Mittl & Wegener, MesseTurm, Friedrich-Ebert-Anlage 49, 60327
Frankfurt am Main, where the notary appeared at the request of the parties:
1. Mr. Konrad Ellegast, Oetgendorfer Landstr. 22, Hoisdorf, identifying
himself by presenting his identity card no. 1251064032
2. Dr. Heiner Druke, attorney at law, with business address at MesseTurm,
Friedrich-Ebert-Anlage 49, 60327 Frankfurt am Main, known personally
3. Mr. Gunter Zimmer, attorney at law, with business address at
MesseTurm, Friedrich- Ebert-Anlage 49, 60327 Frankfurt am Main,
identifying himself by presenting his German passport no. 3560250036D
<PAGE>
with the request for notarization of the following:
I.
Representation and Shareholding
1. The person appearing to 1. declared that in the following he is not
acting in his own name, but for Phoenix Aktiengesellschaft,
Hannoversche Strasse 88, 21079 Hamburg, registered in the Commercial
Register of the Local Court Hamburg under HRB 3852, in his capacity
as chairman of the management board and authorized representative on
the basis of the power of attorney of the co-member of the management
board, Mr. Burkhard Meister, with confirmation of representation of
June 5, 1996, submitted in the original and attached to this Deed in
certified copy. A certified extract of the Commercial Register of
Phoenix Aktiengesellschaft dated May 20, 1996, reflecting the
aforementioned representation rights, was submitted, which is hereby
confirmed.
2. The person appearing to 2. declared that in the following he is not
acting in his own name, but for AB 9607 Verwaltungs GmbH & Co. KG,
registered in the Commercial Register of the Local Court
Aschaffenburg under HRA 3273 on the basis of a power of attorney
dated June 6, 1996, submitted in the original and attached to this
Deed in certified copy. Certified copies of extracts of the
Commercial Register of AB 9607 Verwaltungs GmbH & Co. KG dated May
28, 1996 and its general partner, AB 9607 Vermogensverwaltungs GmbH,
Munich, HRB 112797, dated May 23, 1996, were submitted. Also
submitted was the shareholders' resolution dated May 5, 1996 in which
the signatory of the power of attorney, Hardy Myers, has been
appointed as managing director of AB 9607 Vermogensverwaltungs GmbH,
authorized to represent the company alone and the application for
registration of such appointment with the Commercial Register of the
notary Dr. Krause-Palfner dated June 5, 1996.
3. The person appearing to 3. declared that in the following he is not
acting in his own name, but as authorized representative on the basis
of a power of attorney dated June 6, 1996,
2
<PAGE>
submitted in the original and attached to this Deed in certified
copy, for Safety Components International, Inc., a U.S. corporation
incorporated under the laws of the state of Delaware.
II.
The persons appearing then requested the notarization of the following
Agreement concerning the Sale and Transfer of
all of the Shares in Phoenix Airbag GmbH
thereby referring to the Deed No. 88/96 of the undersigned notary of June 5/6,
1996 (hereinafter "Reference Deed").
The original of the Reference Deed was submitted today to the persons
appearing who declared to have full knowledge of the content of the Reference
Deed and its appendices including appendices thereof, to consent to the entire
Reference Deed and to waive their right to have the Reference Deed read aloud
and attached to this Deed. The lists, deeds and other appendices referred to
in the following Agreement concerning the Sale and Transfer of all of the
Shares in Phoenix Airbag GmbH are, to the extent they are not already attached
to this Deed, contained in the Reference Deed and through the reference
declared above become an integral part of this Deed and of the Agreement
notarized herewith. To the extent this Agreement makes reference to attached
appendices. the reference relates to the Reference Deed or, to the extent the
appendix is attached to this Deed, to this Deed.
3
<PAGE>
III.
Agreement concerning the Sale and Transfer of
all of the Shares in Phoenix Airbag GmbH
Preamble
Phoenix Aktiengesellschaft has transferred in 1996 its business concerning the
development, manufacture and sale of airbags for the automotive industry to
Phoenix Airbag GmbH.
Phoenix Aktiengesellschaft intends to sell and transfer all of the shares in
Phoenix Airbag GmbH.
Given this, the parties agree as follows:
Section 1. Interest in Company, Contribution Agreement, Loan Agreement, Lease
Agreement and Service Agreement
(1) Phoenix Aktiengesellschaft, registered in the Commercial Register of the
Local Court Hamburg under HRB 3852 ("Seller"), is the sole shareholder of
Phoenix Airbag GmbH ("Company"), registered in the Commercial Register of the
Local Court Hildesheim under HRB 2418. Seller holds the sole share in the
Company in the nominal amount of DEM 1,500,000.-- (one million five hundred
thousand). All cash contributions have been fully paid; all contributions in
kind have been properly and fully made; no amount of the share capital has
been repaid, not even hidden.
(2) Seller has transferred its business concerning the development,
manufacture and sale of airbags for the automotive industry to the Company
based on the agreement dated November 14, 1995 ("Contribution Agreement"). The
Contribution Agreement in its new version dated June 5, 1996 as well as all
appendices thereto are attached hereto as Appendix to Section 1 (2).
4
<PAGE>
(3) Seller has granted to the Company a loan which shall amount at the
Effective Date to DEM 3,460,000.-- (three million four hundred sixty thousand)
in total ("Shareholder Loan"). A copy of the loan agreement is attached hereto
as Appendix to Section 1 (3). Seller shall ensure that the Shareholder Loan
amounts to DEM 3,460,000.-- at the close of business on June 28, 1996, that
until the expiry of the Effective Date no changes as to the amount of the loan
will occur and that proof as to the amount of the loan of DEM 3,460,000.--
will be provided to the Buyer at the close of business on June 28, 1996.
(4) Seller has concluded with the Company the Lease Agreements attached hereto
as Appendix to Section 1 (4) A and B relating to the premises on the facilities
of Seller at Hildesheim as well as the Service Agreements attached hereto as
Appendix to Section 1 (4) C and D. The Lease Agreement attached as Appendix to
Section 1 (4) A and the Service Agreement attached as Appendix to Section 1 (4)
C will terminate at the end of the calendar day preceding the Effective Date.
The Lease Agreement attached as Appendix to Section 1 (4) B and the Service
Agreement attached as Appendix to Section 1 (4) D shall become effective on
the Effective Date.
A. Transfer of a Majority Interest in the Company
Section 2 Sale and Transfer
(1) The Seller divides the share in the Company with a nominal amount of DEM
1.500.000,-- into two partial shares with a nominal amount of DEM 1.200.000,--
(80% of the nominal share capital) and DEM 300.000,- (20 % of the nominal
share capital). The Company has approved of the division in the declaration
attached hereto as Appendix Section 2 (1).
(2) Seller sells the share in the Company, valued at DEM 1.200.000, - -,
referred to in Section 2 (1) of this Agreement as well as the Shareholder
Loan referred to in Section 1 (3) of this Agreement to AB 9607 Verwaltungs
GmbH & Co. KG ("Buyer") registered with the Commercial Register of the
5
<PAGE>
Local Court Aschaffenburg under HRA 3273 (Safety Components International,
Inc., the sole limited partner of Seller is not yet registered with its
limited partnership unit in the amount of DEM 1,000.-- with the Commercial
Register) and transfers the said share and Shareholder Loan, the latter by
assumption of contract, to Buyer. The Company has approved the transfer of the
Shareholder Loan in the declaration attached hereto as Appendix to Section 2
(2). The Buyer accepts the sale and transfer. The sale shall be effective in
relation between the Parties as of January 1, 1996.
(3) The transfer of the share in the Company referred to in para 2 and the
Shareholder Loan shall become effective as of the date of payment of the
purchase price stated in Section 3 of this Agreement.
Section 3 Purchase Price, Payment of Purchase Price
The purchase price for the share in the Company and the Shareholder Loan sold
and transferred pursuant to Section 2 para 2 of this Agreement amounts to an
aggregate total of DEM 31,000,000.-- (Deutsche Marks thirty one million). The
purchase price shall be paid on the Effective Date free of charge to a bank
account designated by Seller.
Section 4 Profits
The profits for the current fiscal year of the Company which are for the
benefit of the share sold under Section 2 para 2 shall be in full for the
account of Buyer.
Section 5 Opening Balance Sheet, Closing Balance Sheet
(1) The opening balance sheet of the Company as of January 1, 1996 ("Opening
Balance Sheet") is attached to this Agreement as Appendix to Section 5 (1).
6
<PAGE>
(2) The Parties hereby instruct the Company to submit on or before August 31,
1996 a balance sheet of the Company as of the Effective Date ("Closing Balance
Sheet"). The Closing Balance Sheet shall be established on the basis of
generally accepted accounting principles and in accordance with the accounting
and valuation principles underlying the Opening Balance Sheet and audited and
certified jointly by BDO Deutsche Warentreuhand AG Wirtschaftsprufungs-
gesellschaft and Price Waterhouse GmbH Wirtschaftsproufungsgesellschaft on the
basis of the additional accounting and valuation principles to be agreed upon.
Seller shall ensure, that BDO provides to Buyer a draft of the additional
accounting and valuation principles by June 20, 1996, to the Buyer. The costs
for the auditing of the Closing Balance Sheet shall be shared evenly by the
parties. In case controversies relating to the contents of the Closing Balance
Sheet cannot be amicably settled between the auditors and the Parties, each
Party after one month of the submission of the Closing Balance Sheet may
submit the points in dispute between the parties to the auditing company
Deloitte & Touche GmbH. Deloitte & Touche GmbH shall decide on the points in
dispute between the parties by way of an arbitrator's expert opinion based on
the principles in Sentence 2 within a period of 10 weeks after submission of
the Closing Date Balance Sheet to Deloitte & Touche GmbH. The decision of the
arbitrator shall be final and binding on the parties. Each Party shall bear
one half of the costs of the proceedings. The parties shall ensure that the
representatives of the arbitrator have access to the premises of the Company
and to the books and records which are necessary in order to perform the
duties of an arbitrator.
Section 6 Adjustment of Purchase Price
(1) In case the net book value shown in the Closing Balance Sheet binding on
both parties shall be higher or lower than the net book value of DEM
5,000,000.-- shown in the Opening Balance Sheet, then an amount equal to the
difference shall be due between the parties, as the case may be. The net book
value shall equal the sum of the book values of (i) the fixed and current
assets as well as deferred charges and prepaid expenses ( Section 266 para 2
A-C German Commercial Code) without considering loans to affiliated companies
( Section 266 para 2 A III 2 German Commercial Code), (ii) minus the profits
for the period from January 1, 1996 until the
7
<PAGE>
Effective Date (Section 266 para 3 A V German Commercial Code), (iii) minus
special reserves with an equity portion (Section 247 para 3 German Commercial
Code) and (iv) minus accrued and all current liabilities, including
liabilities resulting out of shareholder loans, as well as deferred items
(Section 266 para 3 B-D German Commercial Code).
(2) The amounts to be paid under para (1), shall be paid within one month
after the submission of the Closing Balance Sheet or the decision rendered by
the arbitrator according to Section 5 (2) of this Agreement. The amount to be
paid shall bear interest at the rate of 2% (two percent) above the respective
discount rate of the Deutsche Bundesbank for the period from the Effective
Date until the date of payment.
Section 7 Guarantees
(1) Seller hereby gives the independent guarantee (Section 305 German Civil
Code) as of the date of conclusion of this Agreement as well as of the
Effective Date that
(a) the statements made in Section 1 of this Agreement are correct, Seller may
freely dispose of the share in the Company sold and transferred and the share
in the Company is not encumbered with rights of third parties; and
(b) the Contribution Agreement mentioned in Section 1 para 2 herein in its
version of June 6, 1996 has neither been changed nor amended and has been
fully implemented; and
(c) with the exception of the partial share of Seller in the Company in the
nominal amount of DEM 300,000.--, no corporate interests of any kind of third
parties exist in the Company, especially no indirect participations (silent
partnership, sub-participations), the Company is not obligated to acquire such
interests, no options or other rights of third parties to acquire such
interests or shares exist and the Company has concluded, neither with Seller
nor with third parties,
8
<PAGE>
corporate agreements as well as cooperation agreements nor has the Company
given letters of comfort in favor of other companies; and
(d) no shareholders' resolutions have been made which have not been registered
in the Commercial Register of the Company, no side letters exist which relate
in any way to the corporate structure and organization of the Company, except
for the shareholders' resolution amending the Articles of Association dated
June 6, 1996, attached hereto as Appendix to Section 7 (1) (d).
(2) Seller further hereby gives the independent guarantee (Section 305 German
Civil Code) that
(a) the Opening Balance Sheet has been prepared in accordance with generally
accepted accounting principles taking into consideration the principles of
continuity and present a true and fair view of the net assets and the
financial position of the Company;
(b) the fixed and current assets shown in the Opening Balance Sheet, a
complete list of which is contained in Appendix to Section 7 (2) (b), reflect
all fixed assets necessary for and used in the current business operations and
the legal and economic title to these fixed and current assets was held by the
Company, those assets were not encumbered with rights of third parties (except
security rights in the ordinary course of business), and were not sold or
transferred or obligations with regard to those assets were not entered into
outside of the ordinary business activities and the fixed and current assets
were, except for normal wear and tear, in good operational and well maintained
condition for the appropriate use;
(c) the Opening Balance Sheet of the Company shows a capital surplus pursuant
to Section 272 (2) item 4 German Commercial Code in the amount of DEM
3,500,00.--;
(d) the Opening Balance Sheet shows reserves set up in accordance with
commercial law for all pension liabilities incurred up to that point in time,
and indirect pension commitments and
9
<PAGE>
obligations, for example in the form of direct insurance, do not exist; all
other pension commitments and obligations for which pursuant to commercial law
an optionally accountable liability exists, especially previous commitments,
are listed in full in Appendix to Section 7 (2) (d) according to the respective
amount and the beneficiary;
(e) all current employees of the Company are listed by name, date of birth,
gross monthly salary and/or hourly wage, begin of employment with the Company
in Appendix to Section 7 (2) (e);
(f) all collective bargaining agreements, shop agreements or other collective
labor agreements which the Company has entered into or is subject to as well
as obligations of the Company resulting from standard practice in an amount
exceeding DEM 100,000.-- annually are listed in Appendix to Section 7 (2) (f);
(g) Seller, with respect to the business for the development, the production
and the sale of airbags for the automotive industry, or the Company in the two
years prior to the signing of this Agreement, was neither a party in
proceedings before courts, especially in connection with product liability, or
before administrative agencies, nor a party in proceedings before a court of
arbitration involving amounts in litigation exceeding DEM 10,000-- in the
individual case;
(h) all current and future employees of the Company and/or its legal successor
are entitled to be insured by the health insurance fund of Phoenix
Aktiengesellschaft, public law corporation, under the same conditions as the
employees of Seller.
(3) Seller further gives the independent guarantee (Section 305 German Civil
Code) that during the period from January 1, 1996 until the Effective Date
(a) the business of the Company has been continued in accordance with ordinary
business principles and no extraordinary transactions have been made,
especially not with employees or representative bodies of the Company;
10
<PAGE>
(b) the business purpose and the contents of the business activities of the
Company have not materially changed compared with the activities of the
preceding fiscal year, when the business of the Company was conducted by
Seller;
(c) the fixed and current assets of the Company have been maintained and
supplemented in the ordinary course of business, no rights, including
contractual rights, of Seller, its affiliated companies or third parties exist
with respect to the fixed and current assets of the Company (except security
rights in the ordinary course of business), and new pension obligation have
been entered into only to the extent usual in the past;
(d) no extraordinary events have occurred or are threatened, no obligations
have been entered into or dispositions were made which could adversely affect
the present or future business activities, the fixed or current assets or the
financial results of the Company;
(e) no distribution of profits, including advance or constructive dividends,
were made nor, except in the ordinary course of business, were hidden reserves
dissolved;
(f) the activities of the Company were limited to the purpose stated in the
Articles of Association and no other activities took place;
(g) all taxes owed, including advance tax payments, social security
contributions and other public charges of any kind owed by the Company were
paid when due, or - to the extent not yet due - adequate reserves have been
established therefor in the Closing Date Balance Sheet;
(h) the Company has incurred no liabilities, except those incurred in the
ordinary course of business;
11
<PAGE>
(i) the Company has made all payments due to its current and former employees,
especially wages and salary payments, remuneration for overtime and bonus
payments, or - to the extent not yet due - adequate reserves have been
established therefor in the Closing Balance Sheet;
(j) the Company has maintained for each of its employees a proper personnel
file, withheld or paid all taxes, especially income tax and unification
surcharge as well as insurance contributions to the national pension insurance
(including the employee's contribution) and to the national or private health
insurance (including the employee's contribution) and has maintained proper
records of the payments and deductions mentioned above;
(k) the Company has not violated applicable individual or collective labor
provisions or agreements;
(i) the services paid pursuant to the Service Agreement attached as Appendix
to Section 1 (4) C have actually been rendered and this is properly documented
in the books of the Company;
(4) Seller further hereby gives the independent guarantee (Section 305 German
Civil Code) as of the Effective Date as far as not disclosed in Appendix to
Section 7 (4) or otherwise in this Agreement that
(a) the Company is not bound to any agreements with Seller or persons or
enterprises directly or indirectly affiliated with Seller or, except for the
employment agreements with the employees listed in Appendix to Section 7 (2)
(e), with employees of the Company;
(b) the Company is not bound to any agreements with managing directors,
employees, advisors or other persons or enterprises providing for a yearly
compensation exceeding DEM 120,000,-- gross, or providing for a bonus based on
sales or profits, the Company is not bound to any employment, service or other
agreement with the managing directors Meinhard Liebing and Dr. Ernst Roehl,
and no agreements with representatives or similar contractual relationships
exist,
12
<PAGE>
whose termination could trigger compensation claims pursuant to Section 89 b
German Commercial Code;
(c) the Company is not bound to lease agreements or other agreements providing
for a term exceeding one year or in each individual case providing for yearly
expenses of the Company exceeding DEM 200,000.--gross;
(d) the Company is not bound as licensor or licensee to agreements relating to
industrial property rights or non-protected know-how;
(e) the Company is the true owner or, to the extent listed in Appendix to
Section 7 (4) (e), co-owner of all patents, patent applications, marks or
other industrial property rights except for the Phoenix wing rhombus used in
its business activities and necessary for the continuation of the business as
it is currently conducted, no encumbrances or other third party rights to such
patents, patent applications, marks or other industrial property rights exist
and Appendix to Section 7 (4) (e) contains a complete list of such patents,
patent applications, marks or other industrial property rights; such patents,
patent applications, marks or other industrial property rights, with the
exception of the Phoenix wing rhombus, are in full force and effect; to the
knowledge of Seller and the managing directors of the Company, (i) neither
infringements of third parties on such rights have taken place or are to be
expected (ii) nor for other reasons the exposure of the cancellation or the
revocation of such rights exists, (iii) through such rights or their use no
industrial property rights of third parties are violated; and that the
aforementioned rights are secured in such a way that all fees due have been
paid and all other measures necessary for the support and maintenance of the
industrial property rights have been taken in full and on time; the Company
has the right to all inventions by employees used in its business activities
and necessary for the continuation of the business as it is currently
conducted and all payment obligations to employees entitled to such payment
have been met;
13
<PAGE>
(f) the Company is not bound to agreements which may be terminated, changed or
amended by third parties due to the sale and transfer of the shares in the
Company;
(g) the Company holds all public permits and licenses necessary for the
continuation of its business as it is currently conducted, those permits and
licenses have not been withdrawn or revoked and there are no circumstances to
believe that those permits and licenses may be withdrawn or revoked, and
neither the business activities of the Company nor its products violate these
permits or licenses or respective applicable regulations or orders of
authorities and the business activities of the Company are conducted in
compliance with those permits and licenses as well as with other legal
provisions;
(h) the Company is neither a party in proceedings before courts or
administrative agencies nor a party in proceedings before an arbitration board
involving amounts in litigation exceeding DEM 10,000-- in the individual case
nor are such proceedings threatened pursuant to the best of Seller's knowledge
and the managing directors of the Company;
(i) the Lease Agreement attached hereto as Appendix to Section 1 (4) A and the
Service Agreement attached hereto as Appendix to Section 1 (4) C have been
terminated on the Effective Date and the Lease Agreement attached hereto as
Appendix to Section 1 (4) B and the Service Agreement attached hereto as
Appendix to Section 1 (4) D are in full force and effect on the Effective
Date; and
(j) all insurance policies common for the business of the Company exist and
are listed in Appendix to Section 7 (4) (j) and the insured is not in arrears
with payment of the insurance premiums;
(k) the agreements attached as Appendix to Section 7 (4) (k) between the
Company on one side and Adam Opel AG, Vauxhall Motors Ltd.; General Motors
Espana S.A. and General Motors Continental as well as Petri AG, MST Automotive
GmbH and Polcotex Sp.zo.o. respectively on the other side are not terminated,
no breaches of contract with regard to these agreements exist
14
<PAGE>
and Seller is not aware of any circumstances which could lead to a termination
of one or more of such agreements;
(l) the Company has not entered into any agreements or conducts or conducted
business activities which violate German or European Community competition
law;
(m) with the exception of the Shareholder Loan transferred from Seller to
Buyer pursuant to Section 2 para 2 of this Agreement, no loans or any other
obligations of the Company vis-a-vis Seller or its affiliates (Section 15 German
Stock Corporation Act) exist and no loan obligations or claims resulting from
loans vis-a-vis third parties exist;
(n) to the best knowledge of the Company or the managing directors of the
Company, no claims against the Company arising out of product liability exist;
(o) the premises (land and buildings) used by the Company as well as all other
operational facilities are free from pollution including soil, water, air as
well as all other kinds of pollution, for the clean-up of which claims could
be asserted against the Company; the business activities of the Company do not
cause soil, water, air or any other pollution, due to which claims against the
Company to clean up or to refrain from polluting could arise; the Company on
the Effective Date as well as in the past has observed all environmental laws,
provisions and regulations; the fresh water supply and the disposal of waste
water as well as of the emissions in the form of gas and solids and of waste
is ensured in full for the current business activities;
(p) no guarantees or other guarantee obligations as well as recourse
obligations of the Company vis-a-vis Seller or its affiliated companies or
third parties exist, and neither Seller nor its affiliated companies nor third
parties have issued guarantees or other securities of any kind in favor of the
Company;
15
<PAGE>
(q) the Cash-Pooling Agreement between Seller and the Company dated December
22, 1995 has been terminated and no payment claims by either party arising
therefrom exist.
Section 8 Remedies
(1) In case one or more of the independent guarantees stated in Section 7 of
this Agreement are partly or entirely incorrect, Buyer, at its discretion, may
either adequately decrease the purchase price or demand compensation in cash
for damages, provided Buyer has requested Seller in writing to put Buyer
within ten calendar days following the receipt of the written request in the
position Buyer would be in case the independent guarantees would have been
correct and the aforesaid period, for whatever reason, has elapsed without
Seller complying with such request.
(2) In case one or more of the independent guarantees stated in Section 7 of
this Agreement shall be partly or entirely incorrect, Buyer may partly or
entirely abstain from requesting a decrease of the purchase price but instead
request Seller that the Company shall be put in the position the Company would
be in, in case the independent guarantees would have been correct.
(3) The claims of Buyer pursuant to Section 8 (1) and (2) of this Agreement
may be asserted only if they exceed in the individual case the amount of DEM
20,000, --. The limit of DEM 20,000.-- contained in the aforegoing sentence
shall not hinder the assertion of claims in order to interrupt the statute of
limitation pursuant to Section 11 (3) of this Agreement. The claims of Buyer
are limited to the total aggregate amount of 30% of the purchase price stated
in Section 3 of this Agreement. The restrictions under sentence 1 and 2 do not
apply in the case the claims of Buyer are based on a breach of the independent
guarantees given under Section 7 para 1.
(4) The claims of Buyer do not depend on fault on the part of Seller, its
representatives or agents. Section Section 460, 464 German Civil Code are
excluded; this shall also apply to an analogous application of such
provisions. The claims may be asserted only as far as the disadvantages of
Buyer or the Company are not compensated by the adjustment of the purchase
price according to
16
<PAGE>
Section 6 of this Agreement or have been or may be compensated by dissolution
of reserves shown in the Closing Balance Sheet.
Section 9 Indemnification
If one or more of the independent guarantees given in Section 7 of this
Agreement is incorrect in whole or in part and if for this reason claims
against the Company arise, Seller shall indemnify the Company therefrom upon
first demand. The same shall apply to claims against the Company arising out
of legal relationships of Seller entered into prior to January 1, 1996. To the
extent that Seller indemnifies the Company, the rights of Buyer pursuant to
Section 8 paras (1) and (2) cease to exist.
Section 10 Defense against Claims
(1) Buyer is obligated to inform Seller in writing without delay in case third
parties have asserted or threatened any claims against Buyer or the Company
which might lead to a liability of Seller pursuant to Section 8 of this
Agreement. Buyer shall submit to Seller all necessary and appropriate
documents and shall give all necessary and appropriate information and as well
as access to the books and records of the Company as far as this is necessary
in order to evaluate the justification of the asserted or threatened claims.
(2) The Parties shall agree on the defense against the claims referred to in
para 1. Seller shall be given adequate opportunity to participate in the
defense against those claims. Buyer agrees to allow Seller to carry out the
defense in its own name and on its own account in case Buyer for whatever
reason shall not be prepared to carry out the defense against those claims and
a defense against those claims does not adversely affect the justified
business interests of Buyer.
Section 11 Statute of Limitation
17
<PAGE>
(1 ) All claims of Buyer based on the incorrectness of an independent
guarantee contained in Section 7 if this Agreement shall be barred as far as
not provided otherwise in para 2 within six months following the date Buyer
shall have become aware of the incorrectness of an independent guarantee, at
the latest within two years after the Effective Date.
(2) The claims of Buyer based on the incorrectness of an independent guarantee
stated in Section 7 paras 1 (a) and (b) of this Agreement shall be barred
within five years after the Effective Date. Claims regarding tax liabilities
shall be barred after the expiry of one year after the assessment (including
the corrective assessment based on an investigation by tax authorities) for
the time period until the Effective Date has become final and non-appealable;
this shall not apply in cases of tax evasion or fiscal evasion for failure to
take due care, in which case the statutory period of limitation shall apply.
(3) The statute of limitation shall be interrupted by the first written
assertion of claims against Seller.
Section 12 Covenant not to Compete
(1 ) Seller agrees not to directly or indirectly compete with the Company on
the relevant geographic product markets on which the Company has been active
at the time of the execution of this Agreement for a period of three years
following the Effective Date.
(2) Seller represents and warrants that all enterprises in which it holds a
controlling interest at the time of the execution or following the execution
of this Agreement shall comply with the obligation not to compete set forth in
para 1.
Section 13 Amendment of the Articles of Association
18
<PAGE>
(1) The Seller shall immediately after execution of this Agreement amend the
articles of association of the Company in the form attached hereto as Appendix
to Section 13 (1) and shall ensure that these amended Articles of Association
are filed with the Commercial Register by the Effective Date at the latest.
The parties are bound by the terms of the Amended Articles of the Association
as of the Effective Date. After the Effective Date, amendments to the Articles
of Association shall be possible with the majority requirements stipulated in
the Amended Articles of Association.
(2) The share in the Company held by the Seller is not entitled to dividends.
(3) Seller is aware that Buyer, after this Agreement has become effective,
intends to merge the Company with itself on or before December 31, 1996
pursuant to the German Merger Act. In view of this, Seller herewith waives its
right pursuant to the German Merger Act to request a merger report pursuant to
Section 8 para 3 German Merger Act, the presentation and performance of an
audit of the merger report pursuant to Section Section 47, 48 German Merger Act
and the complaint against the effectiveness of the resolution consenting
thereto. Seller shall further be obligated to repeat these waivers stated
above in a separate deed in the form necessary for the intended merger. After
the registration of the merger in the Commercial Register, Seller, instead of
its current position as owner of the partial share referred to in Section 2
para (1), shall be a limited partner with 20% of the limited fixed
partnership's capital, whereby the 20% share shall not exceed the amount of
DEM 300,000.--, in the aforementioned limited partnership having the rights
and obligations set out in the draft of the limited partnership agreement
attached hereto as Appendix Section 13 (3). Buyer shall determine the nominal
amount of the limited partnership interest of Seller. To the extent that the
capital contribution of Seller has not been made within the meaning of Section
171 German Commercial Code at the time the merger becomes effective, Seller
shall indemnify Buyer in case of claims of creditors of the limited
partnership or of the bankruptcy receiver in the amount of its liability
pursuant to Section171 German Commercial Code. Seller shall be obligated to
make all declarations and perform all acts necessary to execute the merger and
to enable its registration in the respective Commercial Registers. After the
registration of the merger, amendments to the limited
19
<PAGE>
partnership agreement shall be possible with the majority requirements
stipulated in the draft attached hereto as Appendix to Section 13 (3).
(4) As of January 1, 1999, the Company and/or its legal successor shall no
longer have the right to use the name "Phoenix" as part of the company name
and to use the name "Phoenix" in busineSection Buyer and Seller shall be
obligated to resolve in a shareholders' meeting the corresponding change of
the name of the Company and/or its legal successor, whereby for the
determination of the new company name a majority of 75% of the voting capital
is necessary. Buyer shall guarantee that after the merger of the Company with
Buyer, its majority shareholders will fulfill the aforementioned obligations
to change the company name. This shall apply to the Phoenix wing rhombus
mutatis mutandis.
B. Transfer of the Minority Share of the Company
Section 14 Sale and Transfer
(1) Seller sells the partial share in the Company, in the nominal amount of
DEM 300,000.-- referred to in Section 2 para 1 of this Agreement to the Buyer
and assigns the share to the Buyer. Buyer accepts such sale and transfer. The
sale and transfer shall become effective as of December 31, 1998. The profits
for the current business year of the Company which are for the benefit of the
partial share in the nominal amount of DEM 300,000.-- shall belong to Buyer.
The parties agree that in case of the execution of the intended merger of the
Company with a limited partnership in the legal form of a limited partnership
with a GmbH as general partner (GmbH & Co. KG) (Section 13 (3) of this
Agreement), Buyer acquires the limited partnership interest taking the place
of the partial share in the Company, sold and assigned in this paragraph,
effective as of December 31, 1998; however, the transfer of legal title shall
be effective not earlier than upon the registration of the legal succession to
the legal title in the Commercial Register. Seller shall be obligated to make
all declarations and to carry out all acts necessary or appropriate in
connection
20
<PAGE>
with the transfer of the above-mentioned limited partnership interest and its
registration in the Commercial Register.
(2) A transfer as of the expiry of December 31, 1998 shall not take place if
cumulatively the following conditions are fulfilled: (i) Buyer, due to the
provision contained in Section18 para (2) of this Agreement, was not obligated
to provide a bank guaranty on first demand (ii) the parties shall not reach
agreement on or before December 31, 1998, on the amount of the turnover within
the meaning of Section 16 of this Agreement for the year 1997 and/or on the
amount of the turnover for the first six months of 1998, and the diverging
opinions concerning the amount of the turnover for the year 1997 differ by
more than DEM 17,000,000.-- and/or the diverging opinions concerning the
turnover for the first six months of 1998 differ by more than DEM
11,500,000.--. If there is neither agreement regarding the turnover for the
year 1997 nor regarding the turnover for the first six months of 1998, both
minimum amounts for the diverging opinions have to be met in order for the
transfer not to take place on the expiry of December 31, 1998.
If the above conditions are fulfilled and no transfer of legal title has to
take place on December 31, 1998, the transfer between the parties with effect
as of December 31, 1998 has to take place immediately after the determined
second and/or third installments of the Additional Purchase Price have been
paid.
Section 15 Purchase Price, Payment of Purchase Price
(1) The purchase price for the share transferred under Section 14 para 1 of
this Agreement or, in case of a merger, the future limited partnership
interest, shall be, to the extent nothing else is provided for in para 3, DEM
11,500,000.-- (Deutsche Marks eleven million five hundred thousand -
"Additional Purchase Price"). The Additional Purchase Price is based on the
assumption that the Company will achieve in the year 1996 turnover revenues of
at least *, in the year 1997 at least *, and in the year 1998 at least
21
<PAGE>
* For purposes of calculating the turnover of the Company, Section 16 of this
Agreement applies.
* SUCH INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT FOR SUCH
INFORMATION IS BEING REQUESTED PURSUANT TO RULE 24B-2 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
(2) The Additional Purchase Price is to be paid, in so far as nothing else is
provided for under para 3, in 3 equal installments each equal to DEM
3,833,333.--. The first installment is due on April 30, 1997, the second
installment on April 30, 1998 and the third installment on April 30, 1999. The
Additional Purchase Price is not subject to interest. The exercise of the
right of retention as well as the set-off against the Additional Purchase
Price by Buyer shall be excluded.
(3) To the extent the Company does not achieve the turnover revenues in the
years 1996 through 1998 as specified in para 1, then the installments of the
Additional Purchase Price shall be calculated as follows:
(a) If the Company achieves for a particular year less than 80% of the
turnover revenues set forth in para 1, then no installment payment is required
for that year. The Additional Purchase Price shall be decreased accordingly.
(b) To the extent the company achieves between 80 and 100% of the turnovers
specified in para 1, then the installment for that particular year shall be
decreased accordingly pursuant to the relation between the turnover revenues
specified in para 1 to the actual achieved turnover revenue. The Additional
Purchase Price shall be decreased accordingly.
(4) To the extent that the Company pursuant to Section19 of the Articles of
Association attached hereto as Appendix to Section 13 (1) demands and/or after
the merger of the Company with Buyer, the shareholders' meeting of Buyer
pursuant to Section 12 of the Articles of Association attached hereto as
Appendix to Section 13 (3) resolves that the partial share referred in Section
2 para (1) and/or the limited partnership interest taking its place shall be
transferred to Buyer and/or the majority shareholder of Buyer, the
compensation to be made to Seller pursuant to the corresponding articles of
association shall be considered effected by the payment of the Additional
Purchase Price owed
22
<PAGE>
pursuant to Section 15 of this Agreement. Under the condition that Buyer pays
to Seller the Additional Purchase Price pursuant to the provisions of this
Agreement, Seller hereby waives vis-a-vis the Company and/or vis-a-vis Buyer
the aforementioned transfer claim.
Section 16 Turnover of the Company
(1) The turnover of the Company, to the extent nothing else is provided for in
para 2 and 3, shall be calculated according to Section 277 para 1 German
Commercial Code.
(2) To the turnover of the Company calculated according to para 1 shall be
added the full turnover of the Buyer and its affiliated companies as well as
of the companies in which Buyer has at least a 10% share of the capital or
voting rights which has been achieved with Petri AG, MST Automotive GmbH and
Adam Opel AG as well as with affiliates of Adam Opel AG from the sale of
airbags or the turnover achieved from the sale of airbags under the agreements
or offers and follow-up agreements listed in Schedule to Section 16 (2) A. The
addition to be made pursuant to sentence 1 shall not apply to the extent the
turnover achieved by the Buyer and its affiliated companies as well as by the
companies in which Buyer has at least a 10% share of the capital or voting
rights was achieved under the agreements or offers and follow-up agreements
listed in Schedule to Section 16 (2) B. To the extent the aforementioned
parties submitted competing offers, the turnovers thus achieved shall be
attributed to the Company as turnover for the purposes of the determination of
the basis for the assessment the Additional Purchase Price only, to the extent
as the offers of the Company were accepted.
(3) To the turnover of the Company calculated according to para 1 shall be
further added the turnover of the Company between the time period from January
1 until February 28, 1999, to the extent these revenues are based on
deliveries which have been made prior to February 28, 1999, which either (i)
based on the agreement with customers, should have been made in the year 1998,
or (ii) are based on orders for which capacities have been reserved for the
year 1998 pursuant to
23
<PAGE>
delivery dates agreed upon with the customers of the Company. The terms in
para 2 apply mutatis mutandis.
(4) The Buyer shall see that the Seller shall be granted on request within
reasonable limits and during ordinary business hours the opportunity, at the
expense of Seller, to have the books and records of the Company of Buyer and
its affiliates inspected during ordinary business hours by advisors who are
subject to professional secrecy obligations and, at the expense of Seller, to
make the necessary and appropriate copies of such documents as far as it is
necessary to check the turnover of the company pursuant to para 1 as well as
the turnover of the Buyer and its affiliated companies pursuant to para 2 and
para 3. The Buyer agrees to cooperate as far as possible with the Seller and
its advisors, in order to enable the auditing of the aforementioned turnovers.
(5) In case controversies relating to the turnovers under para 1 and para 2
cannot be amicably resolved within six weeks after the 30th of April of each
calendar year in which the Additional Purchase Price is payable, each party
may submit the points in dispute between the parties to the auditing company
Deloitte & Touche GmbH. Deloitte & Touche GmbH shall decide on the points in
dispute between the parties by way of an arbitrator's expert opinion based on
the principles contained in this Section 16 paras (1) - (3) within a period of
10 weeks after submission of the points in dispute to Deloitte & Touche GmbH.
The decision of the arbitrator shall be final and binding on the parties. Each
Party shall bear one half of the costs of the proceedings. The parties shall
ensure that the representatives of the arbitrator have access to the premises
of the Company and to the books and records which are necessary in order to
perform the duties of an arbitrator.
Section 17 Guarantees of Seller
The Seller gives the independent guarantee (Section 305 German Civil Code) as
of the execution of this Agreement and as of the Effective Date as well as of
the time when the transfer of the share and/or the limited partnership
interest taking its place pursuant to Section 14 para 1 of this Agreement
becomes effective, that the Seller holds free and clear title of the
transferred share and/or the
24
<PAGE>
limited partnership interest taking its place with the exception of the
restrictions on the transfer set forth in the Articles of Association and in
the Limited Partner Agreement, respectively, and that such share is not
encumbered by any rights of third parties. Section 8 and Section 11 para 2 of
this Agreement apply mutatis mutandis.
Section 18 Guarantees of Safety Components International, Inc. and Obligation
to provide a Bank Guaranty
(1) Safety Components International, Inc. guarantees vis-a-vis Seller that
Buyer shall comply with an obligation to pay the Additional Purchase Price
(Section 15 of this Agreement).
(2) Safety Components International, Inc. shall be obligated vis-a-vis Seller
to provide a bank guaranty payable at first demand in the amount of DEM
6,000,000.-- on or before August 30, 1997, if the turnover to be determined
pursuant to Section 16 of this Agreement for the entire business year 1996 and
the period January 1 until June 30, 1997 amounts to at least DEM
87,875,000.--. If a turnover in such amount is not achieved, Safety Components
International, Inc. shall not be obligated to provide a bank guaranty payable
at first demand in the amount of DEM 6,000,000.--.
(3) The bank guaranty payable at first demand shall contain a provision
pursuant to which the bank guaranty is terminated if the turnover revenues
determined pursuant to Section 16 of this Agreement for the business year 1997
do not amount to at least DEM 54,560,000.--.
(4) Further, the bank guaranty shall contain a provision pursuant to which the
guaranteed amount of DEM 6,000,000.-- will be reduced to DEM 3,000,000.-- with
payment of the second installment of the Additional Purchase Price pursuant to
Section 15 para (2) of this Agreement.
C. General Provisions
Section 19 Effectiveness of Agreement, Effective Date
25
<PAGE>
(1) This Agreement - with the exception of the provisions of Section Section 5
(2) and 21 of this Agreement - shall become legally effective on the first day
of the calendar month (condition precedent) after the conditions set forth
below have been satisfied or the Parties have agreed to another fixed day
("Effective Date"):
(a) The supervisory board (Aufsichtsrat) of Phoenix AG has given its consent
to the conclusion of this Agreement.
(b) The board of directors of Safety Components International, Inc. has given
its consent to the conclusion of this Agreement.
(c) Mr. Meinhard Liebing is no longer managing director of the Company and
Buyer has received written evidence thereof.
(d) Also Vauxhall Motors Ltd., General Motors Espana S.A. and General Motors
Continental have consented in a legally effective way to the transfer of the
agreement between the Company on the one hand and Adam Opel AG, Vauxhall
Motors Ltd., General Motors Espana S.A. and General Motors Continental on the
other hand.
(e) The parties to this Agreement have agreed on the accounting and valuation
principles to be drawn up jointly by BDO Deutsche Warentreuhand AG
Wirtschaftsprufungsgesellschaft AG and Price Waterhouse GmbH
Wirtschaftsprufungsgesellschaft on which the Closing Balance Sheet shall be
based.
(f) The Schedules to Section 16 (2) A and Section 16 (2) B have been exchanged
by Buyer and Seller.
(2) In case this Agreement shall not have become effective on or before July
1, 1996 it shall be considered null and void. In case this Agreement shall not
become effective, no Party may
26
<PAGE>
assert any claims against the respective other Party irrespective of the legal
justification, which directly or indirectly relates to the fact that this
Agreement has not become effective.
Section 20 Limitation of Liabilities
Buyer may not assert against Seller, as far as not expressly provided
otherwise in this Agreement, any claims, irrespective of whether they arise
out of the breach of contractual, precontractual or statutory obligations
provided, however, Seller, its representatives or agents have not acted
intentionally or grossly negligent.
Section 21 Confidentiality, Press Statements, Information Rights
(1) The Parties agree to keep the contents of this Agreement, in particular
the amount of the purchase price, strictly confidential and shall not give
third parties access to such information. This shall not apply, however, as
far as the Parties are obligated based on statutory laws and regulations to
disclose the contents of this Agreement.
(2) The Parties shall fully coordinate all public statements concerning the
execution of this Agreement.
(3) Seller shall ensure that following the execution of this Agreement, the
Company shall grant Buyer and its representatives and agents during the usual
business hours unrestricted access to the business premises of the Company,
access to the books and records of the Company as well as access to all
employees of the Company in order to allow Buyer to further assess the legal
technical and economic position of the Company. Seller shall further ensure
that the Company shall inform Buyer on a current basis about all significant
business transactions of the Company.
(4) Seller shall be obligated to keep strictly confidential and not give third
parties access to all information known by it regarding the business
activities of the Company or which it will receive
27
<PAGE>
in the future due to the exercise of the information rights contained in this
Agreement or due to its position as minority shareholder of the Company and/or
future limited partner. This shall not apply as far as Seller is obligated to
disclose due to statutory laws and regulations.
Section 22 Access to Books and Records
(1) Buyer shall ensure that Seller and its affiliates shall be granted on
request within reasonable limits and during ordinary business hours the
opportunity, at the expense of Seller, to have the books and records of the
Company Seller inspected by advisors who are subject to professional secrecy
obligations and, at the expense of Seller, to make the necessary and
appropriate copies of such documents as far as this is necessary to properly
and timely comply with their obligations of applicable tax and other laws and
regulations.
(2) Seller shall ensure that Buyer and its affiliates shall be granted on
request within reasonable limits and during ordinary business hours the
opportunity, at the expense of Buyer, to have the books and records of Seller
inspected with respect to the airbag business unit sold and transferred
pursuant to this Agreement by advisors who are subject to professional secrecy
obligations and to make the necessary and appropriate copies of such documents
at the expense of Buyer.
Section 23 Notarial Fees
The notarial fees arising out of the execution and performance of this
Agreement, shall be borne by Buyer.
Section 24 Severability, Written Form, Jurisdiction, Applicable Laws
(1) In case any provision of this Agreement shall be invalid or cannot be
performed, the validity of all other provisions of this Agreement shall not be
affected thereby. The Parties agree
28
<PAGE>
to cooperate in order to replace the provision which is invalid or cannot be
performed by a provision which is valid and may be performed and which
corresponds to the economic intentions on which the provision which is invalid
or cannot be performed was based.
(2) Amendments or supplements to this Agreement require the written form,
unless there is a statutory requirement for a stricter form. This shall also
apply to the waiver of this written form requirement.
(3) The courts of Frankfurt/Main shall have exclusive jurisdiction.
(4) This Agreement shall be subject to the laws of the Federal Republic of
Germany.
Instructions of Notary
1. The notary has informed the persons appearing that it is a
precondition for the acquisition agreed upon today that Seller is the
rightful owner of the transferred shares. The law does not provide
for a bona fide acquisition of shares.
2. The notary has instructed the persons appearing that pursuant to
legal provisions, Buyer and Seller are jointly liable for due but
unpaid contributions to the transferred shares and contributions in
kind not made in full at the time of the notice of the transfer of
shares to the Company.
3. Further, the notary informed that property transfer tax becomes due if all
shares in the Company are transferred and if the Company owns real estate.
The person appearing to 1. declared that the Company does not own real
estate.
4. The notary informed about the provision ofSection 16 para 1 German Limited
Liability Companies Act.
29
<PAGE>
The above Deed was read aloud to the persons appearing, approved by them and
signed by them and the notary in their owns hands as follows:
[signatures]
30
<PAGE>
Translation
-----------
Recorded
in Frankfurt am Main on June 28, 1996
Before the undersigned Notary Public
Klaus M. Kubel
with business address at Frankfurt am Main
appeared today:
1. Dr. Stefanie Roloff, attorney at law, with business address at
Bockenheimer Landstrasse 51, 60325 Frankfurt am Main,
2. Dr. Heiner Druke, attorney at law, with business address at MesseTurm,
Friedrich-Ebert-Anlage 49,60327 Frankfurt am Main.
The persons appearing are personally known to the notary public.
The person appearing under 1. declared that in the following she is acting in
the name of Phoenix Aktiengesellschaft, Hamburg, pursuant to a written power
of attorney and subpower dated June 27, 1996.
The person appearing under 2. declared that he is acting in the name of AB
9607 Verwaltungs GmbH & Co. KG, Aschaffenburg, and in the name of Safety
Components International, Inc., a U.S.-American corporation incorporated
under the laws of the state of Delaware, pursuant to the powers of attorney
registered in the role of deeds of the Notary Public under Deed No. 89/1996.
<PAGE>
The persons appearing declared:
On June 6, 1996, Phoenix Aktiengesellschaft and AB 9607 Verwaltungs GmbH &
Co. KG executed an Agreement concerning the Sale and Transfer of all the
Shares in Phoenix Airbag GmbH, Hildesheim, from Phoenix Aktiengesellschaft to
AB 9607 Verwaltungs GmbH & Co. KG (Deed No. 89/1996 in connection with Deed
No. 88/1996 of the Notary Public - the "Acquisition Agreement"). Sec. 19 of
the Acquisition Agreement stipulates that the Agreement is deemed not
consummated if it has not become effective by July 1, 1996. The parties have
agreed to change the afore-mentioned date to August 15, 1996.
Now, therefore, the parties request the notarization of the following
AMENDMENT TO THE ACQUISITION AGREEMENT
1. Section 3 of the Acquisition Agreement shall be revised to read as
follows:
"SECTION 3 PURCHASE PRICE, PAYMENT OF PURCHASE PRICE
(1) The purchase price for the share in the Company and the Shareholder Loan
sold and transferred pursuant to Section 2 para 2 of this Agreement amounts
to an aggregate total of DEM 31,000,000.-- (Deutsche Marks Thirty One
Million).
(2) The purchase price shall be paid as follows:
(a) No later than July 5, 1996, an amount of DEM 2.5 Million (Deutsche Marks
Two Million Five Hundred Thousand) shall be paid free of charge to a bank
account designated by the Seller, whereby such payment shall be applied to
the purchase price set out in paragraph 1 and reduce the purchase price
accordingly, if this Agreement becomes effective pursuant to Section 19. The
-2-
<PAGE>
payment will be made by Safety Components International, Inc. via wire
transfer.
(b) A second installment of the purchase price in the amount of DEM 28.5
Million (Deutsche Marks Twenty-Eight Million Five Hundred Thousand) shall be
paid on the Effective Date free of charge to a bank account designated by the
Seller.
(3) In the event that this Agreement shall for any reasons the Buyer or any
of its affiliated companies is responsible for, be considered null and void
pursuant to Section 19 para 3 sentence 1 of this Agreement, the Seller is not
obligated to repay the amount paid pursuant to para 2(a) in the amount of DEM
2.5 Million to the Buyer or to Safety Components International, Inc. The
afore-mentioned amount will then remain with the Seller as compensation for
the non-consummation of the Agreement. In the event that the Agreement does
not become effective due to reasons for which the Seller or neither party to
this Agreement or for which neither of any affiliated company of a party to
this Agreement is responsible, then the afore-mentioned amount is to be
repaid immediately by the Seller to the Buyer."
2. Section 19 of the Acquisition Agreement shall be revised to read as
follows:
"SECTION 19 EFFECTIVENESS OF AGREEMENT, EFFECTIVE DATE
(1) This Agreement - with the exception of the provisions of Section Section
3 para 2(a) and para 3, 5 para 2 and 21 of this Agreement - shall become
legally effective after the conditions set forth below have been satisfied:
(a) The supervisory board (Aufsichtsrat) of Phoenix AG has given its consent
to the conclusion of this Agreement.
-3-
<PAGE>
(b) The board of directors of Safety Components International, Inc. has given
its consent to the conclusion of this Agreement.
(c) Mr. Meinhard Liebing is no longer managing director of the Company and
Buyer has received written evidence thereof.
(d) Also Vauxhall Motors Ltd., General Motors Espana S.A. and General Motors
Continental (now doing business as "Opel Belgium") have consented in a
legally effective way to the transfer of the agreement between the Company on
the one hand and Adam Opel AG, Vauxhall Motors Ltd., General Motors Espana
S.A. and General Motors Continental on the other hand.
(e) The parties to this Agreement have agreed on the accounting and valuation
principles to be drawn up jointly by BDO Deutsche Warentreuhand AG
Wirtschaftsprufungsgesellschaft and Price Waterhous GmbH
Wirtschaftsprufungsgesellschaft on which the Closing Balance Sheet shall be
based.
(f) The Schedules to Section 16(2) A and Section 16(2) B have been exchanged
by Buyer and Seller.
(2) "Effective Date" within the context of this Agreement is either
July 31, 1996, in the event that all of the conditions set forth under
para 1 have been satisfied on or before July 31, 1996, or August 15, 1996,
in the event that all of the conditions set forth under para 1 have not
been satisfied by July 31, 1996, but have rather been satisfied on
or before August 15, 1996.
(3) This Agreement shall be considered null and void in the event the
conditions set forth in para 1 have not been fulfilled by August 15, 1996. In
case this Agreement shall not become effective, no Party may assert any
claims against the respective other Party irrespective of the legal
justification, which
-4-
<PAGE>
directly or indirectly relates to the fact that this Agreement has not become
effective. The provisions under Section 3 para 3 of this Agreement remain
hereby unaffected."
3. Section 1 para 3 sentence 3 of the Acquisition Agreement shall be revised
to read as follows:
"Seller shall ensure that the Shareholder Loan amounts to DEM 3,460,000.--at
the close of business on July 30, 1996 (or, if the Effective Date was not
July 31, 1996, then on August 14, 1996), that until the expiry of the
Effective date no changes as to the amount of the loan will occur and that
proof as to the amount of the loan of DEM 3,460,000.--will be provided to the
Buyer at the close of business on July 30, 1996 (August 14, 1996)."
Fourth, Section 5 para 2 sentence 1 of the Acquisition Agreement shall be
revised to read as follows:
"(2) The Parties hereby instruct the Company to submit on or before October
15, 1996 a balance sheet of the Company as of the Effective Date ("CLOSING
BALANCE SHEET")."
The persons appearing then declared: The Acquisition Agreement shall remain
unchanged except for the afore-stated amendments and supplements.
The above Deed was read aloud to the persons appearing, approved by them and
signed by them and the notary public in their own hands as follows:
(signatures)
-5-
CREDIT AGREEMENT
among
SAFETY COMPONENTS INTERNATIONAL, INC.,
(as Borrower)
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.,
(as Borrower and as Guarantor)
GALION, INC.,
(as Borrower and as Guarantor)
and
VALENTEC SYSTEMS, INC.,
(as Borrower and as Guarantor)
and
CITICORP USA, INC.,
as Lender
Dated as of March 15, 1996
<PAGE>
ARTICLE 1. DEFINITIONS.................................................. 1
1.1. General Definitions.................................. 1
1.2. Accounting Terms and Determinations.................. 13
1.3. Other Definitional Terms............................. 13
ARTICLE 2. CONDITIONS PRECEDENT......................................... 14
2.1. Conditions to Initial Extension of Credit............ 14
2.2. Conditions to Each Extension of Credit............... 18
2.3. Post-Closing Condition............................... 18
ARTICLE 3. FACILITY..................................................... 18
3.1. The Loans............................................ 18
3.2. The Letters of Credit................................ 19
3.3. The Loan Account..................................... 21
3.4. Monthly Statement of Account......................... 21
ARTICLE 4. PREPAYMENTS; PAYMENTS................................ 21
4.1. Repayment............................................ 21
4.2. Method and Place of Payment.......................... 21
4.3. Net Payments......................................... 22
ARTICLE 5. REPRESENTATIONS AND WARRANTIES............................... 22
5.1. Good Standing; Qualified to do Business.............. 22
5.2. Solvency............................................. 22
5.3. Collateral........................................... 23
5.4. Due Authorization and Execution; No Violations....... 23
5.5. No Consent Necessary................................. 23
5.6. Binding Obligations.................................. 24
5.7. Principal Place of Business.......................... 24
5.8. Subsidiaries......................................... 24
5.9. No Judgments, Litigation............................. 24
5.10. No Defaults.......................................... 24
5.11. Compliance with Statutes............................. 24
5.12. No Material Adverse Effect........................... 24
5.13. No Employee Controversies............................ 24
5.14. ERISA................................................ 25
5.15. Environmental, Safety and Health Matters............. 26
5.16. Trademarks, Trade Names, Patents..................... 26
5.17. Material Licenses.................................... 26
5.18. Properties........................................... 27
5.19. Labor Matters........................................ 27
5.20. Not an Investment Company............................ 27
5.21. No Events of Default................................. 27
5.22. No Brokers........................................... 27
5.23. No Taxes............................................. 28
<PAGE>
Page
----
5.24. Financial Statements................................. 28
5.25. Leases of Real Property.............................. 29
5.26. Material Contracts................................... 29
5.27. Investments.......................................... 29
5.28. Patents, Trademarks, Copyrights...................... 29
5.29. Federal Regulation................................... 29
5.30. No Misrepresentations................................ 29
ARTICLE 6. AFFIRMATIVE COVENANTS........................................ 30
6.1. Financial and Collateral Reporting................... 30
6.2. Corporate Existence, etc............................. 31
6.3. Notice to the Lender................................. 32
6.4. Compliance with Laws................................. 32
6.5. Compliance with Environmental, Safety and
Health Regulations................................... 32
6.6. ERISA................................................ 33
6.7. Maintenance of Corporate Books and Records........... 33
6.8. Listing of Common Stock.............................. 34
6.9. Maintenance of Properties............................ 34
6.10. Insurance............................................ 34
6.11. Taxes................................................ 34
6.12. Use of Loan Proceeds................................. 35
6.13. Performance Under Credit Documents .................. 35
6.14. Compliance with Terms of Leaseholds.................. 35
6.15. Performance of Material Contracts.................... 35
6.16. Additional Security.................................. 35
6.17. Further Assurances................................... 36
ARTICLE 7. NEGATIVE COVENANTS........................................... 36
7.1. No Encumbrances...................................... 36
7.2. No Indebtedness...................................... 37
7.3. No Transfer of Assets................................ 37
7.4. No Change in Corporate Structure, etc................ 37
7.5. No Dividends, etc. for Subsidiaries.................. 37
7.6. No Loans or Investments.............................. 38
7.7. No Transactions with Affiliates...................... 38
7.8. [Intentionally Blank]................................ 38
7.9. No Charter Amendments................................ 38
7.10. No Accounting Changes................................ 38
7.11. No Payments of Debt.................................. 39
7.12. No Amendment of Material Contracts................... 39
7.13. No Equity Issuance................................... 39
7.14. ERISA................................................ 39
- ii -
<PAGE>
Page
----
ARTICLE 8. FINANCIAL COVENANTS.......................................... 40
8.1. Tangible Net Worth................................... 40
8.2. Current Ratio........................................ 41
8.3. Interest Coverage Ratio.............................. 42
8.4. Leverage Ratio....................................... 43
8.5. Fixed Charge Coverage Ratio.......................... 44
8.6. Minimum EBITDA....................................... 45
8.7. Consolidated Minimum EBITDA.......................... 45
8.8. Capital Expenditures ................................ 45
8.9. Minimum Cash......................................... 45
ARTICLE 9. INTEREST, FEES AND EXPENSES.................................. 46
9.1. Interest on Loans.................................... 46
9.2. Default Interest..................................... 46
9.3. Closing Fee.......................................... 46
9.4. Facility Fee......................................... 46
9.5. Payment of Expenses.................................. 46
9.6. Gross-up of Interest................................. 46
9.7. Illegality........................................... 47
ARTICLE 10. EVENTS OF DEFAULT........................................... 47
10.1. Events of Default.................................... 47
10.2. Acceleration of the Loans; Termination............... 50
ARTICLE 11. TERMINATION................................................. 50
ARTICLE 12. GUARANTIES...................................................50
12.1. Guarantees........................................... 50
12.2. Obligations Unconditional............................ 51
12.3. Reinstatement........................................ 51
12.4. Subrogation.......................................... 52
12.5. Remedies............................................. 52
12.6. Continuing Guarantee................................. 52
12.7. Guarantee Obligations................................ 52
12.8. Execution, Delivery and Performance of Guaranty.......52
12.9. Representations and Warranties........................53
12.10. Covenants.............................................53
12.11. Collateral Document...................................53
ARTICLE 13. GENERAL PROVISIONS.......................................... 53
13.1. Waiver of Due Diligence, Demand and Protest.......... 53
13.2. Notices.............................................. 53
13.3. Assignments and Participations....................... 54
13.4. Confidentiality: Exchange of Information............ 54
- iii -
<PAGE>
Page
----
13.5. Indemnification...................................... 54
13.6. Integration; Amendments; Binding Effect.............. 55
13.7. Counterparts......................................... 55
13.8. Severability......................................... 55
13.9. Headings Descriptive................................. 55
13.10. Maximum Rate......................................... 56
13.11. Right of Setoff...................................... 56
13.12. Waiver of Rights..................................... 56
13.13. Governing Law........................................ 57
13.14. Venue; Service of Process............................ 57
SCHEDULES
Schedule 1 Existing Debt
Schedule 2 Existing Liens
Schedule 5.5 Consents
Schedule 5.8 Subsidiaries
Schedule 5.14 ERISA
Schedule 5.15 Environmental, Safety and Health Matters
Schedule 5.25 Leases
Schedule 5.26 List of Material Contracts
Schedule 5.27 Investments
Schedule 5.28 Patents, Trademarks, Copyrights
EXHIBITS
Exhibit A-Form of Note
Exhibit B-Form of Borrowing Notice
Exhibit C-Form of Blocked Account Agreement
Exhibit D-Form of Pledge and Security Agreement Exhibit E-Form of
Opinion of Shereff, Friedman, Hoffman & Goodman, LLP Exhibit F-Form
of Opinion of government contract counsel Exhibit G-Form of Opinion
of Ohio counsel Exhibit H-Form of Assignment of Claims Form Exhibit
I-Form of Assignment Agreement
- iv -
<PAGE>
CREDIT AGREEMENT dated as of March 15, 1996 among SAFETY
COMPONENTS INTERNATIONAL, INC., AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL,
INC., GALION, INC. and VALENTEC SYSTEMS, INC. (each in its capacity as a
"Borrower" and collectively, the "Borrowers") and AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC., GALION, INC., and VALENTEC SYSTEMS, INC. (each in its
capacity as a "Guarantor" and collectively the "Guarantors") and CITICORP USA,
INC., a Delaware corporation (the "Lender"), with offices located at 153 East
53rd Street, New York, New York 10022.
WHEREAS, SCI and its Subsidiaries are engaged as an
integrated group in the business of manufacturing automotive airbags and
ordnance components, and furnishing the required supplies, services,
equipment, credit and other facilities for such integrated operation. The
integrated operation requires financing on such basis that credit supplied to
any Borrower may be made available from time to time to the other Borrowers
and/or any Foreign Subsidiary, as required for the continued successful
operation of SCI and the Subsidiaries separately, and the integrated operation
as a whole. In that connection, the Borrowers have requested that the Lender
extend credit to the Borrowers (to be made available to the Foreign
Subsidiaries only as provided in Section 7.6 herein) in an aggregate principal
amount not exceeding $10,000,000 to finance the operations of the Borrowers
and the Foreign Subsidiaries and to refinance certain existing debt, and for
other general corporate purposes; and
WHEREAS, to induce the Lender to extend such credit, the
Borrowers propose to enter into this Credit Agreement with the Lender pursuant
to which the Lender will make loans and issue letters of credit to the
Borrowers, each Guarantor will guarantee the credit so extended to the
Borrowers and certain of the Borrowers will execute and deliver mortgages,
pledges and security agreements providing for security interests and liens to
be granted by such Borrowers on certain of their assets as collateral security
for the obligations of the Borrowers to the Lender hereunder, all as more
particularly described herein or in such Collateral Documents. Each Borrower
(as a Borrower and if applicable as a Guarantor) and Foreign Subsidiary shall
derive benefit, directly or indirectly, from the credit so extended to the
Borrowers, both in its separate capacity and as a member of the integrated
group, since the successful operation of each Borrower and each Foreign
Subsidiary is dependent on the continued successful performance of the
integrated group as a whole.
Accordingly, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS.
1.1. General Definitions. As used herein, the following terms
shall have the following meanings, and shall be equally applicable to both the
singular and plural forms of the terms defined:
<PAGE>
Affiliate of a Person shall mean any entity which
directly or indirectly controls, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control"
shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies of a
business, whether through the ownership of voting securities, by
contract or otherwise.
Assignment Agreement shall mean the Assignment Agreement
dated the date hereof and substantially in the form of Exhibit I
hereto.
Assignment of Claims Form shall mean the Assignment of
Monies Due and To Become Due dated the date hereof and substantially in form
of Exhibit H hereto, together with all related notices and attachments.
Available Amount of any Letter of Credit shall mean, at
any time, the maximum amount available to be drawn under such Letter
of Credit at such time (assuming compliance at such time with all
conditions to drawing).
Base Rate shall mean a fluctuating interest rate per
annum which shall at all times be equal to the higher of (a) the rate
of interest announced publicly by Citibank, N.A. (hereinafter
referred to as the "Bank") in New York, New York, from time to time,
as the Bank's base rate; or (b) the sum (adjusted to the nearest 1/4
of 1.00% or, if there is no nearest 1/4 of 1.00%, to the next higher
1/4 of 1.00%) of (i) 1/2 of 1.00% per annum, plus (ii) the rate per
annum obtained by dividing (A) the latest three-week moving average
of secondary market morning offering rates in the United States for
three-month certificates of deposit of major United States money
market banks, such three-week moving average being determined weekly
on each Monday (or, if any such day is not a Business Day, on the
next succeeding Business Day) for the three-week period ending on the
previous Friday by the Bank on the basis of such rates reported by
certificate of deposit dealers to and published by the Federal
Reserve Bank of New York or, if such publication shall be suspended
or terminated, on the basis of quotations for such rates received by
the Bank from three New York certificate of deposit dealers of
nationally recognized standing selected by the Bank, by (B) a
percentage equal to 100% minus the average of the daily percentages
specified during such three-week period by the Board of Governors of
the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement) for
the Bank in respect of liabilities consisting of or including (among
other liabilities) three-month U.S. dollar nonpersonal time deposits
in the United States, plus (iii) the average during such three-week
period of the annual assessment rates estimated by the Bank for
determining the then current annual assessment payable by the Bank to
the Federal Deposit Insurance Corporation (or any successor) for
insuring U.S. dollar deposits of the Bank in the United States.
Blocked Account Agreement shall mean the Blocked Account
Agreement of even date herewith among the Borrowers, CoreStates, Bank
N.A. and the Lender, substantially in the form of Exhibit C, as the
same may be amended, supplemented or otherwise modified from time to
time with the prior written consent of the Lender.
- 2 -
<PAGE>
Borrower shall mean SCI, SCI Automotive, Galion or SCI
Valentec, and Borrowers shall mean each of SCI, SCI Automotive,
Galion and SCI Valentec, provided. that any reference in this
Agreement to any Borrower (other than SCI) shall where the context so
requires or admits, but without duplication, be a reference to such
Person as a Borrower and as a Guarantor hereunder.
Borrowing Notice shall mean the Borrowing Notice
substantially in the form of Exhibit B.
Business Day shall mean any day other than a Saturday,
Sunday or other day on which banks in New York, New York are
authorized or required by law to be closed.
Capital Expenditures shall mean, for any period, the sum
of all expenditures whether financed or paid in cash during such
period to acquire or construct equipment, fixed assets or real
property or to acquire renewals thereof, improvements thereto or
replacements or substitutions therefor.
Closing Date shall mean the date on which the initial
extension of credit hereunder is made.
Code shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute, and the
regulations promulgated and rulings issued thereunder.
Collateral shall mean, collectively, all "Collateral" as
defined in the Pledge and Security Agreement and all property
mortgaged pursuant to the Mortgage.
Collateral Documents shall mean the Pledge and Security
Agreement, the Mortgage, the Blocked Account Agreement, the Guaranty,
the Assignment Agreement and any other agreements that create or
purport to create a Lien in favor of the Lender.
Commitment shall mean the obligation of the Lender to
make Loans to the Borrowers in an aggregate amount not to exceed at
any time $10,000,000, as the same may be reduced from time to time
pursuant to this Credit Agreement.
Commitment Letter shall mean the commitment letter dated
May 18, 1995, from the Lender to SCI as extended through March 15,
1996.
Compliance Certificate shall have the meaning ascribed
to it in Section 6.1(f).
Congress Debt shall mean the debt due to Congress
Financial Corporation (Western) pursuant to the Accounts Financing
Agreement [Security Agreement] dated July 14, 1994.
Credit Agreement shall mean this credit agreement, as
the same may be amended, supplemented or otherwise modified from time
to time.
- 3 -
<PAGE>
Credit Documents shall mean, collectively, this Credit
Agreement, the Letter of Credit Documents, the Collateral Documents
and all other documents, agreements, certificates, instruments and
opinions executed and delivered in connection herewith or therewith,
as the same may be amended, supplemented or otherwise modified from
time to time.
Current Assets for any Person at any date shall mean
such Person's current assets, as determined as of such date on a
consolidated basis and in accordance with GAAP, including cash, trade
receivables, inventory, pre-paid expenses and marketable securities
and other short-term investments.
Current Liabilities for any Person at any date shall
mean such Person's current liabilities, as determined as of such date
on a consolidated basis and in accordance with GAAP, including bank
borrowings and other liabilities due within one year, trade payables
and accrued expenses.
Debt of any Person shall mean, without duplication: (a)
all obligations of such Person for borrowed money; (b) all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments; (c) all obligations of such Person to pay
the deferred purchase price of property or services, except trade
accounts payable not overdue arising in the ordinary course of
business; (d) all obligations of such Person as lessee or guarantor
under leases of real or personal property that would, in conformity
with GAAP, appear on a balance sheet of such Person as capital
leases; (e) all obligations or liabilities of others secured by a
Lien on any asset owned by such Person, whether or not such
obligations or liabilities are assumed; (f) all obligations of such
Person, contingent or otherwise, in respect of any letters of credit
or bankers' acceptances; (g) all obligations, direct or indirect,
contingent or otherwise, of such Person with respect to obligations
or liabilities of another Person, including without limitation
guaranties and endorsements; and (h) other than trade account
payables of such Person not overdue arising in the ordinary course of
business, all items which, in accordance with GAAP, would be included
in determining total liabilities as shown on the liability side of a
balance sheet as at the date Debt of such Person is to be determined.
As used in this definition, "obligations" includes, but is not
limited to, principal, interest, fees and charges.
EBITDA shall mean, for any Person for any period (all as
determined on a consolidated basis in accordance with GAAP), net
income of such Person in such period plus income taxes, depreciation
and amortization for such Person in such period plus other noncash
charges of such Person in such period plus Interest Expense owing in
respect of Permitted Indebtedness of such Person in such period
(excluding intercompany items among the Borrowers and their
respective Subsidiaries) plus extraordinary or unusual non-cash
expenses of such Person in such period minus extraordinary or unusual
income of such Person in such period.
Environmental Laws shall mean any and all federal,
state, local or foreign statutes, laws, regulations, ordinances,
codes, licenses and permits now or hereafter in effect relating to
hazardous or toxic substances or related material or to other
- 4 -
<PAGE>
environmental matters, including, without limitation, the Clean Air
Act, the Federal Water Pollution Control Act of 1972, the Resource
Conservation and Recovery Act of 1976, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Hazardous Materials Transportation Act and the Toxic Substances
Control Act, in each case as may amended from time to time.
Equity Issuance shall mean (a) any issuance or sale by
any Person after the Closing Date of (i) any capital stock, (ii) any
warrants, options or other rights exercisable in respect of capital
stock or (iii) any other security or instrument representing an
equity interest (or the right to obtain any equity interest) in or of
such Person or (b) the receipt by any Person after the Closing Date
of any capital contribution (whether or not evidenced by any equity
security issued by such Person).
ERISA shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, and any successor statute,
and the regulations promulgated and rulings issued thereunder.
Section references to ERISA are to ERISA as in effect at the date of
this Credit Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor, and
applicable regulations thereunder.
ERISA Affiliate shall mean any entity, whether or not
incorporated, which is under common control or would be considered a
single employer with any of the Obligors within the meaning of
Section 414(b), (c) or (m) of the Code and regulations promulgated
under those sections or within the meaning of section 4001(b) of
ERISA.
Event of Default shall mean any event specified in
Article 10 of this Credit Agreement.
Existing Debt shall mean the Debt listed on Schedule 1.
Expenses shall mean all of the Lender's costs and
expenses incurred at any time and from time to time in connection
with the Credit Documents, whether incurred heretofore or hereafter,
which shall include, without limitation, (a) all reasonable costs and
expenses of the Lender in connection with the preparation, closing,
execution, delivery, administration, modification and amendment of
the Credit Documents, (b) all reasonable due diligence, collateral
evaluation and review, syndication, station, computer, duplication,
travel, appraisal, audit, environmental, consultant, investigation,
search, filing and recording fees and expenses; (c) the reasonable
fees, costs and expenses of legal and other advisers engaged at any
time by the Lender in connection with the negotiation, documentation,
execution, closing, delivery, enforcement or any other aspect of this
Credit Agreement, the other Credit Documents or any of the
transactions contemplated herein or therein; (d) the administration
of the credit facility hereunder; (e) the exercise of any of the
Lender's rights hereunder; (f) the fees charged by the Lender's field
examiners in connection with the Lender's periodic examination of the
Borrowers' or any of their Subsidiaries' facilities, books and
records and Collateral, and preparing environmental reports and
audits; (g) all costs and expenses incurred by the Lender in opening
bank accounts, depositing checks, receiving and transferring funds,
and any
- 5 -
<PAGE>
charges imposed on the Lender due to "insufficient funds" of
deposited checks and the Lender's standard fee relating thereto; (h)
costs, fees and taxes relating to the filing of financing statements;
and (i) all expenses, costs and fees set forth in Article 9 of this
Credit Agreement.
Fixed Charge Coverage Ratio shall mean for any Person
for any period, on a consolidated basis, the ratio of (i) EBITDA for
such Person and its Subsidiaries for such period minus income taxes
that are actually paid in such period minus Non-Financed Capital
Expenditures to (ii) the sum of (A) the scheduled principal payments
during such period in respect of the then outstanding Debt of such
Person and (B) the Interest Expense of such Person for such period.
Foreign Subsidiaries shall mean each of SCI Czech, SCI
Mexico and SCI UK.
GAAP shall mean in respect of SCI and its consolidated
Subsidiaries and in respect of any U.S. Subsidiary, unless otherwise
specifically stated herein, generally accepted accounting principles
in the United States of America, as in effect from time to time and
consistently applied ; and in respect of any non U.S. Subsidiary,
shall mean generally accepted accounting principles in the country
where such non U.S. Subsidiary is located, as in effect from time to
time and consistently applied.
Galion shall mean Galion, Inc., a Delaware corporation,
a Borrower and a Guarantor hereunder.
Guarantor shall mean SCI Automotive, Galion or SCI
Valentec, and Guarantors shall mean each of SCI Automotive, Galion
and SCI Valentec, provided that no reference in this Agreement to any
Guarantor shall be deemed a reference to such Person as a Borrower
hereunder.
Guaranty shall mean the Guaranty contained in Article 12
herein.
Hazardous Materials shall mean (a) petroleum or
petroleum products, radioactive materials, asbestos containing
materials and radon gas and (b) any other chemicals, materials or
substances designated, classified or regulated as being "hazardous"
or "toxic" or words of similar import under any Environmental Law.
Interest Coverage Ratio shall mean for any Person for
any period, on a consolidated basis, the ratio of (i) EBITDA of such
Person for such period minus Non- Financed Capital Expenditures of
such Person in such period to (ii) the Interest Expense of such
Person for such period.
Interest Expense shall mean for any Person for any
period, total interest obligations (paid or accrued) of such Person
in respect of its indebtedness, determined on a consolidated basis
and in accordance with GAAP.
Investment in any Person shall mean any loan or advance
to such Person, any purchase or other acquisition of any capital
stock or other ownership or profit interest,
- 6 -
<PAGE>
warrants, rights, options, obligations or other securities of such
Person, any capital contribution to such Person or any other
investment in such Person, including, without limitation, any
arrangement pursuant to which the investor incurs Debt of the types
referred to in clause (g) of the definition of "Debt" in respect of
such Person.
Landlord Waivers shall mean each waiver executed by the
relevant landlord in respect of each Leased Property, in favor of the
Lender and in form and substance satisfactory to the Bank.
Leased Properties shall mean each of the properties at
(i) Otay Mesa, San Diego, California; (ii) Scottsdale, Arizona; (iii)
Costa Mesa, California; and (iv) Mount Arlington, New Jersey.
Letters of Credit shall have the meaning ascribed to it
in Section 3.2.
Letter of Credit Documents shall mean, with respect to
any Letter of Credit, collectively, any application therefor and any
other agreements, instruments, guarantees or other documents (whether
general in application or applicable only to such Letter of Credit)
governing or providing for (a) the rights and obligations of the
parties concerned or at risk with respect to such Letter of Credit or
(b) any collateral security for any of such obligations, each as the
same may be modified and supplemented and in effect from time to
time.
Letter of Credit Liability shall mean, without
duplication, at any time and in respect of any Letter of Credit, the
sum of (a) the Available Amount of such Letter of Credit plus (b) the
aggregate unpaid principal amount of all Reimbursement Obligations of
the Borrowers at such time due and payable in respect of all drawings
made under such Letter of Credit.
Leverage Ratio shall mean for any Person at any time, on
a consolidated basis, the ratio of (i) Total Liabilities to (ii)
Tangible Net Worth, determined in accordance with GAAP.
Lien shall mean any lien, security interest, pledge or
other charge or encumbrance of any kind, or any other type of
preferential arrangement, including, without limitation, the lien or
retained security title of a conditional vendor and any easement,
right of way or other encumbrance on title to real property.
Loan Account shall have the meaning specified in
Section 3.3.
Loans shall have the meaning ascribed to it in
Section 3.1.
Major Agreement shall mean an agreement or agreements in
respect of the supply by the Borrowers and/or its Foreign
Subsidiaries of airbags having a total aggregate unit volume of
2,000,000 units.
- 7 -
<PAGE>
Material Adverse Change shall mean any material adverse
change in the business, operations, results of operations, assets,
liabilities or condition (in each case, financial or otherwise) of
the Borrowers and its Foreign Subsidiaries taken as a whole.
Material Adverse Effect shall mean any material adverse
effect on (a) the business, operations, results of operations,
assets, liabilities or condition (in each case, financial or
otherwise) of the Borrowers and its Foreign Subsidiaries taken as a
whole, (b) the ability of the Borrowers taken as a whole to perform
their obligations under the Credit Agreement or the other Credit
Documents or (c) the rights and remedies of the Lender hereunder or
under any of the Credit Documents.
Material Contract shall mean each contract (other than
any employee benefit plan) to which any Borrower or Foreign
Subsidiary is a party, the absence of which could reasonably be
expected to cause a Material Adverse Effect as of the date the
determination is made.
Maturity Date shall mean March 15, 1999, unless extended
pursuant to the terms of Section 13.6.
Mortgage shall mean the Open-End Mortgage, Assignment of
Rents and Leases and Security Agreement of even date herewith
delivered by Galion to the Lender, in form and substance satisfactory
to the Lender.
Multiemployer Plan shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA with respect to which any
Obligor or any of their respective ERISA Affiliates is or has been
required to contribute.
Non-Financed Capital Expenditures shall mean Capital
Expenditures other than (a) purchases of machinery and equipment used
in the ordinary course of the Borrowers and its Foreign Subsidiaries
business financed with purchase money security interest, lease
financing or with the net proceeds of the Secondary Stock Offering,
and (b) the costs incurred in building and equipping the
manufacturing premises in the Czech Republic (the "Czech Plant"), in
an amount not to exceed in the aggregate $7,000,000 and only if, at
the time of commencing the construction of such Czech Plant, (i) the
then available cash reserves of SCI and its consolidated Subsidiaries
are sufficient to finance in full such construction, and (ii) no
Event of Default shall exist or be continuing.
Note shall mean the promissory note of even date
herewith, substantially in the form of Exhibit A, duly executed and
delivered by the Borrowers, as the same may be amended, supplemented
or otherwise modified from time to time with the prior written
consent of the Lender.
Obligations shall mean the Loans, the Reimbursement
Obligations and all other obligations of any Borrower to the Lender
under this Credit Agreement or any other Credit Document, any other
loans, advances or extensions of credit made or to be made by the
Lender to or for the benefit of any Borrower, or to others for any
Borrower's account, and any and all indebtedness, liabilities and
obligations which may
- 8 -
<PAGE>
at any time be owing by the Borrowers to the Lender howsoever
arising, whether now in existence or incurred by the Borrowers from
time to time hereafter, whether secured by pledge of or Lien upon any
of the Borrower's assets or property or the assets or property of any
other Person, whether such indebtedness is absolute or contingent,
matured or unmatured, direct or indirect and whether the Borrowers
are liable to the Lender for such indebtedness as principal, surety,
endorser, guarantor or otherwise, all of which Obligations shall be
the joint and several obligations of the Borrowers.
Off-Site Location shall mean any warehouse or other
facility or property wheresoever located in the U.S., that is not
directly owned by any Borrower, is not a Leased Property and does not
form part of the Collateral securing the Obligations, in which is
held for any purpose any of the Collateral.
PBGC shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor
thereto.
Pension Plan shall mean any pension plan as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) which is or
has been maintained by or to which contributions are or have been
made by any Obligor or any of their respective ERISA Affiliates.
Permitted Cash Investments shall mean (a) securities
issued or fully guaranteed or insured by the United States Government
or any agency thereof and backed by the full faith and credit of the
United States maturing not more than one year from the date of
acquisition; (b) certificates of deposit, time deposits, Eurodollar
time deposits, bankers' acceptances or deposit accounts having in
each case a remaining term to maturity of not more than one year,
which are either (i) fully insured by the Federal Deposit Insurance
Corporation or (ii) issued by Lender or by any commercial bank under
the laws of any State or any national banking association that has
combined capital and surplus of not less than $800,000,000 and whose
short-term securities are rated at least A-1 by S&P or P-1 by
Moody's; (c) commercial paper that is rated at least A-1 by S&P or
P-1 by Moody's, issued by a company that is incorporated under the
laws of the United States or of any State and directly issues its own
commercial paper, and has a remaining term to maturity of not more
than one year; (d) a repurchase agreement with (i) any commercial
bank that is organized under the laws of any State or any national
banking association and that has total assets of at least
$1,000,000,000 or (ii) any investment bank that is organized under
the laws of any State and that has total assets of at least
$1,000,000,000, if such agreement is secured by any one or more of
the securities and obligations described in clauses (a), (b) or (c)
of this definition having a market value (exclusive of accrued
interest and valued at least monthly) at least equal to the principal
amount of such investment; and (e) any money market or other
investment fund the investments of which are limited to investments
described in clauses (a), (b), (c) and (d) of this definition and
which is managed by (i) a commercial bank that is organized under the
laws of any State or any national banking association and that has
total assets of at least $1,000,000,000, or (ii) an investment bank
that is organized under the laws of any State and that has total
assets of at least $1,000,000,000.
- 9 -
<PAGE>
Permitted Encumbrances shall mean: (a) liens expressly
permitted by the Lender; (b) liens of warehousemen, mechanics, common
carriers and landlords arising by operation of law and incurred in
the ordinary course of business, for amounts that are not yet due and
payable or which are being diligently contested in good faith by a
Borrower or a Foreign Subsidiary by appropriate proceedings promptly
instituted, provided that in any such case an adequate reserve is
being maintained on the books of such Borrower or Foreign Subsidiary
in accordance with GAAP; (c) liens of judgment creditors not
otherwise constituting an Event of Default under Section 10.1; (d)
liens for taxes not yet due and payable or which are being diligently
contested in good faith by a Borrower or a Foreign Subsidiary by
appropriate proceedings promptly instituted, provided that in any
such case an adequate reserve is being maintained on the books of
such Borrower or Foreign Subsidiary in accordance with GAAP; (e)
pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation; (f) deposits to
secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business; (g) liens existing on the date hereof and disclosed on
Schedule 2 hereto; (h) purchase money mortgages or security interests
securing Debt representing the purchase price of assets acquired
after the date hereof solely for the purpose of financing the
acquisition of such assets, provided that each such Lien shall apply
and attach only to the assets so purchased and that all Debt secured
by Liens created pursuant to this clause (h) shall not exceed
$3,200,000 in the aggregate through the first anniversary of this
Credit Agreement, $5,600,000 in the aggregate through the second
anniversary of this Credit Agreement and $7,200,000 in the aggregate
through the Maturity Date, in each case plus the costs set forth in
Clause (b) of the definition of "Non-Financed Capital Expenditures";
and (i) liens on Refinancing Existing Debt, but only to the extent
that such liens were Permitted Encumbrances securing the Debt that
was refinanced thereby.
Permitted Indebtedness shall mean: (a) current trade
liabilities incurred in the ordinary course of the Borrowers and the
Foreign Subsidiaries business from time to time and payable in
accordance with customary practices; (b) indebtedness arising under
this Credit Agreement; (c) indebtedness secured by Liens of the type
described in clause (h) of the definition of "Permitted
Encumbrances"; (d) Debt of any Borrower which is owing to any other
Borrower or to any Foreign Subsidiary; (e) Debt of any Foreign
Subsidiary which is owing to SCI or SCI Automotive that was incurred
in the ordinary course of business, provided that all such Debt shall
be unsecured and evidenced by the consolidating financial statements
of SCI and its Subsidiaries; (f) Existing Debt that, as indicated on
Schedule 1, will not be repaid pursuant to Section 2.1(i); (g)
Refinancing Existing Debt including as permitted under clause (c)
above; and (h) indebtedness arising from the construction and
equipping of the Czech Plant in an amount not to exceed $5,600,000.
Person shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or government
(including any division, agency or department thereof), and the
successors, heirs and assigns of each.
- 10 -
<PAGE>
Pledge and Security Agreement shall mean the Pledge and
Security Agreement of even date herewith, substantially in the form
of Exhibit D, duly executed by each Borrower, as the same may be
amended, supplemented or otherwise modified from time to time with
the prior written consent of the Lender.
Refinancing Existing Debt shall mean any Debt of the
Borrowers and the Foreign Subsidiaries, all of the cash proceeds of
which are used to refinance Debt, so long as the Debt being
refinanced is Permitted Indebtedness.
Reimbursement Obligations shall mean, at any time, the
obligations of the Borrowers then outstanding, or which may
thereafter arise, in respect of all Letters of Credit then
outstanding, to reimburse amounts paid by the Lender in respect of
any drawings under a Letter of Credit.
SCI shall mean Safety Components International, Inc., a
Delaware corporation and a Borrower hereunder.
SCI Automotive shall mean Automotive Safety Components
International, Inc., a Delaware corporation, a Borrower and a
Guarantor hereunder.
SCI Czech shall mean Automotive Safety Components
International s.r.o., a limited liability company organized under the
laws of the Czech Republic and a Foreign Subsidiary hereunder.
SCI Mexico shall mean Automotive Safety Components
International, S.A. de C.V., a corporation organized under the laws
of Mexico and a Foreign Subsidiary hereunder.
SCI UK shall mean Automotive Safety Components
International, Limited, an English company and a Foreign Subsidiary
hereunder.
SCI Valentec shall mean Valentec Systems, Inc., a
Delaware corporation, a Borrower and a Guarantor hereunder.
Secondary Stock Offering shall mean the Secondary Stock
Offering of 1,725,000 shares that was effected pursuant to a
prospectus dated June 15, 1995.
Solvent and Solvency shall mean, with respect to any
Person on a particular date, that on such date (a) the fair value of
the property of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities,
of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become
absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature and (d)
such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
property would constitute an unreasonably small capital. The amount
of
- 11 -
<PAGE>
contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at
such time, represents the maximum amount that can reasonably be
expected to become an actual or matured liability.
Subsidiary of any Person shall mean any corporation or
other entity, of which more than 50% of the total voting power of
shares of stock or other securities or other ownership interests
entitled to vote in the election of the board of directors of such
corporation, or other Persons performing similar functions for such
entity, is at the time owned, directly or indirectly, by such Person,
or by one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries. Any reference herein to Subsidiary shall be
deemed to include each Foreign Subsidiary unless specifically
excluded.
Tangible Net Worth shall mean for any Person for any
period, all amounts that would be included under stockholders' equity
on a consolidated balance sheet of such Person and its Subsidiaries
determined in accordance with GAAP for such period, but excluding all
intangible assets as determined on a consolidated basis in accordance
with GAAP.
Termination Event shall mean (i) a "reportable event"
described in Section 4043 of ERISA (excluding events for which the
requirement for notice of such reportable event has been waived by
the PBGC) with respect to a Pension Plan, or (ii) the withdrawal of
any Obligor or any of their respective ERISA Affiliates from a
Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the
filing of a notice of intent to terminate a Pension Plan or the
treatment of a Pension Plan amendment as a termination under Section
4041 of ERISA, or (iv) the institution of proceedings by the PBGC to
terminate a Pension Plan or to appoint a trustee to administer a
Pension Plan, or (v) any other event or condition which might
constitute reasonable grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
Pension Plan, or (vi) the complete or partial withdrawal (within the
meaning of Sections 4203 and 4205, respectively, of ERISA) of any
Borrower or Foreign Subsidiary or any of their respective ERISA
Affiliates from a Multiemployer Plan, or (vii) the insolvency or
reorganization (within the meaning of Sections 4245 and 4241,
respectively, of ERISA) or termination of any Multiemployer Plan, or
(viii) the failure to make any payment or contribution to any Pension
Plan or Multiemployer Plan or the making of any amendment to any
Pension Plan which could result in the imposition of a lien or the
posting of a bond or other security.
Total Liabilities shall mean, as of any date of
determination, all liabilities of the Borrowers and its Subsidiaries
on a consolidated basis as of the date of determination as set forth
in the consolidated balance sheet of SCI on such date.
Transfer Price or Transfer Pricing shall mean the actual
price charged by any Borrower to any Foreign Subsidiary or by any
Foreign Subsidiary to any Borrower for transactions between such
Persons, such price to reflect at all times the actual costs
incurred, plus any additional amounts as required by applicable law,
and be calculated
- 12 -
<PAGE>
and documented in the financial statements of any such Person in
accordance with GAAP as applicable.
Valentec shall mean Valentec International Corporation,
a Delaware corporation.
1.2. Accounting Terms and Determinations. Unless otherwise defined or
specified herein, all accounting terms used herein, including without
limitation the terms "capital expenditures", "indebtedness", "net income",
"net worth" and "working capital", shall be construed herein and all
accounting determinations for purposes of determining compliance with Article
8 hereof and otherwise to be made under this Credit Agreement shall be made in
accordance with GAAP applied on a basis consistent in all material respects
with the financial statements delivered to the Lender on the Closing Date. All
financial statements required to be delivered hereunder from and after the
Closing Date and all financial records shall be maintained in accordance with
GAAP as in effect as of the date of the financial statements delivered to the
Lender on the Closing Date. If GAAP shall change from the basis used in
preparing the financial statements delivered to the Lender on the Closing
Date, the certificates required to be delivered pursuant to Section 6.1(f)
demonstrating compliance with the covenants contained herein shall include
calculations setting forth the adjustments necessary to demonstrate how the
Borrowers and as applicable the Foreign Subsidiaries are in compliance with
the financial covenants set forth in Article 8 hereof, based upon GAAP as in
effect on the Closing Date. If any Borrower and/or any Subsidiary shall change
its method of inventory accounting from the first-in-first-out method to the
last-in-first-out method, all calculations necessary to determine compliance
with the financial covenants contained herein shall be made as if such method
of inventory accounting had not been so changed.
1.3. Other Definitional Terms. Terms not otherwise defined herein
which are defined in the Uniform Commercial Code as in effect in the State of
New York (the "UCC") shall have the meanings given them in the UCC. The words
"hereof," "herein" and "hereunder" and words of similar import when used in
this Credit Agreement shall refer to this Credit Agreement as a whole and not
to any particular provision of this Credit Agreement, and references to
Article, Section, Annex, Schedule, Exhibit and like references are references
to this Credit Agreement unless otherwise specified.
ARTICLE 2. CONDITIONS PRECEDENT.
2.1. Conditions to Initial Extension of Credit. The obligation of
the Lender to make the initial extension of credit hereunder (whether by
making a Loan or issuing a Letter of Credit) is subject to the satisfaction
of, or waiver of, immediately prior to or concurrently with the making of such
extension of credit, the following conditions precedent. Any document or other
Agreement delivered hereunder shall be in form and substance satisfactory to
the Lender and/or its counsel:
(i) Searches. The Lender shall have received the
results of Uniform Commercial Code, tax, judgment and lien searches, in each
case reasonably satisfactory to it, for all jurisdictions in which any
Borrower or any U.S. Subsidiary of any Borrower occupies or uses any property
or other assets.
- 13 -
<PAGE>
(ii) Filings. The Lender shall have received all
documents (including, without limitation, financing statements) required to be
filed to create, in favor of the Lender, a valid, perfected and first priority
security interest in the Collateral.
(iii) Consents and Approvals. No consent or
authorization of, filing with (other than the filing of financing statements
under the Uniform Commercial Code of the relevant jurisdictions) or other act
by or in respect of, any Person (including, without limitation, any
governmental authority), as of the Closing Date, shall be required in
connection with the borrowings hereunder, the grant of security interests in
connection herewith, or the execution, delivery, performance, validity or
enforceability of this Credit Agreement and the other Credit Documents, other
than those already received by the Closing Date.
(iv) Compliance. Each Borrower and each Foreign
Subsidiary is in compliance with all federal, state, local and foreign laws,
rules, regulations, orders, writs, judgments, injunctions, decrees,
determinations or awards with respect to their operations and properties,
other than if non-compliance could not reasonably be expected to have, in the
aggregate, a Material Adverse Effect.
(v) Due Diligence. The Lender shall have completed
to its satisfaction, in scope and in results, a due diligence inspection,
testing and review of each Borrower and each Foreign Subsidiary and their
respective Subsidiaries' assets and liabilities and a field examination of
each Borrower and each Foreign Subsidiary and their respective Subsidiaries'
facilities, which inspection, testing, review and field examinations shall not
have caused the Lender to conclude, in its judgment, that there has been a
Material Adverse Effect since December 31, 1995.
(vi) No Material Adverse Effect. Since
December 31, 1995, no change, occurrence, event or development shall have
occurred which is likely to have, or has had, in the aggregate, a Material
Adverse Effect.
(vii) No Litigation. No action, suit, investigation,
litigation or proceeding shall be pending or threatened before any court,
governmental agency or arbitrator that (i) could be expected to have, in the
aggregate, a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Credit Agreement, any other Credit Document
or the consummation of the actions contemplated hereby or thereby.
(viii) Payment of Fees. The Borrowers shall have
paid the Lender all of the Lender's Expenses, including, without limitation,
all fees and expenses required to be paid pursuant to the Commitment Letter.
(ix) Existing Debt. Except as indicated on Schedule
1, all of the Existing Debt shall be indefeasibly repaid in full (and all
commitments with respect thereto shall be terminated) and all Liens in
connection therewith shall be terminated (and all appropriate releases,
termination statements or other instruments of assignment with respect thereto
shall be obtained), in each case simultaneously with the initial extension of
credit hereunder and to the satisfaction of the Lender.
- 14 -
<PAGE>
(x) Terms and Conditions of Transaction. The
Lender shall be satisfied with the final terms and conditions of the
transactions contemplated by this Credit Agreement, and the Collateral
Documents, including, without limitation, all legal and tax aspects thereof,
and all corporate and legal proceedings and all instruments, agreements and
other documentation relating to such transactions shall be in form and
substance satisfactory to the Lender, which satisfaction shall be conclusively
evidenced by the execution by the Lender of this Credit Agreement.
The Lender shall have received each of the following on
or before the Closing Date:
(xi) This Credit Agreement.
(xii) The Note.
(xiii) The Mortgage.
(xiv) The Pledge and Security Agreement together with:
(a) certificates representing the Pledged
Shares referred to therein accompanied by undated stock
powers executed in blank;
(b) copies of proper financing statements, for
filing under the Uniform Commercial Code of all
jurisdictions that the Lender may deem necessary or
desirable in order to perfect and protect the Liens
created by the Pledge and Security Agreement, covering
the Collateral described in the Pledge and Security
Agreement;
(c) completed requests for information, dated
on or before the Closing Date, listing all other
effective financing statements filed in the
jurisdictions referred to in clause (B) above that name
the relevant Borrower as debtor, together with copies of
such other financing statements;
(d) evidence of the completion of all other
recordings and filings of or with respect to the Pledge
and Security Agreement that the Lender may reasonably
deem necessary or desirable in order to perfect and
protect the Liens created thereby;
(e) evidence of the insurance required by the
terms of the Pledge and Security Agreement;
(f) evidence that all other actions that the
Lender may deem necessary or desirable in order to
perfect and protect the Liens created by the Pledge and
Security Agreement have been taken;
(g) UCC 3 Termination Statements releasing
the security interest in the Congress Debt;
- 15 -
<PAGE>
(xv) The Assignment Agreement duly executed by
each of SCI and the Lender (and as soon as possible thereafter such Assignment
Agreement shall be acknowledged by SCI Czech) accompanied by an undated
executed Transfer Certificate;
(xvi) The Blocked Account Agreement, together with
all documents or instruments related to or arising in connection with such
agreement;
(xvii) The other Credit Documents if any, each in
form and substance acceptable to the Lender and its counsel, including,
without limitation, the Letter of Credit Documents;
(xviii) Such financial, business and other information
regarding each Borrower and its respective Subsidiaries as the Lender shall
have reasonably requested, including, without limitation, information as to
possible contingent liabilities, tax matters, environmental matters,
obligations under ERISA and employee benefit plans (as described in Section
5.14 herein), collective bargaining agreements and other arrangements with
employees, audited consolidated and unaudited consolidating financial
statements dated at March 31, 1995 and for the year then ended certified, in
the case of such consolidated financial statements, by Price Waterhouse,
including a balance sheet and statements of income, stockholders' equity and
cash flow, unaudited consolidated and consolidating financial statements dated
at December 31, 1995, and for the nine months then ended, including a balance
sheet and statements of income, stockholders' equity and cash flow, and
projected consolidated and consolidating financial statements, in form and
substance satisfactory to the Lender, including balance sheets and statements
of income and cash flow, in each case on a quarterly basis for the first year
following the Closing Date and on an annual basis for each year thereafter;
(xix) An environmental assessment report conducted
in accordance with current ASTM standards from an environmental engineer or
consultant satisfactory to the Lender as to any hazards, costs or liabilities
under Environmental Laws to which any Borrower or any Subsidiary of any
Borrower may be subject in respect of or in connection with any property owned
by any one of them, the amount and nature thereof and such Borrower's and such
Subsidiaries' plans with respect thereto, which shall be acceptable to the
Lender;
(xx) Evidence of insurance in form and substance
satisfactory to the Lender naming the Lender as additional insured and loss
payee with such responsible and reputable insurance companies or associations,
and in such amounts and covering such risks, as is reasonably satisfactory to
the Lender;
(xxi) (a) The Lender shall have received each
Material Contract of each Borrower, each Foreign Subsidiary and of each
Subsidiary of such Persons as filed with the Securities and Exchange
Commission; and
(b) An Assignment of Claims form in respect of
contract number DAAA09-94-C-0532 between the U.S. Army and SCI Valentec.
- 16 -
<PAGE>
(xxii) Favorable legal opinions of (a) Shereff,
Friedman, Hoffman & Goodman, LLP, (b) government contract counsel, and (c)
Ohio counsel, each of even date herewith, substantially in the form of
Exhibits E, F and G, respectively;
(xxiii) A copy of the charter documents of each
Borrower and Foreign Subsidiary a copy of the resolutions of the Board of
Directors of each Borrower authorizing the execution, delivery and performance
of this Credit Agreement and the other Credit Documents to which such Borrower
is a party and the transactions contemplated hereby and thereby, and a copy of
all documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to the Credit Documents or the transactions
contemplated thereby, and attached to each of the foregoing copies shall be a
certificate of such Borrower's and the parent of such Foreign Subsidiary's
Secretary or Assistant Secretary certifying that such copies of the charter
documents, resolutions and other documents are true, complete and accurate
copies thereof and that the same have not been modified or repealed and are in
full force and effect;
(xxiv) A certificate of the chief executive officer
or chief financial officer of each Borrower, of even date herewith, stating
that the conditions referred to in this Section 2.1 have been fully satisfied;
(xxv) A certificate of each Borrower's Secretary
or Assistant Secretary certifying as to the incumbency, names and true
signatures of the officers of each Borrower (and without duplication each
Guarantor) authorized to sign the Credit Documents to which it is a party and
the documents to be delivered thereunder;
(xxvi) (a) A certificate of the Secretary of
State of the State of incorporation of each Borrower
located within the U.S., dated within 5 days of the
Closing Date, listing the charter documents of such
Borrower and each amendment thereto on file in his
office and certifying that (A) such charter documents
are true and correct copies of such Borrower's charter
documents, (B) such amendments are the only amendments
to such Borrower's charter documents, (C) such Borrower
has paid all franchise taxes to the date of such
certificate and (D) such Borrower is duly incorporated
and in good standing under the laws of the jurisdiction
of its incorporation;
(b) A certificate of the Secretary of State of
each of the States of California, Ohio, New Jersey and
each of the other States in which any Borrower does
business dated reasonably near the Closing Date stating
that each Borrower doing business in any such State is
duly qualified and in good standing as a foreign
corporation in such State and has filed all annual
reports required to be filed to the date of such
certificate; and
(xxvii) Such other documents, instruments, opinions
and materials as the Lender may reasonably request.
2.2. Conditions to Each Extension of Credit. The obligation of the
Lender to make any extension of credit hereunder, including the initial
extension of credit, is subject to the satisfaction of, or waiver of,
immediately prior to or concurrently with the making of any such extension of
credit, the following conditions precedent:
- 17 -
<PAGE>
(i) The representations and warranties contained
in this Credit Agreement and in each other Credit Document shall be true and
correct in all material respects on and as of the date of such Loan, as though
made on and as of such date, before and after giving effect to such Loan and
to the application of the proceeds therefrom, except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date);
(ii) No event has occurred and is continuing, or
would result from the making of such Loan or from the application of the
proceeds therefrom, that constitutes an Event of Default or that, with the
giving of notice or the passage of time, or both, would constitute an Event of
Default;
(iii) No Material Adverse Change shall have occurred
and be continuing;
(iv) The Lender shall have received such other
approvals, opinions or documents as it may reasonably request; and
(v) The Lender shall have received a certificate
of the chief executive officer or the chief financial officer of SCI dated
within five days of the date of such Loan, stating on behalf of each Borrower
that the conditions referred to in this Section 2.2 have been fully satisfied.
2.3. Post-Closing Conditions. The lender shall receive:
(i) the Landlord Waivers within 60 days of the
Closing Date provided, that the Borrower shall only be obligated to acquire
the Landlord Waiver in respect of the Mount Arlington, New Jersey property on
a best efforts basis and the failure to acquire such Landlord Waiver shall not
be an Event of Default hereunder;
(ii) a certificate of the Secretary of the States
of Tennessee and New Jersey within 60 days of the Closing Date, in respect of
SCI Valentec stating that such Borrower is duly qualified and in good standing
as a foreign corporation in each such State and has filed all annual reports
required to be filed on the date of such certificate; and
(iii) in the event that the Pledged Shares in respect
of SCI Mexico delivered on the Closing Date bear a previous name of SCI
Mexico, within 10 days of the Closing Date stock certificates together with
undated stock powers in respect of such Pledged Shares in SCI Mexico.
ARTICLE 3. FACILITY.
3.1. The Loans.
(a) Subject to the terms and conditions hereof,
the Lender agrees to make revolving loans (each, a "Loan" and collectively,
the "Loans") to the Borrowers from time to time during the period from the
Closing Date to the Maturity Date in an aggregate amount not
- 18 -
<PAGE>
to exceed the Commitment. Each Loan shall be in an aggregate amount of
$250,000 or an integral multiple of $100,000 in excess thereof. Subject to the
terms and conditions hereof, the Borrowers may reborrow under this Section
3.1(a), so long as the amount of all Loans outstanding at any one time does
not exceed the Commitment. The Borrowers' joint and several obligation to pay
the principal of, and interest on, the Loans shall be evidenced by the Note,
which shall (i) bear interest as provided in Article 9, (ii) be entitled to
the benefits of this Credit Agreement and the other Credit Documents and (iii)
be secured by the Collateral Documents. The Commitment shall expire and be of
no further force and effect on the Maturity Date, after which date none of the
Borrowers shall be entitled to any Loan.
(b) Each Loan shall be made on notice, given not
later than 11:00 a.m. (New York City time) one Business Day prior to the date
of the proposed Loan, by a Borrower to the Lender and the other Borrowers.
Each such notice of a Loan (a "Borrowing Notice") shall be by telecopier,
telex or cable, confirmed immediately in writing, in substantially the form of
Exhibit B hereto, specifying therein the requested date and the requested
aggregate amount of such Loan. Each Borrowing Notice shall be irrevocable and,
subject to the terms and conditions hereof, binding on the Borrowers and the
Lender. Upon fulfillment of the applicable conditions set forth in Article 2,
and subject to the terms and conditions hereof, the Lender will make available
at the Loan Account the aggregate amount of the Loan requested in such
Borrowing Notice.
(c) The Lender will note on its internal records
or on a schedule attached to the Note or a continuation thereof the amount of
each Loan made by it and each payment in respect thereof and will prior to any
transfer of the Note endorse on the schedule attached to the Note or any
continuation thereof the outstanding principal amount of Loans evidenced
thereby; provided, however, that the failure of the Lender to make any such
notation or endorsement shall not affect in any way any of the joint and
several obligations of the Borrowers to repay the Loans in accordance with the
terms of this Credit Agreement.
3.2. The Letters of Credit. Subject to the terms and
conditions of this Credit Agreement, the Commitment may be utilized, upon the
request of any Borrower, in addition to the Loans provided for by Section 3.1,
by the issuance by the Lender of letters of credit (collectively, "Letters of
Credit") for the account of such Borrower, provided that in no event shall (i)
the aggregate amount of all Letter of Credit Liabilities, together with the
aggregate principal amount of the Loans, exceed the aggregate amount of the
Commitment as in effect from time to time, (ii) the aggregate amount of all
Letter of Credit Liabilities exceed $2,000,000 and (iii) the expiration date
of any Letter of Credit extend beyond the earlier of the Maturity Date and the
date 364 days following the issuance of such Letter of Credit. The following
additional provisions shall apply to Letters of Credit:
(a) The Borrower for whose account a Letter of Credit
shall be issued shall give the Lender at least five Business Days'
irrevocable prior notice specifying the Business Day (which shall be
no later than 5 days preceding the Maturity Date) such Letter of
Credit is to be issued and describing in reasonable detail the
proposed terms of such Letter of Credit (including the beneficiary
thereof) and the nature of the transactions or obligations proposed
to be supported
- 19 -
<PAGE>
thereby (including whether such Letter of Credit is to be a
commercial letter of credit or a standby letter of credit).
(b) On each day during the period commencing with the
issuance of any Letters of Credit and until such Letters of Credit
shall have expired or been terminated, the Commitment shall be deemed
to be utilized for all purposes of this Agreement in an amount equal
to the aggregate Available Amount of all Letters of Credit.
(c) Upon receipt from the beneficiary of any Letter of
Credit of any demand for payment thereunder, the Lender shall
promptly notify the Borrowers of the amount to be paid by the Lender
as a result of such demand and, notwithstanding the identity of the
account party of any Letter of Credit, the Borrowers jointly and
severally shall immediately pay and reimburse the Lender for such
amount, without presentment, demand, protest or other formalities of
any kind.
(d) As soon as practicable upon its receipt of a notice
referred to in clause (c) of this Section 3.2, but in any event no
later than 5 days thereafter, the Borrowers shall advise the Lender
whether or not the Borrowers intend to borrow pursuant to Section 3.1
to finance their obligation to reimburse the Lender for the amount of
the related demand for payment and, if they do, the Borrowers shall
submit a Borrowing Notice as provided in Section 3.1(b) hereof.
(e) The Borrowers jointly and severally shall pay to the
Lender a fee in respect of each Letter of Credit in an amount equal
to 1.00% per annum of the daily average Available Amount of such
Letter of Credit for the period from and including the date of
issuance of such Letter of Credit to and including the date such
Letter of Credit is drawn in full, expires or is terminated (such fee
to be non-refundable, to be paid in arrears on the first Business Day
of each month with respect to the prior month, and on the Maturity
Date), plus all commissions, charges, fees, costs and expenses in the
amounts customarily charged by the Lender from time to time in like
circumstances with respect to the issuance of each Letter of Credit
and drawings and other transactions relating thereto.
(f) The issuance by the Lender of each Letter of Credit
shall, in addition to the conditions precedent set forth in Article
2, be subject to the conditions precedent that (i) such Letter of
Credit shall be in such form, contain such terms and support such
transactions as shall be satisfactory to the Lender consistent with
its then current practices and procedures with respect to letters of
credit of the same type and (ii) the relevant Borrower and the other
Borrowers shall have executed and delivered such applications,
agreements and other instruments relating to such Letter of Credit as
the Lender shall have requested consistent with its then current
practices and procedures with respect to letters of credit of the
same type, provided that in the event of any conflict between any
such application, agreement or other instrument and the provisions of
this Credit
- 20 -
<PAGE>
Agreement or any other Credit Document, the provisions of this Credit
Agreement and the other Credit Documents shall control.
3.3. The Loan Account. The Lender shall maintain an account on its
books in the Borrowers' name (the "Loan Account") in which, notwithstanding
anything to the contrary elsewhere in this Credit Agreement or in any other
Credit Document, the Borrowers will be credited and/or charged with, as the
case may be, (a) the amount of all Loans made by the Lender to any Borrower or
for any Borrower's account, including all interest due thereon, and all fees
and other charges in respect thereof and (b) any other Obligations, including
any and all Expenses as and when any of the same become due and payable. The
Loan Account will be credited with all amounts received by the Lender from or
on behalf of any Borrower or from others for any Borrower's account.
3.4. Monthly Statement of Account. After the end of each month, the
Lender shall send the Borrowers a statement showing the accounting for the
charges, Loans, Expenses and other transactions occurring between the Lender
and the Borrowers during that month. The monthly statements shall be deemed
correct and binding upon each Borrower and shall constitute an account stated
between the Borrowers and the Lender unless the Lender receives a written
statement of the Borrowers' exceptions within thirty days after delivery
thereof to the Borrowers.
ARTICLE 4. PREPAYMENTS; PAYMENTS
4.1. Repayment. The Lender shall deduct from the Blocked Account (as
defined in the Blocked Account Agreement) at or after 3:00 p.m. on each
Business Day all amounts therein and shall apply all such amounts to pay the
Loans without premium or penalty. On the Maturity Date, the Borrowers jointly
and severally shall repay the unpaid principal amount of the Loans, together
with all accrued and unpaid interest thereon and all Expenses then unpaid.
4.2. Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Credit Agreement or the Note shall be
made to the Lender at Citibank, N.A., 153 East 53rd Street, New York, New York
10043, Account No. 40602292, ABA No. 02100089, not later than 11:00 a.m. (New
York City time) on the date when due and shall be made in U.S. dollars and in
immediately available funds. Whenever any payment to be made hereunder or
under any Note shall be stated to be due on a day which is not a Business Day
the due date thereof shall be extended to the next succeeding Business Day and
interest shall be payable at the applicable rate during such extension.
4.3. Net Payments. All payments made by the Borrowers hereunder or
under any Note shall be made without setoff, counterclaim or other defense.
All such payments shall be made free and clear of, and without deduction or
withholding for, any Taxes (as defined below) imposed by any governmental
authority or jurisdiction or by any political subdivision or taxing authority
thereof or therein and all interest, penalties or similar liabilities with
respect thereto, unless the Borrowers are compelled by law to make payment
subject to such tax. In such event, the Borrowers jointly and severally shall
(i) pay to the Lender such additional amounts as may be necessary to ensure
that the Lender receives a net amount equal to the full amount which would
have been receivable had payment not been made subject to such tax and (ii)
remit such tax to the relevant taxing authorities according to applicable law,
and send to the Lender such
- 21 -
<PAGE>
certificates or certified copy receipts as the Lender shall reasonably require
as proof of such payment by the Borrowers of any such taxes. The Borrowers
jointly and severally will indemnify and hold harmless the Lender, and
reimburse the Lender upon its written request, for the amount of any Taxes so
levied or imposed and paid by it. As used in this Section 4.3, "Taxes"
includes all existing or future taxes, levies, imposts, duties, fees,
assessments, withholdings, deductions and other charges of any nature, and any
restrictions or conditions resulting in a charge together with interest
thereon and fines and penalties with respect thereto which may be imposed by
reason of any violation or default with respect to the law regarding such tax,
assessed as a result of or in connection with the transactions.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.
To induce the Lender to enter into this Credit Agreement and to make
the Loans, the Borrowers on their own behalf and where applicable, on behalf
of their respective Subsidiaries, represent and warrant jointly and severally
to the Lender as follows, and such representations and warranties, together
with all other representations and warranties made by the Borrowers herein and
in the other Credit Documents, shall survive the execution hereof and thereof:
5.1. Good Standing; Qualified to do Business. Each Borrower and each
of their respective Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) has all requisite power and authority to own or to lease
and to operate its properties and assets and to carry on its businesses as now
conducted and as proposed to be conducted, and (iii) is duly qualified and
authorized to do business and is in good standing in every jurisdiction in
which it owns or leases property and in which the conduct of its business
requires it to so qualify or be licensed except, in each case, where the
failure to be so qualified could not be expected to have a Material Adverse
Effect. All of the outstanding capital stock and other equity interests of
each Borrower and each of their respective Subsidiaries has been validly
issued, is fully paid and non-assessable and, other than in the case of the
capital stock of SCI, is owned free and clear of all Liens, except Liens in
favor of the Lender.
5.2. Solvency. Each Borrower and each of their respective
Subsidiaries individually is, and all of them collectively are, Solvent.
5.3. Collateral. Except for Permitted Encumbrances, the Liens granted
to the Lender herein or in the other Credit Documents constitute and shall at
all times constitute the first and only liens on the Collateral, which Liens
are legal, valid and enforceable; and the Borrowers are, or will be at the
time additional Collateral is acquired by it, the sole and absolute legal and
beneficial owners of the Collateral, with full right to pledge, sell, consign,
transfer and create a security interest therein, free and clear of any and all
claims or Liens in favor of any other Person other than the Permitted
Encumbrances; the Borrowers will jointly and severally at their expense
forever warrant and, at the Lender's request, defend the same from any and all
claims and demands of any other Person other than the Permitted Encumbrances.
5.4. Due Authorization and Execution; No Violations. This Credit
Agreement and the other Credit Documents to which any Borrower is a party have
been duly authorized, executed and delivered by such Borrower. The execution
and delivery by each Borrower of this
- 22 -
<PAGE>
Credit Agreement and of all of the other
Credit Documents to which such Borrower is a party, the performance of such
Borrower's obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby: (i) are within such Borrower's
corporate powers; (ii) are duly authorized by all necessary corporate action,
including by such Borrower's Board of Directors and, if necessary, such
Borrower's stockholders; (iii) are not in contravention of the terms of such
Borrower's charter documents; (iv) do not conflict with or result in the
breach of, or constitute a default under, any material indenture, contract,
agreement, mortgage, deed of trust, lease or other instrument or undertaking
binding on or affecting such Borrower, any of their respective Subsidiaries or
any of their respective properties; (v) do not violate or contravene any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award; and (vi) will not, except for the Liens created under the Collateral
Documents, result in or require the creation or imposition of any Lien. No
Borrower and no Subsidiary of any Borrower is in violation of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
or in breach of any contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument, the violation or breach of which could be
expected to have, in the aggregate, a Material Adverse Effect. There are no
prohibitions in any charter documents of any Borrower (other than SCI) or any
Foreign Subsidiary against the pledge by SCI of the capital stock of any such
Borrower or Foreign Subsidiary or right given to the Directors of any such
Borrower or Foreign Subsidiary to refuse to register any transfer of any
shares on the applicable books and records.
5.5. No Consent Necessary. Except (A) for the filing of the Uniform
Commercial Code financing statements delivered to the Lender on the date
hereof, (B) for the filing of the Mortgage and (C) as set forth on Schedule
5.5, no authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other third
party is required for (i) the due execution, delivery, recordation, filing or
performance of this Credit Agreement or any other Credit Document, (ii) the
grant by each Borrower or any of their respective Subsidiaries of the Liens
granted by it pursuant to the Collateral Documents, (iii) the perfection or
maintenance of the Liens created by the Collateral Documents (including the
first priority name thereof) and (iv) the exercise by the Lender of its rights
and remedies under or in respect of the Credit Documents.
5.6. Binding Obligations. This Credit Agreement and all of the
other Credit Documents to which any Borrower is a party are the legal, valid
and binding joint and several obligations of such Borrower and are enforceable
against such Borrower in accordance with their respective terms.
5.7. Principal Place of Business. The principal place of business
and chief executive offices of the Borrowers as of the date hereof are located
at the respective addresses specified on the signature page hereof.
5.8. Subsidiaries. Set forth on Schedule 5.8 hereto is a complete and
accurate list of all Subsidiaries of each Borrower, showing as of the date
hereof (as to each such Subsidiary) the jurisdiction of its incorporation and
the percentage ownership (direct and indirect) of such Borrower in each class
of capital stock or other equity interests of each of its Subsidiaries and
also identifies the direct owner thereof.
- 23 -
<PAGE>
5.9. No Judgments, Litigation. There is no judgment outstanding
against any Borrower or any of their respective Subsidiaries, or any of their
respective assets or properties, nor is there any action, suit, investigation,
litigation, contested claim or proceeding affecting any of them or any of
their respective assets or properties, now pending or, to the best of the
Borrowers' knowledge after diligent inquiry of their executive officers,
threatened, that (i) could be expected to have, in the aggregate, a Material
Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of any of the Credit Documents or any of the actions
contemplated thereby.
5.10. No Defaults. No Borrower and no Subsidiary of any Borrower is
in default under any material contract, lease, commitment or other agreement
to which such Borrower or such Subsidiary is a party or by which it is bound
which could be expected to have, in the aggregate, a Material Adverse Effect.
No Borrower and no Subsidiary of any Borrower knows of any dispute regarding
any material contract, lease, commitment or other agreement which could be
expected to have, in the aggregate, a Material Adverse Effect.
5.11. Compliance with Statutes. Each Borrower and each Subsidiary of
each Borrower is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property except such noncompliances as could not reasonably
be expected to have, in the aggregate, a Material Adverse Effect.
5.12. No Material Adverse Effect. No Borrower and no Subsidiary of
any Borrower is a party to any indenture, loan or credit agreement or any
lease or other agreement or instrument or subject to any charter or corporate
restriction that could be expected to have, in the aggregate, a Material
Adverse Effect.
5.13. No Employee Controversies. No controversies are pending or,
to the best of each Borrower's knowledge, after diligent inquiry of its
executive officers, threatened, between any Borrower or any of their
respective Subsidiaries and any of their respective employees, other than
employee grievances arising in the ordinary course of business which could not
be expected to have, in the aggregate, a Material Adverse Effect.
5.14. ERISA.
(a) Each Borrower and each of their respective
ERISA Affiliates are in compliance in all material respects with all
applicable provisions of ERISA, the Code (to the extent applicable) and the
regulations and published interpretations thereunder with respect to all
employee benefit plans and Pension Plans.
(b) Except as disclosed in Schedule 5.14, no
Termination Event has occurred or is reasonably expected to occur with respect
to any Pension Plan which resulted or could result in a liability to any
Borrower or any ERISA Affiliate that could be expected to have, in the
aggregate, a Material Adverse Effect.
(c) As of the Closing Date, the sum of the amount
of unfunded benefit liabilities (determined in accordance with Statement of
Financial Accounting Standards No. 87)
- 24 -
<PAGE>
under all Pension Plans (excluding each Pension Plan with an amount of
unfunded benefit liabilities of zero or less) is not more than $100,000. As of
the Closing Date, the sum of the amount of unfunded benefit liabilities
(within the meaning of Section 4001(a)(18) of ERISA) under all Pension Plans
(excluding each Pension Plan with an amount of unfunded benefit liabilities of
zero or less) is not more than $100,000.
(d) Except as disclosed on Schedule 5.14, as of the
Closing Date, no Borrower and no ERISA Affiliate of any Borrower has any
obligation to contribute to or any liability or potential liability
(including, but not limited to, actual or potential withdrawal liability) with
respect to any Multiemployer Plan or any employee benefit plan described in
Sections 4063 or 4064 of ERISA or in Section 413(c) of the Code. No Borrower
and no ERISA Affiliate of any Borrower has incurred or reasonably expects to
incur any withdrawal liability under Subtitle E of Title IV of ERISA to any
Multiemployer Plan or any employee benefit plan described in Sections 4063 or
4064 of ERISA or in Section 413(c) of the Code.
(e) No Pension Plan has an accumulated funding
deficiency (whether or not waived).
(f) No Borrower and no ERISA Affiliate of any
Borrower has or reasonably expects to become subject to a lien in favor of any
Pension Plan under Section 302(f) or 307 of ERISA or Section 401(a)(29) or
412(n) of the Code, which lien, when aggregated with any other such liens to
which any Borrower is or becomes subject would exceed $100,000.
(g) None of the Borrowers and no ERISA Affiliate of
any Borrower has any obligations under, or is or was subject to the terms of,
a Multiemployer Plan.
(h) No event has occurred in connection with which
any Borrower, any Affiliate of any Borrower, any fiduciary of an employee
benefit plan, or any such plan, directly or indirectly, is likely to be
subject to any liability which could be expected to have a Material Adverse
Effect, individually or in the aggregate, under ERISA, the Code or any other
law, regulation or governmental order or under any agreement, instrument,
statute, rule of law or regulation pursuant to or under which any such entity
has agreed to indemnify or is required to indemnify any Person against
liability incurred under, or for a violation or failure to satisfy the
requirements of, any such statute, regulation or order.
As used in this Section 5.14 and all other Sections of
this Credit Agreement, the term "accumulated funding deficiency" has the
meaning specified in Section 302 of ERISA and Section 412 of the Code, and the
term "employee benefit plan" has the meaning specified in Section 3(3) of
ERISA.
5.15. Environmental, Safety and Health Matters. The operations of
each Borrower and each of their respective Subsidiaries complies with all
Environmental Laws and all applicable federal, state, local or foreign health
and safety statutes and regulations, except as set forth in Schedule 5.15 or
where the failure to comply could not be expected to have, in the aggregate, a
Material Adverse Effect. None of the operations of any Borrower or any of
their respective Subsidiaries is the subject of any judicial or administrative
proceeding alleging the violation of any Environmental Law or any federal,
state, local or foreign health or safety statute
- 25 -
<PAGE>
or regulation, except for such proceedings which, if determined adversely to
any Borrower or any of their respective Subsidiaries, could not be expected to
have, in the aggregate, a Material Adverse Effect. None of the operations of
any Borrower or any of their respective Subsidiaries is the subject of
federal, state, local or foreign investigation evaluating whether any remedial
action is needed to respond to a release of any hazardous or toxic waste,
substance or constituent, or other substance into the environment, except for
such investigations which, if determined adversely to any Borrower or any of
their respective Subsidiaries, could not be expected to have, in the
aggregate, a Material Adverse Effect. No Borrower and none of their respective
Subsidiaries has filed any notice under any federal, state, local or foreign
law indicating past or present treatment, storage or disposal of a hazardous
waste or reporting a spill or release of a hazardous or toxic waste, substance
or constituent, or other substance into the environment which would be
expected to have, in the aggregate, a Material Adverse Effect. No Borrower and
none of their respective Subsidiaries has any contingent liability (which
could be expected to have, in the aggregate, a Material Adverse Effect) of
which any Borrower or any of their respective Subsidiaries has knowledge or
should have knowledge in connection with any release of any hazardous or toxic
waste, substance or constituent, or other substance into the environment.
5.16. Trademarks, Trade Names, Patents. Each Borrower and each of
their respective Subsidiaries has obtained and holds in full force and effect
all trademarks, trade names, patents and other intellectual property, which
are necessary for the operation of its business as presently conducted and as
proposed to be conducted.
5.17. Material Licenses. Each Borrower and each of their respective
Subsidiaries has obtained and holds in full force and effect all material
franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary for the operation of its business as presently conducted. No
Borrower and none of their respective Subsidiaries is in violation of the
terms of any such franchise, license, lease, permit, certificate,
authorization, qualification, easement, right of way, right or approval in any
such case which could be expected to have, in the aggregate, a Material
Adverse Effect.
5.18. Properties. Each Borrower and each of their respective
Subsidiaries has good, and in the case of all real property, marketable, title
to all properties owned by it, including all property reflected in the
consolidated balance sheets of SCI and its Subsidiaries dated March 31, 1995,
as referred to in Section 5.24 (except as sold or otherwise disposed of since
the date of such balance sheets in the ordinary course of business), free and
clear of all Liens, other than (i) as referred to in such balance sheets or in
the notes thereto or (ii) as otherwise permitted by Section 7.1.
5.19. Labor Matters. No Borrower and no Subsidiary of any Borrower is
engaged in any unfair labor practice that could be expected to have, in the
aggregate, a Material Adverse Effect. There is (i) no material unfair labor
practice complaint pending against any Borrower or any of their respective
Subsidiaries or, to the best knowledge of each Borrower and each such
Subsidiary after diligent inquiry of its executive officers, threatened
against it, before the National Labor Relations Board, and no material
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement to which any Borrower or any of
- 26 -
<PAGE>
their respective Subsidiaries is a party is so pending against such Borrower
or such Subsidiary or, to the best knowledge of the Borrowers and their
respective Subsidiaries, threatened against any of them and (ii) no material
strike, labor dispute, slowdown or stoppage pending against any Borrower or
any of their respective Subsidiaries or, to the best knowledge of the
Borrowers and their respective Subsidiaries, threatened against any of them
except such as in the case of (i) or (ii) above could not be expected to have,
in the aggregate, a Material Adverse Effect.
5.20. Not an Investment Company. No Borrower and none of their
respective Subsidiaries is (i) an "investment company" or a company
"controlled" by an "investment company", or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company," within the
meaning of the Investment Company Act of 1940, as amended, (ii) a "holding
company" or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended, or (iii) subject to any other law which prohibits the transactions
contemplated by the Credit Documents. None of the making of any Loans, the
application of the proceeds or repayment thereof by any of the Borrowers or
the consummation of the other actions contemplated hereby will violate any
provision of the Investment Company Act of 1940, as amended, or any rule,
regulation or order of the Securities and Exchange Commission thereunder.
5.21. No Events of Default. No Event of Default has occurred and
is continuing.
5.22. No Brokers. None of the Borrowers has had any dealings,
negotiations or consultations with any broker, representative, employee, agent
or other intermediary that would be entitled to a commission or fee in
connection with the Borrowers entering into this Credit Agreement and the
other Credit Documents or any of the transactions contemplated hereby or
thereby.
5.23. No Taxes. Each Borrower and each of their respective
Subsidiaries has filed, has caused to be filed or has been included in all tax
returns (federal, state, local and foreign) required to be filed and has paid
all taxes shown thereon to be due, together with applicable interest and
penalties, except such failures to file which would not, in the aggregate,
have a Material Adverse Effect. No federal, state, local or foreign taxing
authorities have proposed any adjustments to the federal, state, local or
foreign tax liability of any Borrower or any of their respective Subsidiaries.
No issues have been raised by such taxing authorities that, in the aggregate,
could be expected to have, in the aggregate, a Material Adverse Effect.
5.24. Financial Statements.
(a) All balance sheets, all statements of income,
stockholders' equity and cash flow and all other financial information that
has been furnished by or on behalf of the Borrowers or any Subsidiary to the
Lender for the purposes of or in connection with this Credit Agreement, the
other Credit Documents or any transaction contemplated hereby or thereby,
including:
(i) the audited consolidated and unaudited
consolidating balance sheet at March 31, 1995, and the
related audited consolidated and unaudited
- 27 -
<PAGE>
consolidating statements of income, stockholders' equity
and cash flows for the fiscal year then ended, of SCI
and its Subsidiaries, certified, in the case of such
consolidated balance sheets and statements, by Price
Waterhouse; and
(ii) the unaudited consolidated and
consolidating balance sheet at December 31, 1995, and
the related unaudited consolidated and consolidating
statements of income, stockholders' equity and cash
flows for the nine months then ended, of SCI and its
Subsidiaries, certified by SCI's chief financial
officer,
are true, complete and correct in all material respects, have been, where
required, prepared in accordance with GAAP consistently applied throughout the
periods involved and present fairly (subject to normal year-end adjustments if
applicable) the financial condition of SCI and its Subsidiaries as at the
dates thereof and the results of their operations and their cash flows for the
periods then ended. No Borrower and no Subsidiary of any Borrower had as of
such dates any material contingent obligation or liability, liability for tax
or long-term lease or unusual forward or long-term commitment which is,
required to be and is not, reflected in the financial statements described in
this Section 5.24(a) or in the notes thereto.
(b) The projected financial statements delivered to
the Lender prior to the execution of this Credit Agreement are based on
assumptions that the Borrowers deem reasonable and appropriate.
(c) Since December 31, 1995 to and including the
date hereof, (i) there has been no Material Adverse Change, and (ii) there has
been no sale, transfer or other disposition by any Borrower or any of their
respective Subsidiaries of any material part of its respective business or
property and no purchase or other acquisition of any business or property
(including any capital stock of any Person) material in relation to the
financial condition of the Borrowers and their respective Subsidiaries, on a
consolidated basis, at the date of the balance sheets described in Section
5.24(a).
5.25. Leases of Real Property. Set forth on Schedule 5.25 hereto is a
complete and accurate list of all leases of real property under which any
Borrower or any of their respective Subsidiaries is the lessee, showing as of
the date hereof the street address, county or other relevant jurisdiction,
state, lessor, lessee, expiration date and annual rental cost thereof. Each
such lease is the legal, valid and binding obligation of the lessee and, to
Borrowers' best knowledge, the lessor thereof, enforceable in accordance with
its terms.
5.26. Material Contracts. Set forth on Schedule 5.26 hereto is a
complete and accurate list of all Material Contracts as of the date hereof of
each Borrower and each of their respective Subsidiaries, showing the parties
and term thereof. Each such Material Contract has been duly authorized,
executed and delivered by all parties thereto, has not been amended or
otherwise modified, is in full force and effect and is binding upon and
enforceable against the Borrower(s) party thereto and to the best knowledge of
the Borrowers, all other parties thereto in accordance with its terms, and
there exists no default under or threatened revocation of any Material
Contract by any party thereto.
- 28 -
<PAGE>
5.27. Investments. Set forth on Schedule 5.27 hereto is a complete
and accurate list of all Investments as of the date hereof held by each
Borrower and each of their respective Subsidiaries, showing as of the date
hereof the amount, obligor or issuer and maturity, if any, thereof.
5.28. Patents, Trademarks, Copyrights. Set forth on Schedule 5.28
hereto is a complete and accurate list of all patents, trademarks, trade
names, service marks and copyrights, and all applications therefor and
licenses thereof, of each Borrower and each of their respective Subsidiaries
as of the date hereof, showing the jurisdiction in which registered, the
registration number, the date of registration and the expiration date.
5.29. Federal Regulation. No Borrower and none of their respective
Subsidiaries is engaged in the business of extending credit for the purpose of
"purchasing" or "carrying" "margin stock", as those terms are used in
Regulation U of the Board of Governors of the Federal Reserve System of the
United States (the "Board") as now and from time to time in effect, and no
proceeds of any of the Loans will be used to purchase or carry any margin
stock, to extend credit to others for the purpose of purchasing or carrying
any margin stock or for any purpose which violates the provisions of
Regulation G, T, U or X of the Board.
5.30. No Misrepresentations. No information, exhibit or report
furnished by any Borrower or any of their respective Subsidiaries in
connection with the negotiation of the Commitment Letter or the Credit
Documents, or pursuant to the terms of the Commitment Letter or the Credit
Documents, contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements made therein not
misleading.
ARTICLE 6. AFFIRMATIVE COVENANTS.
Until termination of this Credit Agreement and payment and
satisfaction in full of all Obligations due hereunder, the Borrowers on their
own behalf and where applicable on behalf of their respective Subsidiaries,
jointly and severally covenant and agree that, unless the Lender shall have
otherwise consented in writing, each Borrower will:
6.1. Financial and Collateral Reporting. Furnish to the
Lender the following information within the following time periods:
(a) Annual Financial Statements. As soon as
available, but in any event within 90 days after the end of each fiscal year
of SCI or such later date as is permitted by Rule 12b- 25 if SCI files late in
accordance with such Rule, (i) SCI's Annual Report on Form 10-K (or a report
prepared on the same basis and containing substantially the same information
if SCI is not required to file a Form 10-K) and (ii) consolidating and
certified consolidated balance sheets of SCI and its Subsidiaries as at the
close of such year, and the related consolidating and certified consolidated
statements of income, cash flows and stockholders' equity of SCI and its
Subsidiaries for such year, audited by Price Waterhouse or other independent
public accountants selected by SCI and reasonably satisfactory to the Lender,
in each case together with a report of such accountants stating that in the
course of its regular audit of the financial statements of SCI, which audit
was conducted in accordance with GAAP, such accountants obtained no knowledge
of any Event of Default which has occurred and is continuing or, if in the
opinion
- 29 -
<PAGE>
of such accounting firm such an Event of Default has occurred and is
continuing, a statement as to the nature thereof.
(b) Quarterly Financial Statements. As soon as
available, but in any event within 45 days after the end of each of the first
three quarterly accounting periods in each fiscal year of SCI or such later
date as is permitted by Rule 12b-25 if SCI files late in accordance with such
Rule, (i) SCI's Quarterly Report on Form 10-Q (or a report prepared on
substantially the same basis and containing the same information if SCI is not
required to file a Form 10-Q) and (ii) consolidated and consolidating balance
sheets of SCI and its Subsidiaries at the end of such quarter, and the related
statements of income, cash flow and stockholders' equity of SCI and its
Subsidiaries for such quarter and for the elapsed portion of the fiscal year
ended with the last day of such quarterly period, all of which shall be
certified on behalf of SCI by its chief financial officer as fairly presenting
the consolidated financial condition and results of operations of SCI in
accordance with GAAP (subject to normal year-end adjustments).
(c) Monthly Financial Statements. As soon as
available, but in any event within 30 days after the end of each fiscal month
of SCI, consolidated and consolidating balance sheets of SCI and its
Subsidiaries at the end of such month, and related statements of income, cash
flow and stockholders' equity of SCI and its Subsidiaries for such month and
the portion of the fiscal year through the end of such month, in each case
prepared on a basis consistent with the reports prepared by SCI prior to the
Closing Date as delivered to the Lender prior thereto, all of which shall be
certified on behalf of SCI by its chief financial officer as fairly presenting
the consolidated financial condition and results of operations of SCI in
accordance with GAAP (subject to normal year-end adjustments).
(d) Projections. As soon as available, but in any
event within 30 days after the end of each fiscal year of SCI, projected
consolidated and consolidating financial statements of SCI and its
Subsidiaries, including balance sheets and related statements of income and
cash flow on a quarterly basis for the following fiscal year of SCI and its
Subsidiaries and on an annual basis for each fiscal year thereafter, until all
amounts owed to the Lender hereunder or in connection herewith shall be paid
in full, in each case prepared with the same level of detail as the reports
prepared by SCI prior thereto and all such financial statements shall be based
on assumptions, set forth therein, that the Borrowers deem reasonable and
appropriate.
(e) Collateral. As soon as available, but in any
event within 30 days after the end of each fiscal month, information regarding
the Collateral in form and substance acceptable to the Lender, including,
without limitation, (i) an analysis of the amount and aging of the Borrowers'
receivables, (ii) an analysis of the value, location and respective types of
the Borrowers' inventory, (iii) a fixed asset schedule and (iv) such other
information as the Lender may request. No obligor shall maintain at any
Off-Site Location any Collateral which when aggregated with any other
Collateral held at any other Off-Site Location shall exceed in aggregate value
$100,000.
(f) Compliance Certificate. Together with each
delivery of financial statements pursuant to Sections 6.1(a) and 6.1(b), a
certified statement by the chief financial officer of SCI (a "Compliance
Certificate"), which certificate shall set forth (i) that such officer has
reviewed or caused to be reviewed under his supervision the terms of this
Credit Agreement,
- 30 -
<PAGE>
the Note and the other Credit Documents and has made, or caused to be made
under his supervision, a review in detail of the transactions and condition of
SCI and its Subsidiaries during the accounting period covered by such
financial statements, (ii) that there is no Event of Default, or event which,
with the giving of notice or the passage of time, or both, would constitute an
Event of Default, and (iii) the information, including detailed calculations,
required to establish whether SCI and its Subsidiaries were in compliance with
the financial covenants set forth in Article 8 of this Credit Agreement for
the period covered by such financial statements.
(g) Transfer Price. Any Transfer Price shall be
calculated on an arm's-length basis and at all times on terms at least as
favorable to any Borrower as to any non-affiliated third party and be properly
and fully disclosed in the consolidating financial statements of SCI and its
Subsidiaries and, if different, the financial statements of the Persons
involved. The Lender may at any time during the term of this Agreement request
any information regarding the Transfer Pricing of SCI and any Subsidiary.
(h) Additional Information. From time to time,
such further information regarding the business affairs, assets and financial
condition of each Borrower and its respective Subsidiaries as the Lender may
reasonably request.
6.2. Corporate Existence, etc. Preserve and maintain, and cause each
of its material Subsidiaries to preserve and maintain, its corporate existence
and its current yearly accounting cycle, and shall preserve and maintain, and
cause each of its Subsidiaries to preserve and maintain, in full force and
effect all material licenses, bonds, franchises, leases, trademarks, patents,
agreements, contracts and other rights necessary to the profitable conduct of
its business, shall continue in, and limit its operations to, the same general
lines of business as those presently conducted by it or closely related to
such lines of business.
6.3. Notice to the Lender. As soon as possible, and in any event
within five days after any Borrower learns of the following, give written
notice to the Lender of (i) any proceeding instituted by or against any
Borrower in any federal, state, local or foreign court or before any
commission or other regulatory body (federal, state, local or foreign) which,
if decided adversely, could be expected to have, in the aggregate, a Material
Adverse Effect, (ii) the occurrence of any Material Adverse Change and (iii)
the occurrence of any Event of Default (or event which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default),
together with a statement of the action which the Borrowers have taken or
propose to take with respect thereto.
6.4. Compliance with Laws. Comply, and cause each of its Subsidiaries
to comply,with all applicable laws, rules, regulations and orders of any
federal, state, local or foreign governmental authority, except where the
failure to so comply could not reasonably be expected to have, in the
aggregate, a Material Adverse Effect.
6.5. Compliance with Environmental, Safety and Health Regulations.
Comply and cause each of its Subsidiaries and all lessees and other Persons
operating or occupying its properties to comply, with all applicable
Environmental Laws and occupational safety or health laws, regulations,
requirements or permits, other than situations where non-compliance could
- 31 -
<PAGE>
not be expected to have, in the aggregate, a Material Adverse Effect; provided,
however, that nothing contained in this Section 6.5 shall prevent any Borrower
or any of their respective subsidiaries from contesting, in good faith by
appropriate legal proceedings, any such law, regulation or interpretation or
application thereof; and provided, further, that each Borrower shall comply
and shall cause its respective Subsidiaries to comply with the order of any
court or other governmental body or authority relating to such laws unless
such Borrower or its Subsidiaries shall currently be prosecuting an appeal or
proceeding for review and shall have secured a stay of enforcement or
execution or other arrangement postponing enforcement or execution pending
such appeal or proceeding for review. Each Borrower shall obtain and renew and
shall cause each of its Subsidiaries to obtain and renew all material permits,
approvals, identification number, license or other authorization required
under any Environmental Law that relate to its operations and properties. If
any Borrower or any of their respective Subsidiaries shall receive notice (a)
that any violation of any Environmental Law or occupational safety or health
law, regulation, requirement or permit may have been committed or is about to
be committed by any Borrower or any of their respective Subsidiaries, (b) that
any administrative or judicial complaint or order has been filed or is about
to be filed against any Borrower or any of their respective Subsidiaries
alleging violations of any Environmental Law or occupational safety or health
laws, regulations, requirements or permits, or requiring any Borrower or any
of their respective Subsidiaries to take any action in connection with the
release of toxic or hazardous substances into the environment or (c) from a
federal, state, local or foreign governmental agency or private party alleging
that any Borrower or any of their respective Subsidiaries may be liable or
responsible for costs associated with a response to or cleanup of a release of
a toxic or hazardous substance into the environment or any damages caused
thereby in each case which could be expected to have, in the aggregate, a
Material Adverse Effect, such Borrower shall provide or shall cause its
Subsidiary to provide the Lender with a copy of such notice within fifteen
days after receipt thereof. Within fifteen days after any Borrower or any of
their respective Subsidiaries learns of the enactment or promulgation of any
Environmental Law which could be expected to result in any Material Adverse
Effect or any Material Adverse Change, it shall provide the Lender with notice
thereof.
6.6. ERISA. (a) Furnish to the Lender promptly upon (and, in any
event, within 10 Business Days after) any Borrower or any of their respective
Subsidiaries' or Affiliates' knowing or having reason to know of the
occurrence of any (i) Termination Event, other than as disclosed on Schedule
5.14 hereof, or (ii) "prohibited transaction," within the meaning of Section
406 of ERISA or Section 4975 of the Code, in connection with any Pension Plan
or any trust created thereunder, which in the case of all such events
described in clause (i) or (ii) could be expected to have, in the aggregate, a
Material Adverse Effect, a certificate of the chief financial officer of such
Borrower specifying the nature thereof, what action the Borrowers or their
respective ERISA Affiliates have taken, are required to take, are taking or
propose to take with respect thereto, and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor, PBGC or
Multiemployer Plan sponsor with respect thereto.
(b) Furnish to the Lender as soon as possible (i)
copies of all notices received by any Borrower or any of their respective
ERISA Affiliates of PBGC's intent to terminate any Pension Plan or to have a
trustee appointed to administer any Pension Plan; (ii) upon the request of the
Lender the complete annual report (Form 5500 Series) filed by such Borrower or
any of their respective ERISA Affiliates with the Internal Revenue Service
with
- 32 -
<PAGE>
respect to each Pension Plan; (iii) upon the request of the Lender, the most
recent actuarial valuation report for each Pension Plan; and (iv) copies of
all notices received by any Borrower or any of their respective ERISA
Affiliates with respect to a Multiemployer Plan concerning the imposition or
amount of withdrawal liability or any other matter pursuant to Subtitle E of
Title IV of ERISA.
(c) Establish, maintain and operate, and cause each
of its Subsidiaries to establish, maintain and operate all employee benefit
plans to comply in all material respects with the provisions of ERISA, the
Code and all other applicable laws and the regulations and interpretations
thereunder, other than to the extent the Borrowers are in good faith
contesting by appropriate proceedings the validity or implication of any such
provision, law, rule, regulation or interpretation.
6.7. Maintenance of Corporate Books and Records. Maintain, and cause
each of its Subsidiaries to maintain the Books and Records pertaining to its
business and the Collateral in such detail, form and scope as is consistent in
all material respects with current practice and GAAP. Each Borrower agrees
that the Lender and/or its agents may enter upon its or its respective
Subsidiaries' premises at any time and from time to time during normal
business hours (and, if there is no Event of Default continuing, upon
reasonable notice) for the purpose of (i) inspecting such Borrower's or such
Subsidiaries' business or the Collateral and any and all records pertaining
thereto, (ii) making copies of and abstracts from the records and books of
account of such Borrower and such Subsidiaries and (iii) discussing the
affairs, finances and accounts of such Borrower and such Sub sidiaries with
any of their officers or directors and, if the Lender reasonably determines
that discussions with such officers and directors have failed to satisfy the
inquiries of the Lender, and the Borrowers have not remedied such failure
within ten days after delivery of notice of such failure, with their
independent public accountants.
6.8. Listing of Common Stock. Take all such action as may be
necessary to insure that the common stock of SCI, par value $.01 per share, is
listed on any national securities exchange or eligible for trading on the
National Association of Securities Dealers, Inc. Automated Quotation Systems
(or any other quotation system operated by a national securities association).
6.9. Maintenance of Properties. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its material
properties and equipment that are necessary to the conduct of its business in
good working order and condition, ordinary wear and tear excepted.
6.10. Insurance. Maintain and cause each of its Subsidiaries to
maintain insurance on its property under such policies of insurance, with such
insurance companies, in such amounts and covering such risks as are
customarily covered under similar circumstances by similarly situated
corporations. All such policies shall be made payable to the Lender as an
additional insured and loss payee, in case of loss, under a standard
non-contributory "lender" or "secured party" clause and are to contain such
other provisions as the Lender may reasonably require to protect the Lender's
interests in such Collateral and to any payments to be made under such
policies. True copies of all original insurance policies are to be delivered
to the Lender, premiums prepaid, with the loss payable endorsement in the
Lender's favor to the extent of its
- 33 -
<PAGE>
interest, and shall provide for not less than thirty days' prior written
notice to the Lender of the exercise of any right of cancellation. At any
Borrower's request, or if any Borrower fails to maintain such insurance, the
Lender may arrange for (in either case at the Borrowers' cost and expense and
without any responsibility on the Lender's part therefor) obtaining the
insurance or determining the solvency of the insurance companies, or the
adequacy of the coverage or the collection of claims. Upon the occurrence of
any Event of Default, unless the Lender shall otherwise agree with the
Borrowers in writing, the Lender shall have the sole right, in the name of the
Lender or any Borrower, to file claims under any insurance policies, to
receive and give acquittance for any payments that may be payable thereunder,
and to execute any endorsements, receipts, releases, assignments,
reassignments or other documents that may be necessary to effect the
collection, compromise or settlement of any claims under any such insurance
policies.
6.11. Taxes. Pay and discharge, or cause to be paid and discharged,
promptly when due, (i) all taxes, assessments, claims and other charges
(herein "taxes") lawfully levied or assessed against SCI, any of its
Subsidiaries, any of their respective income or profits, the Collateral, any
of SCI's other property or any property of its Subsidiaries, and (ii) all
lawful claims for taxes in excess of $100,000 in the aggregate that, if
unpaid, might by law become a Lien upon the Collateral, SCI's other property
or any of its Subsidiaries' property, other than taxes or claims that are
being diligently contested in good faith by SCI or any of its Subsidiaries by
appropriate proceedings promptly instituted and for which an adequate reserve
is being maintained by such Borrower or such Subsidiary in accordance with
GAAP. If any taxes remain unpaid after the date fixed for the payment thereof,
or if any lien other than a Permitted Encumbrance shall be claimed therefor,
then, without notice to the applicable Borrower, but on such Borrower's
behalf, the Lender may pay such taxes, and the amount thereof shall be
included in the Obligations.
6.12. Use of Loan Proceeds. Use the proceeds of the Loans to fund a
portion of the Borrowers', and in accordance with Section 7.6 the Foreign
Subsidiaries', Capital Expenditures, working capital and letter of credit
requirements, to refinance certain existing Debt and to pay fees and expenses
in connection with the negotiation, drafting and execution of the Credit
Agreement, the other Credit Documents and the transactions contemplated hereby
or thereby, and for general corporate purposes.
6.13. Performance Under Credit Documents. Comply with all the
terms and provisions of the Credit Documents to which it is a party.
6.14. Compliance with Terms of Leaseholds. Make all payments and
otherwise perform all material obligations in respect of all material leases
of real property, keep such leases in full force and effect and not allow such
leases to lapse or be terminated or any rights to renew such leases to be
forfeited or cancelled (in each case without first obtaining a replacement on
comparable terms), notify the Lender of any default or any threatened
revocation or non-renewal by any party with respect to such leases and
cooperate with the Lender in all respects to cure any such default, and cause
each of its Subsidiaries to do so.
6.15. Performance of Material Contracts. Perform and observe in all
material respects all the terms and provisions of each Material Contract to be
performed or observed by it, maintain each such Material
- 34 -
<PAGE>
Contract in full force and effect, enforce each such Material Contract in
accordance with its terms, notify the Lender of any default under, or any
threatened revocation or non-renewal of, any Material Contract, take all such
action to such end as may be from time to time requested by the Lender and,
upon request of the Lender, make to each other party to each such Material
Contract such demands and requests for information and reports or for action
as the Borrower is entitled to make under such Material Contract, and cause
each of its Subsidiaries to do so.
6.16. Additional Security. (a) Upon the occurrence of any Event of
Default, at the expense of the Borrowers, grant, and cause each of its
Subsidiaries to grant, to the Lender security interests in such assets and
properties (personal and real, tangible and intangible) of such Borrowers or
such Subsidiaries as the Lender may request, and take, and cause each such
Subsidiary to take, all actions requested by the Lender (including without
limitation, the recording of mortgages, the filing of Uniform Commercial Code
financing statements, the giving of notices, the endorsement of notices on
title documents and the obtaining of mortgagee title insurance policies and
title surveys) in connection with the granting of such security interests.
Such security interests shall be granted pursuant to the Pledge and Security
Agreement and additional documentation satisfactory in form and substance to
the Lender (such additional documentation, the "Additional Security
Documents") and shall constitute valid and enforceable perfected security
interests prior to the rights of all third Persons and subject to no other
liens (except such Liens as are permitted by Section 7.1). The Additional
Security Documents and other instruments related thereto and to the Pledge and
Security Agreement shall be duly recorded or filed in such manner and in such
places as are required by law to establish, perfect, preserve and protect the
Liens, in favor of the Lender, required to be granted pursuant to the Pledge
and Security Agreement and the Additional Security Documents and all taxes,
fees and other charges payable in connection therewith shall be paid by the
Borrowers in full.
(b) Make, execute, endorse, acknowledge, file
and/or deliver to the Lender, and cause each of its Subsidiaries to make,
execute, endorse, acknowledge, file and/or deliver to the Lender, from time to
time and at its or its Subsidiaries' sole cost and expense, such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, real
property surveys, reports and other assurances or instruments and take such
further steps relating to the collateral covered by any of the Collateral
Documents or Additional Security Documents as the Lender may require.
Furthermore, at the time of the execution and delivery of the Additional
Security Documents, the Borrowers shall cause to be delivered to the Lender
such opinions of counsel, title insurance, surveys and other related documents
as may be requested by the Lender to assure itself that this Section 6.16 has
been complied with.
(c) Complete each action required by this
Section 6.16 within ten Business Days after the Lender requests that any
Borrower take such action, provided that the Additional Security Documents
shall be completed as soon as possible but in no event later than 30 days
after the Lender requests that such Borrower take such action.
6.17. Further Assurances. At its own cost and expense, execute and
deliver to the Lender all such further documents and instruments, and do all
such other acts and things as may be reasonably required to enable the Lender
to exercise and enforce its rights hereunder and
- 35 -
<PAGE>
under the other Credit Documents, including, without limitation, directing the
relevant parties to make payments in accordance with the terms of the Lockbox
Agreement.
ARTICLE 7. NEGATIVE COVENANTS.
Until termination of this Credit Agreement and payment and
satisfaction in full of all Obligations due hereunder, the Borrowers on their
own behalf and where applicable on behalf of their respective Subsidiaries,
jointly and severally covenant and agree that, unless the Lender shall have
otherwise consented in writing, no Borrower will nor will it permit any
Subsidiary to:
7.1. No Encumbrances. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any Lien on or with respect to any of their respective properties or assets of
any character, whether now owned or hereafter acquired, including, without
limitation, any capital stock or other equity interest owned by any such
Borrower or Subsidiary, except for Permitted Encumbrances and the Liens
granted under or pursuant to the Collateral Documents.
7.2. No Indebtedness. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any Debt other than Permitted Indebtedness.
7.3. No Transfer of Assets. Sell, lease, assign, transfer or
otherwise dispose of, or permit any of its Subsidiaries to sell, lease,
transfer or otherwise dispose of, any assets, or grant any option or other
right to purchase, lease or otherwise acquire any assets, except (i) sales of
assets in the ordinary course of its business; (ii) sales of assets to Persons
other than any Borrower or Foreign Subsidiary for cash or other fair value in
an aggregate amount not to exceed $500,000 in any year; (iii) sales of assets
to any Borrower for cash or other fair value; (iv) sales of assets to any
Foreign Subsidiary in the ordinary course of business for cash and fair value
determined on an arm's length basis in an aggregate amount not to exceed
$250,000 in any year; and (v) dispositions for cash and fair value of obsolete
equipment and of excess or worn out equipment (e.g., equipment that is no
longer used in the conduct of such Borrower's or Foreign Subsidiary's
business).
7.4. No Change in Corporate Structure, etc. Merge, consolidate or
otherwise alter or modify its corporate capital structure, status or
existence, make any material change in the nature of its business as carried
on at the date hereof, create any Subsidiary, enter into any partnership,
joint venture (except as specifically provided in Section 7.6) or
sale-leaseback transaction, purchase or otherwise acquire any part of the
property or assets (other than purchases or acquisition of inventory, material
and equipment in the ordinary course of business) of any Person or enter into
or engage in any operation or activity materially different from that
presently being conducted by it, or permit any of its Subsidiaries to do any
of the foregoing; provided, however, that the Foreign Subsidiaries and their
respective Subsidiaries may merge with each other and the Borrowers may merge
with each other. Without prior notice to the Lender and without taking such
other steps as may be necessary or desirable to continue or to create first
priority perfected security interests in favor of the Lender, no Borrower or
Foreign
- 36 -
<PAGE>
Subsidiary may alter or modify its name, mailing address or principal place of
business or permit any of its Subsidiaries to do so.
7.5. No Dividends, etc. for Subsidiaries Declare or make or permit
any of its Subsidiaries to declare or make any dividend payment or other
distribution of assets, properties, cash, warrants, rights, options,
obligations or securities on account of any shares of any class of its or its
Subsidiary's capital stock (other than pursuant to and in consummation of a
common stock split or a common stock dividend), or purchase, redeem, retire or
otherwise acquire for value any shares of any class of its or its Subsidiary's
capital stock or any warrants, rights or options to acquire any such shares,
now or hereafter outstanding, except that
(a) the provisions of this Section shall not apply
to any dividend payment or distribution to any Borrower from any other
Borrower or Foreign Subsidiary; and
(b) SCI may declare and pay cash dividends, subject
to the satisfaction of each of the following conditions on the date of such
dividend payments and after giving effect thereto:
(i) no Event of Default (or event which, with
the giving of notice or the passage of time or both,
would constitute an Event of Default) shall have
occurred and be continuing;
(ii) the aggregate amount of dividend payments
by SCI in any fiscal year shall not exceed an amount
equal to 50% of the consolidated net income of SCI and
its Subsidiaries in such year in excess of $4,000,000;
and
(iii) SCI shall have delivered to the Lender,
at least five Business Days (but not more than twenty
Business Days) prior to the date of the proposed
dividend payment, a certificate of the chief financial
officer of SCI setting forth computations in reasonable
detail demonstrating satisfaction of the foregoing
condition as at the date of such certificate.
7.6. No Loans or Investments. Make or permit any of its Subsidiaries
to make, any Investment in any Person, other than (i) Permitted Cash
Investments, (ii) loans to such Borrower's and its Subsidiaries' employees of
up to $250,000 outstanding at any time for each employee for travel and other
expenses and relocation expenses (including home mortgage financing for
relocated employees), (iii) Investments in any Borrower, (iv) Investments in
the Foreign Subsidiaries by SCI or SCI Automotive in the ordinary course of
business, which Investments shall not exceed at any time the sum of the net
proceeds of the Secondary Stock Offering plus $1,000,000, and (v) Investments
by the Borrowers in joint ventures of up to $500,000 at any time.
7.7. No Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or
the rendering of any service, with any of its Affiliates, except in the
ordinary course of and pursuant to the reasonable requirements of such
Borrower's or Foreign Subsidiary's business and upon fair and reasonable terms
no less favorable to such Borrower or Foreign Subsidiary than it would obtain
in a comparable arm's-
- 37 -
<PAGE>
length transaction with an unaffiliated Person, or permit any of its
Subsidiaries to do any of the foregoing, except that the provision of this
Section shall not apply to (i) transactions among the Borrowers or (ii)
transactions between any Borrower and any Foreign Subsidiary on terms equal
to, or more favorable than, those such Borrower would obtain in a comparable
arm's-length transaction with an unaffiliated Person.
7.8. [Intentionally Blank.]
7.9. No Charter Amendments. Amend or restate, or permit any of its
Subsidiaries to amend or restate, its certificate of incorporation or bylaws
if such amendment could be expected to have a Material Adverse Effect.
7.10. No Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or reporting
practices that would be expected to have a Material Adverse Effect, except as
required by GAAP.
7.11. No Payments of Debt. Prepay, redeem, purchase, defease or
otherwise satisfy prior to the scheduled maturity thereof in any manner, or
make any payment in violation of any subordination terms of, any Debt, or
permit any of its Subsidiaries to do any of the foregoing other than (i) the
prepayment of the Loans in accordance with the terms of this Credit Agreement,
(ii) the prepayment of Existing Debt with all of the proceeds of Refinancing
Existing Debt including as permitted in clause (c) of the definition of
Permitted Indebtedness at any time during which there is no Event of Default,
and (iii) payments of less than $100,000 per annum.
7.12. No Amendment of Material Contracts. Amend or otherwise modify
any Material Contract or give any consent, waiver or approval thereunder,
waive any default under or breach of any Material Contract, agree in any
manner to any other amendment, modification or change of any term or condition
of any Material Contract or take any other action in connection with any
Material Contract, in each case which would have a Material Adverse Effect, or
permit any of its Subsidiaries to do any of the foregoing. No Borrower will
cancel, terminate or breach any Material Contract or consent to or accept any
cancellation or termination thereof, or permit any of its Subsidiaries to do
any of the foregoing.
7.13. No Equity Issuance. Make or effect any Equity Issuance,
except that the provisions of this Section shall not apply to any Equity
Issuance (i) by SCI, (ii) by any Borrower to any other Borrower or (iii) by
any Foreign Subsidiary.
7.14. ERISA. Directly or indirectly:
(a) engage in any transaction, or permit any of its
ERISA Affiliates to engage in any transaction, in connection with which any
Borrower could be subject to either a tax imposed by Section 4975(a) of the
Code or the corresponding civil penalty assessed pursuant to Section 502(i) of
ERISA, which penalties and taxes for all such transactions could be expected
to have, in the aggregate, a Material Adverse Effect;
- 38 -
<PAGE>
(b) permit to exist, or permit any of its ERISA
Affiliates to permit to exist, any accumulated funding deficiency, for which a
waiver has not been obtained from the Internal Revenue Service, with respect
to any Pension Plan;
(c) permit to exist, or permit any of its ERISA
Affiliates to permit to exist, any failure to make contributions or any
unfunded benefits liability which creates, or with the passage of time would
create, a statutory lien or requirement to provide security under ERISA or the
Code in favor of the PBGC or any Pension Plan, Multiemployer Plan or other
entity;
(d) permit, or permit any of its ERISA Affiliates
to permit, the sum of the amount of unfunded benefit liabilities (determined
in accordance with Statement of Financial Accounting Standards No. 87) under
all Pension Plans (excluding each Pension Plan with an amount of unfunded
benefit liabilities of zero or less) to exceed $500,000;
(e) fail to make any payment, or permit any of
its ERISA Affiliates to fail to make any payment, to any Multiemployer Plan
that it or any if its ERISA Affiliates may be required to make under such
Multiemployer Plan, any agreement relating to such Multiemployer Plan, or any
law pertaining thereto that could reasonably be expected to have, in the
aggregate, a Material Adverse Effect; or
(f) withdraw, or permit any of its ERISA Affiliates
to withdraw, from any Multiemployer Plan where such withdrawal is likely to
result in any liability which could be expected to have, in the aggregate, a
Material Adverse Effect.
ARTICLE 8. FINANCIAL COVENANTS.
Until termination of this Credit Agreement and payment and
satisfaction in full of all Obligations due hereunder, the Borrowers on their
own behalf and where applicable on behalf of their respective Subsidiaries
jointly and severally covenant and agree that, unless the Lender shall have
otherwise consented in writing:
- 39 -
<PAGE>
8.1. Tangible Net Worth. SCI shall maintain its Tangible Net
Worth determined as of the last day of each calendar month, in an amount not
less than the amount set forth for such month below:
Month End ($000) 1996 1997 1998 1999
April n.a. 30,000 34,000 38,000
May n.a. 30,300 34,400 38,500
June n.a. 30,500 34,800 39,000
July n.a. 30,700 35,200 40,000
August n.a. 31,000 35,600 40,500
September n.a. 31,400 36,000 40,700
October n.a. 31,600 36,400 40,900
November n.a. 32,000 36,800 41,100
December n.a. 32,600 37,200 41,300
January n.a. 32,900 37,400 41,500
February n.a. 33,500 37,400 41,700
March 30,000 33,700 37,400 41,900
- 40 -
<PAGE>
8.2. Current Ratio. SCI shall maintain its ratio of Current
Assets to Current Liabilities determined as of the end of each calendar month,
in an amount not less than the ratio set forth for such month below:
Month End 1996 1997 1998 1999
April n.a. 1.50 1.50 1.50
May n.a. 1.50 1.50 1.50
June n.a. 1.50 1.50 1.50
July n.a. 1.50 1.50 1.50
August n.a. 1.50 1.50 1.50
September n.a. 1.50 1.50 1.50
October n.a. 1.50 1.50 1.50
November n.a. 1.50 1.50 1.50
December n.a. 1.50 1.50 1.50
January n.a. 1.50 1.50 1.50
February n.a. 1.50 1.50 1.50
March 1.50 1.50 1.50 1.50
- 41 -
<PAGE>
8.3. Interest Coverage Ratio. SCI shall maintain its Interest
Coverage Ratio, determined as of the last day of each calendar month for the
rolling twelve-month period then ending, in an amount not less than the ratio
set forth for such month below:
Month End 1996 1997 1998 1999
April n.a. 5.00 6.50 7.00
May n.a. 5.25 6.50 7.00
June n.a. 5.25 6.50 7.00
July n.a. 5.50 6.75 7.00
August n.a. 5.50 6.75 8.00
September n.a. 5.75 6.75 8.00
October n.a. 5.75 7.00 8.00
November n.a. 6.00 7.00 8.00
December n.a. 6.25 7.00 8.00
January n.a. 6.25 7.00 8.00
February n.a. 6.50 7.00 8.00
March 5.00 6.50 7.00 8.00
- 42 -
<PAGE>
8.4. Leverage Ratio. SCI shall maintain its Leverage Ratio
determined as of the last day of each calendar month, in an amount not less
than the ratio set forth for such month below:
Month End 1996 1997 1998 1999
April n.a. 1.60 1.35 1.30
May n.a. 1.60 1.35 1.30
June n.a. 1.55 1.35 1.25
July n.a. 1.55 1.35 1.25
August n.a. 1.50 1.35 1.20
September n.a. 1.50 1.35 1.20
October n.a. 1.45 1.30 1.15
November n.a. 1.45 1.30 1.15
December n.a. 1.40 1.30 1.15
January n.a. 1.40 1.30 1.15
February n.a. 1.35 1.30 1.15
March 1.60 1.35 1.30 1.15
- 43 -
<PAGE>
8.5. Fixed Charge Coverage Ratio. SCI shall maintain its Fixed
Charge Coverage Ratio determined as of the last day of each calendar month for
the rolling twelve-month period then ending, in an amount not less than the
ratio set forth for such month below:
Month End 1996 1997 1998 1999
April n.a. 2.75 2.75 2.75
May n.a. 2.75 2.75 2.75
June n.a. 2.75 2.75 2.75
July n.a. 2.75 2.75 2.75
August n.a. 2.75 2.75 2.75
September n.a. 2.75 2.75 2.75
October n.a. 2.75 2.75 2.75
November n.a. 2.75 2.75 2.75
December n.a. 2.75 2.75 2.75
January n.a. 2.75 2.75 2.75
February n.a. 2.75 2.75 2.75
March 2.50 2.75 2.75 2.75
- 44 -
<PAGE>
8.6. Consolidated Minimum EBITDA. SCI shall maintain EBITDA
determined as of the last day of each calendar month for the rolling
twelve-month period then ending, in an amount not less than the amount set
forth for such month below:
Month End ($000) 1996 1997 1998 1999
April n.a. 7,500 9,000 9,500
May n.a. 7,500 9,000 9,500
June n.a. 7,500 9,000 9,500
July n.a. 7,500 9,000 9,500
August n.a. 7,500 9,000 9,500
September n.a. 7,500 9,000 9,500
October n.a. 8,000 9,500 10,000
November n.a. 8,000 9,500 10,000
December n.a. 8,000 9,500 10,000
January n.a. 8,500 9,500 10,000
February n.a. 8,500 9,500 10,000
March 7,500 9,000 9,500 10,000
- 45 -
<PAGE>
8.7. Consolidated Minimum U.S. EBITDA. The consolidated Borrowers
(but excluding the Foreign Subsidiaries) shall maintain EBITDA determined
(prior to the inclusion of corporate charges) as of the last day of each
calendar month for the rolling twelve-month period then ending, in an amount
not less than the amount set forth for such month below:
Month End ($000) 1996 1997 1998 1999
April n.a. 7,500 9,000 9,500
May n.a. 7,500 9,000 9,500
June n.a. 7,500 9,000 9,500
July n.a. 7,500 9,000 9,500
August n.a. 7,500 9,000 9,500
September n.a. 7,500 9,000 9,500
October n.a. 8,000 9,500 10,000
November n.a. 8,000 9,500 10,000
December n.a. 8,000 9,500 10,000
January n.a. 8,500 9,500 10,000
February n.a. 8,500 9,500 10,000
March 7,500 9,000 9,500 10,000
8.8. Capital Expenditures. The Borrowers and the Foreign
Subsidiaries will not permit their aggregate Capital Expenditures in any
fiscal year specified below to be more than the amounts set forth opposite
such fiscal year:
Fiscal Year Amount
----------- ------
1997 $ 4,000,000
1998 $ 3,000,000
1999 $ 2,000,000
providing, that each such amount shall for the purposes of this Section 8.8
exclude the costs set forth in clause (b) of the definition of "Non-Financed
Captial Expenditures."
8.9. Minimum Cash. At all times the Borrowers shall maintain
in the aggregate in all of their deposit accounts (other than payroll
accounts) cash balances in excess of $2,500,000 or Permitted Cash Investments
in such amount.
- 46 -
<PAGE>
ARTICLE 9. INTEREST, FEES AND EXPENSES.
9.1. Interest on Loans. The Borrowers jointly and severally agree to
pay interest at the Base Rate in respect of (i) the unpaid principal amount of
each Loan from the date the proceeds thereof are made available to any
Borrower until the maturity thereof (whether by acceleration or otherwise) and
(ii) the Reimbursement Obligations from the date of any drawings under a
Letter of Credit. Such Base Rate shall be calculated based on a 360-day year
for the actual number of days elapsed. Interest on the Loans shall be payable
monthly in arrears on the first Business Day of each month, commencing with
the month immediately following the Closing Date, and on the Maturity Date.
9.2. Default Interest. Upon the occurrence of an Event of Default and
at all times thereafter until all Events of Default shall have been cured or
waived, interest shall be payable on demand at a rate per annum equal to the
Base Rate plus 2.00%, on (i) the amount of principal under the Loans
outstanding and, to the fullest extent permitted by law, the amount of any
interest thereon, (ii) the Reimbursement Obligations and (iii) fees, expenses
or other amounts payable hereunder, including any Expenses, that are
outstanding. The rates hereunder shall be calculated based on a 360-day year
for the actual number of days elapsed.
9.3. Closing Fees. On the Closing Date, the Borrowers jointly and
severally shall pay the Lender in immediately available funds an arrangement
fee equal to $125,000 plus 0.5% per annum of the facility amount payable to
the Lender from the date of the initial commitment (May 18, 1995) through the
Closing Date.
9.4. Facility Fee. The Borrowers jointly and severally shall pay the
Lender a facility fee on the average daily unused portion of the Commitment
from the date hereof until the Maturity Date at the rate of 1/2 of 1.00% per
annum. Such fee shall be calculated based on a 360-day year for the actual
number of days elapsed, and shall be payable monthly on the first Business Day
of each month with respect to the prior month, and on the Maturity Date.
9.5. Payment of Expenses. The Borrowers jointly and severally agree
that they shall promptly pay or reimburse the Lender, as the case may be, for
all Expenses as the same are incurred by the Lender, and that on the Maturity
Date all Expenses then unpaid shall be paid in full.
9.6. Gross-up of Interest. If, after the Closing Date, either (i) any
change in or in the interpretation of any law or regulation is introduced or
(ii) the Lender or any banking or financial institution from whom the Lender
borrows funds or obtains credit (a "Funding Bank"), complies with any future
guideline or request from any central bank or other governmental authority or
(iii) a Funding Bank or the Lender determines that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof has or would have the effect
described below, or a Funding Bank or the Lender complies with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, and in the case of
any event set forth in this
- 47 -
<PAGE>
clause (iii), such adoption, change or compliance has or would have the direct
or indirect effect of reducing the rate of return on the Lender's capital as a
consequence of its obligations hereunder to a level below that which the
Lender could have achieved but for such adoption, change or compliance (taking
into consideration the Funding Bank's or the Lender's policies with respect to
capital adequacy) by an amount deemed by the Lender in its sole direction to
be material, and the result of any of the foregoing events described in
clauses (i),(ii) or (iii) is an increase in the cost to the Lender of funding
the Loan, then the Borrowers shall from time to time upon demand by the
Lender, jointly and severally pay to the Lender additional amounts sufficient
to indemnify the Lender against such increased cost. A certificate as to the
amount of such increased cost shall be submitted to the Borrowers by the
Lender and shall be final and conclusive and binding upon all parties hereto
absent manifest error.
9.7. Illegality. Notwithstanding any other provision of this Credit
Agreement, if the introduction of any change in (or in the interpretation of)
any law or regulation makes it unlawful, or any central bank or other
governmental authority asserts that it is unlawful, for the Lender to perform
its obligation hereunder, the obligation of the Lender to make Loans shall be
suspended until the Lender shall notify the Borrowers that the circumstances
causing such suspension no longer exist.
ARTICLE 10. EVENTS OF DEFAULT.
10.1. Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
(a) failure of the Borrowers to pay any of the Obligations
when payable or declared payable hereunder, whether at stated maturity, by
acceleration or otherwise;
(b) (i) failure of any Borrower to perform, comply with or
observe any agreement, term, covenant or agreement contained in Article 7 of
this Credit Agreement; (ii) failure of any Borrower to perform, comply with or
observe any term, covenant or agreement contained in this Credit Agreement
(other than as in Sections 10.1(a) and 10.1(b)(i)) or in any other Credit
Document and such failure shall continue unremedied for a period of ten
Business Days; (iii) the failure of the Borrower to comply with Section 2.3.
(c) any representation or warranty made or deemed made by
any Borrower hereunder or under any other Credit Document or under any
document, instrument or certificate executed by any Borrower in favor of the
Lender, shall prove to have been false or incorrect in any material respect
when made;
(d) any provision of any Credit Document shall for any
reason cease to be valid and binding on or enforceable against any Borrower,
or the validity, binding effect or enforceability thereof shall be challenged
or contested by any Person, or any of the Credit Documents shall be
terminated, invalidated or set aside or in any way cease to give or provide to
the Lender the benefit purported to be created hereby or thereby;
- 48 -
<PAGE>
(e) any Borrower or any Subsidiary of any Borrower shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
under any federal, state or foreign law by or against any Borrower or any
Subsidiary of any Borrower seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or compromise of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or
other similar official for it or for any part of its property, and in the case
of any such proceeding instituted against any Borrower or Subsidiary, either
such proceeding is not dismissed or stayed within 30 days of the date such
proceeding is instituted or any of the actions sought in such proceeding shall
occur; or any Borrower or any Subsidiary of any Borrower shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e); or
(f) the Borrowers and their Subsidiaries collectively suffer
or sustain a Material Adverse Change, including, without limitation, the
termination for any reason whatsoever of a Material Contract;
(g) if at any time the Major Agreement shall cease to exist
or a default is declared thereunder (or is modified in a manner materially
unfavorable to SCI Automotive) and at such time no other similar agreement has
been entered into or annual purchase requirements for the supply by SCI
Automotive of a similar or greater number of airbags exists;
(h) SCI and its consolidated Subsidiaries' independent
public accountants shall refuse to deliver an unqualified opinion with respect
to the financial statements required by this Credit Agreement;
(i) any one or more judgments or orders for the payment of
money shall be rendered against any Borrower or any Subsidiary of any
Borrower, which, either individually or in the aggregate for all of the
Borrowers and all of their Subsidiaries, exceed $250,000, and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order and shall not have been stayed or (ii) such judgment(s) or
order(s) shall not have been vacated, discharged or stayed or bonded pending
appeal within 60 days from the entry thereof;
(j) any non-monetary judgment or order shall be rendered
against any Borrower or any Subsidiary of any Borrower that could be expected
to have, in the aggregate, a Material Adverse Effect, and there shall be any
period of 60 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect and shall not have been vacated or discharged;
(k) any Collateral Document shall for any reason cease to
create a valid and perfected first priority lien and security interest on any
Collateral purported to be covered thereby having an aggregate book value in
excess of $250,000 (subject to the Liens permitted under this Credit
Agreement);
- 49 -
<PAGE>
(l) Robert A. Zummo shall at any time for any reason cease
to be the Chairman of the Board and the Chief Executive Officer of SCI;
(m) Valentec shall cease to be the largest beneficial
shareholder of the outstanding common stock of SCI, par value $.01 per share,
or shall cease to have the ability to nominate a majority of the Board of
Directors of SCI;
(n) SCI shall cease to own directly or indirectly and
control all of the voting power of the shares of capital stock of the other
Borrowers and the Foreign Subsidiaries, or any of such stock becomes subject
to any Lien (other than a Lien in favor of the Lender or any Permitted
Encumbrance, provided, however, that Robert A. Zummo owns and is expected at
all times to own directly one share in SCI Mexico;
(o) (i) any Borrower or Foreign Subsidiary shall default in
the payment of principal of or interest on any Debt (other than the
Obligations) having a principal amount greater than $100,000, individually or
in the aggregate, beyond the period of grace, if any, provided in the
instrument or agreement under which such Debt was created; or (ii) any
Borrower or Foreign Subsidiary shall default in the observance or performance
of any other agreement or condition relating to any such Debt or contained in
any instrument or agreement relating thereto, or any other event shall occur
or condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or holders of such Debt to cause, with the
giving of notice if required, any such Debt to become due prior to its stated
maturity or which could be expected to have, in the aggregate, a Material
Adverse Effect;
(p) any "reportable event" as described in Section 4043 of
ERISA (excluding those events for which the requirement for notice has been
waived by the PBGC), or any other event or condition which the Lender
reasonably determines constitutes reasonable grounds under Section 4042 of
ERISA for the termination of any Pension Plan by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer or liquidate any Pension Plan shall have occurred;
(q) a trustee shall be appointed by a United States District
Court to administer any Pension Plan;
(r) the PBGC shall institute proceedings to terminate any
Pension Plan or to appoint a trustee to administer any Pension Plan;
(s) any Borrower or Foreign Subsidiary or any ERISA
Affiliate of any Borrower or Foreign Subsidiary shall become liable to the
PBGC or any other party under Section 4062, 4063 or 4064 of ERISA with respect
to any Pension Plan; or
(t) any Borrower or Foreign Subsidiary or any ERISA
Affiliate of any Borrower or Foreign Subsidiary shall become liable to any
Multiemployer Plan under Subtitle E of Title IV of ERISA.
- 50 -
<PAGE>
10.2. Acceleration of the Loans; Termination. Upon the occurrence and
continuation of an Event of Default, the Lender may, without prejudice to any
of its other rights under any Credit Document or applicable law: (a) declare
all Obligations to be immediately due and payable, in which case all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, further notice or any other requirement or
obligation, all of which are hereby expressly waived by each Borrower, and the
Commitment shall automatically be terminated; (b) immediately terminate this
Credit Agreement (other than those provisions which are stated to survive any
such termination) and its commitment to make Loans and issue Letters of Credit
hereunder and, thereafter, any Loans made and Letters of Credit issued by the
Lender shall be at the Lender's sole discretion; and/or (c) demand that the
Borrowers provide cover for the Letter of Credit Liabilities, and the
Borrowers shall immediately provide such cover, by paying to the Lender
immediately available funds in an amount equal to the then aggregate Available
Amount of all Letters of Credit, which funds shall be held by the Lender in
the Collateral Accounts (as defined in the Blocked Account Agreement) as
collateral security in the first instance for the Letter of Credit Liabilities
and be subject to withdrawal only as therein provided; provided, however, that
in the case of any of the Events of Default specified in Section 10.1(e) with
respect to any Borrower or Foreign Subsidiary, then, automatically, without
any notice to any Borrower or Foreign Subsidiary or any other act by the
Lender, (i) the Commitment shall thereupon terminate; (ii) all Obligations
shall immediately become due and payable without presentment, demand, protest,
further notice or any other requirement or obligation, all of which are hereby
expressly waived by each Borrower and Foreign Subsidiary; and (iii) the
Borrowers immediately shall provide cover for the Letter of Credit
Liabilities, as set forth above in this Section 10.2.
ARTICLE 11. TERMINATION.
Except as otherwise provided in Article 10 of this Credit Agreement,
this Credit Agreement shall terminate and expire on the Maturity Date, at
which time all Obligations, including, without limitation, the unpaid
principal balance of the Loans, the accrued and unpaid interest thereon and
all unpaid Expenses, shall be due and payable in full.
ARTICLE 12. GUARANTIES
12.1. Guarantees. The Guarantors hereby jointly and severally
guarantee to the Lender and its successors and assigns the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) of
the principal of and interest on the Loans and the Note and all other amounts
from time to time owing to the Lender by any Borrower under this Credit
Agreement and under the Note, in each case strictly in accordance with the
terms thereof (such obligations being herein collectively called the
"Guaranteed Obligations"). The Guarantors hereby further jointly and severally
agree that if the Borrowers shall fail to pay in full when due (whether at
stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Guarantors will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Guaranteed Obligations, the same will be promptly paid
in full when due whether at extended maturity, by acceleration or otherwise)
in accordance with the terms of such extension or renewal.
- 51 -
<PAGE>
12.2. Obligations Unconditional. The obligations of the Guarantors
under Section 12.1 hereof are absolute and unconditional, joint and several,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of any Borrower under this Credit Agreement, the Note or
any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for
any of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Guaranty that the obligations of the
Guarantors hereunder shall be absolute and unconditional, joint and several,
under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the
following shall not alter or impair the liability of the Guarantors hereunder,
which shall remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(b) any of the acts mentioned in any of the provisions of
this Credit Agreement or the Note or any other agreement or instrument
referred to herein or therein shall be done or omitted;
(c) the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Credit
Agreement or the Note or any other agreement or instrument referred to herein
or therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in whole
or in part or otherwise dealt with; or
(d) any lien or security interest granted to, or in favor
of, the Lender as security for any of the Guaranteed Obligations shall fail to
be perfected.
The Guarantors hereby expressly waive diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that the
Lender exhaust any right, power or remedy or proceed against any of the
Borrowers under this Credit Agreement or the Note or any other agreement or
instrument referred to herein or therein, or against any other Person under
any other guarantee of, or security for, any of the Guaranteed Obligations.
12.3. Reinstatement. The obligations of the Guarantors under this
Article 12 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of any Borrower in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any
holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, and the Guarantors
jointly and severally agree that they will indemnify the Lender on demand for
all costs and expenses (including, without limitation, fees and expenses of
counsel) incurred by the Lender in connection with such rescission or
restoration, including any such costs and expenses incurred
- 52 -
<PAGE>
in defending against any claim alleging that such payment consisted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law.
12.4. Subrogation. Each Guarantor hereby waives all rights of
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Bankruptcy
Code) or otherwise by reason of any payment by it pursuant to the provisions
of this Article 12 provided, that such waiver shall cease to be valid upon the
payment in full of the Obligations hereunder; and further agrees with the
Borrowers for the benefit of each of their respective creditors (including,
without limitation, the Lender) that any such payment by it shall constitute a
contribution of capital by such Guarantor to the Borrowers.
12.5. Remedies. The Guarantors jointly and severally agree that, as
between the Guarantors and the Lender, the obligations of the Borrowers under
this Agreement and the Note may be declared to be forthwith due and payable as
provided in Article 10 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Article
10) for purposes of Section 12.1 hereof notwithstanding any stay, injunction
or other prohibition preventing such declaration (or such obligations from
becoming automatically due and payable) as against the Borrowers and that, in
the event of such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and
payable by the Borrowers) shall forthwith become due and payable by the
Guarantors for purposes of said Section 12.1.
12.6. Continuing Guarantee. The guarantee in this Article 12 is
a continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
12.7. Guarantee Obligations. In any action or proceeding involving
any state corporate law, or any state or Federal bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally, if
the obligations of any Guarantor under Section 12.1 would otherwise be held or
determined to be void, invalid or unenforceable, or subordinated to the claims
of any other creditors, on account of the amount of its liability under such
Section 12.1, then, notwithstanding any other provision hereof to the
contrary, the amount of such liability shall, without any further action by
such Guarantor, the Lender or any other Person, be automatically limited and
reduced to the highest amount which is valid and enforceable and not
subordinated to the claims of other creditors as determined in such action or
proceeding. The obligations under this Article 12 of each Guarantor shall be
in addition to its obligations as a Borrower under the other Articles of this
Credit Agreement.
12.8. Execution, Delivery and Performance of Guaranty. Each Guarantor
represents and warrants that it has full right, power and authority to execute
and deliver this Guaranty and to perform its obligations hereunder, and that
this Guaranty has been duly executed and delivered by each Guarantor and is a
valid and legally binding agreement of such Guarantor enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
The execution, delivery and performance by each Guarantor of this
Guaranty, and the consummation of the transactions contemplated hereby,
- 53 -
<PAGE>
will not violate any provision of any agreement to which any Guarantor is a
party, any court or administrative order, decree or ruling, or any applicable
federal, state, foreign, or local law, statute or regulation.
12.9. Representations and Warranties. Each Guarantor hereby
represents and warrants for itself to the Lender (but without duplication) as
to all matters contained in Article 5 herein, and in each other Credit
Document, in each case insofar as they are applicable to such Guarantor or
such Guarantor's properties, together with all related definitions and
ancillary provisions, all of which are hereby incorporated into this Section
12.9 by reference as though specifically set forth in this Section and further
represents and warrants that it has reviewed in full the terms and provisions
of the Credit Agreement.
12.10. Covenants. Each Guarantor agrees with the Lender that, until
the Commitment has been terminated and all Obligations have been paid in full,
such Guarantor will perform, comply with and be bound by all of the
agreements, covenants and obligations contained in the Credit Agreement
applicable to such Guarantor or its properties whether as "Borrower" or as a
"Guarantor" hereunder.
12.11. Collateral Document. This Guaranty is a Collateral Document
delivered as security for the Obligations and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof.
ARTICLE 13. GENERAL PROVISIONS.
13.1. Waiver of Due Diligence, Demand and Protest. The Borrowers and
the Foreign Subsidiaries hereby waive due diligence, demand, presentment and
protest and any notices thereof, including notice of nonpayment. No waiver of
any Event of Default shall extend to any other or further Event of Default. No
delay or omission of the Lender to exercise any right or remedy hereunder,
whether before or after the occurrence of any Event of Default, shall impair
any such right or remedy or shall operate as a waiver thereof or as a waiver
of any such Event of Default. No single or partial exercise by the Lender of
any right or remedy shall preclude any other or further exercise thereof, or
preclude the exercise by the Lender of any other right or remedy. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
13.2. Notices. Any notice or request hereunder shall be in writing
and shall be given to the applicable parties at their addresses set forth on
the signature pages hereof (or such other address as may be specified by such
party in a notice) by registered or certified mail, return receipt requested,
by overnight mail or by telecopy (confirmed by mail). Notices and requests
shall be, in the case of those by mail or overnight mail, deemed to have been
given five days after deposit in the mail, two days after deposit with the
overnight mail carrier, and, in the case of a telecopy, when confirmed, except
that notices to the Lender under Article 3 shall not be effective until
received by the Lender.
- 54 -
<PAGE>
13.3. Assignments and Participations. No Borrower shall have the
right to assign this Credit Agreement or any interest therein. The Lender may
assign its rights and delegate its obligations under this Credit Agreement, in
each case in full or in part, and further may assign or sell participations in
all or any part of any Loans or Letters of Credit to another bank, financial
institution or other entity, in which event (i) in the case of an assignment,
upon written notice thereof by the Lender to the Borrowers, the assignee shall
have, to the extent of such assignment (unless otherwise provided therein),
the same rights and benefits as it would have had if it were the Lender
hereunder, and (ii) in the case of a participation, the participant shall not
have any rights under this Credit Agreement or any other Credit Document (the
participant's rights against the Lender in respect of such participation to be
those set forth in the agreement executed by the Lender in favor of the
participant relating thereto). The Lender may furnish any information
concerning the Borrowers and the Foreign Subsidiaries in possession of the
Lender from time to time to assignees and participants (including prospective
assignees and participants), including, without limitation, the Borrowers' and
the Foreign Subsidiaries' original and revised financial projections, an aging
of their accounts receivable, any and all documentation relating to the Credit
Documents and the results of the Lender's field examination of the Borrowers'
and the Foreign Subsidiaries' operations, facilities, books and records.
13.4. Confidentiality: Exchange of Information.
(a) The Lender agrees to use reasonable precautions to keep
confidential, in accordance with its customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, any non-public information supplied to it by any of the
Borrowers and the Foreign Subsidiaries pursuant to this Agreement which is
reasonably believed by the Lender to be confidential, provided that nothing
herein shall limit the disclosure of any such information (i) to the extent
the Lender reasonably believes such disclosure to be required by statute,
rule, regulation or judicial process, (ii) to counsel for the Lender, (iii) to
bank examiners, auditors or accountants, (iv) to the extent it is compelled by
order of the relevant court in connection with any litigation to which the
Lender is a party, (v) to a subsidiary or affiliate of the Lender as provided
in clause (b) below or (vi) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) is subject to these same confidentiality
requirements.
(b) The Borrowers hereby agree that the Lender may exchange
with any of its affiliates any information concerning the Borrowers and the
Subsidiaries, including, without limitation, information relating to the
creditworthiness of the Borrowers and the Subsidiaries in the possession or
control of the Lender or such affiliate, as the case may be, it being
understood that any such affiliate shall be bound by the provision of clause
(a) above as if it were the Lender.
13.5. Indemnification. The Borrowers shall and hereby do jointly and
severally indemnify, defend and hold harmless the Lender and its affiliates
and its and its affiliates' respective directors, officers, partners, agents,
employees, representatives, counsel, other professionals and controlling
persons (each, an "Indemnified Party") from and against any and all losses,
claims, damages, liabilities, deficiencies, judgments, costs and expenses of
any kind (including, without limitation, amounts paid in settlement, court
costs and the reasonable fees
- 55 -
<PAGE>
and disbursements of counsel and other professionals) (collectively, "Losses")
incurred by or asserted against any Indemnified Party (except to the extent
that such Losses are finally determined in a final, non-appealable judgment by
a court of competent jurisdiction to have resulted from such Indemnified
Party's own gross negligence or willful misconduct) if such Losses relate to
or arise out of or in connection with any suit, action, litigation,
investigation, claim or proceeding, pending or threatened (regardless of
whether the Lender is a party thereto), which in turn relates to or arises out
of or in connection with (i) the Credit Documents or the transactions
contemplated thereby, (ii) any actual or proposed use by the Borrowers and the
Foreign Subsidiaries of the proceeds of the Loans, (iii) the Lender's entering
into this Credit Agreement and the other Credit Documents, (iv) any
Environmental Law, including without limitation, the assertion of any lien
thereunder, with respect to the release, discharge or disposal of any
Hazardous Material, the presence of any Hazardous Material affecting any owned
or leased premises, whether or not the same originates or emerges from such
owned or leased premises or any contiguous real estate, including any loss of
value of such owned or leased premises as a result of the foregoing; and (v)
the execution and delivery or transfer of or payment or refusal to pay by the
Lender under any Letter of Credit. If and to the extent that the obligations
of the Borrowers under this Section are unenforceable for any reason, the
Borrowers jointly and severally agree to make the maximum contribution to the
payment and satisfaction of such obligations that is permissible under
applicable law. The Borrowers' obligations under this Section 13.5 shall
survive any termination of this Credit Agreement and the payment in full of
the Obligations, and are in addition to, and not in substitution of, any other
of its obligations set forth in this Credit Agreement.
13.6. Integration; Amendments; Binding Effect. This Credit Agreement
and the other Credit Documents (i) constitute the entire agreement between the
Borrowers and the Foreign Subsidiaries and the Lender and (ii) supersede any
prior agreements between the Borrowers and the Foreign Subsidiaries and the
Lender. This Credit Agreement may be amended, modified or supplemented, and
any provision thereof may be waived, only by a writing signed by the Borrowers
and the Lender, and shall bind and benefit the Borrowers and the Lender and
their respective permitted successors and assigns, subject, in the case of the
Borrowers to the first sentence of Section 13.3.
13.7. Counterparts. This Credit Agreement may be executed in any
number of 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.
13.8. Severability. In case any provision in or obligation under this
Credit Agreement or the other Credit Documents shall be found or held invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
13.9. Headings Descriptive. The headings of the several sections
and subsections of this Credit Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of
this Credit Agreement.
- 56 -
<PAGE>
13.10. Maximum Rate. Notwithstanding anything to the contrary
contained elsewhere in this Credit Agreement or in any other Credit Document,
the Borrowers and the Lender hereby agree that all agreements between them
under this Credit Agreement and the other Credit Documents, whether now
existing or hereafter arising and whether written or oral, are expressly
limited so that in no contingency or event whatsoever shall the amount paid,
or agreed to be paid, to the Lender for the use, forbearance or detention of
the money loaned to the Borrowers and evidenced hereby or thereby or for the
performance or payment of any covenant or obligation contained herein or
therein, exceed the highest lawful rate of interest permitted to be charged
under applicable law. If due to any circumstance whatsoever, fulfillment of
any provisions of this Credit Agreement or any of the other Credit Documents,
at the time performance of such provision shall be due, shall exceed the
highest lawful rate of interest permitted to be charged under applicable law,
then, automatically, the obligation to be fulfilled shall be modified or
reduced to the extent necessary to limit such interest to the highest lawful
rate of interest permitted to be charged under applicable law, and if from any
such circumstance the Lender should ever receive anything of value deemed
interest by applicable law which would exceed the highest lawful rate of
interest permitted to be charged under such applicable law, such excessive
interest shall be applied to the reduction of the principal amount of the
Loans and the Reimbursement Obligations, and not to the payment of interest,
or if such excessive interest exceeds the principal unpaid balance of the
Obligations then outstanding hereunder and such other then-outstanding
Obligations, such excess shall be refunded to the Borrowers. All sums paid or
agreed to be paid to the Lender for the use, forbearance, or detention of the
Obligations and other indebtedness of the Borrowers to the Lender shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such indebtedness until payment in full so
that the actual rate of interest on account of all such indebtedness does not
exceed the highest lawful rate of interest permitted to be charged under
applicable law throughout the entire term of such indebtedness. The terms and
provisions of this Section shall control every other provision of this Credit
Agreement and all other agreements between the Borrowers and the Lender.
13.11. Right of Setoff. In addition to and not in limitation of all
rights of offset under applicable law, the Lender and its affiliates, upon the
occurrence of any Event of Default (and whether or not the Lender or any such
affiliate has made any demand or the Obligations have matured), shall have the
right and are hereby authorized at any time and from time to time to set off
and otherwise apply to the payment of the Obligations any and all deposits
(general or special, time or demand, provisional or final) then or thereafter
held by and other indebtedness or property then or thereafter owing by the
Lender or any of its affiliates, including without limitation, any and all
amounts in any account maintained with the Lender or any such affiliate by the
Borrowers or any of their Subsidiaries.
13.12. Waiver of Rights. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH BORROWER HEREBY AGREES TO WAIVE, AND DOES HEREBY ABSOLUTELY
IRREVOCABLY WAIVE AND RELINQUISH THE BENEFIT AND ADVANTAGE OF ANY VALUATION,
STAY, APPRAISEMENT, EXTENSION OR REDEMPTION LAWS NOW EXISTING OR WHICH MAY
HEREAFTER EXIST, WHICH, BUT FOR THIS PROVISION, MIGHT BE APPLICABLE TO ANY
SALE MADE UNDER OR PURSUANT TO THE JUDGMENT, ORDER OR DECREE OF ANY COURT, ON
ANY
- 57 -
<PAGE>
CLAIM FOR INTEREST ON THE NOTE. EACH BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THE CREDIT DOCUMENTS, THE LOANS OR THE ACTIONS
OF THE LENDER OR THE BORROWERS IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE
OR ENFORCEMENT THEREOF.
13.13. Governing Law. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS CREDIT AGREEMENT AND EACH OF THE OTHER CREDIT DOCUMENTS SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
13.14. Venue; Service of Process. EACH BORROWER, BY EXECUTION AND
DELIVERY OF THIS CREDIT AGREEMENT, HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK SITUATED IN NEW YORK COUNTY AND THE COURTS
OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK. EACH
BORROWER HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH ANY SUCH ACTION OR
PROCEEDING, (A) ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN
SUCH RESPECTIVE JURISDICTIONS AND (B) THE RIGHT TO INTERPOSE ANY NONCOMPULSORY
SETOFF, COUNTERCLAIM OR CROSS-CLAIM. EACH 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 SUCH BORROWER AT THE ADDRESS FOR IT SPECIFIED IN SECTION
13.2 HEREOF. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE BORROWERS IN ANY OTHER JURISDICTION, SUBJECT
IN EACH INSTANCE TO THE PROVISIONS HEREOF WITH RESPECT TO RIGHTS AND REMEDIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Credit Agreement to be executed and delivered by their proper and duly
authorized officers as of the date first set forth above.
CITICORP USA, INC.
Address: By:
153 East 53rd Street ------------------------------
New York, New York 10022 Name:
Title:
- 58 -
<PAGE>
SAFETY COMPONENTS
INTERNATIONAL, INC.
(as a Borrower)
Address: By:___________________________
3190 Pullman Street Name: W. Hardy Myers
Costa Mesa, Title: Chief Financial Officer
California 92626
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC.
(as a Borrower and as a Guarantor)
Address: By:___________________________
3190 Pullman Street Name: W. Hardy Myers
Costa Mesa, Title: Chief Financial Officer
California 92626
GALION, INC.
(as a Borrower and as a Guarantor)
Address: By:___________________________
515 North East Street Name: W. Hardy Myers
Galion, Ohio 44833 Title: Chief Financial Officer
VALENTEC SYSTEMS, INC.
(as a Borrower and as a Guarantor)
Address: By:___________________________
200 Valley Road Name: W. Hardy Myers
Mt. Arlington, Title: Chief Financial Officer
New Jersey 07856
- 59 -
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
---------------------
- --$10,000,000.00-- New York, New York
March __, 1996
FOR VALUE RECEIVED, the undersigned, SAFETY COMPONENTS INTERNATIONAL,
INC.; AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.; GALION, INC.; and
VALENTEC SYSTEMS, INC., (together with any successors, the "Borrowers"),
hereby jointly, severally and unconditionally promise to pay on the Maturity
Date, as defined in the Credit Agreement between the Borrowers and Citicorp
USA, Inc., dated as of March __, 1996 (the "Credit Agreement"), to the order
of CITICORP USA, INC. (together with any successor, the "Bank"), with offices
located at 153 East 53rd Street, New York, New York 10022, in lawful money of
the United States of America and in immediately available funds, an aggregate
amount equal to the lesser of (a) TEN MILLION DOLLARS ($10,000,000.00) or (b)
the aggregate unpaid principal amount of all Loans made under the Credit
Agreement. The Borrowers further promise to pay interest in like money on the
unpaid principal balance of, and, in certain cases, on the unpaid interest due
on, this Note from time to time outstanding at the rate and times and computed
in the manner provided in the Credit Agreement, but in no event in excess of
the maximum rate of interest permitted under applicable law.
All Loans made by the Bank pursuant to the Credit Agreement and all
payments of the principal thereof shall be endorsed by the holder of this Note
on the schedule annexed hereto (including any additional pages such holder may
add to such schedule), which endorsement shall constitute prima facie evidence
of the accuracy of the information so endorsed; provided, that the failure of
the holder of this Note to insert any date or amount or other information on
such schedule shall not in any manner affect the joint and several obligations
of the Borrowers to repay any Loans in accordance with the terms of the Credit
Agreement.
This Note is the promissory note referred to in the Credit Agreement, is
secured to the extent provided in the Credit Agreement and the other Credit
Documents, and is entitled to the benefits thereof and of the guaranty
contained in the Credit Agreement. The Borrowers shall make when due any and
all payments and prepayments on this Note required under the Credit Agreement.
Reference is herein made to the Credit Agreement for the rights of the holder
to accelerate the unpaid balance hereof prior to maturity and all other
obligations of the Borrowers.
The Borrowers hereby waive diligence, demand, presentment, protest and
notice of any kind, release, surrender or substitution of security, or
forbearance or other indulgence, without notice.
A-1
<PAGE>
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Credit Agreement.
This Note may not be changed, modified, or terminated orally, but only by
an agreement in writing signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS REVOLVING CREDIT
NOTE, THE BORROWERS KNOWINGLY AND VOLUNTARILY WAIVE (TO THE EXTENT PERMITTED
BY APPLICABLE LAW) THE RIGHT TO A TRIAL BY JURY AND THE DEFENSES OF FORUM NON
CONVENIENS AND IMPROPER VENUE. THE BORROWERS HEREBY IRREVOCABLY CONSENT TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF ANY
FEDERAL COURT LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS REVOLVING CREDIT NOTE. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS AND SHALL BE BINDING
UPON THE SUCCESSORS AND ASSIGNS OF THE BORROWER AND INURE TO THE BENEFIT OF
THE LENDER AND ITS SUCCESSORS AND ASSIGNS. If any item or provision of this
Note shall be held invalid, illegal or unenforceable, the validity of all
other terms and provisions herein shall in no way be affected thereby.
IN WITNESS WHEREOF, the Borrowers have executed and delivered this Note
on the date first above written.
SAFETY COMPONENTS INTERNATIONAL,
INC.
By:________________________________
Name: W. Hardy Myers
Title: Chief Financial Officer
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC.
By:________________________________
Name: W. Hardy Myers
Title: Chief Financial Officer
A-2
<PAGE>
GALION, INC.
By:________________________________
Name: W. Hardy Myers
Title: Chief Financial Officer
VALENTEC SYSTEMS, INC.
By:________________________________
Name: W. Hardy Myers
Title: Chief Financial Officer
A-3
<PAGE>
Grid Schedule
Attached to and made part of the Revolving Credit Note, dated March
__, 1996, by SAFETY COMPONENTS INTERNATIONAL, INC.; AUTOMOTIVE SAFETY
COMPONENTS INTERNATIONAL, INC.; GALION, INC.; and VALENTEC SYSTEMS,
INC., to the order of CITICORP USA,INC., pursuant to the Credit
Agreement, dated as of March __, 1996, between such parties.
- -----------------------------------------------------------------------------
Principal Amount Unpaid Name of
Amount Repaid or Principal Person Making
Date Borrowed Prepaid Balance Notation
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
A-4
<PAGE>
EXHIBIT B
NOTICE OF BORROWING
-------------------
CITICORP USA, INC., as "Lender"
and a party to the Credit Agreement
referred to below
- -------------------------
- ------------------------- [Date]
Attention: Mr. Stephen K. Goetschius
Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit
Agreement, dated as of March ___, 1996 (the "Credit Agreement", the terms
defined therein being used herein as therein defined), among the undersigned,
certain other Borrowers and the Bank, and hereby gives you notice,
irrevocably, pursuant to Section 3.1 of such Credit Agreement that the
undersigned hereby requests a Loan under the Credit Agreement, and in that
connection sets forth below the information relating to such Loan (the
"Proposed Borrowing") as required by Section 3.1(b) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing
is __________ ___, 199__.
(ii) The aggregate amount of the Proposed Borrowing is
$__________.
The undersigned hereby certifies that the following
statements are true on the date hereof, and will be true on the date of the
Proposed Borrowing:
(A) the representations and warranties contained in the
Credit Agreement are true and correct in all material respects, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date, except to the
B-1
<PAGE>
extent that such representations and warranties expressly relate solely to an
earlier date (in which case such representations and warranties were true and
correct in all material respects on and as of such earlier date); and
(B) no event has occurred and is continuing, or would result
from such Proposed Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or would constitute an Event
of Default but for the requirement that notice be given or time elapse or
both.
(C) [All of the conditions precedent in Section 2.1 of the
Credit Agreement have been satisfied in full.]
(D) All of the conditions precedent in Section 2.2 of the
Credit Agreement have been satisfied in full.
Very truly yours,
[NAME OF BORROWER]
By: _______________________________
Title:
B-2
PLEDGE AND SECURITY AGREEMENT
made by
SAFETY COMPONENTS INTERNATIONAL, INC.,
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.,
GALION, INC.
and
VALENTEC SYSTEMS, INC.,
as Debtors
in favor of
CITICORP USA, INC.,
as Secured Party
Dated as of March 15, 1996
<PAGE>
PLEDGE AND SECURITY AGREEMENT, dated as of March 15, 1996,
made by SAFETY COMPONENTS INTERNATIONAL, INC., AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC., GALION, INC. and VALENTEC SYSTEMS, INC. (collectively,
the "Debtors") in favor of CITICORP USA, INC., a Delaware corporation (the
"Secured Party"), with offices located at 153 East 53rd Street, New York, New
York 10043.
R E C I T A L S :
- - - - - - - -
A. The Debtors, the Secured Party and the Guarantors (as
defined therein) have entered into a Credit Agreement of even date herewith
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), pursuant to which the Secured Party has agreed to make Loans to
the Debtors, upon the terms and subject to the conditions set forth therein.
B. Each Debtor is the owner of the shares of stock, and of
the warrants, rights and options to acquire the shares of stock (collectively,
the "Pledged Shares"), described opposite such Debtor's name on Part A of
Schedule 6(e) hereto and issued by the corporations named therein.
C. Pursuant to the Credit Agreement, it is a condition
precedent to the obligation of the Secured Party to make the Loans that the
Debtors shall have executed and delivered this Agreement to the Secured Party
and shall have granted the assignment and security interest and made the
pledge and assignment contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing premises
and the agreements, provisions and covenants herein contained, and to induce
the Secured Party to enter into and to make the Loans under the Credit
Agreement, the Debtors hereby agree with the Secured Party as follows:
SECTION 1. Definitions.
(a) General Definitions. Capitalized terms used herein and
not otherwise defined herein shall have the meaning ascribed to them in the
Credit Agreement. For the purposes of this Agreement, the following terms
shall have the following meanings:
Account Collateral means (i) all deposit accounts, all funds
held therein and all certificates and instruments, if any, from time
to time representing or evidencing such deposit accounts, (ii) all
notes, certificates of deposit, deposit accounts, checks and other
instruments from time to time hereafter delivered to or otherwise
possessed by the Secured Party for or on behalf of any Debtor in
substitution for or in addition to any or all of the then existing
Account Collateral, and (iii) all interest, dividends, cash,
instruments and other property and assets from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of the then existing Account Collateral.
<PAGE>
Agreement means this pledge and security agreement, as the
same may be amended, supplemented or otherwise modified from time to
time with the prior written consent of the Debtors and the Secured
Party.
Blocked Account Agreement means the Blocked Account
Agreement dated March 15, 1996 substantially in the form of Exhibit C
to the Credit Agreement.
Books and Records means all books, documents, files and
records pertaining to the Collateral, wherever located, and all
correspondence, ledger sheets, computer files and programs, tapes,
discs, cards, accounting records, customer lists, credit files,
marketing materials and data and all equipment containing any of the
foregoing.
Collateral is defined in Section 2.
Collateral Interests is defined in the Assignment Agreement.
Credit Agreement is defined in the first recital of this
Agreement.
Debtors is defined in the first paragraph of this Agreement.
Equipment means all equipment in all of its forms, all
machinery, furniture, furnishings, spare parts and supplies, all
fixtures, attachments, components, parts, equipment and accessories,
and any and all accessions thereto and additions, substitutions and
replacements thereof, in each case wherever located and whether now
or hereafter existing.
General Intangibles means all general intangibles,
intellectual property, goodwill, Patents, Patent Licenses, Permits
and Licenses, Trademarks, Trademark Licenses, tradenames, service
marks, trade secrets and copyrights now or hereafter
acquired.
Governmental Authority means any nation or government, any
state or other political subdivision thereof and any officer, agency,
department or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
any of the foregoing.
Inventory means inventory in all of its forms, now or
hereafter existing (including, but not limited to, all (i) raw
materials and work in process therefor, finished goods thereof and
materials used or consumed in the manufacture or production thereof,
(ii) goods in which the relevant Person has an interest in mass or a
joint or other interest or right of any kind (including, without
limitation, goods in which such Person has an interest or right as
consignee) and (iii) goods that are returned to or repossessed by
such Person), and all accessions thereto and products and documents
therefor.
Lockboxes are defined in Section 5.
2
<PAGE>
Net Cash Proceeds with respect to any sale or other
disposition of any asset of the Debtors, means (a) the gross amount
of cash or cash equivalents received by the Debtors or by the Secured
Party in connection with such transaction minus (b) the amount, if
any, of all taxes (including the amount, if any estimated by the
Debtors or the Secured Party in good faith at the time of such sale
or other disposition for taxes payable by the Debtors on or measured
by net income or gain resulting from such transaction), fees,
commissions, costs and other expenses which are incurred by the
Debtors or the Secured Party in connection with such transaction, but
only to the extent such amounts are included in the amount referred
to in clause (a) above.
Patent Licenses means all agreements, whether written or
oral, providing for the grant by or to any Debtor of any right to
manufacture, use or sell any invention covered by a Patent,
including, without limitation, any thereof referred to in Schedule
6(j) hereto.
Patents means (a) all letters patent of the United States or
any other country and all reissues and extensions thereof, including,
without limitation, any thereof referred to in Schedule 6(j) hereto,
(b) all applications for letters patent of the United States or any
other country and all divisions, continuations and
continuations-in-part thereof, including, without limitation, any
thereof referred to in such Schedule 6(j) hereto and (c) all letters
patent of the United States or any other country and all renewals and
extensions thereof used by the Debtors or licensed to the Debtors.
Permits and Licenses means (a) all applicable
authorizations, consents, certificates, rights of way permits,
approvals, waivers, exemptions, encroachment agreements, variances,
franchises, permissions, and permits of any Governmental Authority
held by any Debtor and all documents and applications filed in
connection therewith, including, without limitation, any thereof
referred to in Schedule 6(l), and (b) all renewals thereof.
Person means an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an
unincorporated organization and a Governmental Authority.
Pledged Shares is defined in the second recital of this
Agreement.
Proceeds means proceeds of Account Collateral, Books and
Records, Equipment, General Intangibles, Inventory, Receivables and
Security Collateral (including, without limitation, proceeds that
constitute any of the foregoing and all accessions and additions to,
all substitutions for and all proceeds, products, substitutions and
replacements of any and all of the foregoing), and, to the extent not
otherwise included, all proceeds of any and all of the foregoing
Collateral in the form of (a) payments and proceeds of any insurance,
indemnity, warranty or guaranty payable to any Debtor from time to
time with respect to any of the Collateral, whether by reason of loss
or damage or otherwise, (b) payments (in any form whatsoever) made or
due and payable to the Debtors from time to time in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of
all or any part of the Collateral by any Governmental Authority (or
any person acting
3
<PAGE>
under color of Governmental Authority), (c) whatever is received upon
any collection, exchange, sale or other disposition of any of the
Collateral and any property into which any of the Collateral is
converted, whether cash or non-cash proceeds, and (d) any and all
other products of, or any rents, profits or other amounts from time
to time paid or payable under or in connection with any of the
Collateral.
Receivables means all accounts, chattel paper, instruments,
general intangibles, book debts, notes, drafts, documents,
acceptances and other obligations or indebtedness of any kind, now or
hereafter existing, whether or not arising out of or in connection
with the sale, lease or exchange of goods or other property or the
rendering of services (including the extension of credit).
Requirement of Law means as to any Person, the charter and
by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of
an arbitrator or a court or other Governmental Authority, in each
case applicable to or binding upon such Person or any of its property
or to which such Person or any of its property is subject.
Secured Obligations means all obligations and liabilities
(direct or indirect, absolute or contingent, due or to become due or
now existing or hereafter incurred), whether for principal, interest,
premium, fees, indemnity, costs, expenses or otherwise, of the
Debtors under the Credit Agreement, this Agreement and the other
Credit Documents.
Secured Party means Citicorp USA, Inc. and its successors
and assigns.
Security Collateral means:
(i) the Pledged Shares and the
certificates representing the Pledged Shares, and
all dividends, cash, instruments and other property
and assets from time to time received, receivable
or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares (as
more fully described on Schedule 6(e) hereto) and
made a part hereof;
(ii) all additional shares of stock
(preferred and common) and all additional warrants,
rights or options to acquire shares of stock, from
time to time acquired by any Debtor in any manner
and whether in substitution of or exchange for any
of the Pledged Shares, and the certificates
representing such additional shares and such
additional warrants, rights or options and all
dividends, cash, instruments and other property and
assets from time to time received, receivable or
otherwise distributed in respect of or in
substitution or exchange for any or all of such
additional shares or such additional warrants,
rights or options;
(iii) all additional indebtedness and
notes from time to time held by any Debtor in any
manner and the instruments evidencing such
additional
4
<PAGE>
indebtedness, and all interest, cash, installments
and other property and assets from time to time
received, receivable or otherwise distributed in
respect of or in exchange for any or all such
additional promissory notes and debt instruments;
and
(iv) the Collateral Interests and all
other property and assets from time to time
received in respect of the Collateral Interests.
Trademark Licenses means all agreements, whether written or
oral, providing for the grant by or to any Debtor of any right to use
any Trademark, including, without limitation, any thereof referred to
in Schedule 6(j) hereto.
Trademarks means, except with respect to the name "Debtors,"
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers used, owned or
applied for by the Debtors, and the goodwill associated therewith,
now existing or hereafter adopted or acquired, all registrations and
recordings thereof (except in the case of any Trademark License in
which case "Trademarks" shall include only the Debtors' interest
therein), and all applications in connection therewith, whether in
the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise,
including, without limitation, any thereof referred to in Schedule
6(j), and (b) all renewals thereof.
UCC means the Uniform Commercial Code as in effect in the
State of New York; provided, however, that if by reason of any
mandatory provision of law, the perfection or the effect of
perfection or non-perfection of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in
a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction solely for
purposes of the provisions hereof relating to such perfection or
effect of perfection or non-perfection.
(b) Other Definitional Terms. Terms not otherwise defined
herein (either directly or by reference) that are defined in the UCC shall
have the meanings given them in the UCC. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and references to Article, Section, Annex, Schedule, Exhibit and
like references are references to this Agreement unless otherwise specified.
All terms defined in this Agreement in the singular shall have comparable
meanings when used in the plural, and vice versa, unless otherwise specified.
SECTION 2. Grant of Security Interest. As collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Secured
Obligations, the Debtors hereby pledge, assign, transfer and grant to the
Secured Party a continuing first priority a security interest in the
right, title and
5
<PAGE>
interest of each Debtor in, to, under and in connection with
all of the following property (including, without limitation, whether now
owned or at any time hereafter acquired by any or all of the Debtors or in
which any of them now has or at any time in the future may acquire any right,
title or interest) (collectively, the "Collateral"):
(1) all Account Collateral;
(2) all Books and Records;
(3) all Equipment;
(4) all General Intangibles;
(5) all Inventory;
(6) all Permits and Licenses;
(7) all Receivables;
(8) all Security Collateral; and
(9) all Proceeds.
SECTION 3. Rights of Debtor and Secured Party; Limitations
on Debtor Obligations.
(a) Debtors Remain Liable Under Receivables. Anything herein
to the contrary notwithstanding, (a) each Debtor shall remain liable for all
duties and obligations under each Receivable to the extent set forth therein
to observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of each such
Receivable included in the Collateral, (b) the exercise by the Secured Party
of any of the rights hereunder shall not release any Debtor from any of its
duties or obligations under the Receivables (or any agreement giving rise
thereto) and (c) the Secured Party shall not have any obligation or liability
under or in connection with any Receivable (or any agreement giving rise
thereto) by reason of or arising out of this Agreement or the receipt by the
Secured Party of any payment relating to any of the foregoing, nor shall the
Secured Party be obligated in any manner to perform any of the obligations of
any Debtor under or pursuant to any Receivable (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Receivable (or any agreement giving rise
thereto), to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
(b) Notice to Account Debtors. Upon the request of the
Secured Party, after an Event of Default, the Debtors shall notify the account
debtors on the Receivables that the
6
<PAGE>
Receivables have been assigned to the Secured Party, and that payments in
respect thereof shall be made directly to the Secured Party. The Secured Party
may in its own name or in the name of others communicate, with account debtors
on the Receivables, to verify with them to its satisfaction the existence,
amount and terms of any Receivables and/or to notify them of an Event of
Default or to issue payment instructions. In order to facilitate the
communication by the Secured Party described in the immediately preceding
sentence, the Debtors shall provide a schedule of the account debtors on the
Receivables on the Closing Date and the Secured Party may rely upon such
schedule in undertaking such communications, provided, that the Debtors shall
at any time upon the reasonable request of the Secured Party update such
schedule of account debtors on the Closing Date and, if later acquired, upon
receipt thereof by any Debtor.
SECTION 4. Delivery of Security Collateral and Account
Collateral. All certificates and instruments representing or evidencing
Security Collateral or Account Collateral shall be delivered to and held by or
on behalf of the Secured Party pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance satisfactory to
the Secured Party. The Secured Party shall have the right, if an Event of
Default shall have occurred and be continuing, to transfer to or register in
the name of the Secured Party or any of its nominees any or all of the
Security Collateral and the Account Collateral. In addition, the Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Security Collateral or Account Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 5. Collections.
(a) (i) The Debtors shall maintain a deposit account (the
"Blocked Account"), other than the accounts used by such Debtor solely to pay
the salaries and bonuses of its employees in the ordinary course of business
(such other accounts being the "Payroll Accounts"), with a bank (the "Blocked
Bank") that has entered into a Blocked Account Agreement in respect of the
Blocked Account.
(ii) Each Debtor shall maintain a lockbox at the
Blocked Bank (the "Lockbox") and shall immediately deposit all monies received
for any reason from each Person obligated at any time to make any payment to
such Debtor for any reason into such Lockbox. Upon receipt of any funds into
any Lockbox such funds shall be immediately transferred to the Blocked Account
by the Blocked Bank.
(b) Upon any termination of any Blocked Account or Lockbox
or other agreement with respect to the maintenance of a Blocked Account or
Lockbox by any Debtor or any Blocked Bank, the Debtors shall immediately
notify all of the persons referred to in section 5(a)(ii) herein that were
making payments to such Blocked Account or Lockbox to make all future payments
to another Blocked Account or Lockbox. Upon an Event of Default, the Borrower
agrees to terminate Blocked Accounts upon request by the Secured Party.
7
<PAGE>
(c) All Proceeds which are not paid directly into a Lockbox
when collected by or on behalf of any Debtor (whether consisting of checks,
notes, drafts, bills of exchange, money orders, commercial paper of any kind
whatsoever or other documents), shall promptly be deposited by the Debtors in
precisely the form received, except for such Debtors' endorsement when
required, in a Lockbox or directly into the Blocked Account, and until so
turned over, shall be deemed to be held in trust by the Debtors for and as the
property of the Secured Party and shall not be commingled with any funds of
any Debtor. Pursuant to the Blocked Account Agreement, all payments and other
amounts collected in the Lockboxes shall be transferred by the Blocked Banks
into the Blocked Account. All Proceeds and interest thereon in the Blocked
Account shall continue to be collateral security for all of the Secured
Obligations and shall not constitute payment thereof until applied as
hereinafter provided. Pursuant to the Blocked Account Agreement, the Secured
Party shall apply all of the funds on deposit in the Blocked Account and
interest thereon to the Secured Obligations in the manner set forth in Section
14 herein. In no event shall any checks, drafts or other instruments which are
deposited into a Lockbox or the Blocked Account constitute final payment
unless and until such checks, drafts and other instruments have been
collected.
SECTION 6. Representations and Warranties. SCI on behalf
of the Debtors hereby, or as applicable, the Debtors hereby jointly and
severally represent and warrant to the Secured Party that as of the date
hereof:
(a) Title; No Other Liens. The Debtors are the legal and
beneficial owners of and have good and marketable title to each item of
Collateral free and clear of any and all Liens (other than Permitted
Encumbrances) and claims and full right to pledge and assign the Collateral.
No security agreement, financing statement or similar public notice with
respect to all or any part of the Collateral is on file or of record in any
public office, except (A) such as may have been filed in favor of the Secured
Party pursuant to this Agreement or the other Collateral Documents, (B)
Permitted Encumbrances, and (C) for which the Secured Party has received
termination statements (Form UCC-3), duly executed and in proper form for
filing, which termination statements shall be properly filed on or immediately
following the date of the initial borrowing under the Credit Agreement.
(b) Perfected First Priority Liens. The Liens granted to the
Secured Party pursuant to this Agreement will, upon the filing of UCC
financing statements in the filing offices for the relevant jurisdictions
constitute and will continue to constitute valid, perfected and continuing
Liens on the Collateral (other than the Security Collateral and the Account
Collateral) in favor of the Secured Party, which are and shall be prior to all
other Liens (other than the Permitted Encumbrances), and which are enforceable
as such against all creditors of and purchasers from each Debtor (except
purchasers of goods in the ordinary course of business). The delivery to the
Secured Party of the Security Collateral and the Account Collateral along with
executed and undated stock powers or other indicia of ownership and transfer
is effective to create a valid, perfected, first priority security interest in
such Collateral. No other registration, recordation or filing with any
Governmental Authority or any other party is necessary for the validity,
perfection or enforceability of the Liens or this Agreement insofar as such
registration, recordation or filing relates to the Collateral being pledged,
assigned or hypothecated hereunder.
8
<PAGE>
No Collateral or any Proceeds thereof on
the date hereof is evidenced by promissory notes or other instruments which
has not been delivered to the Secured Party.
(c) Receivables. The amount represented by the Debtors to
the Secured Party from time to time as owing by all account debtors in respect
of the Receivables will be materially correct at all times. None of the
Receivables is represented or evidenced by a promissory note, chattel paper or
other instrument which has not been delivered to the Secured Party. No Debtor
nor (to the best of the Debtors' knowledge) any account debtor in respect of
the Receivables is in default or is likely to become in default in the
performance or observance of any of the terms thereof which could reasonably
be expected to materially adversely affect the value of the Receivables (as
Collateral) taken as a whole. The right, title and interest of the Debtors in,
to and under each Receivable is not subject to any default, offset,
counterclaim, defense or claim that could reasonably be expected to materially
adversely affect the value of the Receivables (as Collateral) taken as a
whole, nor have any of the foregoing been asserted or alleged against any
Debtor.
(d) Consents. No authorization, approval or other action by,
and no notice to or filing with, any Governmental Authority or any other third
party is required for (i) the grant by the Debtors of the assignment and
security interest granted hereby, the pledge by the Debtors of the Security
Collateral pursuant hereto or the execution, delivery or performance of this
Agreement by the Debtors, (ii) the perfection or maintenance of the pledge,
assignment and security interest created hereby (including the first priority
nature of such pledge, assignment or security interest) or (iii) the exercise
by the Secured Party of its voting or other rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement (except as may be required in connection with the disposition of any
portion of the Security Collateral by laws affecting the offering and sale of
securities generally), in each case other than the filing of financing and
continuation statements under the UCC, which financing statements will have
been duly filed within three Business Days of the date hereof, and the filing
of termination statements under the UCC, which termination statements shall be
filed on or immediately after the date of the initial Loan. No Debtor has
performed or failed to perform any acts which might prevent the Secured Party
from enforcing any of the terms and conditions of this Agreement or which
could reasonably be expected to limit the Secured Party in any such
enforcement.
(e) Pledged Shares. The Pledged Shares have been duly
authorized and validly issued and are fully paid and nonassessable. SCI is the
legal and beneficial owners of the Pledged Shares free and clear of any lien,
security interest, option or other charge or encumbrance except for the
security interest created by this Agreement and except for Permitted
Encumbrances. No effective financing statement or other instrument similar in
effect covering all or any part of the Pledged Shares is on file in any
recording office. SCI shall not authorize or issue, or cause to be authorized
or issued, any shares of stocks and/or warrants, rights or options in addition
to or in substitution for any of the Pledged Shares. The Pledged Shares
constitute the percentage of the issued and outstanding shares of stock and/or
warrants, rights or options to acquire shares of stock of the issuers thereof
indicated on Schedule 6(e) hereto. SCI shall cause
9
<PAGE>
the relevant Subsidiary to reflect on the applicable Books and Records the
transfer of the Pledged Shares as and when required by this Agreement.
(f) Location of Inventory, Equipment. All of the Inventory
of each Debtor is kept at one or more of the locations listed beneath such
Debtor's name on Schedule 6(f)(i) hereto. All of the Equipment of each Debtor
is kept at one or more of the locations listed beneath such Debtor's name on
Schedule 6(f)(ii) hereto. Each Debtor has exclusive possession and control of
all of its Equipment and Inventory.
(g) Chief Executive Office; Places of Business. Schedule
6(g) sets forth for each Debtor (i) its correct corporate name, its chief
executive office and its principal place of business, (ii) the places where it
has any place of business, (iii) the place where it maintains its Books and
Records, including its records regarding the Receivables, and (iv) the place
where it maintains its chattel paper. No Debtor has any place of business
other than those set forth in such Schedule 6(g) and there are no locations in
which any Debtor has any Collateral other than those locations as identified
to the Secured Party pursuant to the terms hereof.
(h) Legal Name. No Debtor has used any corporate or
fictitious name or trade name other than the corporate name shown on such
Debtor's charter documents other than those set forth in Schedule 6(h) hereto.
(i) Farm Products. None of the Collateral constitutes, or
is the Proceeds of, Farm Products.
(j) Patents and Trademarks. No Debtor has any interest
whatsoever in any Patent, Patent License, Trademark or Trademark License other
than as listed in Schedule 6(j).
(k) Governmental Obligors. Except as set forth on Schedule
6(k), none of the obligors on any Receivable is a Governmental Authority, and
no Governmental Authority is a counterparty to any Contract of any Debtor.
(l) Permits and Licenses. Schedule 6(l) attached hereto
contains a complete and correct list of all Permits and Licenses necessary to
the conduct of the Debtors' businesses and, labelled accordingly, all such
Permits and Licenses sought but not yet obtained by the Debtors. Each Permit
and License listed on such Schedule (other than those identified as sought but
not yet obtained by the Debtors and than those the non-possession of which
would not have a Material Adverse Effect) is valid, subsisting, unexpired and
enforceable, and such Permits and Licenses are the only Permits and Licenses
that are necessary or desirable for the operation of the Debtors' businesses.
No holding, decision or judgment has been rendered by any Governmental
Authority which could reasonably be expected to limit, cancel, question or
otherwise affect the validity of any such necessary Permit or License. No
action or proceeding is pending or, to the best of the Debtors' knowledge,
threatened (i) seeking to limit, cancel, question or otherwise affect the
validity of any such Permit or License or (ii) which, if adversely determined,
could reasonably be expected to have a Material Adverse Effect.
10
<PAGE>
SECTION 7. Further Assurances. The Debtors jointly and
severally covenant and agree with the Secured Party that, from and after the
date of this Agreement until the Secured Obligations are paid in full and the
Commitment is terminated:
(a) Further Documentation; Pledge of Instruments. At any
time and from time to time, upon the request of the Secured Party and at the
sole expense of the Debtors, each Debtor will promptly and duly execute and
deliver such further instruments, agreements and documents and take such
further action as the Secured Party may deem desirable and may request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted, including, without limitation, in order
to perfect and protect any pledge, assignment or security interest granted or
purported to be granted hereunder or hereby (including, without limitation,
the first priority nature thereof), or to enable the Secured Party to exercise
and enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, each Debtor shall promptly:
(i) upon the request of the Secured Party, mark conspicuously each document
included in the Inventory, each chattel paper included in the Receivables,
and, each of the records pertaining to the Collateral with a legend, in form
and substance reasonably satisfactory to the Secured Party, indicating that
such Collateral is subject to the security interest granted or purported to be
granted hereby; (ii) if any Collateral shall be represented or evidenced by a
promissory note or other instrument or chattel paper, deliver and pledge to
the Secured Party within five days of such Debtor's receipt thereof such note,
instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory
to the Secured Party; and (iii) execute and file such mortgages or financing
or continuation statements, or amendments thereto, and such other instruments
or notices, as may be necessary or as the Secured Party may deem desirable.
(b) Each Debtor hereby authorizes the Secured Party to file
one or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral without the signature of any or
all of the Debtors to the extent permitted by applicable law. A carbon,
photographic or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement for filing in any jurisdiction to the extent permitted by
applicable law.
SECTION 8. As to Equipment and Inventory. The Debtors
jointly and severally covenant and agree with the Secured Party that, from and
after the date of this Agreement until the Secured Obligations are paid in
full and the Commitment is terminated:
(a) The Debtors shall promptly furnish to the Secured Party
a statement respecting any loss or damage to any of the Equipment that would
be reasonably likely to impair the value of the Collateral in any material
respect.
(b) Each Debtor shall pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including, without limitation, claims for labor, materials and
supplies) against, the Equipment and Inventory, other than to the extent not
required to be paid under Section 6.11 of the Credit
11
<PAGE>
Agreement. In producing the Inventory, each Debtor shall comply in all
material repsects with all applicable requirements of the Fair Labor Standards
Act.
(c) Each Debtor shall furnish to the Secured Party promptly
after request therefor a report detailing changes in the amount and condition
of the Equipment, including purchases, depreciation, sales and losses.
(d) Each Debtor shall deliver to the Secured Party promptly
after request therefor such warehouse receipts, bills of lading and other
documents of title with respect to Inventory and Equipment as are requested,
together with copies of all invoices with respect to the Inventory and
Equipment.
SECTION 9. Collection of Receivables. Except as otherwise
provided in Section 5 the Debtors shall continue to collect, at their own
expense, all amounts due or to become due them in respect of the Receivables.
In connection with such collections, the Debtors may take (and, at the Secured
Party's direction, shall take) such action as the Debtors or the Secured Party
may reasonably deem necessary or advisable to enforce collection of the
Receivables; provided, however, that the Secured Party shall have the right at
any time, upon the occurrence and during the continuance of an Event of
Default and upon notice to the Debtors of its intention to do so, to notify
the account debtors under any Receivables of the assignment of such
Receivables to the Secured Party and to direct such account debtors to make
payment of all amounts due or to become due to the Debtor thereunder directly
to the Secured Party and, upon such notification and at the expense of the
Debtors, to enforce collection of any such Receivables, and to adjust, settle
or compromise the amount or payment thereof, in the same manner and to the
same extent as the Debtors might have done. After receipt by any Debtor of the
notice from the Secured Party referred to in the proviso to the immediately
preceding sentence, (i) all amounts and proceeds (including instruments)
received by any Debtor in respect of the Receivables shall be received in
trust for the benefit of the Secured Party, shall be segregated from all funds
or other property or assets of each Debtor and shall be forthwith paid over to
the Secured Party in the same form as so received (with any necessary
endorsement or assignment), and (ii) no Debtor shall adjust, settle or
compromise the amount or payment of any Receivable, release any account debtor
thereof, in whole or in part, or allow any credit or discount thereon.
SECTION 10. Other Covenants. The Debtors jointly and
severally covenant and agree with the Secured Party that, from and after the
date of this Agreement until the Secured Obligations are paid in full and the
Commitment is terminated:
(a) Maintenance of Records. The Debtors will keep and
maintain at their own cost and expense, records of the Collateral that are
true, complete and correct in all material respects, including, without
limitation, a record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the Collateral and a
record of the Secured Party's security interest in the Collateral. The Debtors
at their own expense shall deliver to the Secured Party from time to time upon
the Secured Party's request such records of the Collateral. After the
occurrence and during the continuation of an Event of Default, the Debtors,
12
<PAGE>
upon a request of the Secured Party, shall turn over all such records and all
Books and Records related to the Collateral to the Secured Party or to its
representatives.
(b) Right of Inspection. Upon reasonable notice to the
Debtors from the Secured Party, the Secured Party shall have full and free
access, at any reasonable time and as often as may reasonably be requested, to
each Debtor's place of business and all the Books and Records of any Debtors,
and the Secured Party and its representatives or agents may examine the same,
take extracts therefrom and make photocopies thereof, and the Debtors agree to
render to the Secured Party, at the Debtors' cost and expense, such clerical
and other assistance as may be reasonably requested with regard thereto. Upon
reasonable notice to the Debtors from the Secured Party, the Secured Party and
its representatives shall, at any reasonable time and as often as may be
reasonably requested, also have the right to enter into and upon any premises
where any of the Collateral is located for the purpose of inspecting the same,
observing its use or otherwise protecting their interests therein.
(c) Limitation on Disposition of Collateral. The Debtors
will not sell, transfer, lease or otherwise dispose of any of the Collateral,
or attempt, offer or contract to do so, to the extent prohibited by the Credit
Agreement.
(d) Limitations on Discounts, Compromises, Extension of
Receivables. The Debtors will not grant any extension of the time of payment
of any of the Receivables, compromise, compound or settle the same for less
than the full amount thereof, release, wholly or partially, any Person liable
for the payment thereof, or allow any credit or discount whatsoever thereon in
any manner which could reasonably be expected to materially adversely affect
the value of the Collateral as a whole.
(e) Further Identification of Collateral. The Debtors will
furnish to the Secured Party from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Secured Party may request, all in
detail, form and substance reasonably acceptable to the Secured Party.
(f) Notices. The Debtors will advise the Secured Party
promptly of (i) any Lien (other than Liens created hereby or permitted under
the Credit Agreement) on, or claim asserted against, any of the Collateral,
and (ii) the occurrence of any other event which could reasonably be expected
to have a material adverse effect on the Collateral, the value of the
Collateral or the interest of the Secured Party in the Collateral or in the
Liens created hereunder.
(g) Changes in Location, Name, Etc. No Debtor will (i)
change the location of its chief executive office, its principal place of
business or the places where it currently keeps its Books and Records from
those specified in Section 6(g), (ii) permit any of the Inventory or Equipment
to be kept at a location other than those listed on Schedules 6(f)(i) and
6(f)(ii) respectively, or (iii) change its name, identity or corporate
structure in any manner which might make any financing statement filed by the
Secured Party in connection with this Agreement materially misleading, unless,
in each case, it shall have given the Secured Party at least 30 days prior
written notice thereof and at least 10 days prior to effecting any such change
shall have taken all such steps as the Secured Party may deem necessary or
desirable to continue the
13
<PAGE>
perfection and priority of the pledge, assignment and security interest
granted pursuant hereto, including, without limitation, properly amending all
financing statements and properly executing and filing additional financing
statements necessary to maintain at all times the perfection and priority of
the security
14
<PAGE>
interest granted or purported to be granted hereby, shall have provided the
Secured Party with an officer's certificate certifying that such steps have
been taken.
(h) Patents and Trademarks. The Debtors shall report within
five days thereafter each filing of an application for the registration of any
Patent or Trademark with the United States Patent and Trademark Office or any
similar office or agency in any other country or any political subdivision
thereof (whether filed by a Debtor or through any agent, employee, licensee,
designee or any other Person). Upon request of the Secured Party, the Debtors
shall promptly execute and deliver any and all agreements, instruments,
documents and papers as the Secured Party may request to evidence the Secured
Party's security interest in any Patent, Patent License, Trademark or
Trademark License and the goodwill and General Intangibles of the Debtors
relating thereto or represented thereby. Each Debtor hereby constitutes the
Secured Party its attorney-in-fact to execute and file all such writings for
the foregoing purposes if not previously executed by Debtors in a timely
manner, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Secured
Obligations are paid in full and the Commitment is terminated.
SECTION 11. Voting Rights, Dividends, Etc. (a) So
long as no Event of Default shall have occurred and be continuing:
(i) The Debtors shall be entitled to exercise or
refrain from exercising any and all voting and other consensual
rights pertaining to the Security Collateral or any part thereof for
any purpose not expressly prohibited by the terms of this Agreement,
or the other Credit Documents; provided, however, that no Debtor
shall exercise or refrain from exercising any such right if such
action or inaction, as the case may be, could reasonably be expected
to have a Material Adverse Effect.
(ii) The relevant Debtor shall be entitled to receive
and retain any and all dividends, distributions and interest paid in
respect of the Security Collateral; provided, however, that any and
all
(1) dividends and interest paid or
payable other than in cash in respect of, and instruments
and other property and assets received or otherwise
distributed in respect of, or in exchange for, any Security
Collateral,
(2) dividends and other distributions
paid in cash in respect of any Security Collateral in
connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital,
capital surplus or paid-in-surplus, and
(3) cash paid, payable or otherwise
distributed in respect of principal of, or in redemption
of, or in exchange for, any Security Collateral
shall be, and shall be forthwith delivered to the Secured Party to
hold as, Security Collateral and, if received by any Debtor, shall be
received in trust for the benefit of the
15
<PAGE>
Secured Party, shall be segregated from all property and assets or
funds of each Debtor and shall be forthwith delivered to the Secured
Party as Security Collateral in the same form as so received (with
any necessary endorsement or assignment). Promptly upon the request
of the Secured Party, each Debtor shall execute such documents and do
such acts as may be necessary or desirable in the reasonable judgment
of the Secured Party to give effect to this clause (ii). Any and all
money and other property paid over to or received by the Secured
Party pursuant to the provisions of this Section 11(a) shall be
retained by the Secured Party as additional Security Collateral
hereunder and applied in accordance with the provisions hereof.
(iii) The Secured Party shall, if required at any time,
execute and deliver (or cause to be executed and delivered) to the
relevant Debtor all such proxies and other instruments as such Debtor
may reasonably request for the purpose of enabling such Debtor to
exercise the voting and other consensual rights that it is entitled
to exercise pursuant to clause (i) of this Section 11(a) and to
receive the dividends, distributions or interest payments that it is
authorized to receive and retain pursuant to clause (ii) of this
Section 11(a).
(b) If an Event of Default shall have occurred and be
continuing:
(i) All rights of each Debtor to (A) exercise or
refrain from exercising the voting and other consensual rights that
it would otherwise be entitled to exercise pursuant to Section 11
shall be suspended, and in the event such Event of Default is not
cured, cease and (B) receive the dividends, interest payments and
other distributions that it would otherwise be authorized to receive
and retain pursuant to Section 11(a)(ii) shall be suspended, and all
such rights shall thereupon become vested in the Secured Party, which
shall thereupon have the sole right to exercise or refrain from
exercising such voting and other consensual rights and to receive and
retain as Security Collateral such dividends, interest payments and
other distributions.
(ii) All dividends, interest payments and other
distributions that are received by any Debtor contrary to the
provisions of clause (i) of this Section 11(b) shall be received in
trust for the benefit of the Secured Party, shall be segregated from
all property and assets or funds of each Debtor and shall be
forthwith paid over to the Secured Party as Security Collateral in
the same form as so received (with any necessary endorsement or
assignment). Any and all money and other property paid over to or
received by the Secured Party pursuant to the provisions of this
Section 11(b) shall be retained by the Secured Party as additional
Security Collateral hereunder and applied in accordance with the
provisions hereof.
SECTION 12. Secured Party's Appointment as Attorney-in-Fact.
(a) Powers. Each Debtor hereby irrevocably constitutes and
appoints the Secured Party and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such
16
<PAGE>
Debtor and in the name of such Debtor or in its own name, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which the Secured
Party may deem necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting the generality of the foregoing, each Debtor
hereby gives the Secured Party the power and right, on behalf of such Debtor,
without notice to or assent by any Debtor, to the extent permitted by
applicable law as from time to time in effect, to do the following:
(i) to pay or discharge taxes and Liens levied or
placed on or threatened against the Collateral, to effect
any repairs or any insurance called for by the terms of this
Agreement and to pay all or any part of the premiums
therefor and the costs thereof, if not previously paid,
discharged or effected as the case may be, by the Debtors in
a timely manner; and
(ii) upon the occurrence and during the continuance
of any Event of Default: (A) to direct any party liable for
any payment under any of the Collateral to make payment of
any and all moneys due or to become due thereunder directly
to the Secured Party or as the Secured Party shall direct;
(B) to ask for, demand, collect, sue for, recover,
compromise, receive payment of and give receipt for any and
all moneys, claims and other amounts due or to become due at
any time in respect of or arising out of any Collateral, and
to receive, endorse and collect any checks, drafts, notes,
acceptances, instruments, chattel paper and other documents
in connection therewith and to give full discharge for the
same; (C) to sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection
with any of the Collateral; (D) to file any claims, to
commence and/or prosecute any suits, actions or proceedings
at law or in equity and to take any other action, in each
case which the Secured Party may deem necessary or
desirable, to collect the Collateral or any thereof and to
enforce any other right in respect of any such Collateral;
(E) to defend any suit, action or proceeding brought against
the Debtors or any of them with respect to any Collateral;
(F) to settle, compromise or adjust any suit, action or
proceeding described in the preceding clauses and any
threatened suit, action or proceeding and, in connection
therewith, to give such discharges or releases as the
Secured Party may deem appropriate; (G) to assign or license
any Patent or Trademark (along with the goodwill of the
business to which any such Trademark pertains), throughout
the world for such term or terms, on such conditions, and in
such manner, as the Secured Party shall in its sole
discretion determine; and (H) generally, to sell, transfer,
pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as
though the Secured Party were the absolute owner thereof for
all purposes, and to do, at the Secured Party's option and
the Debtors' expense, at any time, or from time to time, all
acts and things which the Secured Party deems necessary or
desirable to protect, preserve or realize upon the
Collateral and the Liens of the Secured Party
37
<PAGE>
to effect the intent of this Agreement, all as fully and
effectively as the Debtors might do.
Each Debtor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) Other Powers. Each Debtor also authorizes the Secured
Party, at any time and from time to time, to execute, in connection with the
sale provided for in Section 14 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on the Part of the Debtors or Secured Party. The
powers conferred on the Secured Party hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for accounting for moneys actually received by the
Secured Party as a result of the exercise of such powers, neither the Secured
Party nor any of its officers, directors, employees, agents, shareholders,
counsel, accountants or other professionals has or shall have any duty as to
any Collateral or as to the taking of any steps to preserve rights against
prior parties or other rights pertaining to any Collateral and none of them
shall be responsible to any Debtor or any other Person for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
SECTION 13. Performance by Secured Party of the Debtors'
Obligations. If any Debtor fails to perform or comply with any of its
agreements contained herein and the Secured Party, as provided for by the
terms of this Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the fees and expenses of the
Secured Party incurred in connection therewith, together with interest thereon
at the Base Rate plus two percent (2%) per annum, shall be payable jointly and
severally by the Debtors to the Secured Party on demand and shall constitute
Secured Obligations secured hereby.
SECTION 14. Remedies. If an Event of Default shall have
occurred and be continuing:
(a) The Secured Party may exercise, in addition to all other
rights and remedies granted to it in this Agreement and otherwise available to
it, all the rights and remedies of a secured party upon default under the UCC,
all of which rights shall be cumulative and non-exclusive. Without limiting
the generality of the foregoing, the Secured Party, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon any
Debtor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby expressly waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give an option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or office of the Secured Party or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit
18
<PAGE>
or for future delivery without assumption of any credit risk. The Secured
Party shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Debtors, which right or equity is hereby waived or released.
Each Debtor further agrees, at the Secured Party's request and at the Debtors'
sole expense, to assemble the Collateral and make it available to the Secured
Party at places which the Secured Party shall reasonably select, whether at
the premises of the Debtors or elsewhere. The Secured Party shall apply the
Net Cash Proceeds of any of the Collateral in the Blocked Account to the
payment in whole or in part of the Secured Obligations, and only after such
application and after the payment by the Secured Party of any other amount
required by any provision of law, including, without limitation, Section
9-504(l)(c) of the UCC, need the Secured Party account for the surplus, if
any, to the Debtors. To the extent permitted by applicable law, each Debtor
waives all claims, damages and demands it may acquire against the Secured
Party arising out of the exercise by the Secured Party of any rights
hereunder, except for acts or failures to act constituting gross negligence or
willful misconduct. Each Debtor agrees that, to the extent notice of any sale
shall be required by law, at least ten days' notice to the Debtors of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Secured Party shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Secured Party may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale,
without further notice, may be made at the time and place to which it was so
adjourned. The Debtors shall remain jointly and severally liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Secured Obligations and the fees and disbursements
of any attorneys employed by the Secured Party to collect such deficiency. The
Debtors further agree that, to enforce the provisions of this Section 14, the
Secured Party is empowered to request the appointment of a receiver from any
court of competent jurisdiction. The Debtors hereby agree to consent to such
appointment and to authorize such an involuntary transfer of control upon the
request of a receiver so appointed.
(b) The Secured Party may exercise any and all rights and
remedies of any Debtor in respect of the Collateral, including, without
limitation, any and all rights of any Debtor to demand or otherwise require
payment of any amount under, or performance of any provision of, any
Collateral.
(c) All Proceeds and other amounts and collections received
by any Debtor in respect of the Collateral shall be received in trust for the
benefit of the Secured Party, shall be segregated from the funds and other
assets and property of each Debtor and shall be forthwith paid over to the
Secured Party in the same form as so received (with any necessary endorsement
or assignment).
(d) Any and all Proceeds and other amounts and collections
received by the Secured Party (whether from any Debtor or otherwise) shall be
deposited in the Blocked Account and shall be applied against the Secured
Obligations (whether matured or unmatured). Any balance of such Proceeds
remaining after the payment of all Secured Obligations shall be paid over to
the Debtors or to whomsoever may be lawfully entitled to receive the same.
19
<PAGE>
SECTION 15. Limitation on the Secured Party's Duty Regarding
Preservation of Collateral. The Secured Party's sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the UCC or otherwise, shall be to deal with
it in the same manner as the Secured Party deals with similar property for its
own account. Neither the Secured Party nor any of its directors, officers,
employees, agents or professionals shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so; nor shall any of them be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Debtors or otherwise.
SECTION 16. Powers Coupled With an Interest. All
authorizations and agencies in favor of the Secured Party herein contained
with respect to the Collateral are powers coupled with an interest and are
irrevocable.
SECTION 17. No Subrogation. Notwithstanding any payment or
payments made by the Debtors hereunder, any setoff or application of funds of
the Debtors by the Secured Party or the receipt of any amounts by the Secured
Party with respect to any of the Collateral, the Debtors shall not be
entitled, and each Debtor hereby waives any right it might otherwise have, to
be subrogated to any of the rights of the Secured Party against any Person or
against any other collateral security held by the Secured Party for the
payment of the Secured Obligations, and no Debtor shall seek, and each Debtor
hereby waives, any right it might otherwise have to, any reimbursement or
contribution from any Person in respect of payments made by the Debtors in
connection with the Collateral, or amounts realized by the Secured Party in
connection with the Collateral.
SECTION 18. Amendments with Respect to the Secured
Obligations. The Debtors shall remain obligated hereunder, and all of the
Collateral shall remain subject to the Liens granted hereby, notwithstanding
that (without any reservation of rights against the Debtors, and without
notice to or further assent by the Debtors) any demand for payment of any of
the Secured Obligations made by the Secured Party may be rescinded by the
Secured Party, and any of the Secured Obligations, or the liability of any
other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered, or released by the Secured
Party, and the Credit Agreement, any other Credit Document and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Secured
Party may deem advisable from time to time in accordance with the provisions
thereof, and any guarantee, right of offset or other collateral security at
any time held by the Secured Party for the payment of the Secured Obligations
may be sold, exchanged, waived, surrendered or released. The Secured Party
shall not have any obligation to protect, secure, perfect or insure any other
Lien at any time held by it as security for the Secured Obligations or any
property subject thereto. The Debtors waive any and all notices of the
creation, renewal, extension or accrual of any of the Secured Obligations and
notice of or proof of reliance by the Secured Party upon this Agreement; the
Secured Obligations shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this Agreement; and all dealings
between the Debtors and the Secured Party shall likewise be conclusively
presumed to have been had or
20
<PAGE>
consummated in reliance upon this Agreement. The Debtors waive diligence,
presentment, protest, demand for payment and notice of default or nonpayment
to or upon the Debtors, or any other Person with respect to the Secured
Obligations.
SECTION 19. No Waiver; Cumulative Remedies. The Secured
Party shall not by any act, delay, indulgence, omission or otherwise, be
deemed to have waived any right or remedy hereunder or under any of the other
Credit Documents or under applicable law or to have acquiesced in any Event of
Default or in any breach of any of the terms and conditions hereof or thereof,
and no waiver shall be valid unless in writing and signed by the Secured
Party, and then only to the extent set forth therein. No failure to exercise,
nor any delay in exercising, on the part of the Secured Party, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Secured Party of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Secured Party would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
This Agreement may not be waived, amended, supplemented or otherwise modified
except in writing signed by the Debtors and the Secured Party.
SECTION 20. Continuing Security Interest; Successors and
Assigns. This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the later of
(i) the cash payment in full of the Secured Obligations and (ii) the Maturity
Date, (b) be binding upon each Debtor and its respective successors and
assigns, provided that none of the Debtors may assign any of their rights or
obligations hereunder, and (c) inure, together with the rights and remedies of
the Secured Party hereunder, to the benefit of, and be enforceable by, the
Secured Party and its successors, transferees and assigns.
SECTION 21. Severability. If any provision of this Agreement
is found or held invalid, illegal or unenforceable in any jurisdiction, such
provision shall be ineffective solely in such jurisdiction and solely to the
extent of such invalidity, illegality or unenforce-ability, and the validity,
legality and enforceability of the remaining provisions, or of such provision
in any other jurisdiction, shall not in any way be affected or impaired
thereby.
SECTION 22. Headings. The section and subsection headings
used in this Agreement are for convenience of reference only and shall not in
any way affect the construction or meaning hereof or be taken into
consideration in the interpretation hereof.
SECTION 23. Governing Law. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAW PRINCIPLES THEREOF.
SECTION 24. Notices. Any notice or request hereunder
shall be in writing and shall be given to (i) the Debtors at their addresses
set forth on the signature pages hereof and (ii)
21
<PAGE>
the Secured Party at its address set forth in the first paragraph of this
Agreement (or, in each case, such other address as may be specified by such
party in a notice) by registered or certified mail, return receipt requested,
by overnight mail or by telecopy (confirmed by mail). Notices and requests
shall be deemed to have been given five days after deposit in the mail, two
days after deposit with the overnight mail carrier, and, in the case of a
telecopy, when confirmed.
SECTION 25. Judicial Proceedings. The Debtors hereby
irrevocably submit to the jurisdiction of, and agree to commence suit only
before, the Courts of the State of New York, New York County, and the United
States District Court for the Southern District of New York, for the purpose
of any suit, action or other proceeding arising out of, or relating to, this
Agreement or the subject matter hereof, and hereby waive, and agree not to
assert, by way of motion, as a defense or otherwise, in any such suit, action
or proceedings, (i) any claim that they are not personally subject to the
jurisdiction of the above-named courts for any reason whatsoever, that such
suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper and (ii) any right which
they may have to a trial by a jury. Any and all service of process and any
other notice in any such action, suit or proceeding shall be effective against
the Debtors if given by registered or certified mail, return receipt
requested, or by any other means or mail which requires a signed receipt,
postage prepaid, mailed to such parties as herein provided in Section 24.
The Debtors hereby agree that the submission to jurisdiction
referred to in this Section 25 shall not limit in any manner the rights of the
Secured Party to take proceedings against the Debtors in some other court of
competent jurisdiction whether within or outside the United States.
SECTION 26. Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original, but all of which shall constitute one and the
same instrument.
SECTION 27. Mortgage. In the event that any of the
Collateral hereunder is also subject to a valid and enforceable Lien under the
terms of the Mortgage and the terms of the Mortgage are inconsistent with the
terms of this Agreement, then, with respect to such Collateral, the terms of
such Mortgage shall be controlling in the case of fixtures and leases, letting
and licenses of, and contracts and agreements relating to, the real property,
and the terms of this Agreement shall be controlling in the case of all other
Collateral.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their duly authorized officers
as of the date and year above first written.
CITICORP USA, INC.
By:
----------------------------------------
Name:
Title:
Address:
SAFETY COMPONENTS
INTERNATIONAL, INC.
By:
----------------------------------------
Name:
Title:
Address:
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC.
By:
----------------------------------------
Name:
Title:
Address:
GALION, INC.
By:
----------------------------------------
Name:
Title:
Address:
VALENTEC SYSTEMS, INC.
By:
----------------------------------------
Name:
Title:
Address:
23
EXHIBIT 11
SAFETY COMPONENTS INTERNATIONAL, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Primary Fully Diluted
-------------- --------------
Year Ended Year Ended
March 31, 1996 March 31, 1996
-------------- --------------
<S> <C> <C>
Net income......................................................... $4,914 $4,914
====== ======
Pro forma weighted average common and common equivalent
shares outstanding
Shares outstanding from beginning of period................... 4,060 4,060
Pro rata shares
Pro forma shares required to retire outstanding debt.......... - -
Capital contribution.......................................... 0 0
Sales of stock................................................ 840 840
Purchase of treasury stock.................................... (22) (22)
Assumed exercise of warrants using the treasury stock
method........................................................ 27 29
Assumed exercise of stock options using the treasury stock
method........................................................ 76 78
----- -----
Pro forma weighted average common and common
equivalent shares outstanding................................. 4,981 4,985
===== =====
Pro forma earnings per common and common equivalent
share.............................................................. $ .99 $ .99
===== =====
</TABLE>
EXHIBIT 21.1
Subsidiaries of the Registrant
Automotive Safety Components International, Inc. (Delaware)
Automotive Safety Components International Limited (United Kingdom)
Automotive Safety Components International, S.A. de C.V. (Mexico)
Automotive Safety Components International, s.r.o. (Czech Republic)
Galion, Inc. (Delaware)
Valentec Systems, Inc. (Delaware)
Automotive Safety Components International GmbH (Germany)
Acquisition GmbH and Co. K G (Germany)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-04709) of our report dated April 30, 1996,
except as to Note 12, which is as of July 11, 1996 appearing on page F-2 of
Safety Components International, Inc.'s Annual Report on Form 10-K for the year
ended March 31, 1996.
PRICE WATERHOUSE LLP
July 11, 1996
Costa Mesa, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of the Regulation S-X
(In 000's, except earnings per share data)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,033
<SECURITIES> 0
<RECEIVABLES> 16,614
<ALLOWANCES> 0
<INVENTORY> 5,315
<CURRENT-ASSETS> 34,887
<PP&E> 14,364
<DEPRECIATION> 2,172
<TOTAL-ASSETS> 49,831
<CURRENT-LIABILITIES> 9,820
<BONDS> 3,087
<COMMON> 51
0
0
<OTHER-SE> 35,293
<TOTAL-LIABILITY-AND-EQUITY> 49,831
<SALES> 94,942
<TOTAL-REVENUES> 94,942
<CGS> 81,908
<TOTAL-COSTS> 87,338
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> 8,030
<INCOME-TAX> 3,116
<INCOME-CONTINUING> 4,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,914
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.99
</TABLE>
