<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File No. 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
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 13, 1996
- -------------------------------------- ------------------------------
Common Stock, par value $.01 per share 5,025,008 shares
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
- ------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1996 (Unaudited)
and March 31, 1996............................................ 3
Consolidated Statements of Operations -- Three months
ended June 30, 1996 (Unaudited) compared to the three
months ended June 30, 1995 (Unaudited)........................ 4
Consolidated Statements of Cash Flows -- Three Months
ended June 30, 1996 (Unaudited) compared to the three months
ended June 30, 1995 (Unaudited)............................... 5
Condensed Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 8
PART II. OTHER INFORMATION:
- --------------------------
Item 6. Exhibits and Reports on Form 8-K................................. 11
SIGNATURE................................................................. 11
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......... $ 5,461 $ 12,033
Accounts receivable (Note 3)....... 15,965 16,614
Inventories (Note 3)............... 5,091 5,315
Prepaid and other.................. 2,137 925
-------- --------
Total current assets.......... 28,654 34,887
Property, plant and equipment........ 13,958 12,192
Other assets......................... 4,525 2,752
-------- --------
Total assets.................. $ 47,137 $ 49,831
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 4,969 $ 8,066
Accrued liabilities................ 655 1,057
Current portion of long-term
obligations...................... 734 697
-------- --------
Total current liabilities..... 6,358 9,820
Long-term obligations................ 3,264 3,087
Other long-term liabilities.......... 1,579 1,580
-------- --------
Total liabilities............. 11,201 14,487
Stockholders' equity:
Common stock, $.01 par value per
share, authorized 10,000,000
shares, issued and outstanding
5,025,008 shares at June 30, 1996
and 5,048,500 shares at March 31,
1996............................. 51 51
Common stock warrants.............. 1 1
Additional paid-in capital......... 30,058 30,058
Treasury stock, 113,492 shares at
June 30, 1996 and 90,000 shares
at March 31, 1996, at cost....... (1,647) (1,379)
Retained earnings.................. 7,832 6,979
Cumulative translation adjustment.. (359) (366)
-------- --------
Total stockholders' equity....... 35,936 35,344
-------- --------
Total liabilities and
stockholders' equity............. $ 47,137 $ 49,831
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
ended ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Net sales...................... $ 16,172 $ 23,683
Cost of sales.................. 13,580 20,650
--------- ---------
Gross profit................. 2,592 3,033
Selling and marketing expense.. 302 233
General and administrative
expense...................... 844 1,238
--------- ---------
Operating income............. 1,446 1,562
Other expense (income)......... 64 (132)
Interest expense, net of
interest income.............. 10 63
--------- ---------
Income before income taxes..... 1,372 1,631
Provision for income taxes..... 519 584
--------- ---------
Net income................... $ 853 $ 1,047
========= =========
Earnings per common and common
equivalent share (Note 1).... $ .17 $ .24
========= =========
Weighted average common and
common equivalent shares
(Note 1)..................... 5,069,434 4,299,549
========= =========
</TABLE>
See condensed notes to consolidated financial statements.
4
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net income............................. $ 853 $ 1,047
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation....................... 337 221
Changes in assets and liabilities:
Accounts receivable.............. 527 (3,137)
Inventories...................... 257 423
Prepaids and other............... (1,199) (1,158)
Accounts payable................. (3,105) 3,079
Accrued liabilities.............. (405) 233
Other assets and liabilities..... (1,789) 100
-------- -------
Net cash provided by (used for)
operating activities....... (4,524) 808
-------- -------
Cash flow from investing activities:
Additions to property, plant and
equipment.............................. (2,047) (459)
-------- -------
Cash flow from financing activities:
Net proceeds from sale of common stock. 16,568
Purchase of treasury stock.............. (268)
Repurchase of stock warrants............ (94)
Net borrowings under revolver........... 360
Net borrowings (payments) under
long-term obligations................. (172) 639
-------- -------
Net cash provided by (used for)
financing activities........ (80) 17,113
-------- -------
Effect of exchange rate changes on cash... 79 (26)
-------- -------
Change in cash and cash equivalents....... (6,572) 17,436
Cash and cash equivalents, beginning of
period.................................. 12,033 3,846
-------- ------
Cash and cash equivalents, end of period.. $ 5,461 $ 21,282
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
5
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The information contained in the following Condensed Notes to Consolidated
Financial Statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements and related notes thereto contained in the
1996 annual report on Form 10-K of Safety Components International, Inc. (the
Company) for the year ended March 31, 1996. The Company has experienced, and
expects to continue to experience, variability in net sales and net income from
quarter to quarter. Therefore, the results of the interim periods presented
herein are not necessarily indicative of the results to be expected for any
other interim period or the full year.
The consolidated financial information as of and for the three months ended
June 30, 1996 and for the three months ended June 30, 1995 included herein is
unaudited but includes all normal recurring adjustments which, in the opinion of
the Company, are necessary to present fairly the consolidated financial position
of the Company as of June 30, 1996 and the results of its operations and of its
cash flows for the three months ended June 30,1996 and June 30, 1995,
respectively.
2. PUBLIC OFFERINGS
On June 21, 1995, the Company completed an equity 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 were to be sold by the Company and 150,000 shares
were sold by Valentec International Corporation and other selling shareholders)
at the Offering Price, less underwriting discounts. The entire option was
exercised within the 30 day period.
3. ACCOUNTS RECEIVABLE AND INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
------------- --------------
<S> <C> <C>
Accounts receivable:
Billed receivables................ $ 3,677 $ 4,779
Unbilled receivables (net of
unliquidated progress
payments of $33,422 and $30,945
at June 30, 1996 and March 31,
1996, respectively)............. 8,798 8,588
Other............................. 3,490 3,247
-------- --------
$ 15,965 $ 16,614
======== ========
Inventories:
Raw materials..................... $ 2,493 $ 2,297
Work-in-process................... 1,829 1,958
Finished goods.................... 769 1,060
-------- --------
$ 5,091 $ 5,315
======== ========
</TABLE>
6
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. SUBSEQUENT EVENTS
On August 6, 1996 the Company completed the acquisition of Phoenix Airbag
GmbH, a major European manufacturer of airbags located in Hildesheim Germany.
Pursuant to the Stock Purchase Agreement, the Company initially acquired eighty
percent (80%) of Phoenix AG's interest in Phoenix Airbag GmbH for a purchase
price of approximately $22 million, subject to a net worth adjustment. The
Company will acquire the remaining twenty percent (20%) interest effective
December 31, 1998, but would will be entitled to all of the income of Phoenix
Airbag GmbH from the date of the acquisition. The additional purchase price of
up to approximately $7.5 million for the remaining twenty percent (20%) interest
is contingent on Phoenix Airbag GmbH meeting certain annual performance targets
for the calendar years 1996 through 1998. If the annual performance targets are
met, the contingent purchase price will be paid in three annual installments
commencing April 30, 1997. If the annual performance targets are not met, the
Company will acquire the remaining twenty percent (20%) without additional
consideration. Additionally, the Company will, under certain circumstance, be
required to provide a bank guaranty, in August 1997, to secure the payment of up
to approximately $4.5 million of the contingent purchase price. On August 1,
1996, in conjunction with the acquisition, the Company entered into a new credit
agreement with Bank of America National Trust and Saving Association to provide
financing for the acquisition in the form of a $20 million acquisition term
loan, amortizing over a period of four years. In connection with such term loan,
the Company obtained a new $5.5 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 credit
agreement calls for interest at the US prime rate or a LIBOR indexed rate at the
Company's option, and is secured by substantially all of the assets of the
Company.
7
<PAGE>
ITEM 2.
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
financial statements and the condensed notes thereto, appearing elsewhere in
this Report.
Automotive Division. The Automotive Division commenced operations as part of
Valentec International Corporation ("Valentec") in May 1992. Product
qualification procedures commenced and production began in July 1992 with the
first significant sales beginning in October 1992. In March 1993, the Company
signed a five-year requirements contract with TRW Vehicle Safety Systems, Inc.
("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 operation
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 US
for TRW in April 1994. In September 1995, the Company was awarded a purchase
order from Delphi Interior Lighting, a subsidiary of General Motors Corporation,
pursuant to which Delphi has committed to purchase from the Company
approximately 50% of Delphi's requirements for its C/K Truck models for model
year 1997.
As the Company continues to expand worldwide, it will continue to
experience variability in its operating results. The Company recently acquired
Phoenix Airbag GmbH ("Phoenix") and may incur additional costs associated with
the integration and the administration of the acquired operations. In addition,
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 shipment 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 automotive industry.
Defense Division. Historically, the demand for the Defense Division's products
has been driven primarily by the US Government's purchase of small and medium
caliber military ammunition. In September 1994, the Company was awarded a
systems contract for $60 million by the US Army for the delivery of 120 mm
mortar cartridges (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 a 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 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 orders could adversely affect the level of sales in the Company's
Defense division upon completion of the current Systems Contract.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995.
Net Sales. Net sales for the Automotive division decreased to $11,333,000 for
the three months ended June 30,1996 from $13,431,000 for the same period in the
prior year. Automotive sales were lower primarily due to reduced material
prices, which are generally passed along to the Company's customers, including
TRW, offset, to a certain extent, by higher airbag until volumes, including the
Company's first volume shipments to Delphi Interior and Lighting during the
quarter. Period to period, the Company's unit sales volume increased by
approximately 17%, as significant increases in the Automotive Division's sales
in North America were slightly offset by lower unit sales in Europe.
8
<PAGE>
Net sales for the Defense Division decreased to $4,839,000 for the three
months ended June 30, 1996 from $10,252,000 for the same period in the prior
year. Defense sales were down reflecting the current contract schedule for the
Systems Contract, which has been delayed as a result of certain issues between
one of the Company's subcontractors and the US Army. As a result of these
issues, the US Army has extended the time for the delivery and the Company now
anticipates that deliveries will begin towards the end of its fiscal year. The
reduced sales volume under the Systems Contract was partially offset by the
increased sales of metal ordnance products.
Gross Profit. Gross profit of the Automotive Division decreased to $1,770,000
for the three months ended June 30, 1996 from $1,883,000 for the same period in
the prior year. The decrease in gross profit resulted primarily from lower unit
sales volumes in Europe, partially offset by increased sales volumes in North
America and ongoing cost reduction programs period to period. Gross profit as a
percentage of sales increased to approximately 15.6% for the three months ended
June 30, 1996 from approximately 14.0% for the three months ended June 30, 1995.
Gross profit for the Defense Division decreased to $822,000 for the three
months ended June 30, 1996 from $1,150,000 for the same period in the prior
year. Gross profit decreased period to period reflecting the lower sales due to
delays in the contract schedule for the Systems Contract, partially offset by
improved margins on metal ordnance products resulting from increased sales
volumes, improved overhead absorption and a change in product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the Automotive Division decreased to $726,000 for
the three months ended June 30, 1996 from $1,091,000 for the same period in the
prior year. The decrease resulted primarily from cost reduction programs and, to
a lesser extent, from increased efficiencies associated with higher unit sales
volumes, and lower corporate overhead expenses.
Selling, general and administrative expenses for the Defense Division
increased to $420,000 for the three months ended June 30, 1996 from $380,000 for
the same period in the prior year. The increase reflected higher expenses for
bid and proposal costs associated with the Company's continuing efforts to
obtain additional systems contracts, offset by lower corporate overhead
expenses.
Operating Income. Operating income for the Automotive Division increased to
$1,044,000 for the three months ended June 30, 1996 from $792,000 for the same
period in the prior year. The increase period to period resulted primarily from
the continued improvement in the profitability of the manufacturing operations
due to higher unit sales volume and greater efficiencies, partially offset by
lower revenue levels primarily in Europe.
Operating income for the Defense Division decreased to $402,000 for the
three months ended June 30, 1996 from $770,000 for the same period in the prior
year. Operating income decreased reflecting lower sales due to delays in the
current contract schedule for the Systems Contract, partially offset by improved
margins on metal ordnance products, resulting from increased sales volumes,
improved overhead absorption and product mix.
Net Income. Net income decreased to $853,000 for the three months ended June 30,
1996 from $1,047,000 for the same period in the prior year. The income tax
provision was calculated using a 39% combined federal and state income tax rate
for the U.S. operations and a 33% rate for the European operations. Other
expense was $64,000 for the three months ended June 30, 1996 compared to
$132,000 of income for the same period in the prior year. The changes in other
expense/income are primarily the result of fluctuations of the German Mark
against the British Pound Sterling. The majority of the Automotive Division's
transactions in Europe are conducted in German Marks.
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 expects its
equipment and working capital requirements to continue to increase as a result
of the anticipated growth of the Automotive Division.
9
<PAGE>
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, including the
construction of a new facility in the Czech Republic, and the enhancement of
research and development and prototype capabilities.
On August 6, 1996, the Company completed its acquisition of Phoenix Airbag
GmbH, a major European airbag manufacturer located in Hildesheim, Germany.
Pursuant to the Stock Purchase Agreement, the Company initially acquired eighty
percent (80%) of Phoenix AG's interest in Phoenix Airbag GmbH for a purchase
price of approximately $22 million, subject to a net worth adjustment. The
Company will acquire the remaining twenty percent (20%) interest effective
December 31, 1998, but is entitled to all of the income of Phoenix Airbag GmbH
from the date of the acquisition. The additional purchase price of up to
approximately $7.5 million for the remaining twenty percent (20%) interest is
contingent on Phoenix Airbag meeting certain annual performance targets for the
calendar years 1996 through 1998. If the annual performance targets are met, the
contingent purchase price will be paid in three annual installments commencing
April 30, 1997. If the annual performance targets are not met, the Company will
acquire the remaining twenty percent (20%) without any additional consideration.
Additionally, the Company will, under certain circumstance, be required to
provide a bank guaranty, in August 1997, to secure the payment of up to
approximately $4.5 million of the contingent purchase price.
On August 1, 1996, the Company entered into a Loan Agreement with Bank of
America National Trust and Savings Association. This loan agreement replaces the
$10 million credit facility the Company had with Citicorp USA, Inc., pursuant to
a credit agreement, dated March 15, 1996. The Loan Agreement provides the
Company with financing for the acquisition of Phoenix Airbag GmbH in the form of
a $20 million acquisition term loan, amortizing over a four year period. The
Loan Agreement also provides for a $5.5 million revolving 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
Airbag GmbH. (The term loan, revolving credit facility and stand-by letter of
credit facility are collectively referred to a the "New Credit Facility".)
Indebtedness under the New Credit Facility is secured by substantially all the
assets of the Company and bears interest at the US prime rate or a LIBOR indexed
rate, at the Company's option. The New Credit Facility contains certain
financial covenants, including limitations on indebtedness and liens, fixed
charge coverage ratios, maximum leverage, minimum ratio of current assets to
current liabilities, minimum tangible net worth and restrictions as to the
payment of dividends.
The Company, as of June 20, 1996, has outstanding commitments for capital
expenditures for additional property, plant and equipment of $7.5 million, which
includes the construction of the Czech facility and the acquisition of
additional equipment to expand the Company's production capacities worldwide.
The Company will pay for these capital expenditures through the use of cash on
hand and additional equipment financing.
Statement in this Form 10-Q which are not historical statements may contain
forward-looking statements that involve risks and uncertainties, including, but
not limited to, the impact of competitive products and pricing, product demand
and market condition risks, cost associated with integration and administration
of acquired operations, the timing of introduction of new models of automobiles
for which the Company manufactures airbags, changes in consumer vehicle
preferences, major labor disputes in the automotive industry, changes in the
strategic direction of defense spending, the timing of defense procurement and
specific defense program appropriation decisions.
10
<PAGE>
PART II--OTHER INFORMATION
Items 1 through 5 are omitted as they are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Loan Agreement between the Company, Automotive Safety Components
International, Inc. and ASCI Holdings Germany (DE), Inc. and Bank
of America National Trust and Savings Association dated August 1,
1996
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K -- None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SAFETY COMPONENTS INTERNATIONAL, INC.
-------------------------------------
Date: August 14, 1996 BY: /s/ W. Hardy Myers
--------------- --------------------------------
W. Hardy Myers
Chief Financial Officer
(Principal Accounting Officer)
11
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
10 Loan Agreement between the Company, Automotive
Safety Components International, Inc. and ASCI
Holdings Germany (DE), Inc. and Bank of America
National Trust and Savings Association dated
August 1, 1996
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
12
<PAGE>
_________________________________________________________________________
_________________________________________________________________________
LOAN AGREEMENT
Dated as of August 1, 1996
between
SAFETY COMPONENTS INTERNATIONAL, INC.
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.
and
ASCI HOLDINGS GERMANY (DE), INC.
(as joint and several "Borrowers")
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
as sole initial Bank and Collateral Agent
_________________________________________________________________________
_________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS.................................. 1
1.1 Defined Terms..................................................... 1
1.2 Use of Defined Terms.............................................. 34
1.3 Accounting Terms.................................................. 34
1.4 Rounding.......................................................... 34
1.5 Exhibits and Schedules............................................ 34
1.6 Miscellaneous Terms............................................... 34
ARTICLE 2 LOANS AND LETTERS OF CREDIT....................................... 35
2.1 Loans-General..................................................... 35
2.2 Base Rate Loans................................................... 36
2.3 Eurodollar Rate Loans............................................. 36
2.4 Redesignation of Loans............................................ 37
2.5 Letters of Credit................................................. 37
2.6 Voluntary Reduction of the Line A Commitment...................... 40
2.7 Annual Clean-Up of Loans the Line A Commitment.................... 40
2.8 Automatic Reduction of the Line A Commitment...................... 40
2.9 Automatic Reduction of the Line B Commitment...................... 40
2.10 Collateral....................................................... 40
ARTICLE 3 PAYMENTS AND FEES................................................. 41
3.1 Principal and Interest............................................ 41
3.2 Certain Fees...................................................... 43
3.3 Commitment Fees................................................... 43
3.4 Letter of Credit Fees............................................. 44
3.5 Termination Fees.................................................. 44
3.6 Capital Adequacy.................................................. 45
3.7 Eurodollar Fees and Costs......................................... 45
3.8 Post Default Interest and Late Payments........................... 48
3.9 Computation of Interest and Fees.................................. 48
3.10 Non-Banking Days................................................. 48
3.11 Manner and Treatment of Payments................................. 48
3.12 Funding Sources.................................................. 49
3.13 Failure to Charge Not Subsequent Waiver.......................... 49
3.14 Authority to Charge Account...................................... 49
3.15 Survivability.................................................... 50
3.16 Facilities Coterminous........................................... 50
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.................................... 52
4.1 Existence and Qualification; Power; Compliance
With Laws...................................................... 52
4.2 Authority; Compliance With Other Agreements and
Instruments and Government Regulations......................... 53
4.3 No Governmental Approvals Required................................ 53
4.4 Subsidiaries...................................................... 54
4.5 Financial Statements.............................................. 55
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
4.6 No Other Liabilities; No Material Adverse
Effect......................................................... 55
4.7 Title to and Location of Property................................. 55
4.8 Real Property..................................................... 55
4.9 Intangible Assets................................................. 55
4.10 Governmental Regulation.......................................... 56
4.11 Litigation....................................................... 56
4.12 Binding Obligations.............................................. 56
4.13 No Default....................................................... 56
4.14 ERISA............................................................ 56
4.15 Regulations G, T, U and X........................................ 58
4.16 Disclosure....................................................... 58
4.17 Tax Liability.................................................... 58
4.18 Projections...................................................... 58
4.19 Security Interests............................................... 59
4.20 Hazardous Materials.............................................. 59
4.21 Material Contracts............................................... 60
4.22 Labor Relations.................................................. 60
4.23 Operating Leases................................................. 61
4.24 Intercompany Notes............................................... 61
ARTICLE 5
AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING
REQUIREMENTS)............................................................... 62
5.1 Payment of Taxes and Other Potential Liens........................ 62
5.2 Preservation of Existence......................................... 62
5.3 Maintenance of Properties......................................... 62
5.4 Maintenance of Insurance.......................................... 63
5.5 Compliance With Laws.............................................. 63
5.6 Inspection Rights................................................. 63
5.7 Keeping of Records and Books of Account........................... 64
5.8 Compliance With Agreements........................................ 64
5.9 Use of Proceeds................................................... 64
5.10 Hazardous Materials Laws......................................... 65
5.11 Further Assurances............................................... 65
5.12 Deposit Accounts, Collection Accounts and the
Concentration Account.......................................... 66
5.13 Holding Companies................................................ 67
5.14 New Subsidiaries................................................. 67
5.15 Military Export Licenses......................................... 67
ARTICLE 6 NEGATIVE COVENANTS................................................ 68
6.1 Disposition of Property........................................... 68
6.2 Mergers........................................................... 68
6.3 Acquisitions and Investments...................................... 68
6.4 Distributions..................................................... 69
6.5 ERISA............................................................. 70
6.6 Change in Name; Nature of Business................................ 71
6.7 Indebtedness and Contingent Obligations........................... 71
6.8 Liens; Negative Pledges; Sales and Leasebacks..................... 72
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
6.9 Transactions with Affiliates...................................... 73
6.10 Capital Expenditures............................................. 73
6.11 Minimum Fixed Charge Coverage Ratio.............................. 74
6.12 Maximum Leverage Ratio........................................... 75
6.13 Minimum Liquidity Ratio.......................................... 75
6.14 Minimum Tangible Net Worth....................................... 75
6.15 Leases........................................................... 76
6.16 Change of Location............................................... 76
6.17 Collection of Accounts........................................... 76
6.18 Use of Hazardous Materials....................................... 76
6.19 Amendment to Certain Agreements.................................. 76
6.20 Location of Assets; Deposit Accounts............................. 76
6.21 Locations of Property............................................ 77
6.22 Post Closing Items............................................... 77
ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS............................ 78
7.1 Financial and Business Information................................ 78
7.2 Inventory and Accounts Receivable.................................. 82
ARTICLE 8 CONDITIONS........................................................ 83
8.1 Conditions to the Initial Loans and Letters of
Credit.......................................................... 83
8.2 Any Increasing Loan............................................... 87
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES.................................... 88
9.1 Events of Default................................................. 88
9.2 Remedies Upon Event of Default.................................... 91
ARTICLE 10 THE COLLATERAL AGENT............................................. 94
10.1 Appointment and Authorization.................................... 94
10.2 Delegation of Duties............................................. 94
10.3 Liability of the Collateral Agent................................ 94
10.4 Reliance by Collateral Agent..................................... 95
10.5 Notice of Default................................................ 95
10.6 Credit Decision.................................................. 95
10.7 Indemnification.................................................. 96
10.9 Successor Agents................................................. 97
10.10 Action by the Collateral Agent; Collateral
Matters........................................................ 97
10.11 Controlled Foreign Corporations................................. 98
10.12 No Obligations of Borrowers..................................... 98
ARTICLE 11 MISCELLANEOUS.................................................... 99
11.1 Cumulative Remedies; No Waiver................................... 99
11.2 Amendments; Consents............................................. 99
11.3 Costs, Expenses and Taxes........................................ 99
11.4 Nature of Bank's Obligations..................................... 100
11.5 Survival of Representations and Warranties....................... 100
11.6 Notices.......................................................... 101
11.7 Execution of Loan Documents...................................... 101
11.8 Binding Effect; Assignment....................................... 101
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
11.9 Right of Setoff................................................. 103
11.10 Indemnity by Borrowers......................................... 104
11.11 Nonliability of the Creditors.................................. 104
11.12 No Third Parties Benefited..................................... 105
11.13 Further Assurances............................................. 105
11.14 Confidentiality................................................ 106
11.15 Integration.................................................... 106
11.16 Severability of Provisions..................................... 106
11.17 Independent Covenants.......................................... 107
11.18 Headings....................................................... 107
11.19 Arbitration Reference.......................................... 107
11.20 Environmental Indemnity........................................ 108
11.21 Choice of Forum................................................ 109
11.22 Joint and Several.............................................. 110
11.23 GOVERNING LAW.................................................. 110
11.24 PURPORTED ORAL AMENDMENTS...................................... 110
</TABLE>
Exhibits
- --------
A - Borrowing Base Certificate
B - Commitment Assignment and Acceptance
C - Compliance Certificate
D - Line A Note
E - Line B Note
F - Request for Letter of Credit
G - Request for Loan
H - Request for Redesignation
I - Joint Borrower Provisions
Schedules
- ---------
1.1 - Locations of Inventory and Fixed Assets
4.1 - Warrants and Options
4.4 - Subsidiaries
4.8 - Real Property Owned and Leased
4.11 - Litigation
4.14 - Pension Plans
4.17 - Tax Liabilities
4.20 - Hazardous Materials
4.21 - Material Contracts
4.23 - Operating Leases
6.3 - Existing Investments
6.7 - Existing Indebtedness
6.8 - Existing Liens
6.20A - Deposit Accounts
6.20B - Locations of Inventory
-iv-
<PAGE>
LOAN AGREEMENT
--------------
Dated as of August 1, 1996
This LOAN AGREEMENT ("Agreement") is entered into among SAFETY
COMPONENTS INTERNATIONAL, INC., a Delaware corporation ("SCI"), AUTOMOTIVE
SAFETY COMPONENTS INTERNATIONAL, INC., a Delaware corporation ("ASCI"), ASCI
HOLDINGS GERMANY (DE), INC., a Delaware corporation ("Holdings Germany", and
together with SCI and ASCI, "Borrowers") and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as sole initial Bank and as Collateral Agent. In
consideration of the mutual covenants and agreements herein contained, the
parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
1.1 Defined Terms. As used in this Agreement, the following terms shall
-------------
have the meanings set forth below:
"Acquisition" means any transaction, or any series of related
-----------
transactions, by which SCI directly or indirectly (i) acquires any going
business or all or substantially all of the assets of any firm,
partnership, joint venture, corporation or division thereof, whether
through purchase of assets, merger or otherwise, or (ii) acquires (in one
transaction or as the most recent transaction in a series of transactions)
control of at least a majority in ordinary voting power of the securities
of a corporation which have ordinary voting power for the election of
directors, or (iii) acquires control of a 50% or more ownership interest in
any partnership or joint venture.
"Acquisition Agreement" means that certain Agreement concerning
---------------------
the Sale and Transfer of all of the shares in Phoenix Airbag GmbH dated
June 6, 1996 among SCI, Phoenix Airbag and Phoenix AG, as amended on June
28, 1996, as in effect on the Closing Date, the related Lease Agreement
between Phoenix AG and Phoenix Airbag, the Articles of Association of
Phoenix Airbag, and the Limited Partnership Agreement of Phoenix Airbag
GmbH & Co., KG, the Contribution Agreement between Phoenix and Phoenix
Airbag associated therewith and each other instrument, document and
agreement executed in connection therewith as of the Closing Date, and as
amended by any subsequent amendments approved in writing by Bank.
-1-
<PAGE>
"Affiliate" means, as to any Person, any other Person which
---------
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and the
correlative terms, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
Securities or partnership or other ownership interests, by contract or
otherwise); pro vided that, in any event, any Person that owns, directly or
---------
indirectly, 10% or more of the Securities having ordinary voting power for
the election of directors or other governing body of a corporation (other
-----
than Securities having such power only by reason of the happening of a
----
contingency), or 10% or more of the partnership or other ownership
interests of any other Person, will be deemed to control such corporation
or other Person.
"Agent Related Persons" means Bank of America and any successor
---------------------
Collateral Agent, its Affiliates, and the officers, directors, employees,
agents and attorneys-in-fact of such Persons and Affiliates.
"Agreement" means this Loan Agreement, either as originally
---------
executed or as it may from time to time be supplemented, modified, amended,
restated or extended.
"Amortization Amount" means the principal amount of the
-------------------
Indebtedness under the Line B Note required to be repaid on each Payment
Date set forth in the matrix below:
<TABLE>
<CAPTION>
Payment Date Amortization Amount
------------ -------------------
<S> <C>
September 30, 1996
through June 30, 1998 $ 1,062,500
September 30, 1998
through June 30, 1999 $ 1,312,500
September 30, 1999
through Maturity Date $ 1,562,500
</TABLE>
"Approved Swap Agreement" means one or more Swap Agreements in
-----------------------
respect of the Indebtedness hereunder entered into between Borrowers and
Bank providing interest rate protection acceptable to Bank with respect to
not less than $16,125,000 of the Indebtedness evidenced by the Line B Notes
(amortizing ratably with the Line B Notes), either as originally executed
or as the same may from time to time be supplemented, modified, amended,
restated or extended.
-2-
<PAGE>
"ASCL" means Automotive Safety Components International, Limited,
----
a company organized under the Laws of the United Kingdom, its successors
and permitted assigns. As of the Closing Date, ASCL's primary place of
business is located in Gwent, Wales.
"Bank" means Bank of America and each other lender which
----
hereafter becomes a party hereto pursuant to Section 11.8 hereof.
----
"Bank of America" means Bank of America National Trust and
---------------
Savings Association, its successors and assigns.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or
-----------
Friday, other than a day on which commercial banks in New York City or San
----- ----
Francisco are authorized or required to be closed.
"Base Rate" means, as of any date of determination, the greater
--------- -------
of (a) the Reference Rate or (b) the Federal Funds Rate plus .50%.
----
"Base Rate Loan" means a Loan made hereunder and designated as a
--------------
Base Rate Loan in accordance with Article 2.
---------
"BofA Frankfurt" means Bank of America National Trust and Savings
--------------
Association, Frankfurt Branch, its successors and assigns.
"BofA London" means Bank of America National Trust and Savings
-----------
Association, London Branch, its successors and assigns.
"Borrowers" means collectively, jointly and severally, SCI, ASCI
---------
and Holdings Germany, and their respective successors and permitted
assigns.
"Borrowing Base" means, as of any date of determination, the
--------------
amount, not to exceed $5,500,000, which is equal to the sum of:
---
(a) 80% of Eligible Accounts Receivable; plus
----
(b) 50% of Eligible Inventory; minus
-----
(c) the amount of the German Overdraft Facility; minus
-----
-3-
<PAGE>
(d) the amount by which the U.S. Dollar equivalent of the Phoenix
Letter of Credit exceeds $4,500,000;
provided that the portion of the Borrowing Base which is attributable to
--------
the accounts receivable of Co. KG shall not exceed $2,500,000.
"Borrowing Base Certificate" means a certificate with respect to
--------------------------
the Borrowing Base in the form of Exhibit A, properly completed and
---------
executed by a Senior Officer of Borrowers.
"Capital Expenditure" means any expenditure during any fiscal
-------------------
period that is considered a capital expenditure under Generally Accepted
Accounting Princi ples, consistently applied, including any amount that is
---------
required to be treated as an asset subject to a Capital Lease.
"Capital Lease" means, as to any Person, a lease of any Property
-------------
by that Person as lessee that is, or should be in accordance with Financing
Accounting Standards Board Statement No. 13, recorded as a "capital lease"
on the balance sheet of that Person prepared in accordance with Generally
Accepted Accounting Principles.
"Cash" means, when used in connection with any Person, all
----
monetary and non-monetary items owned by that Person that are treated as
cash in accordance with Generally Accepted Accounting Principles,
consistently applied.
"Cash Equivalents" means:
----------------
(a) direct obligations of the United States government;
(b) commercial paper that is rated P-2 or higher by Moody's
Investors Service, Inc. or A-2 or higher by Standard and Poor's
Corporation and that is issued by issuers whose long term unsecured
debt rating is A2/A or better and that have not been identified by
either rating agency as an issuer whose rating is likely to be
downgraded;
(c) banker's acceptances and certificates of deposit of Bank or
any United States banks whose total assets are at least $1,000,000,000
and whose senior long term debt is rated A2/A or higher by
-4-
<PAGE>
Moody's Investors Service, Inc. and Standard and Poor's Corporation;
(d) repurchase obligations, Dollar investments in money market
funds, and tax exempt municipal notes, provided that the debt ratings
--------
and/or standings of the issuers thereof are comparable in quality to
those set forth in clauses (b) and (c) above;
(e) to the extent held by any Foreign Subsidiary, Investments
which are commonly considered to be of like liquidity and risk
commonly considered in the relevant jurisdiction as "cash
equivalents";
provided that such Cash Equivalents that are not money market funds must
--------
have remaining maturities not in excess of one year, and such Cash
Equivalents that are money market funds must have average remaining
maturities not in excess of one year and be able to be withdrawn by
Borrowers upon demand.
"Cash Flow" means, with respect to any period, (a) EBITDA for
---------
that fiscal period, minus (b) income and other taxes payable by SCI and its
-----
Subsidiaries in Cash during that period, plus (c) (without duplication)
----
interest income of SCI and its Subsidiaries for that period, in each case
determined in accordance with Generally Accepted Accounting Principles
consistently applied, minus (d) the Cash portion of any reduction during
-----
that period in the $4,000,000 redundancy reserve booked as of the Closing
Date with respect to the transactions contemplated by the Acquisition
Agreement.
"Cash Interest Charges" means, for any period, Interest Charges
---------------------
of SCI and its Subsidiaries which are payable in Cash during that period.
"Certificate" means a certificate signed by a Responsible
-----------
Official of the Person providing the certificate.
"Change in Control" means (a) the sale, lease or other transfer
-----------------
(in one transaction or a series of transactions) of all or substantially
all of the assets of SCI and its Subsidiaries or of its automotive or
defense divisions, (b) any transaction or series of transactions in which
any Person or group of Persons (other than Zummo Related Persons, or to the
extent that Zummo Related Persons are the largest shareholders in Parent,
Parent), newly becomes the record or beneficial owner of 30% or
-5-
<PAGE>
more of the capital stock of SCI; or (c) the Continuing Directors of SCI
fail to constitute at least a majority of the directors of SCI, or (d) the
shareholders of SCI approve any plan or proposal for the liquidation or
dissolution of SCI. As used in this definition, the term "Continuing
----------
Directors" means the directors of SCI as of the Closing Date and, to the
---------
extent that any such Persons die or retire in the ordinary course of
business, Persons nominated by or approved by such Persons, and (b) the
term "Zummo Related Persons" means Robert Zummo, his immediate family
---------------------
members, and trusts for their exclusive benefit.
"Closing Date" means the time and Banking Day on which the
------------
consummation of all of the transactions contem plated in Section 8.1
---
occurs.
"Co. KG" means Acquisition GmbH and Co. KG (Verwaltungs GmbH and
------
Co. KG), a limited partnership organized under the laws of Germany, its
successors and permitted assigns.
"Code" means the Internal Revenue Code of 1986, as amended or
----
replaced and as in effect from time to time.
"Collateral" means, collectively, all of the collateral subject
----------
to the Liens, or intended to be subject to the Liens, created by the
Collateral Documents.
"Collateral Agent" means Bank of America, when acting in its
----------------
capacity as Collateral Agent under any of the Loan Documents, or any
successor Collateral Agent.
"Collateral Documents" means, collectively, the Security
--------------------
Agreement, the Subsidiary Security Agreement, the Lockbox Agreement, the
Pledge Agreement, the Second Tier Pledge Agreements, the Life Insurance
Assignment and any other pledge agreement, hypothecation agreement,
security agreement, assignment, deed of trust, mortgage or similar
instrument executed by SCI or any of its Subsidiaries to secure the
Obligations.
"Collection Account" means one or more blocked accounts
------------------
established by Borrowers and their Domestic Subsidiaries with Bank of
America into which the proceeds of Lockbox Accounts shall be deposited on a
daily basis, and in which Borrowers and their Domestic Subsidiaries shall
have granted the Collateral Agent a security interest securing the
Obligations for the ratable benefit of the Creditors.
-6-
<PAGE>
"Commission" means the Securities and Exchange Commission.
----------
"Commitments" means, collectively, the Line A Commitment and the
-----------
Line B Commitment.
"Commitment Assignment and Acceptance" means a commitment
------------------------------------
assignment and acceptance substantially in the form of Exhibit B.
---------
"Compliance Certificate" means a certificate in the form of
----------------------
Exhibit C, properly completed and signed by a Senior Officer of Borrowers
---------
and delivered to the Collateral Agent.
"Concentration Account" means account no. 14584-26107 established
---------------------
by Borrowers with Bank of America into which the proceeds of Collection
Accounts shall, subject to Section 5.12 and Section 11.9, be deposited on a
---- ----
daily basis and into which the proceeds of Loans shall be credited, or such
other account as may be mutually agreed upon by Bank and Borrowers.
"Contingent Obligation" means, as to any Person, any (a) direct
---------------------
or indirect guarantee of Indebtedness of, or other obligation performable
by, any other Person, including any endorsement (other than for collection
--------- ----- ----
or deposit in the ordinary course of business), co-making or sale with
recourse of the obligations of any other Person, (b) contingent
reimbursement obligations in respect of any letter of credit, including a
---------
Letter of Credit, or (c) assurance given to an obligee with respect to the
performance of an obligation by, or the financial condi tion of, any other
Person, whether direct, indirect or contingent, including any purchase or
---------
repurchase agreement covering such obligation or any collateral security
there for, any agreement to provide funds (by means of loans, capital
contributions or otherwise) to such other Person, any agreement to support
the solvency or level of any balance sheet item to such other Person, or
any "keep-well", "take-or-pay", "through put" or other arrangement of
whatever nature having the effect of assuring or holding harmless any
obligee against loss with respect to any obligation of such other Person.
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the related primary
obligation (unless the Contingent Obligation is limited by its terms to a
lesser amount, in which case to the extent of such amount) or, if not
stated or determina ble, the maximum reasonably anticipated liability in
-7-
<PAGE>
respect thereof as determined in good faith by the Person so obligated.
"Contractual Obligation" means, as to any Person, any provision
----------------------
of any outstanding Securities issued by that Person or of any material
agreement, instrument or undertaking to which that Person is a party or by
which it or any of its Property is bound.
"Conversion Conditions" means conditions to the testing of the
---------------------
covenants set forth in Sections 6.11, 6.12, 6.13, and 6.14 on a quarterly
---- ---- ---- ----
basis and the delivery by Borrowers of certain financial information on a
quarterly basis (in each case, rather than monthly), as follows:
(a) Receipt by Bank of audited financial statements of Borrowers
in accordance with Section 7.1(b) for the Fiscal Year ending March 31,
------
1998;
(b) the absence as of the date of such receipt of any Default or
Event of Default;
(c) the absence, during the six month period ending on the date
of such receipt, of any Default or Event of Default with respect to
the covenants set forth in Sections 6.12, 6.13, 6.14 and 6.15 (even to
---- ---- ---- ----
the extent that the same have been waived);
(d) delivery by Borrowers to Bank of a Certificate attesting to
the conditions set forth in (b) and (c) above; and
(e) the continued absence after such date of any Default or
Event of Default, it being understood that following any Default or
Event of Default, affected reporting requirements and covenants shall
revert to monthly reporting and compliance calculation.
"Creditors" means Bank of America (whether in its capacity as
---------
Bank or as Collateral Agent), BofA London, BofA Frankfurt, and any other
Bank which may hereafter become a party hereto in accordance with Section
11.8.
----
"Current Assets" means current assets of SCI and its Subsidiaries
--------------
determined in accordance with Generally Accepted Accounting Principles,
consistently applied.
"Current Liabilities" means current liabilities of SCI and its
-------------------
Subsidiaries determined in accordance with
-8-
<PAGE>
Generally Accepted Accounting Principles, consistently applied.
"Czech" means Automotive Safety Components International, S.R.O.,
-----
a company organized under the Laws of the Czech Republic, its successors
and permitted assigns. As of the Closing Date, Czech's primary place of
business is located in Jevicko, Czech Republic.
"Czech Note" means that certain promissory note dated as of the
----------
Closing Date made by Czech in favor of SCI, ASCI and Holding Czech in the
principal amount of $8,000,000.
"Debtor Relief Laws" means the Bankruptcy Code of the United
------------------
States of America, as amended from time to time, and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receiver ship, insolvency, reorganization, or similar debtor relief Laws
from time to time in effect affecting the rights of creditors generally.
"Default" means any event that, which with the giving of notice
-------
or passage of time, or both, would be an Event of Default.
"Default Rate" means the rate of interest specified in Section
------------
3.8.
---
"Designated Cash Amount" means, as of each date of determination,
----------------------
the cash balances of SCI and their Subsidiaries as of the Closing Date
after giving effect to the transactions under the Acquisition Agreement
(exclusive ot cash balances of Co. KG and Phoenix A.G.) and before taking
into account the Loans minus $700,000 rounded downwards to the nearest
-----
$500,000, minus, as of each date on or after March 31, 1997, any portion of
-----
the Designated Cash Amount added to the numerator of the Fixed Charge
Coverage Ratio in accordance with the proviso contained in Section 6.11,
----
provided that from and after April 1, 1998 the Designated Cash Amount will
--------
be deemed to be zero.
"Designated Eurodollar Market" means, with respect to any
----------------------------
Eurodollar Rate Loan, (a) the London Eurodollar Market, (b) if prime banks
in the London Eurodollar Market are at the relevant time not accepting
deposits of Dollars or if the Collateral Agent determines that the London
Eurodollar Market does not represent at the relevant time the effective
pricing to Bank for deposits of Dollars in the London Eurodollar Market,
the
-9-
<PAGE>
Cayman Islands Eurodollar Market or (c) such other Eurodollar Market as may
from time to time be selected by Bank.
"Distribution" means, with respect to any shares of capital stock
------------
or any warrant or right to acquire shares of capital stock or any other
equity Security issued by a Person, (a) the retirement, redemption,
purchase, or other acquisition for value by such Person of any such
Security, (b) the declaration or (without duplication) payment by such
Person of any dividend in cash or in Property on or with respect to any
such Security, (c) any Investment by such Person in the holder of any such
Security, and (d) any other payment by such Person constituting a
distribution under applicable Laws with respect to such Security.
"Dollars" or the symbol "$" means United States dollars.
--------
"Domestic Subsidiary" means each Subsidiary of SCI which is
-------------------
organized under the Laws of the United States or a state thereof and has
its chief executive offices in the United States.
"EBITDA" means, for any fiscal period and without duplication,
------
(a) Net Income for that fiscal period, plus (b) income tax expense of SCI
----
and its Subsidiaries for that fiscal period, plus (c) Interest Charges of
----
SCI and its Subsidiaries for that fiscal period, plus (c) depreciation
----
expense of SCI and its Subsidiaries for that fiscal period, plus (e)
----
amortization expense of SCI and its Subsidiaries for that fiscal period
(including any amortization of product launch costs capitalized), plus (f)
----
losses (or minus gains) from sales of assets other than inventory by SCI
and its Subsidiaries during that period, minus (g) extraordinary income of
-----
SCI and its Subsidiaries during that period, minus (h) cash expenditures of
-----
SCI and its Subsidiaries for product launch costs capitalized during that
period, in each case determined in accordance with Generally Accepted
Accounting Principles, consistently applied.
"Eligible Accounts Receivable" means, as of any date of
----------------------------
determination, the sum of (i) the aggregate book value of the accounts
---
receivable of SCI and its Domestic Subsidiaries as to which the Collateral
Agent holds a first priority perfected security interest, and (ii) the
aggregate book value of the accounts receivable of Co. KG, provided that
--------
such accounts receivable:
-10-
<PAGE>
(a) arose in the ordinary course of business of SCI and its
Subsidiaries;
(b) represent amounts owed for services rendered or goods
delivered;
(c) have been the subject of an invoice submitted to the
relevant account debtor within five days of the date of shipment of
the related goods or the rendering of the related services;
(d) are not more than 60 days past due from due date and not
more than 90 days from the original invoice date;
(e) do not represent amounts owed to SCI and its Subsidiaries
for goods shipped on a consignment or "bill and hold" basis;
(f) do not have as the account debtor a Person that is the
subject of any pending proceeding under any Debtor Relief Law;
(g) do not have as the account debtor any Governmental Agency
(unless the provisions of the Federal Assignment of Claims Act and all
-------
other applicable statutes governing the perfection thereof have been
complied with) or any Affiliate, officer or employee of SCI or its
Subsidiaries;
(h) do not have as the account debtor a Person located outside
the United States or provinces of Canada other than Quebec (or, as to
Co. KG, Germany), unless the payment of such accounts receivable are
secured by an acceptable letter of credit issued to SCI or the
relevant Domestic Subsidiary by a bank reasonably acceptable to Bank;
(i) do not include any account receivable due from an account
debtor or its Affiliates if 50% or more of the aggregate accounts
receivable due from that account debtor are more than 60 days past due
from due date or more than 90 days from the original invoice date;
(j) do not include the portion of the accounts receivable owed
by any account debtor (or group of account debtors which are
Affiliates) which is in excess of 20% of the aggregate account
receivables of SCI and its Domestic Subsidiaries and Co. KG, except
for TRW U.S., Delphi, Petri, MST, and the United
-11-
<PAGE>
States Government (but only with respect to the Existing Systems
Contract) and other account debtors which are approved in writing by
Bank;
(k) do not include any account receivable which is subject to
any offset, counterclaim or defense, or with respect to which the
account debtor has disputed its liability;
(l) do not include the amount of any contra accounts with
respect to an account debtor as a result of amounts owing from SCI or
any of its Affiliates to such account debtor;
(m) do not include any account receivable which is unenforceable
unless a future condition is met, including any accounts receivable
arising out of cash-on-delivery sales, consignments or guaranteed
sales;
(n) do not include any account receivable which is unenforceable
against the account debtor for any reason, including, without
limitation, a failure of SCI or its Subsidiaries to file with the
State of New Jersey a Notice of Business Activities Report.
(o) do not include accounts receivable which are evidenced by
any promissory note or other instrument; and
(p) have not otherwise been objected to by Bank in the exercise
of its reasonable discretion for a reason which is not the express
subject matter of any of clauses (a) through (o) above and relate to
risk of non-payment, as determined by Bank in its sole discretion.
If a credit adjustment is made with respect to any account receivable, the
amount of such adjustment shall no longer be included in the amount of such
account receivable for the purpose of computing the Eligible Accounts.
"Eligible Inventory" means, as of any date of determination, the
------------------
Dollar value, as determined in accordance with Generally Accepted
Accounting Principles based on the lesser of cost or market value, of all
inventory of SCI and its Domestic Subsidiaries to be sold in the ordinary
course of business, excluding:
---------
-12-
<PAGE>
(a) inventory that is, in the reasonable credit judgment of
Bank, obsolete, damaged or unmerchantable;
(b) inventory upon which the Collateral Agent does not have a
first priority perfected security interest for the benefit of the
Creditors;
(c) inventory which is not located at one of the locations in
the United States or which is not located at one of the locations
listed on Schedule 1.1 or at other locations in the United States
------------
designated in writing to the Collateral Agent and as to which the
Collateral Agent has received any landlord consents, estoppels or the
like as it may reasonably require;
(d) inventory which consists of work-in-process, packaging or
shipping materials or supplies;
(e) bill and hold inventory, returned or defective inventory,
and inventory delivered to SCI or its Domestic Subsidiaries on
consignment; and
(f) inventory that has otherwise been objected to by Bank in the
exercise of its reasonable discretion for a reason which is not the
express subject matter of any of clauses (a) through (e) above.
"Enforcement or Remedial Action" shall mean any step taken by any
------------------------------
Person to enforce compliance with or to collect or impose penalties, fines
or other sanctions provided by any Environmental Law.
"Environmental Claims" means all claims, however asserted, by any
--------------------
Governmental Agency or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or any Enforcement
or Remedial Action or for release or injury to the environment or threat to
public health, personal injury (including sickness, disease or death),
property damage, natural resources damage, or otherwise alleging liability
or responsibility for damages (punitive or otherwise), cleanup, removal,
remedial or response costs, restitution, civil or criminal penalties,
injunctive relief, or other type of relief, resulting from or based upon
the presence, placement, discharge, emission or release (including
intentional and unintentional, negligent and non-negligent, sudden or non-
sudden, accidental or non-accidental, placement, spills, leaks, discharges,
-13-
<PAGE>
emissions or releases) of any Hazardous Material at, in, or from Property,
whether or not owned by SCI or its Affiliates.
"Environmental Laws" means all federal, state, or local laws,
------------------
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, policies,
notices, decrees, requests, licenses, authorizations and permits of, and
agreements with, any Governmental Agencies, in each case relating to,
regulating or imposing liability or standards of conduct regarding
environmental, health, safety, project liability and land use matters
(including matters related to air and water quality, the handling,
transportation, storage, treatment, usage or disposal of Hazardous
Materials, air emissions, noise control, industrial hygiene, zoning, and
land-use permits) including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the
------
Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act,
the Federal Resource Conservation and Recovery Act, the Toxic Substances
Control Act, the Emergency Planning and Community Right-to-Know Act, the
California Hazardous Waste Control Law, the California Solid Waste
Management, Resource, Recovery and Recycling Act, the California Water Code
and the California Health and Safety Code.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, and any regulations issued pursuant thereto, as amended or replaced
and as in effect from time to time.
"ERISA Affiliate means, with respect to any Person, any Person
---------------
(or any trade or business, whether or not incorporated) that is under
common control with that Person within the meaning of Section 414 of the
Code.
"Eurodollar Banking Day" means any Banking Day on which dealings
----------------------
in Dollar deposits are conducted by and among banks in the Designated
Eurodollar Market.
"Eurodollar Base Rate" means, with respect to any Eurodollar Rate
--------------------
Loan, the interest rate per annum at which BofA London would offer deposits
in Dollars for the applicable Interest Period to other major Banks in the
Designated Eurodollar Market at approximately 11:00 a.m. local time in the
Designated Eurodollar Market, two Euro dollar Banking Days before the first
day of the applicable Interest Period. The determination of the Eurodollar
Base
-14-
<PAGE>
Rate by Bank shall be conclusive in the absence of manifest error.
"Eurodollar Lending Office" means Bank of America National Trust
-------------------------
and Savings Association, London Branch Office.
"Eurodollar Margin" means (a) with respect to each Line A Loan,
-----------------
2.00% per annum and (b) with respect to each Line B Loan, 2.25% per annum;
provided that, in each case, the Eurodollar Margin shall be reduced by
--------
0.25% per annum during each Pricing Period for which the Pricing Reduction
Criteria have been satisfied unless and until the Pricing Reduction
Criteria are no longer satisfied. While the Eurodollar Rate for each
Eurodollar Rate Loan shall be fixed as of the date of the making of that
Eurodollar Rate Loan, the Eurodollar Margin shall (subject to the preceding
proviso) reduce as aforesaid on the date upon which the Pricing Reduction
Criteria have been satisfied.
"Eurodollar Market" means a regular, established market located
-----------------
outside the United States of America by and among banks for the
solicitation, offer and acceptance of Dollar deposits in such banks.
"Eurodollar Obligations" means eurocurrency liabilities, as
----------------------
defined in Regulation D.
"Eurodollar Rate" means, with respect to any Eurodollar Rate
---------------
Loan, the interest rate (rounded upward to the next 1/100 of 1%) determined
to be equal to the Euro dollar Base Rate divided by the difference between
-------
(a) 1 and (b) the Eurodollar Reserve Percentage.
"Eurodollar Rate Loan" means a Loan made here under and
--------------------
designated as a Eurodollar Rate Loan in accordance with Article 2.
---------
"Eurodollar Reserve Percentage" means, with respect to any
-----------------------------
Eurodollar Rate Loan, the maximum reserve percentages for determining the
reserves to be maintained, if any, by member banks of the Federal Reserve
System for Eurocurrency Liabilities, as defined in Regulation D, rounded
upward to the nearest 1/100 of 1%. The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages. The determination by
the Collateral Agent of any applicable Eurodollar Reserve Percentage shall
be conclusive in the absence of manifest error.
-15-
<PAGE>
"Event of Default" shall have the meaning pro vided in Section
----------------
9.1.
---
"Excess Cash Flow" means, with respect to any Fiscal Year and
----------------
without duplication:
(a) Net Income for that Fiscal Year, plus
----
(b) income tax expense of SCI and its Subsidiaries for that
Fiscal Year, plus
----
(c) Interest Charges of SCI and its Subsidiaries for that Fiscal
Year, plus
----
(d) depreciation expense of SCI and its Subsidiaries for that
Fiscal Year, plus
----
(e) amortization expense of SCI and its Subsidiaries for that
Fiscal Year (including any amortization of capitalized product launch
costs), plus
----
(f) losses (or minus gains) from sales of assets other than
inventory by SCI and its Subsidiaries during that Fiscal Year, plus
----
(g) non-cash extraordinary losses (or minus non-cash
-----
extraordinary income) of SCI and its Subsidiaries during that period,
minus
-----
(h) Capital Expenditures of SCI and its Subsidiaries during that
Fiscal Year (net of that portion of Capital Expenditures financed
---
using Indebtedness incurred in accordance with Section 6.7(d) and,
------
during SCI's Fiscal Years 1997 and 1998, net of the reduction in the
Designated Cash Amount), plus
----
(i) 100% of the proceeds received by SCI and its Subsidiaries
from sales of assets (other than inventory) during that Fiscal Year,
minus
-----
(j) any increase (or plus any decrease) in Working Capital
----
during that period, minus
-----
(k) Cash expenditures during that period for product launch
costs which are capitalized, minus
-----
(l) amounts payable to Phoenix AG in respect of the "Additional
Purchase Price" referred to in
-16-
<PAGE>
Section 15 of the Acquisition Agreement as of the last day of that
Fiscal Year, minus
-----
(m) the amount of income taxes payable in Cash by SCI and its
Subsidiaries during that Fiscal Year, minus
-----
(n) voluntary prepayments of the Obligations, minus
-----
(o) scheduled payments of principal and interest with respect to
Indebtedness of SCI and its Subsidiaries, and lease payments with
respect to Capital Leases of SCI and its Subsidiaries (other than
----- ----
prepayments required by Sections 3.1(d)(v), 3.1(d)(vi) and
--------- ----------
3.1(d)(vii)),
-----------
in each case determined in accordance with Generally Accepted Accounting
Principles.
"Existing Citibank Loans" means the obligations of SCI and its
-----------------------
Subsidiaries under the Credit Agreement dated March 15, 1996 among SCI,
certain of its Subsidiaries and Citicorp U.S.A., Inc., and each of the
security agreements, guarantees, pledge agreements and other instruments,
documents and agreements executed in connection therewith.
"Existing Systems Contract" means the two year systems contract
-------------------------
between Systems and the United States Army for the delivery of 120mm mortar
cartridges identified as contract DAAA09-94-C-0532 and entered into among
Systems, the United States of America, acting through the United States
Department of the Army.
"Federal Funds Rate" means, as of any date of determination, a
------------------
fluctuating interest rate per annum equal to the federal funds effective
rate for the previous Banking Day as quoted by the Federal Reserve Bank of
New York or, if such rate is not so published for any day which is a
Banking Day, the average of the quotations for such day on such
transactions received by the Collateral Agent from three Federal funds
brokers of recognized standing selected by the Collateral Agent.
"Fiscal Quarter" means each fiscal quarter of SCI ending on each
--------------
March 31, June 30, September 30 and December 31.
"Fiscal Year" means the fiscal year of SCI ending on each March
-----------
31.
-17-
<PAGE>
"Fixed Charge Coverage Ratio" means, (a) as of the last day of
---------------------------
each calendar month ending during the period from October 31, 1996 through
and including February 28, 1997, the ratio of (i) Cash Flow for the period
beginning on the Closing Date and ending on that date, to (ii) Fixed
Charges for the same period, and (b) as of the last day of each subsequent
calendar month, the ratio of (i) Net Cash Flow for the period beginning on
the Closing Date and ending on that date, to (ii) Fixed Charges for the
same period.
"Fixed Charges" means for any period, (a) Cash Interest Charges
-------------
for that period (other than any transactional expenses associated with the
Acquisition Agreement paid on or about the Closing Date), plus (b) amounts
----
required to be paid to Phoenix AG with respect to that period constituting
the "Additional Purchase Price" referred to in Section 15 of the
Acquisition Agreement, plus (c) scheduled principal payments due during
----
that fiscal period in connection with Indebtedness of SCI and its
Subsidiaries for borrowed money and Capital Leases (other than prepayments
----- ----
of the Loans required under Section 3.1(d)(i), 3.1(d)(ii), 3.1(d)(v),
--------- ---------- ---------
3.1(d)(vi) and 3.1(d)(vii)).
---------- -----------
"Foreign Subsidiary" means each Subsidiary of SCI which is not a
------------------
Domestic Subsidiary.
"Galion" means Galion, Inc., a Delaware corporation, its
------
successors and permitted assigns.
"Generally Accepted Accounting Principles" means, as of any date
----------------------------------------
of determination, accounting principles (a) set forth as generally
accepted in then currently effective Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (b) set
forth as generally accepted in then currently effective Statements of the
Financial Accounting Standards Board or (c) that are then approved by such
other entity as may be approved by a significant segment of the accounting
profession in the United States of America. The term "consistently
------------
applied," as used in connection therewith, means that the accounting
principles applied are consistent in all material respects to those applied
at prior dates or for prior periods.
"German Overdraft Facility" means the proposed $500,000 principal
-------------------------
amount overdraft credit facility to be provided to Co. KG by BofA Frankfurt
pursuant to documents acceptable to the Bank between Co. KG and BofA
Frankfurt,
-18-
<PAGE>
either as originally executed or as it may from time to time be
supplemented, modified, amended, restated or extended.
"German Note" means a promissory note of Co. KG in favor of
-----------
Holdings Germany in a principal amount approximately equal to 75% of the
purchase price payable under the Acquisition Agreement, the terms of which
shall be reasonably acceptable to the Bank.
"Governmental Agency" means (a) any international, foreign,
-------------------
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority,
board, bureau, commission, department, instrumentality or public body, or
(c) any court, administrative tribunal or public utility.
"Guaranty" means the irrevocable continuing guaranty of the
--------
Obligations executed by Galion, Systems, the Holding Companies (other than
Holdings Germany) and each other Domestic Subsidiary on the Closing Date,
either as originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted,
"Hazardous Materials" means all those substances which are
-------------------
regulated by, or which may form the basis of liability under, any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste, hazardous
constituent, special waste, hazardous substance, hazardous material, or
toxic substance, or petroleum or petroleum derived substance or waste.
"Holding Company" means each of Holdings Germany, Holdings Czech,
---------------
Holdings Mexico, Holdings U.K., and each other Domestic Subsidiary of SCI
which is hereafter formed pursuant to Section 5.13 to acquire or hold any
----
Foreign Subsidiary, their respective successors and permitted assigns.
"Holdings Czech," Holdings Germany," "Holdings Mexico" and
-------------- ---------------- ---------------
"Holdings U.K." mean, respectively, ASCI Holdings Czech (DE), Inc., ASCI
-------------
Holdings Germany (DE), Inc., ASCI Holdings Mexico (DE), Inc. and ASCI
Holdings U.K. (DE), Inc., each of which is a Delaware corporation and a
wholly owned subsidiary of ASCI, their respective successors and permitted
assigns.
-19-
<PAGE>
"Indebtedness" means, as to any Person, without duplication, (a)
------------
all indebtedness of such Person for bor rowed money, (b) that portion of
the obligations of such Person under Capital Leases which is properly
recorded as a liability on a balance sheet of that Person prepared in
accordance with Generally Accepted Accounting Principles, (c) any
obligation of such Person that is evidenced by a promissory note or other
instrument representing an extension of credit to such Person, whether or
not for borrowed money, (d) any payment obligation of such Person for the
deferred purchase price of Property or services (other than trade or other
----- ----
accounts payable in the ordinary course of business in accordance with
customary industry terms), (e) any payment obligation of such Person that
is secured by a Lien on assets of such Person, whether or not that Person
has assumed such obligation or whether or not such obligation is non-
recourse to the credit of such Person, but only to the extent of the fair
market value of the assets so subject to the Lien, (f) payment obligations
of such Person arising under acceptance facilities or under facilities for
the discount of accounts receivable of such Person, (g) any direct or
contingent obligations of such Person under letters of credit issued for
the account of such Person and (h) any obligations of such Person under a
Swap Agreement.
"Intangible Assets" means assets that are considered intangible
-----------------
assets under Generally Accepted Accounting Principles, including customer
---------
lists, goodwill, patents, trademarks, tradenames, covenants not to compete,
organization expense, treasury stock, unamortized debt discount and
expense, deferred charges, loans and other amounts due from Affiliates,
officers, directors or shareholders of SCI and its Subsidiaries to the
extent that the same exceed $500,000, in the aggregate, at any time, assets
held for disposition for more than one year, computer software and
capitalized research and development costs and other like intangibles, and
excluding capitalized product launch costs.
---------
"Intercompany Notes" means each of the promissory notes
------------------
evidencing intercompany Indebtedness of SCI and Subsidiaries of SCI to SCI
or its Subsidiaries, the form of which shall be acceptable to Bank.
"Interest Charges" means, as of the last day of any fiscal
----------------
period, the sum of (a) all interest, fees, charges and related expenses
------
paid or payable in cash (without duplication) with respect to that fiscal
period to a lender in connection with borrowed money or the
-20-
<PAGE>
deferred purchase price of assets that are considered "interest expense"
under Generally Accepted Accounting Principles, plus (b) the portion of
----
rent paid or payable in cash (without duplication) with respect to that
fiscal period under Capital Leases that should be treated as interest in
accordance with Financial Accounting Standards Board Statement No. 13.
"Interest Period" means, as to each Eurodollar Rate Loan, the
---------------
period commencing on the date specified by Borrowers pursuant to Section
2.1(c) and ending one, two, three or six months thereafter, as specified by
------
Borrowers in the applicable Request for Loan; provided that:
--------
(i) The first day of any Interest Period shall be a Eurodollar
Banking Day;
(ii) Any Interest Period that would otherwise end on a day that is not
a Eurodollar Banking Day shall be extended to the next succeeding
Eurodollar Banking Day unless such Eurodollar Banking Day falls
in another calendar month, in which case such Interest Period
shall end on the next preceding Eurodollar Banking Day;
(iii) No Interest Period with respect to a Eurodollar Loan which is a
Line A Loan shall extend beyond the next Payment Date if the sum
---
of (i) the aggregate principal amount of all Eurodollar Rate
Loans made under the Line A Commitment with Interest Periods
ending after that Payment Date, plus (ii) the aggregate face
----
amount of all Letters of Credit with terms extending beyond that
Payment Date, exceeds the amount of the Line A Commitment (after
giving effect to the reduction thereto scheduled for that Payment
Date);
(iv) No Interest Period with respect to a Eurodollar Loan which is a
Line B Loan shall extend beyond the next Payment Date if the
aggregate principal amount of all Eurodollar Rate Loans made
under the Line B Commitment with Interest Periods ending after
that Payment Date exceeds the Line B Commitment (after giving
effect to the reduction thereto scheduled for that Payment Date);
and
(v) No Interest Period shall in any event extend beyond the Maturity
Date;
-21-
<PAGE>
"Investment" means, when used in connection with any Person, any
----------
investment by or of that Person, whether by means of purchase or other
acquisition of capital stock or other Securities of any other Person or by
means of loan, advance, capital contribution, guaranty or other debt or
equity participation or interest, or otherwise, in any other Person,
including any partnership and joint venture interests of such Person in any
---------
other Person. The amount of any Investment shall be the amount actually
invested, without adjustment for increases or decreases in the value of
such Investment (but minus any return of capital with respect to such
-----
Investment which has actually been received in Cash or Cash Equivalents or
in other Property which has been converted into Cash or Cash Equivalents).
"Laws" means, collectively, all international, foreign, federal,
----
state and local statutes, treaties, rules, regulations, ordinances, codes
and administrative or judicial precedents.
"Letter of Credit" means a commercial letter of credit or standby
----------------
letter of credit issued by Bank for the account of Borrowers.
"Letter of Credit Usage" means, at any date of determination, the
----------------------
sum of (i) the maximum aggregate amount that is or at any time thereafter
may become available for drawing or payment under issued and outstanding
Letters of Credit issued pursuant to the Line A Commitment, plus (ii) the
----
aggregate amount of all drawings honored or payments made by Bank under
such Letters of Credit and not reimbursed by Borrowers.
"Leverage Ratio" means, as of each date of determination, the
--------------
ratio of (a) the consolidated total liabilities of SCI and its Subsidiaries
on that date (including accrued and deferred income taxes), to (b) Tangible
---------
Net Worth as of that date.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment for security, security interest, encumbrance, lien or charge of
any kind, whether voluntarily incurred or arising by operation of Law or
otherwise, affecting any Property, including any agreement to grant any of
---------
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and/or the filing of or
agreement to give any financing statement under the Uniform Commercial Code
or comparable Law of any jurisdiction with respect to any Property.
-22-
<PAGE>
"Life Insurance Assignment" means a collateral assignment of a
-------------------------
life insurance policy owned by SCI with respect to the life of Robert Zummo
in an amount which is not less than $1,500,000
"Line A Commitment" means the Commitment by Bank to make
-----------------
revolving Loans to Borrowers and to issue Letters of Credit in an aggregate
principal amount, subject to Sections 2.6, 2.7 and 2.8, not to exceed
--- --- ---
$9,500,000.
"Line B Commitment" means the Commitment of Bank to make a term
-----------------
Loan to Borrowers on the Closing Date in the amount of $20,000,000.
"Liquidity Ratio" means, as of each date of determination, the
---------------
ratio of (a) Cash, Cash Equivalents and trade accounts receivable (other
than unbilled and scheduled accounts receivables and those due from
Affiliates) of SCI and its Subsidiaries, to (b) the current liabilities of
SCI and its Subsidiaries as of that date (other than the current portion of
-----
their long term Indebtedness) but including in any event, the principal
---------
amount of the Obligations evidenced by the Line A Note and the U.K.
Revolver and the German Overdraft Facility (whether or not then current),
in each case determined in accordance with Generally Accepted Accounting
Principles, consistently applied.
"Loan" means any loan made or to be made by Bank to Borrowers
----
under the Line A Commitment or the Line B Commitment and includes each Base
--------
Rate Loan and each Eurodollar Rate Loan.
"Loan Documents" means, collectively, this Agreement, the Notes,
--------------
the Guaranty, the Collateral Documents, each Request for Loan, each Request
for Letter of Credit, each Request for Redesignation, each Letter of
Credit, each Borrowing Base Certificate and Compliance Certificate, the
Approved Swap Agreement, and any other certificates, documents or
agreements to, with or for the benefit of the Creditors, of any type or
nature heretofore or hereafter executed and delivered by SCI or any of its
Subsidiaries or Affiliates to the Creditors in any way relating to or in
furtherance of this Agreement, in each case either as originally executed
or as the same may from time to time be supplemented, modified, amended,
restated, extended or supplanted.
"Lockbox" means one or more lockboxes established by SCI and its
-------
Domestic Subsidiaries pursuant
-23-
<PAGE>
to Lockbox Agreements which are reasonably acceptable to the Collateral
Agent which in any event provide for (i) the deposit of all remittances
with respect to accounts receivable of SCI and its Domestic Subsidiaries to
a locked post office box, (ii) the deposit of remittances received in the
Lockbox to a Lockbox Account, (iii) the daily sweep of balances in such
Lockbox Account to a Collection Account, and (iv) a first priority Lien in
favor of the Collateral Agent with respect to the contents of the Lockbox
and Lockbox Account.
"Lockbox Account" means a blocked bank deposit account subject to
---------------
the first priority Lien of the Collateral Agent into which remittances to a
Lockbox are deposited on a daily basis.
"Lockbox Agreement" means each agreement establishing a Lockbox
-----------------
and Lockbox Account.
"Material Adverse Effect" means any set of circumstances or
-----------------------
events which (a) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of any Loan
Document, (b) has or could reasonably be expected to have a materially
adverse effect on the condition (financial or otherwise) or business
operations of SCI and its Subsidiaries or the prospects of SCI and its
Subsidiaries, (c) materially impairs or could reasonably be expected to
materially impair the ability of any Party to perform its Obligations or
(d) materially impairs or could reasonably be expected to materially impair
the ability of the Creditors to enforce their legal remedies pursuant to
the Loan Documents.
"Material Contract" means each agreement specified on Schedule
----------------- --------
4.21 and each other contract or agreement to which SCI or any of its
----
Subsidiaries is a party, contractually requiring annual payments or
receipts of monies, or the exchange of Property having a value, in excess
of $2,000,000, provided that individual purchase orders for goods and
-------- ----
services shall not be construed to be Material Contracts.
"Maturity Date" means June 30, 2000.
-------------
"Midland Facilities" means, collectively, the credit facilities
------------------
provided to ASCL by (a) Midland Bank, (b) Forward Asset Trust and (c)
Forward Finance, and each of the instruments, documents and agreements
executed in connection therewith, copies of which have been delivered to
Bank.
-24-
<PAGE>
"Multiemployer Plan" means any employee benefit plan of the type
------------------
described in Section 4001(a)(3) of ERISA.
"Negative Pledge" means any covenant binding on SCI or its
---------------
Subsidiaries that prohibits the creation of Liens on any Property of SCI or
its Subsidiaries to the Creditors or prohibiting the granting of any such
covenant to any of the Creditors.
"Net Cash Flow" means, with respect to any fiscal period, (a)
-------------
Cash Flow for that fiscal period minus (b) the amount, not less than $0,
-----
equal to (i) Capital Expenditures of SCI and its Subsidiaries for that
fiscal period, minus (ii) Capital Expenditures financed during that period
-----
using Indebtedness incurred in accordance with Section 6.7(d), plus (iii)
------ ----
the proceeds of sales of assets received during that period pursuant to
sale leaseback transactions completed within a six month period following
the acquisition of such assets.
"Net Cash Proceeds" means (a) the gross cash payments (including
----------------- ---------
any cash received by way of deferred payment pursuant to a note receivable
or otherwise, but only as and when so received) received from any sale,
transfer, exchange or other disposition of assets plus (b) the gross cash
----
consideration received from or upon the sale or other disposition of any
asset received, directly or indirectly, in exchange for the asset which is
the subject of that sale, transfer, exchange or disposition, minus
-----
transactional expenses and taxes associated with such sale, transfer or
other disposition.
"Net Income" means, with respect to any fiscal period, the
----------
consolidated net income of SCI and its Subsidiaries for that period;
provided that any income or loss of a Person accrued prior to the date upon
--------
which such Person, or the assets of such Person, was acquired by or merged
into SCI or its Subsidiaries shall be excluded from Net Income.
"Net Letter of Credit Usage" means, at any date of determination,
--------------------------
(a) Letter of Credit Usage minus (b) the maximum aggregate amount that is
-----
or at any time thereafter may become available for drawing or payment under
the Phoenix Letter of Credit.
"Note" means any of the promissory notes made payable by
----
Borrowers to the order of Bank evidencing Loans to Borrowers under a
Commitment, substantially in the form of Exhibits D and E, either as
---------- -
originally executed or as
-25-
<PAGE>
the same may from time to time be supplemented, modified, amended, renewed,
extended or supplanted. When the term "Note" is modified by the terms
"Line A" or "Line B" it refers to the Note executed to evidence Loans made
under the Commitment so designated.
"Obligations" means all present and future obligations of every
-----------
kind or nature of Borrowers or any Party at any time and from time to time
owed to any of the Creditors under any of the Loan Documents, whether due
or to become due, matured or unmatured, liquidated or unliquidated, or
contingent or noncontingent, including obligations of performance as well
---------
as obligations of payment, and including interest that accrues after the
---------
commencement of any proceeding under any Debtor Relief Law by or against
Borrowers or any Affiliate of Borrowers.
"Opinions" means the favorable written legal opinions of Shereff,
--------
Friedman, Hoffman & Goodman, LLP, Patton, Boggs LLP and Beiten. Burkhardt,
et al. special counsel to Borrowers and their Subsidiaries, together with
each factual certificate or legal opinion relied upon therein.
"Parent" means Valentec International Corporation, a Delaware
------
corporation, its successors and assigns.
"Party" means each party to the Loan Documents other than the
----- ----------
Creditors.
"Payment Date" means September 30, 1996 and each subsequent
------------
December 31, March 31, June 30 and September 30 through the Maturity Date.
"PBGC" means the Pension Benefit Guaranty Corporation or any
----
successor thereof established under ERISA.
"Pension Plan" means any "employee pension benefit plan" that is
------------
subject to Title IV of ERISA and which is maintained for employees of SCI
or any of its ERISA Affiliates, other than a Multiemployer Plan.
----------
"Permitted Encumbrances" means:
----------------------
(a) Inchoate Liens incident to construction or maintenance of
real property, or Liens incident to construction or maintenance of real
property, now or hereafter filed of record for which adequate reserves
have been set aside and which are being or will be, within
-26-
<PAGE>
30 days, contested in good faith by appropriate proceedings diligently
pursued and have not proceeded to judgment, provided that, by reason of
--------
nonpayment of the obligations secured by such Liens, no such real property
is subject to a material risk of loss or forfeiture;
(b) Liens for taxes and assessments on real property which are
not yet past due, or Liens for taxes and assessments on real property for
which adequate reserves have been set aside and are being contested in good
faith by appropriate proceedings diligently pursued and have not proceeded
to judgment, provided that, by reason of nonpayment of the obligations
--------
secured by such Liens, no such real property is subject to a material risk
of loss or forfeiture;
(c) easements, exceptions, reservations, covenants, conditions,
restrictions, and assessment Liens arising thereunder, operating
agreements, or other agreements granted, reserved or entered into before or
after the date hereof for the purpose of ingress, egress, parking,
encroaching, pipelines, conduits, cables, wire communication lines, power
lines and substations, streets, trails, walkways, drainage, irrigation,
water, and sewerage purposes, dikes, canals, ditches, the removal of oil,
gas, coal, or other minerals, use, operation, repair, maintenance and
reconstruction, and other like purposes affecting real property which in
the aggregate do not materially burden or impair the fair market value or
use of such real property for the purposes for which it is or may
reasonably be expected to be held;
(d) rights reserved to or vested in any Governmental Agency by
Law to control or regulate, or obligations or duties under Law to any
Governmental Agency with respect to, the use of any real property;
(e) statutory Liens, other than those described in clauses (a)
---------- ---
or (b) above, arising in the ordinary course of business with respect to
-- ---
obligations which are not delinquent or are being contested in good faith
by appropriate proceedings diligently pursued, provided that, if
--------
delinquent, adequate reserves have been set aside with respect thereto and,
by reason of nonpayment, no material Property is subject to a material risk
of loss or forfeiture;
(f) Liens (i) consisting of pledges or deposits to secure
obligations under workers' compensation laws or similar legislation, and/or
(ii) to secure bids, surety bonds, tenders, leases, government contracts
and
-27-
<PAGE>
performance bonds entered into in the ordinary course of business, that in
each case do not exceed $250,000 in the aggregate at any time outstanding,
including Liens of judgments thereunder which are not currently
---------
dischargeable; and
(g) Liens consisting of deposits of Property to secure statutory
obligations of Borrowers and their Subsidiaries in the ordinary course of
their business.
"Person" means any entity, whether an individual, trustee,
------
corporation, general partnership, limited partnership, joint stock company,
trust, estate, unincorporated organization, business association, firm,
joint venture, Governmental Agency, or otherwise.
"Pledge Agreement" means a pledge agreement executed by SCI on
----------------
the Closing Date in favor of the Collateral Agent for the benefit of the
Creditors providing for a pledge of all of the capital stock of each direct
Subsidiary of SCI, either as originally executed or as the same may from
time to time be supplemented, modified, amended, renewed, extended or
supplanted.
"Phoenix AG" means, Phoenix Aktiengesellschaft, a corporation
----------
organized under the laws of Germany, its successors and assigns.
"Phoenix Airbag" means Phoenix Airbag GmbH, a corporation
--------------
organized under the laws of Germany, its successors and permitted assigns.
"Phoenix Letter of Credit" means one or more Letters of Credit
------------------------
issued under the Line A Commitment to support SCI's obligation to pay any
"Additional Purchase Price" as such term is defined in Section 15 of the
Acquisition Agreement, which Letters of Credit shall be in an aggregate
face amount not to exceed the LESSER of $4,500,000 or DM6,000,000 at
issuance, the terms of which Letters of Credit shall be reasonably
acceptable to Bank, provided that the amount of the Phoenix Letter of
--------
Credit shall reduce by not less than DM3,000,000 by August 30, 1998 and
shall expire no later than August 30, 1999.
"Pricing Period" means the concurrent periods of approximately 90
--------------
days each beginning on the forty-fifty day following the last day of each
Fiscal Quarter.
"Pricing Reduction Criteria" means, as of each date of
--------------------------
determination, the satisfaction by Borrowers of all of the following
criteria: (a) the passage of one year
-28-
<PAGE>
from the Closing Date, (b) the absence of any Default or Event of Default
as of that date, (c) the absence of any Default or Event of Default with
respect to the covenants set forth in Section 6.10 through 6.15 during or
---- ----
with respect to the two Fiscal Quarters most recently ended as of that
date, and (d) the maintenance of a Leverage Ratio which is not greater than
1.50 to 1.00 as of the last day of the then most recent Fiscal Quarter.
"Projections" means the consolidated financial projections for
-----------
SCI and its Subsidiaries delivered pursuant to Section 8.1.
---
"Property" means any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Reference Rate" means the rate of interest publicly announced
--------------
from time to time by Bank of America in San Francisco, California as its
"Reference Rate." The Reference Rate is set by Bank of America based on
various factors, including Bank of America's costs and desired returns,
general economic conditions and other factors, and is used as a reference
point for pricing some loans. Bank of America may price loans at, above or
below its Reference Rate. Any change in the Reference Rate shall take
effect on the day specified in the public announcement of such change.
"Regulation D" means Regulation D, as at any time amended, of the
------------
Board of Governors of the Federal Reserve System, or any other regulation
in substance substituted therefor.
"Request for Letter of Credit" means a written request for a
----------------------------
Letter of Credit, substantially in the form of Exhibit F, together with the
---------
standard form of application for letters of credit used by Bank, signed by
a Responsible Official of Borrowers and properly completed to provide all
information to be included therein.
"Request for Loan" means a written request for a Loan,
----------------
substantially in the form of Exhibit G, signed by a Responsible Official of
---------
Borrowers and properly completed to provide all information required to be
included therein.
"Request for Redesignation" means a written request to continue
-------------------------
or redesignate a Loan substantially in the form of Exhibit H, signed by a
---------
Responsible Official of
-29-
<PAGE>
Borrowers and properly completed to provide all information required to be
included therein.
"Requirement of Law" means, as to any Person, the articles or
------------------
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any Law, or judgment, award,
decree, writ or determination of a Governmental Agency, 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.
"Responsible Official" means (a) when used with reference to a
--------------------
Person other than an individual, any corporate officer of such Person,
----------
general partner of such Person, corporate officer of a corporate general
partner of such Person, or corporate officer of a corporate general
partner of a partnership that is a general partner of such Person, or any
other responsible official thereof duly acting on behalf thereof, and (b)
when used with reference to a Person who is an individual, such Person.
Any document or certificate hereunder that is signed or executed by a
Responsible Official of a Person shall be conclusively presumed to have
been authorized by all necessary corporate, partnership and/or other action
on the part of that Person.
"Right of Others" means, as to any Property in which a Person has
---------------
an interest, (a) any legal or equitable right, title or other interest
(other than a Lien) held by any other Person in or with respect to that
----------
Property, and (b) any option or right held by any other Person to acquire
any right, title or other interest in or with respect to that Property,
including any option or right to acquire a Lien.
---------
"Rollover Amount" has the meaning set forth in Section 6.11.
--------------- ----
"Second Tier Pledge Agreement" means each of the pledge
----------------------------
agreements executed by each of ASCI, the Holding Companies and each of the
other Domestic Subsidiaries of Borrowers which has direct Subsidiaries on
the Closing Date in favor of the Collateral Agent for the benefit of the
Creditors providing for a pledge of all of the capital stock of each such
Subsidiary (except, that in the case of the pledge of interests in any
Foreign Subsidiary, only 65% of the equity interests in any such Foreign
Subsidiary shall be collateral for the Loans and Letters of Credit under
this Agreement and the other domestic Loan Documents), either as originally
executed or as the same
-30-
<PAGE>
may from time to time be supplemented, modified, amended, renewed, extended
or supplanted.
"Securities" means any capital stock, share, voting trust
----------
certificate, bonds, debentures, notes or other evidences of indebtedness,
limited partnership interests, or any warrant, option or other right to
purchase or acquire any of the foregoing.
"Security Agreement" means a security agreement executed by
------------------
Borrowers on the Closing Date in favor of the Collateral Agent for the
benefit of the Creditors, either as originally executed or as the same may
from time to time be supplemented, modified, amended, renewed, extended or
supplanted.
"Senior Officer" means the Chief Executive Officer, President,
--------------
Chief Financial Officer, of a Person, or the individuals who exercise the
functions of such officers, whatever their titles.
"Shareholders' Equity" means, as of any date of determination,
--------------------
consolidated shareholders' equity of SCI and its Subsidiaries on that date
determined in accordance with Generally Accepted Accounting Principles;
provided that there shall be excluded from Shareholders' Equity any amount
--------
attributable to that portion of capital stock of SCI and its Subsidiaries
that is, directly or indirectly, required by its terms to be redeemed or
repurchased by the issuer thereof at a specified date or upon the
occurrence of specified events or at the election of the holder thereof.
"Solvency Certificate" means a solvency certificate in a form
--------------------
acceptable to the Collateral Agent, executed by the Chief Financial Officer
of Galion and Systems, and all exhibits and schedules thereto.
"Special Eurodollar Circumstance" means the application or
-------------------------------
adoption of any Law or interpretation, or any change therein or thereof, or
any change in the interpretation or administration thereof by any
Governmental Agency, central bank or comparable authority charged with the
interpretation or administration thereof, or compliance by Bank or its
Eurodollar Lending Office with any request or directive (whether or not
having the force of Law) of any such Governmental Agency, central bank or
comparable authority, or the existence or occurrence of circumstances
affecting the Designated Eurodollar Market generally that are beyond the
reasonable control of Bank.
-31-
<PAGE>
"Subsidiary" means, as of any date of determination and with
-----------
respect to any Person, any corporation, partnership or joint venture,
whether now existing or hereafter organized or acquired: (a) in the case
of a corporation, of which a majority of the securities having ordinary
voting power for the election of directors or other governing body (other
-----
than securities having such power only by reason of the happening of a
----
contingency) are at the time beneficially owned by such Person and/or one
or more Subsidiaries of such Person, or (b) in the case of a partnership or
joint venture, of which such Person or a Subsidiary of such Person is a
general partner or joint venturer or of which a majority of the partnership
or other ownership interests are at the time beneficially owned by such
Person and/or one or more of its Subsidiaries.
"Subsidiary Security Agreement" means a security agreement
-----------------------------
executed by each Domestic Subsidiary of SCI which is not itself a Borrower
on the Closing Date in favor of the Collateral Agent for the benefit of the
Creditors, covering all of the personal property of each such Domestic
Subsidiary, either as originally executed or as the same may from time to
time be supplemented, modified, amended, renewed, extended or supplanted.
"Swap Agreements" means one or more written agreements between
----------------
Borrowers and one or more financial institutions providing for "swap",
"cap", "collar" or other interest rate or currency risk protection with
respect to any Indebtedness.
"Systems" means Valentec Systems, Inc., a Delaware corporation,
-------
its successors and permitted assigns.
"Tangible Net Worth" means, as of any date of determination, the
------------------
gross book value of the assets of SCI and its Subsidiaries on that date
minus the consolidated total liabilities (including accrued and deferred
-----
income taxes) of SCI and its Subsidiaries on that date minus the Intangible
-----
Assets of SCI and its Subsidiaries on that date, excluding, in any event,
the currency translation account of SCI and its Subsidiaries, in each case
determined in accordance with Generally Accepted Accounting Principles
consistently applied.
"Termination Event" means (a) a "reportable event" as defined in
-----------------
Section 4043 of ERISA (other than a "reportable event that is not subject
----------
to the provision for
-32-
<PAGE>
30 day notice to the PBGC), (b) the withdrawal of either of SCI or any of
its ERISA Affiliates from a Pension Plan during any plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c)
the filing of a notice of intent to terminate a Pension Plan or the
treatment of an amendment to a Pension Plan as a termination thereof
pursuant to Section 4041 of ERISA, (d) the institution of proceedings to
terminate a Pension Plan by the PBGC or (e) any other event or condition
which, in any such case as aforesaid, might reasonably be expected to
constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan.
"to the best knowledge of" means, when modifying a
------------------------
representation, warranty or other statement of any Person, that the fact or
situation described therein is known by the Person (or, in the case of a
Person other than a natural Person, known by a Senior Officer of that
----------
Person) making the representation, warranty or other statement, or with the
exercise of reasonable due diligence under the circumstances (in accordance
with the standard of what a reasonable Person in similar circumstances
would have done) should have been known by the Person (or, in the case of a
Person other than a natural Person, should have been known by a
----------
Senior Officer of that Person).
"U.K. Facilities" means, collectively, the U.K. Revolver and the
---------------
U.K. Term Loan.
"U.K. Overdraft Facility" means the overdraft credit facility to
-----------------------
be provided to ASCL by BofA London as a subfacility of the U.K. Revolver.
"U.K. Revolver" means a $1,500,000 principal amount revolving
-------------
credit facility to be provided to ASCL by BofA London, including, as a
subfacility, the U.K. Overdraft Facilities.
"U.K. Term Loan" means a term loan in an amount up to $1,500,000
--------------
principal amount term loan to be provided to ASCL by BofA London.
"Working Capital" means, as of each date of determination, (a)
---------------
Current Assets as of that date (other than Cash and marketable securities),
----- ----
minus (b) Current Liabilities as of that date (other than the current
-----
portion of the Obligations).
-33-
<PAGE>
1.2 Use of Defined Terms. Any defined term used in the plural shall refer
--------------------
to all members of the relevant class, and any defined term used in the singular
shall refer to any one or more of the members of the relevant class.
1.3 Accounting Terms. All accounting terms not specifically defined in
----------------
this Agreement shall be construed in conformity with, and all financial data
required to be submitted by this Agreement shall be prepared in conformity with,
Generally Accepted Accounting Principles applied on a consistent basis, except
------
as otherwise specifically prescribed herein. In the event that Generally
Accepted Accounting Principles change during the term of this Agreement such
that the financial covenants contained in Sections 6.10 through 6.15 would then
---- ----
be calculated in a different manner or with different components, Borrowers and
Bank agree to amend this Agreement in such respects as are necessary to conform
those covenants as criteria for evaluating Borrowers' financial condition to
substantially the same criteria as were effective prior to such change in
Generally Accepted Accounting Principles.
1.4 Rounding. Any financial ratios required to be maintained by
--------
Borrowers pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
1.5 Exhibits and Schedules. All Exhibits and Schedules to this Agreement,
----------------------
either as originally existing or as the same may from time to time be
supplemented, modified, amended, or supplanted are incorporated herein by this
reference.
1.6 Miscellaneous Terms. The term "or" is disjunctive; the term "and" is
-------------------
conjunctive. The term "shall" is mandatory; the term "may" is permissive.
Masculine terms also apply to females; feminine terms also apply to males. The
term "including" is by way of example and not limitation.
-34-
<PAGE>
ARTICLE 2
LOANS AND LETTERS OF CREDIT
---------------------------
2.1 Loans-General.
-------------
(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time from the day following the
Closing Date through the Maturity Date, Bank shall make Loans to Borrowers
under the Line A Commitment in such amounts as Borrowers may request
provided that, giving effect to the requested Loan, (i) the aggregate
--------
outstanding principal Indebtedness under the Line A Note plus the Net
----
Letter of Credit Usage shall not exceed the Borrowing Base, and (ii) the
aggregate outstanding principal Indebtedness under the Line A Note plus the
----
Letter of Credit Usage shall not exceed the amount of the Line A
Commitment. Subject to the limitations set forth herein (including the
requirements of Sections 3.5 and 3.7(d)), Borrowers may borrow, repay and
--- ------
reborrow under the Line A Commitment without premium or penalty.
(b) Subject to the terms and conditions set forth in this
Agreement, on the Closing Date, Bank shall make a Loan to Borrowers under
the Line B Commitment in an amount equal to the Line B Commitment. Subject
to the limitations set forth herein (including the requirements of Sections
3.5 and 3.7(d)), Borrowers may prepay the Line B Loan without premium or
--- ------
penalty; provided however that amounts prepaid or repaid with respect to
--------
the Line B Loan may not be reborrowed.
(c) Each Loan shall be made pursuant to a written Request for
Loan which shall specify (i) the requested date of such Loan, (ii) the
Commitment under which the Loan is requested, (iii) whether such Loan is to
be a Base Rate Loan or a Eurodollar Rate Loan, (iv) the amount of such
Loan, and (v) the Interest Period for any such Loan which is to be a
Eurodollar Rate Loan. Unless Bank has notified, in its sole and absolute
discretion, Borrowers to the contrary, a Loan may be requested by telephone
by a Responsible Official of Borrowers, in which case Borrowers shall
confirm such request by promptly delivering a Request for Loan in person or
by telecopier conforming to the preceding sentence to Bank. Bank shall
incur no liability whatsoever hereunder in acting upon any telephonic
request for Loan purportedly made by a Responsible Official of Borrowers,
and Borrowers hereby agree to indemnify each Creditor from any loss, cost,
expense or liability as a result of so acting (other than
-35-
<PAGE>
as a result of the gross negligence or willful misconduct of Bank).
(d) Upon fulfillment of the applicable conditions set forth in
Article 8, the Loan shall be credited in immediately available funds to the
---------
Concentration Account.
(e) each Base Rate Loan shall be in an integral multiple of
$100,000 which is not less than $500,000 and each Eurodollar Rate Loan
shall be in an integral multiple of $500,000 which is not less than
$1,000,000.
(f) If as of the last day of any Interest Period, no Request for
Loan has been delivered within the requisite notice periods set forth in
Sections 2.2 or 2.3 for a Loan in the amount necessary to refinance the
--- ---
maturing Eurodollar Rate Loan, then Borrowers shall be deemed to have
requested, as of the date upon which the related then outstanding Loan is
due pursuant to Section 3.1(d)(i) and not paid, a Base Rate Loan in an
---------
amount equal to the amount necessary to cause the outstanding principal
Indebtedness evidenced by the Notes to remain the same and Bank shall make
such Loan notwithstanding Borrowers' failure to deliver a Request for Loan
or other notice required by Sections 2.1(c), 2.2 and 2.3.
------ --- ---
(g) Unless the Collateral Agent otherwise consents, no more than
four Eurodollar Rate Loans shall be outstanding at any one time.
(h) A Request for Loan shall be irrevocable upon Bank's first
notification thereof.
2.2 Base Rate Loans. Each request by Borrowers for a Base Rate Loan shall
---------------
be made pursuant to a Request for Loan (or a telephonic request) received by
Bank not later than 3:00 p.m., California time, on the Banking Day of the
requested Base Rate Loan. All Loans shall constitute Base Rate Loans unless
properly designated as Eurodollar Rate Loans pursuant to Section 2.3.
---
2.3 Eurodollar Rate Loans.
---------------------
(a) Each request by Borrowers for a Eurodollar Rate Loan shall
be made pursuant to a Request for Loan (or a telephonic request) received
by Bank not later than 10:00 a.m., California time, at least two Eurodollar
Banking Days before the first day of the applicable Interest Period.
-36-
<PAGE>
(b) At or about 10:00 a.m., California time, two Eurodollar
Banking Days before the first day of the applicable Interest Period, Bank
shall determine the applicable Eurodollar Rate (which determination shall
be conclusive in the absence of manifest error) and promptly shall give
notice of the same to Borrowers by telephone, telecopier or telex.
(c) No Eurodollar Rate Loan may be requested during the
continuance of a Default or Event of Default.
(d) Nothing contained herein shall require Bank to fund any
Eurodollar Rate Loan in the Designated Eurodollar Market.
2.4 Redesignation of Loans. Borrowers may redesignate a Base Rate Loan,
----------------------
or subject to Section 2.1(e) any portion thereof, as a Eurodollar Rate Loan by
------
delivering a Request for Redesignation to the Collateral Agent at the Collateral
Agent's Office subject to the same time limitations and other conditions set
forth in Sections 2.3 and 3.1(e)(iv). Borrowers may redesignate a Eurodollar
--- ----------
Rate Loan, or subject to Section 2.1(e) any portion thereof, as a Base Rate Loan
------
by delivering a Request for Redesignation to the Collateral Agent at the
Collateral Agent's Office subject to the same time limitations and other
conditions set forth in Sections 2.2 and 3.1(e)(iv); provided that such
--- ---------- --------
redesignation shall not be effective prior to the end of the Interest Period for
that Eurodollar Rate Loan. If no timely Request for Redesignation is delivered
to the Collateral Agent prior to the end of the Interest Period for any
Eurodollar Rate Loan, it shall automatically be redesignated as a Base Rate Loan
as of the end of such Interest Period.
2.5 Letters of Credit.
-----------------
(a) Subject to the terms and conditions hereof, at any time and
from time to time from the Closing Date through the day prior to the
Maturity Date, Bank shall issue Letters of Credit, for the account of
Borrowers having terms and in favor of beneficiaries reasonably acceptable
to Bank, as Borrowers may request in the ordinary course of business by a
Request for Letter of Credit; provided that, giving effect to the issuance
--------
of such Letter of Credit, in no event shall (i) the Net Letter of Credit
Usage exceed $2,000,000 at any time, (ii) the Net Letter of Credit Usage
plus the then outstanding principal Indebtedness under the Line A Note
----
exceed the lesser of (x) the Line A Commitment or (y) the Borrowing Base,
or (iii) the Letter of Credit Usage plus
----
-37-
<PAGE>
the then outstanding principal Indebtedness exceed the Line A Commitment.
The Phoenix Letter of Credit shall not be issued until August 30, 1997 and
then only when the condition precedent specified in Section 8.2(d) has been
------
satisfied.
(b) The terms of Letters of Credit shall not exceed one year and
shall not extend beyond the Maturity Date, provided that the Phoenix Letter
--------
of Credit may have a term of 24 months which does not extend past the
Maturity Date or a longer term which is acceptable to the Bank.
(c) Each Request for Letter of Credit shall be submitted to Bank
at least five Banking Days prior to the date when the issuance of a Letter
of Credit is requested.
(d) After the making by Bank of any payment with respect to any
Letter of Credit, Borrowers agree to pay to Bank, within one Banking Day
after demand therefor, a principal amount equal to any payment made by Bank
under that Letter of Credit, together with interest at the Default Rate on
such amount from the date of any payment made by Bank through the date of
payment by Borrowers. The principal amount of any such payment made to
Bank shall be used to reimburse Bank for the payment made by it under the
Letter of Credit.
(e) The issuance of any supplement, modification, amendment,
renewal, or extension to or of any Letter of Credit shall be treated in all
respects the same as the issuance of a new Letter of Credit, and shall
require the submission of a new Request for Letter of Credit.
(f) The obligation of Borrowers to pay to Bank the amount of any
payment made by Bank under any Letter of Credit shall be absolute,
unconditional, and irrevocable, subject only to performance by Bank of its
obligations under California Commercial Code Section 5109. Without
limiting the foregoing, the obligation of Borrowers shall not be affected
by any of the following circumstances:
(i) any lack of validity or enforceability of the Letter of
Credit, this Agreement, or any other agreement or instrument relating
thereto;
(ii) any amendment or waiver of or any consent to departure
from the Letter of Credit, this Agreement, or any other agreement or
instrument relating thereto;
-38-
<PAGE>
(iii) the existence of any claim, setoff, defense, or other
rights which Borrowers or any other Person may have at any time
against Bank or any other Creditor, any beneficiary of the Letter of
Credit (or any persons or entities for whom any such beneficiary may
be acting) or any other Person, whether in connection with the Letter
of Credit, this Agreement, or any other agreement or instrument
relating thereto, or any unrelated transactions;
(iv) any demand, statement, or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid,
or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect whatsoever so long as any such document
appeared to comply with the terms of the Letter of Credit;
(v) the solvency or financial responsibility of any party
issuing any documents in connection with a Letter of Credit;
(vi) any failure or delay in notice of shipments or arrival
of any Property;
(vii) any error in the transmission of any message relating
to a Letter of Credit, or any delay or interruption in any such
message;
(viii) any error, neglect or default of any correspondent
of Bank in connection with a Letter of Credit;
(ix) any consequence arising from acts of God, war,
insurrection, disturbances, labor disputes, emergency conditions or
other causes beyond the control of Bank;
(x) so long as Bank in good faith determines that the
draft, contract or document appears to comply with the terms of the
Letter of Credit, the form, accuracy, genuineness or legal effect of
any contract or document referred to in any document submitted to Bank
in connection with a Letter of Credit; and
(xi) where Bank has acted in good faith and without gross
negligence and observed general banking usage, any other circumstance
whatsoever.
-39-
<PAGE>
2.6 Voluntary Reduction of the Line A Commitment. Borrowers shall have
--------------------------------------------
the right, at any time and from time to time, without penalty or charge except
as set forth in Sections 3.5 and 3.7(d), upon at least five Banking Days prior
--- ------
written notice to Bank, voluntarily to reduce, permanently and irrevocably, in
aggregate principal amounts in an integral multiple of $1,000,000, or to
terminate, all or a portion of the then undisbursed portion of the Line A
Commitment, provided that any such reduction or termination shall be accompanied
--------
by payment of all accrued and unpaid commitment fees with respect to the portion
of the Line A Commitment being reduced or terminated.
2.7 Annual Clean-Up of Loans the Line A Commitment. Borrowers shall
----------------------------------------------
cause the principal Indebtedness evidenced by the Line A Note to be repaid in
its entirety, and shall thereafter maintain such Indebtedness at $0 for not less
than 30 days during each of the 12 month consecutive annual periods beginning on
the Closing Date and each anniversary of the Closing Date, provided that this
--------
Section shall not be deemed to prohibit Letters of Credit to be outstanding
during such 30 day periods.
2.8 Automatic Reduction of the Line A Commitment. The Line A Commitment
--------------------------------------------
shall automatically reduce on the date of each payment of "Additional Purchase
Price" under the Acquisition Agreement (or, if earlier, each payment under the
Phoenix Letter of Credit) in the U.S. dollar equivalent of the amount of such
payment, provided that the aggregate reductions under this Section shall not
--------
exceed $4,000,000.
2.9 Automatic Reduction of the Line B Commitment. The Line B Commitment
--------------------------------------------
shall automatically reduce on each Payment Date by the related Amortization
Amount. The Line B Commitment shall also automatically reduce by an amount
equal to the amount of (i) any voluntary prepayment of the Line B Note under
Section 3.1(e) and (ii) any mandatory prepayment of the Line B Note under
------
Section 3.1(d)(v), 3.1(d)(vi) and 3.1(d)(vii).
--------- ---------- -----------
2.10 Collateral. The Loans and the reimbursement obligation of
----------
Borrowers with respect to Letters of Credit, together with all other
Obligations, shall be secured by the Lien created by the Collateral Documents.
-40-
<PAGE>
ARTICLE 3
PAYMENTS AND FEES
-----------------
3.1 Principal and Interest.
----------------------
(a) Interest shall be payable on the outstanding daily unpaid
principal amount of each Loan from the date thereof until payment in full
is made and shall accrue and be payable at the rates set forth herein
before and after default, before and after maturity, before and after
judgment, and before and after the commencement of any proceeding under any
Debtor Relief Law, with interest on overdue interest to bear interest at
the Default Rate to the fullest extent permitted by applicable Laws.
(b) Interest accrued on each Base Rate Loan shall be due and
payable on the last day of each calendar month. Except as otherwise
------
provided in Section 3.8, the unpaid principal amount of each Base Rate Loan
---
shall bear interest at a fluctuating rate per annum equal to the Base Rate.
Each change in the interest rate hereunder shall take effect simultaneously
with the corresponding change in the Base Rate.
(c) Interest accrued on each Eurodollar Rate Loan shall be due
and payable on the last day of the related Interest Period and, in the case
of Eurodollar Rate Loans with Interest Periods which are longer than one
month, on the day that is one month after the first day of that Interest
Period, monthly thereafter on the same day of the month, and on the last
day of the Interest Period. Except as otherwise provided in Section 3.8,
------ ---
the unpaid principal amount of any Eurodollar Rate Loan shall bear interest
at a rate per annum equal to the Eurodollar Rate for that Eurodollar Rate
Loan plus the Eurodollar Margin.
----
(d) If not sooner paid, the principal Indebtedness under this
Agreement shall be immediately payable as follows:
(i) The principal amount of each Eurodollar Rate Loan shall be
payable on the last day of the related Interest Period.
(ii) The Indebtedness evidenced by the Line A Note shall be
payable in the amount by which the sum of aggregate outstanding amount
---
of the Line A Loans
-41-
<PAGE>
plus the Net Letter of Credit Usage at any time exceeds the Borrowing
----
Base.
(iii) The Indebtedness evidenced by the Line A Note shall also
be payable in the amount by which the aggregate outstanding amount of
the Line A Loans plus the Letter of Credit Usage at any time exceeds
----
the lesser of the Line A Commitment.
(iv) The outstanding principal Indebtedness evidenced by the
Line B Note shall be payable on each Payment Date in the related
Amortization Amount.
(v) The Line B Note shall be prepaid on or before July 31 of
each year in an amount equal to 75% of Excess Cash Flow for the
immediately preceding Fiscal Year (calculated for the Fiscal Year
ending March 31, 1997 on the basis of the period from the Closing Date
to March 31, 1997 based upon the audited opening balance sheet of Co.
KG consolidated with the July 31, 1996 consolidated financial
statements of SCI and its Subsidiaries), provided that, if and to the
--------
extent that (i) the principal Indebtedness evidenced by the Line B
Note has been reduced to $10,000,000, (ii) no Default or Event of
Default has occurred with respect to the covenants set forth in
Sections 6.10 through 6.15 during the two Fiscal Quarters
---- ----
then most recently ended, and (iii) no Default or Event of Default
then exists, the amount by which the Line B Note must be so prepaid
shall be reduced to 50% of Excess Cash Flow. Any such payments under
this clause (v) shall be applied to Amortization Amounts in the
---
inverse order of their maturity.
(vi) The outstanding principal Indebtedness evidenced by the
Line B Note also shall be payable on the date of the incurrence by
Borrowers or its Subsidiaries of any Indebtedness pursuant to Sections
6.7(e) and 6.7(f) by an amount equal to 100% of such permitted
------ ------
Indebtedness, provided that at such times as the U.K. Term Loan is
--------
outstanding, the U.K. Term Loan shall instead be prepaid with the
proceeds of any such Indebtedness to the extent that the same is
secured with assets of ASCL. Any payments under this clause (vi)
----
shall be applied to Amortization Amounts in the inverse order of their
maturity, provided that the proceeds of any Indebtedness permitted
--------
under Section 6.7(f) shall be applied as may be agreed upon by
------
Borrower and Bank in connection with any approval by Bank of any such
Indebtedness.
-42-
<PAGE>
(vii) The outstanding principal Indebtedness evidenced by the
Line B Note also shall be payable on the date of receipt by the
Borrowers of the net cash proceeds of any issuance of equity
securities by SCI or any of its Subsidiaries in an amount equal to 50%
of such net cash proceeds. Any payments under this clause (vii) shall
-----
be applied to Amortization Amounts in the inverse order of their
maturity.
(viii) The outstanding principal Indebtedness evidenced by the
Notes shall, in any event, be payable on the Maturity Date.
(e) The Notes may, at any time and from time to time,
voluntarily be paid or prepaid in whole or in part without premium or
penalty except as set forth in Sections 3.5, except that with respect to
--- ------
any voluntary prepayment under this Section 3.1(e), (i) each prepayment
------
shall be in an integral multiple of $100,000, which results in the
remaining principal balance of the Eurodollar Rate Loan being not less than
$1,000,000, (ii) the Bank shall have received written notice of any
prepayment at least one Banking Day before the date of prepayment, which
notice shall identify the date and amount of the prepayment and the Loan(s)
being prepaid, (iii) each prepayment of principal in respect of a
Eurodollar Rate Loan shall be accompanied by payment of interest accrued
through the date of payment on the amount of principal paid and (iv) in any
event, any payment or prepayment of all or any part of any Eurodollar Rate
Loan on a day other than the last day of the applicable Interest Period
----- ----
shall be subject to Section 3.7(d).
------
3.2 Certain Fees. On the Closing Date, Borrowers shall pay facility fees
------------
and other fees to Bank of America for its services in arranging and structuring
this Agreement, the U.K. Facilities and the German Overdraft Facility, in
amounts set forth in the commitment letter heretofore issued to Borrowers by
Bank of America. It is understood that this Section shall not be construed in
derogation of Section 11.15. These fees are for the sole account of Bank of
-----
America, are fully earned on the dates when due, and are nonrefundable, provided
--------
that the portion of such fees which is attributable to the U.K. Facility and the
German Overdraft Facility shall be refunded to the extent that such facilities
have not been consummated within 60 days following the Closing Date due to no
fault of Bank.
3.3 Commitment Fees. From and after the Closing Date, Borrowers shall pay
---------------
commitment fees to Bank equal to .375% per annum times the average daily
difference between (a) the Line A
-43-
<PAGE>
Commitment, and (b) the sum of principal Indebtedness evidenced by the Line A
------
Note plus the Letter of Credit Usage, provided that the rate at which commitment
---- --------
fees accrue shall be reduced to 0.250% per annum for each Pricing Period during
which the Pricing Reduction Criteria have been satisfied unless and until the
Pricing Reduction Criteria are no longer satisfied. Commitment fees shall be
payable quarterly in arrears on each September 30, December 31, March 31 and
June 30, commencing September 30, 1996, and on the Maturity Date.
3.4 Letter of Credit Fees. On the issuance date of each Letter of Credit
---------------------
(and, in the case of the Phoenix Letter of Credit and each other Letter of
Credit which Bank permits to exceed one year in duration, on each anniversary
date of its issuance), Borrowers shall pay to Bank:
(a) a letter of credit fee equal to 2.25% per annum of the
maximum face amount of the Phoenix Letter of Credit and 2.00% per annum
times the maximum face amount of each other Letter of Credit which is not a
documentary letter of credit used to support the purchase of inventory or
raw materials, provided that the annual fee payable with respect to each
--------
standby letter of credit shall not be less than $750.
(b) such issuance fees with respect to documentary Letters of
Credit used to support the purchase of inventory or raw materials as Bank
may from time to time advise Borrowers are applicable to the same, provided
--------
that the fee payable with respect to each such Letter of Credit shall not
be less than $500; and
(c) for the sole account of Bank, such standard payment,
negotiation, processing, amendment and other similar charges as and when
Bank may from time to time advise Borrowers are applicable to Letters of
Credit.
Each such issuance fee is earned when due and is non-refundable under any
circumstances.
3.5 Termination Fees. In the event that Borrowers terminate any portion
----------------
of the Commitments pursuant to Section 2.6, or repay any portion of the
---
Obligations (other than as required by Section 3.1(d)(v), 3.1(d)(vi) and
----- ---- --------- ----------
3.1(d)(vii)), or terminate or permanently repay any portion of the U.K.
- -----------
Facilities or the German Overdraft Facility, Borrowers shall pay to Bank of
America, as liquidated damages and not as a penalty, an early termination fee
equal to (a) if such termination or repayment occurs during the first year from
the Closing Date, 0.75% of the amount of the Commitments, U.K. Facilities or
German Overdraft Facility so terminated or
-44-
<PAGE>
repaid, (b) if such termination or repayment occurs during the second year from
the Closing Date, 0.50% of the amount of the Commitments, U.K. Facilities or
German Overdraft Facility so terminated or repaid, and (c) if such termination
or repayment occurs at a later time, $0.
3.6 Capital Adequacy. If Bank determines that either (i) the introduction
----------------
of or any change in any law, order or regulation or in the interpretation or
administration of any law, order or regulation by any Governmental Agency
charged with the interpretation thereof or (ii) compliance with any guideline or
request issued or made from the date hereof from any such Governmental Agency
(whether or not having the force of law) has or would have the effect of
reducing the rate of return on the capital of Bank or any corporation
controlling Bank as a consequence of the Commitments or the making or
maintaining of Loans or Letters of Credit below the rate at which Bank or such
other corporation could have achieved but for such introduction, change or
compliance (taking into account Bank's policies with regard to capital), then
Borrowers shall from time to time, upon demand by Bank, pay to Bank additional
amounts which are sufficient to compensate Bank or other corporation for such
reduction. A certificate as to such amounts shall be conclusive and binding for
all purposes, absent manifest error.
3.7 Eurodollar Fees and Costs.
-------------------------
(a) If, after the date hereof, the existence or occurrence of
any Special Eurodollar Circumstance:
(1) shall subject Bank or its Eurodollar Lending Office to
any tax, duty or other charge or cost with respect to any Eurodollar
Rate Loan, the Notes or its obligation to make Eurodollar Rate Loans,
or shall change the basis of taxation of payments to Bank of the
principal of or interest on any Eurodollar Rate Loan or any other
amounts due under this Agreement in respect of any Eurodollar Rate
Loan, the Notes or its obligation to make Eurodollar Rate Loans
(except for changes in any tax, duty or other charge on the overall
-------
net income, gross income or gross receipts of Bank or its Eurodollar
Lending Office);
(2) shall impose, modify or deem applicable any reserve
(including any reserve imposed by the Board of Governors of the
----------
Federal Reserve System), special deposit or similar requirements
against assets of, deposits with or for the account
-45-
<PAGE>
of, or credit extended by, Bank or its Eurodollar Lending Office; or
(3) shall impose on Bank or its Eurodollar Lending Office
or the Designated Eurodollar Market any other condition affecting any
Eurodollar Rate Loan, the Notes, its obligation to make Eurodollar
Rate Loans or this Agreement, or shall otherwise affect any of the
same;
and the result of any of the foregoing, as determined by Bank, increases
the cost to Bank or its Eurodollar Lending Office of making or maintaining
any Eurodollar Rate Loan or in respect of any Eurodollar Rate Loan, the
Notes or its obligation to make Eurodollar Rate Loans or reduces the amount
of any sum received or receivable by Bank or its Eurodollar Lending Office
with respect to any Eurodollar Rate Loan, the Notes or its obligation to
make Eurodollar Rate Loans (assuming Bank's Eurodollar Lending Office had
funded 100% of its Eurodollar Rate Loan in the Designated Eurodollar
Market), then, upon demand by Bank, Borrowers shall pay to Bank such
additional amount or amounts as will compensate Bank for such increased
cost or reduction (determined as though Bank's Eurodollar Lending Office
had funded 100% of its Eurodollar Rate Loan in the Designated Eurodollar
Market). A statement of Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder
shall be conclusive in the absence of manifest error. Bank agrees to
endeavor to promptly notify Borrowers of any event of which it has actual
knowledge which will entitle Bank to compensation pursuant to this Section,
and agrees to designate a different Eurodollar Lending Office if such
designation will avoid the need for or reduce the amount of such
compensation and will not, in the judgment of Bank, otherwise be
disadvantageous to Bank.
(b) If, after the date hereof, the existence or occurrence of
any Special Eurodollar Circumstance shall, in the opinion of Bank, make it
unlawful, impossible or impracticable for Bank or its Eurodollar Lending
Office to make, maintain or fund any Eurodollar Rate Loan, or materially
restricts the authority of Bank to purchase or sell, or to take deposits
of, Dollars in the Designated Eurodollar Market, or to determine or charge
interest rates based upon the Eurodollar Rate then, upon notice to
Borrowers, Bank's obligation to make Eurodollar Rate Loans shall be
suspended for the duration of such illegality, impossibility or
impracticability. Upon receipt of such notice, the outstanding principal
-46-
<PAGE>
amount of all Eurodollar Rate Loans, together with accrued interest
thereon, automatically shall be converted to Base Rate Loans on either (1)
the last day of the Interest Period applicable to such Eurodollar Rate
Loans if Bank may lawfully continue to maintain and fund Eurodollar Rate
Loans to such day(s) or (2) immediately if Bank may not lawfully continue
to fund and maintain Eurodollar Rate Loans to such day(s). In the event
that Bank is unable, for the reasons set forth above, to make, maintain or
fund any Eurodollar Rate Loan, Bank shall fund such amount as a Base Rate
Loan.
(c) If, with respect to any proposed Eurodollar Rate Loan Bank
determines that, by reason of circumstances affecting the Designated
Eurodollar Market generally that are beyond the reasonable control of Bank,
deposits in Dollars (in the applicable amounts) are not being offered to
Bank in the Designated Eurodollar Market for the applicable Interest
Period, then Bank shall give notice thereof to Borrowers, whereupon until
Bank notifies Borrowers that the circumstances giving rise to such
suspension no longer exist, the obligation of Bank to make any future
Eurodollar Rate Loans shall be suspended. If at the time of such notice
there is a pending Request for Loan that specifies a Eurodollar Rate Loan,
such Request for Loan shall be deemed to specify a Base Rate Loan.
(d) Upon payment or prepayment of any Euro dollar Rate Loan
(other than as the result of a conversion required under Section 3.7(b)) on
----- ---- ------
a day other than the last day in the applicable Interest Period (whether
----- ----
voluntarily, involuntarily, by reason of acceleration, or otherwise), or
upon the failure of Borrowers to borrow on the date or in the amount
specified for a Eurodollar Rate Loan in any Request for Loan, Borrowers
shall indemnify the Creditors against and reimburse the Creditors on demand
for all costs, expenses, penalties, losses, reasonable legal fees and
damages incurred or sustained, or that would be incurred or sustained, by
Creditors, including loss of interest, as reasonably determined by the
---------
Creditors, to the extent that the same are a direct result of such payment,
prepayment or failure to borrow. Each Creditor's determination of the
amount payable under this Section 3.7(d) shall be conclusive in the absence
------
of manifest error. The loss of interest by a Creditor will be calculated
as (i) the principal amount of the subject Loan, times (ii) a fraction the
-----
numerator of which is the number of days between the date of payment and
the last day of the applicable Interest Period, and the denominator of
which is 360, times (iii) the Eurodollar Rate for the subject Loan, minus
----- -----
the Eurodollar Rate that would be
-47-
<PAGE>
applicable to a Loan in the amount of the subject Loan to be made on the
date of prepayment or a period equal to the number of days remaining in the
applicable Interest Period (to the extent such difference is a positive
number).
3.8 Post Default Interest and Late Payments. So long as any Event of
---------------------------------------
Default has occurred and is continuing, the Loans shall bear interest, and if
any installment of principal or interest or any fee or cost or other amount
payable under any Loan Document to any Creditor is not paid when due, it shall
thereafter bear interest until paid in full, at a fluctuating interest rate per
annum at all times equal to the greater of (a) the sum of the Base Rate plus 3%
----
per annum, and (b) 3% per annum above the rate of interest that would otherwise
be applicable pursuant to this Agreement (the "Default Rate"), to the fullest
extent permitted by applicable Laws. Accrued and unpaid interest on past due
amounts (including interest on past due interest) shall be compounded quarterly,
---------
on the last day of each calendar quarter, to the fullest extent permitted by
applicable Laws.
3.9 Computation of Interest and Fees. Computation of interest or fees
--------------------------------
under this Agreement shall be calculated on the basis of a year of 360 days and
the actual number of days elapsed. Borrowers acknowledge that such calculation
method will result in a higher yield to Bank than a method based on a year of
365 or 366 days.
3.10 Non-Banking Days. If any payment to be made by Borrowers or any
----------------
other Party under any Loan Document shall come due on a day other than a Banking
----- ----
Day, payment shall instead be considered due on the next succeeding Banking Day
and the extension of time shall be reflected in computing interest.
3.11 Manner and Treatment of Payments.
--------------------------------
(a) Each payment hereunder or on the other Notes or under any
other Loan Document shall be made to Bank at the address set forth in the
notice provisions hereof and in immediately available funds not later than
11:00 a.m., California time, on the day of payment (which must be a Banking
Day). All payments received after this deadline on any Banking Day, shall
be deemed received on the next succeeding Banking Day. All payments shall
be made in lawful money of the United States of America.
(b) Bank shall use its best efforts to keep a record of Loans
made by it and payments received by it with respect to the Notes and such
record shall be presumptive evidence of the amounts owing. Notwithstanding
-48-
<PAGE>
the foregoing sentence, Bank shall not be liable to any Party for any
failure to keep such a record.
(c) Each payment of any amount payable by Borrowers or any other
Party under this Agreement or any other Loan Document shall be made free
and clear of, and without reduction by reason of, any taxes, assessments or
other charges imposed by any Governmental Agency, central bank or
comparable authority (other than taxes on overall net income, gross income
---- ----
or gross receipts of Bank or its Eurodollar Lending Office). To the extent
that Borrowers are obligated by applicable Laws to make any deduction or
withholding on account of taxes, assessments or other charges imposed by
any Governmental Agency from any amount payable to Bank under this
Agreement, Borrowers shall (i) make such deduction or withholding and pay
the same to the relevant Governmental Agency and (ii) pay such additional
amount to Bank as is necessary to result in Bank's receiving a net after-
tax (or after-assessment or after-charge) amount equal to the amount to
which Bank would have been entitled under this Agreement absent such
deduction or withholding.
3.12 Funding Sources. Nothing in this Agreement shall be deemed to
---------------
obligate any Creditor to obtain the funds for any Loan or Loan in any particular
place or manner or to constitute a representation by Bank that it has obtained
or will obtain the funds for any Loan in any particular place or manner.
3.13 Failure to Charge Not Subsequent Waiver. Any decision by any
---------------------------------------
Creditor not to require payment of any interest (including interest arising
---------
under Section 3.8), fee, cost or other amount payable under any Loan Document,
---
or to calculate any amount payable by a particular method, on any occasion shall
in no way limit or be deemed a waiver of that Creditor's right to require full
payment of any interest (including interest arising under Section 3.8), fee,
--------- ---
cost or other amount payable under any Loan Document, or to calculate an amount
payable by another method, on any other or subsequent occasion.
3.14 Authority to Charge Account.
---------------------------
(a) Borrowers hereby authorize Bank of America to charge the
Concentration Account, and any other demand deposit account maintained by
Borrowers with Bank of America in such amounts as may from time to time be
necessary to cause timely payment of principal, interest, fees and other
charges payable by Borrowers under the Loan Documents.
-49-
<PAGE>
(b) Approximately five days prior to the date any payment is due
from Borrowers under any of the Loan Documents, Bank will provide a
statement of the amounts that will be due on such date (the "Billed
Amount") to Borrowers. The calculation of the Billed Amount shall be made
on the assumption that no new Loans or payments will be made between the
date of the billing statement and the date the amounts are due, and that
there will be no changes in the applicable interest rate.
(c) Bank will charge the Concentration Account or other account
for the Billed Amount regardless of the actual amount of interest accrued
(the "Accrued Amount"). If the Billed Amount charged to the Concentration
Account or other account differs from the Accrued Amount, the discrepancy
will be treated as follows: (i) if the Billed Amount is less than the
Accrued Amount, the Billed Amount for the following payment date will be
increased by the amount of the discrepancy (and no Default or Event of
Default shall be deemed to have occurred solely as a result of such
discrepancy); and (ii) if the Billed Amount is more than the Accrued
Amount, the Billed Amount for the following payment date will be decreased
by the amount of the discrepancy. Regardless of any such discrepancy,
interest will continue to accrue based on the actual amount of principal
outstanding under the Loans, without compounding. Bank shall not pay any
interest on any excess payment to Borrowers.
(d) Nothing herein shall obligate Bank to charge any account as
provided above, or other account, or to charge any account at a time when
there are not sufficient good funds in such account, and if there are
insufficient funds in Borrowers' accounts on a date Bank enters any debit
authorized hereby, Bank shall reverse such debit to the extent of such
insufficiency.
3.15 Survivability. All of Borrowers' obligations under Sections 3.6, 3.7
------------- --- ---
and 11.3 shall survive the date on which all Loans hereunder are fully paid and
----
the Commitments and all Letters of Credit are terminated.
3.16 Facilities Coterminous. Notwithstanding any other provision of the
----------------------
Loan Documents or the agreements governing the U.K. Facilities and the German
Overdraft Facility to the contrary, in the event that Borrowers terminate the
Commitments or permanently repay the Obligations, then Borrowers shall cause
their Subsidiaries to concurrently terminate the U.K.
-50-
<PAGE>
Facilities, the German Overdraft Facility and all other credit facilities
provided by Bank of America to SCI or any of its Subsidiaries, and to repay all
Indebtedness and Contingent Obligations thereunder.
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrowers jointly and severally represent and warrant to the Creditors
as follows:
4.1 Existence and Qualification; Power; Compliance With Laws. SCI is a
--------------------------------------------------------
corporation duly formed, validly existing and in good standing under the Laws of
Delaware. SCI is duly qualified to transact business and is in good standing in
Delaware, California, Arizona and each other jurisdiction in which the conduct
of its business or the ownership or leasing of its properties makes such
qualification or registration necessary, except where the failure so to qualify
------
or register and to be in good standing would not constitute a Material Adverse
Effect. The chief executive offices and principal place of business of SCI and
the chief executive offices of each of its Domestic Subsidiaries other than
Galion and Systems are located at 3190 Pullman Street, Costa Mesa, California
92626. SCI has all requisite corporate power and authority to conduct its
business, to own and lease its properties and to execute and deliver each Loan
Document to which it is a party and to perform the Obligations. All outstanding
shares of capital stock of SCI are duly authorized, validly issued, fully paid,
non-assessable and issued in compliance with all applicable state and federal
securities and other Laws. As of the Closing Date, 27.45% of outstanding shares
of Borrower are owned of record by Parent and an additional 1.33% on a fully
diluted basis is owned by directors and executive officers of Parent (as such
term is defined in the United States Bankruptcy Code). Except as disclosed on
Schedule 4.1, as of the Closing Date, no Person holds any option, warrant or
- ------------
other right to acquire any shares of capital stock of SCI. SCI is in compliance
in all material respects with the Arms Export Control Act (22 USCA (S)2751 et
--
seq.) the Trading with the Enemy Act of 1917 (50 USCA (S)1 et seq), all
- --- -- ---
regulations issued by the Bureau of Export Administration and each other federal
and state Law governing the manufacture, sale, and distribution of munitions and
military hardware. Without limitation on the preceding sentence, SCI is in
compliance with all other Laws and other legal requirements applicable to its
business, has obtained all authorizations, consents, approvals, orders, licenses
and permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except where the failure so to comply, file, register, qualify or obtain
- ------
exemptions does not constitute a Material Adverse Effect. SCI
-52-
<PAGE>
has all requisite power and authority to enter into each Loan Document to which
it is a Party and has duly executed and delivered each such Loan Document.
4.2 Authority; Compliance With Other Agreements and Instruments and
---------------------------------------------------------------
Government Regulations. The execution, delivery and performance by SCI and its
- ----------------------
Subsidiaries of each Loan Document to which each is a Party have been duly
authorized by all necessary corporate action, and do not:
(a) Require any consent or approval not heretofore obtained of
any partner, director, stockholder, security holder or creditor of such
Party, except as heretofore obtained;
------
(b) Violate or conflict with any provision of that such Party's
charter, articles of incorporation or bylaws, as applicable;
(c) Result in or require the creation or imposition of any Lien
or Right of Others (other than pursuant to the Collateral Documents) upon
----- ----
or with respect to any Property now owned or leased or hereafter acquired
by such Party;
(d) Violate any Requirement of Law applicable to that such Party
in any material respect;
(e) Result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed under (i) any
Material Contract, (ii) any indenture or loan or credit agreement or (iii)
any other Contractual Obligation relating to money or Property in excess of
$1,000,000 to which such Party is a party or by which such Party or any of
its Property is bound or affected;
and no Party is in violation of, or default under, any Requirement of Law or
Contractual Obligation, any Material Contract, or any indenture, loan or credit
agreement described in Section 4.2(e), in any material respect.
------
4.3 No Governmental Approvals Required. No authorization, consent,
----------------------------------
approval, order, license or permit from, or filing, registration or
qualification with, any Governmental Agency is required to authorize or permit
under applicable Laws the execution, delivery and performance by SCI or any of
its Subsidiaries of any of the Loan Documents to which each is a Party, except
for any such authorizations, consents, approvals, orders, licenses, permits,
filings,
-53-
<PAGE>
registrations and qualifications as have been made, obtained or performed on the
Closing Date.
4.4 Subsidiaries.
------------
(a) As of the Closing Date, Schedule 4.4 hereto correctly sets
------------
forth the names, the form of legal entity, jurisdictions of organization,
locations of the chief executive offices and principal place of business of
all Subsidiaries of SCI. Except as described in Schedule 4.4, SCI owns no
------------
capital stock or equity interest in any Person. The chief executive
offices of Galion are located at 515 North East Street, Ohio 44833 and the
chief executive offices of Systems are located at 200 Valley Road, Suite
101, Mt. Arlington, New Jersey 07856. All of the outstanding shares of
capital stock, or all of the units of equity interest, as the case may be,
of each such Subsidiary are owned of record and beneficially as indicated
on Schedule 4.4, and all such shares or equity interests so owned are duly
------------
authorized, validly issued, fully paid, nonassessable, and were issued in
compliance with all applicable state and federal securities and other Laws,
and are free and clear of all Liens.
(b) Each such Subsidiary is a legal entity of the form described
for that Subsidiary in Schedule 4.4, duly organized, validly existing, and
------------
in good standing under the Laws of its jurisdiction of organization, is
duly qualified to do business as a foreign organization and is in good
standing as such, and has filed fictitious business name statements, in
each jurisdiction in which the conduct of its business or the ownership or
leasing of its properties makes such qualification necessary, except where
------
the failure so to qualify or register and to be in good standing would not
constitute a Material Adverse Effect, and has all requisite power and
authority to conduct its business and to own and lease its properties.
(c) Each such Subsidiary is in compliance in all material
respects with the Arms Export Control Act (22 USCA (S)2751 et seq.) the
-- ---
Trading with the Enemy Act of 1917 (50 USCA (S)1 et seq, all regulations
-- ---
issued by the Bureau of Export Administration and each other federal and
state Law governing the manufacture, sale, and distribution of munitions
and military hardware. Without limitation on the preceding sentence, each
such Subsidiary is also in compliance with all Laws and other requirements
applicable to its business and has obtained all authorizations, consents,
approvals, orders, licenses, and permits from, and each such Subsidiary has
accomplished all material filings, registrations, and qualifications with,
or
-54-
<PAGE>
obtained exemptions from any of the foregoing from, any Governmental Agency
that are necessary for the transaction of its business, except where the
------
failure so to comply, file, register, qualify or obtain exemptions does not
constitute a Material Adverse Effect.
4.5 Financial Statements. Borrowers have furnished to Bank (a) the
--------------------
audited consolidated and company prepared consolidating financial statements of
SCI and its Subsidiaries for the Fiscal Year ended March 31, 1996, (b) the
unaudited consolidated financial statements of SCI and its Subsidiaries for the
two month fiscal period ended May 31, 1996, and (c) the unaudited divisional
income statement of SCI and its Subsidiaries for the three month fiscal period
ended June 30, 1996, which financial statements were prepared in accordance with
the books and records of SCI and its Subsidiaries and in accordance with
Generally Accepted Accounting Principles, and fairly present the financial
condition and results of operations of SCI and its Subsidiaries as at such dates
and for the periods then ended, subject only to normal year-end accruals and
audit adjustments which, if made at the relevant time would not have caused a
Default or Event of Default at that time.
4.6 No Other Liabilities; No Material Adverse Effect. As of the Closing
------------------------------------------------
Date, SCI and its Subsidiaries do not have any material liability or material
contingent liability not reflected or disclosed in the financial statements
described in Section 4.5(b). Except as disclosed by Borrowers and approved in
------ ------
writing by Bank, no event or circumstance that constitutes a Material Adverse
Effect has occurred since the Closing Date.
4.7 Title to and Location of Property. Except as permitted by Section
---------------------------------
6.8, SCI and its Subsidiaries have good and valid title to all Property
- ---
reflected in the financial statements described in Section 4.5(b), free and
------
clear of all Liens and Rights of Others, other than Property subsequently sold
----- ----
or disposed of in the ordinary course of business.
4.8 Real Property. Schedule 4.8 sets forth as of the Closing Date a
------------- ------------
summary description of all real property owned and real property leasehold
estates held by SCI and its Subsidiaries, which summary is accurate and complete
in all material respects except for real property acquired or leased after the
Closing Date after notice to the Collateral Agent.
4.9 Intangible Assets. SCI and its Subsidiaries own, or possesses the
-----------------
right to use to the extent necessary in their business, all trademarks, trade
names, copyrights, patents, patent rights, computer software, licenses and other
intangible assets that are used in the conduct of their businesses as now
-55-
<PAGE>
operated and contemplated to be operated. Borrowers and their Domestic
Subsidiaries do not own any registered patents, trademarks or other registered
intellectual property which are not subject to a first Lien in favor of the
Collateral Agent. None of the intangible assets described in the first sentence
of this Section, to the best knowledge of Borrowers, conflicts in any material
respect with the valid trademark, trade name, copyright, patent, patent right or
intangible asset of any other Person.
4.10 Governmental Regulation. SCI and its Subsidiaries are not subject to
-----------------------
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or to
any other Law limiting or regulating their ability to incur Indebtedness in a
manner which conflicts with this Agreement or the other Loan Documents.
4.11 Litigation. Except for (a) any matter fully covered (subject to
---------- ------
applicable deductibles and retentions) by insurance for which the insurance
carrier has assumed full responsibility, (b) any matter, or series of related
matters, involving a claim against SCI and its Subsidiaries of less than
$500,000, and (c) matters set forth in Schedule 4.11, as of the Closing Date,
-------------
there are no actions, suits, proceedings or investigations pending as to which
SCI or its Subsidiaries has been served or have received written notice or, to
the best knowledge of Borrowers, threatened against or affecting SCI or its
Subsidiaries or any of their respective Properties before any Governmental
Agency. There is no reasonable basis for any action, suit, proceeding or
investigation against or affecting SCI or its Subsidiaries or any of their
respective Properties before any Governmental Agency which would be of a
magnitude requiring disclosure on Schedule 4.11.
-------------
4.12 Binding Obligations. Each of the Loan Documents executed by SCI and
-------------------
its Subsidiaries constitutes the legal, valid and binding obligation of such
Party, enforceable against such Party in accordance with its terms, except as
------
enforcement may be limited by Debtor Relief Laws or equitable principles
relating to the granting of specific performance and other equitable remedies
and/or defenses as a matter of judicial discretion.
4.13 No Default. No event has occurred and is continuing that is a
----------
Default or Event of Default.
4.14 ERISA.
-----
(a) Except as disclosed in Schedule 4.14, as of the Closing Date
------ -------------
neither of SCI nor any of its ERISA
-56-
<PAGE>
Affiliates maintains, contributes to or is required to contribute to any
"employee pension benefit plan" that is subject to Title IV of ERISA.
(b) With respect to each Pension Plan disclosed in
Schedule 4.14:
-------------
(i) such Pension Plan complies in all material respects
with ERISA and any other applicable Laws;
(ii) such Pension Plan has not incurred any material
"accumulated funding deficiency", as that term is defined in Section
302 of ERISA;
(iii) no "reportable event" (as defined in Section 4043 of
ERISA) has occurred that would subject SCI or any of its ERISA
Affiliates to any liability with respect to such Pension Plan that
would constitute a Material Adverse Effect;
(iv) neither SCI nor any of its ERISA Affiliates has
engaged in any non-exempt "prohibited transaction" (as defined in
Section 4975 of the Code) that would subject SCI or any of its
Subsidiaries to any penalty that would constitute a Material Adverse
Effect;
(v) no Termination Event has occurred or may reasonably
be expected to occur; and
(vi) no material unfunded vested liabilities exist under
any Pension Plan and the present value of all benefit liabilities
under each Pension Plan and each Pension Plan of any ERISA Affiliate
of SCI do not exceed by a material amount the value of the assets of
such Plan.
(c) As of the Closing Date, all contributions required to be
made by SCI or any of its ERISA Affiliates to a Multiemployer Plan
described in Schedule 4.14 have been made except as may be described in
-------------
Schedule 4.14. Neither SCI nor any of its ERISA Affiliates has incurred any
-------------
withdrawal liability under ERISA, Section 4201 that could have a Material
Adverse Effect on SCI or its Subsidiaries. Neither SCI nor any such ERISA
Affiliate has received any notification that any Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of
ERISA, and no Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, where such reorganization has resulted
or can
<PAGE>
reasonably be expected to result in an increase in the contributions
required to be made to such Plan that could have a Material Adverse Effect.
(d) SCI and each of its ERISA Affiliates are in compliance with
those provisions of ERISA which are applicable to them, the non-compliance
with which would have a Material Adverse Effect.
4.15 Regulations G, T, U and X. No part of the proceeds of any Loan
-------------------------
hereunder will be used to purchase or carry, or to extend credit to others for
the purpose of purchasing or carrying, any "margin stock" (as such term is
defined in Regulation G) in violation of Regulations G, T, U or X of the Board
of Governors of the Federal Reserve System. Borrowers and their Subsidiaries
are not principally engaged, or as one of their important activities, in the
business of extending credit for the purpose of purchasing or carrying any such
"margin stock."
4.16 Disclosure. No written statement made by a Responsible Official of
----------
Parent, SCI or any of their Subsidiaries to any Creditor in connection with this
Agreement, or in connection with any Loan, contains any untrue statement of a
material fact or omits a material fact necessary to make the statement made not
misleading in light of all the circumstances existing at the date the statement
was made. There is no fact known to Parent, SCI or any of their Subsidiaries
which would constitute a Material Adverse Effect that has not been disclosed in
writing to Bank.
4.17 Tax Liability. Except as set forth on Schedule 4.17, SCI and its
------------- -------------
Subsidiaries have filed all tax returns which are required to be filed, and have
paid, withheld, collected or remitted, all taxes, interest, penalties and
installments of taxes due and payable by them with respect to the periods,
Property or transactions covered by said returns, or pursuant to any assessment
received by either of SCI or any of its Subsidiaries, except (a) taxes for which
------
SCI and its Subsidiaries have been fully indemnified and (b) such taxes, if any,
as are being contested in good faith by appropriate proceedings diligently
pursued and as to which adequate reserves have been established and maintained.
As of the Closing Date, to the best knowledge of Borrowers, there is no tax
assessment which could have a potential cash impact of $250,000 or more
contemplated or proposed by any Governmental Agency against SCI or any of its
Subsidiaries.
4.18 Projections. To the best knowledge of Borrowers, the assumptions set
-----------
forth in the Projections are reasonable and consistent with each other and with
all facts known to
-58-
<PAGE>
Borrowers and no material assumption is omitted as a basis for the Projections,
and the Projections are reasonably based on such assumptions. Nothing in this
Section shall be construed as a representation or covenant that the Projections
in fact will be achieved.
4.19 Security Interests. The Collateral Documents create a valid security
------------------
interest in the Collateral described therein in favor of the Collateral Agent
securing the Obligations. Upon (a) the filing of the UCC-1 financing statements
delivered to the Collateral Agent pursuant to Section 8.1(a) with the
------
appropriate Governmental Agencies, (b) the delivery to Bank of America of the
certificates evidencing the shares of capital stock of SCI's Subsidiaries
referred to in the Pledge Agreement and the Second Tier Pledge Agreements, and
(c) notification of the insurer referred to in the Life Insurance Assignment of
the Collateral Agent's Liens, all action necessary to perfect the security
interests so created by the Collateral Documents will have been taken and
completed (except for the requirement that continuation statements periodically
------
must be filed and/or recorded with respect to financing statements on file in
favor of the Collateral Agent). Such security interests are of first priority.
4.20 Hazardous Materials.
-------------------
(a) Except as specifically disclosed in Schedule 4.20, the on-going
-------------
operations of Borrowers and their Subsidiaries, and to the best of
Borrowers' knowledge the ongoing operations of all current tenants,
subtenants or other occupants of all or any part of the real property
described on Schedule 4.8 (the "Real Property"), are conducted and comply
------------
in all respects with all Environmental Laws, except such non-compliance
which would not (if enforced in accordance with applicable law) result in
liability in excess of $250,000 in the aggregate.
(b) Except as specifically disclosed in Schedule 4.20, SCI and its
-------------
Subsidiaries have obtained all material licenses, permits, authorizations
and registrations required under any Environmental Law ("Environmental
-------------
Permits") and necessary for their ordinary course operations, all such
-------
Environmental Permits are in good standing, and SCI and its Subsidiaries
are in compliance with all terms and conditions of such Environmental
Permits.
(c) Except as specifically disclosed in Schedule 4.20, SCI and its
-------------
Subsidiaries (and to the best knowledge of Borrowers, each of the current
tenants or other occupants of all or part of the Real Property) and their
-59-
<PAGE>
present Property and operations, are not subject to any existing, pending,
threatened or outstanding written order, suit, claim, proceeding,
investigation, order, comment, injunction, writ, award, action or
proceeding from or agreement with any Governmental Agency or third party,
nor subject to any judicial or docketed administrative proceeding,
respecting any Environmental Law, Environmental Claim or Hazardous
Material.
(d) Except as specifically disclosed in Schedule 4.20, there are no
-------------
Hazardous Materials or other conditions or circumstances existing with
respect to any Property, or arising from operations of SCI or its
Subsidiaries that could reasonably be expected to give rise to
Environmental Claims with a potential liability of SCI and its Subsidiaries
in excess of $250,000 in the aggregate for any such condition, circumstance
or Property. In addition, (i) SCI and its Subsidiaries have no underground
storage tanks (x) that are not properly registered or permitted under
applicable Environmental Laws, or (y) that are leaking or disposing of
Hazardous Materials off-site, and (ii) SCI and its Subsidiaries have
notified all of its employees of the existence of any health hazard of
which Borrowers are aware arising from the conditions of their employment
and have met all notification requirements under Title III of CERCLA and
all other Environmental Laws.
4.21 Material Contracts. As of the Closing Date, except as disclosed on
------------------
Schedule 4.21, SCI and its Subsidiaries are not party to any Material Contract.
- -------------
SCI and its Subsidiaries are in compliance with the terms of each Material
Contract in all material respects, and have not received any notice from any
party to a Material Contract asserting that SCI or its Subsidiaries are in
default thereunder or purporting to rescind or terminate any Material Contract.
To the best knowledge of Borrowers, each of Borrowers' counterparties to any
Material Contract is in material compliance with the terms thereof and is not
subject to any proceeding under any Debtor Relief Law.
4.22 Labor Relations. SCI and its Subsidiaries are not engaged in any
---------------
unfair labor practice that could have a Material Adverse Effect. There is (a)
no unfair labor practice complaint pending against SCI or any of its
Subsidiaries or, to the best knowledge of Borrowers, threatened against SCI or
any of its Subsidiaries before the National Labor Relations Board, and no
grievance or arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against SCI or any of its Subsidiaries or, to
the best knowledge of Borrowers, threatened against SCI or any of its
Subsidiaries,
-60-
<PAGE>
and (b) no strike, labor dispute, slowdown or stoppage is pending or threatened
against SCI or any of its Subsidiaries.
4.23 Operating Leases. As of the Closing Date, each of the obligations of
----------------
SCI and its Subsidiaries, and the annual payments with respect thereto, are
correctly described on Schedule 4.23.
-------------
4.24 Intercompany Notes. There is no instrument, document or agreement
------------------
evidencing intercompany Indebtedness amongst any of SCI and its Subsidiaries
other than the Intercompany Notes.
- ----- ----
-61-
<PAGE>
ARTICLE 5
AFFIRMATIVE COVENANTS
---------------------
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
Unless Bank otherwise consents in writing, so long as any Loan remains
unpaid, any Letter of Credit remains outstanding, any other Obligation remains
unpaid, or any portion of the Commitments remains in force, Borrowers shall, and
shall cause each of their Subsidiaries to:
5.1 Payment of Taxes and Other Potential Liens. Pay, collect, withhold,
------------------------------------------
remit and discharge, and cause each of its Subsidiaries to pay, collect,
withhold, remit and discharge, promptly all taxes, assessments and governmental
charges or levies imposed upon any of them, upon their respective Properties or
any part thereof, upon their income or profits or any part thereof or upon any
right or interest of the Creditors under any Loan Document, except that
------
Borrowers and their Subsidiaries shall not be required to pay or cause to be
paid any tax, assessment, charge or levy that is not yet past due, or is being
contested in good faith by appropriate proceedings diligently pursued, so long
as the relevant entity has established and maintains adequate reserves for the
payment of the same and by reason of such nonpayment and contest no item or
portion of the Properties of Borrowers or their Subsidiaries is in jeopardy of
being seized, levied upon or forfeited.
5.2 Preservation of Existence. Preserve and maintain its and its
-------------------------
Subsidiaries' corporate existence and all authorizations, rights, franchises,
privileges, consents, approvals, orders, licenses, permits, or registrations
from any Governmental Agency that are necessary for the transaction of their
businesses, and qualify and remain qualified to transact business in each
jurisdiction in which such qualification is necessary in view of their
businesses or the ownership or leasing of their properties.
5.3 Maintenance of Properties. Maintain, preserve and protect its
-------------------------
respective depreciable properties in good order and condition, subject to wear
and tear in the ordinary course of business, or damage or destruction from
casualties which are fully covered by insurance (subject to customary
deductibles and retentions), and not permit any waste of its properties, except
------
that the failure to maintain, preserve and protect a particular item of
depreciable Property that is not of significant value, either intrinsically or
to the operations of
-62-
<PAGE>
Borrowers and their Subsidiaries shall not constitute a violation of this
covenant.
5.4 Maintenance of Insurance. Maintain, or cause to be maintained,
------------------------
liability, casualty and other insurance (subject to customary deductibles and
retentions) in such amounts and against such risks as are customary for
similarly situated businesses, including product liability insurance, workmens
---------
compensation insurance, property damage insurance, public liability insurance,
business interruption insurance as may be required by Bank, within 10 days of a
request, and all-risk casualty insurance with respect to all of Borrowers' and
their Subsidiaries' tangible personal property. Such insurance shall be
maintained, in amounts and with responsible insurance companies reasonably
acceptable to Bank. The Collateral Agent shall be named as additional insured
and loss payee as its interests may appear, with respect to casualty insurance
on all Collateral, and Borrowers shall deliver to Bank, not less frequently than
once in each calendar year, (a) an Accord Certificate (or its equivalent)
evidencing that insurance of the types required by this Section and the
Collateral Documents is in force and (b) a Lenders Loss Payable Endorsement on
Form 438-BFU (or its equivalent) evidencing that the Collateral Agent is an
additional insured and loss payee with respect to all risk casualty insurance
and other insurance requested by Bank.
5.5 Compliance With Laws. Comply in all material respects with, or cause
--------------------
to be complied with in all material respects, all Laws and Requirements of Laws.
5.6 Inspection Rights. Upon reasonable notice, at any time during regular
-----------------
business hours and as often as requested (but not so as to materially interfere
with the business of Borrowers), permit, and cause its Subsidiaries to permit,
Bank or any authorized employee, agent or representative thereof, (a) to
examine, audit and make copies and abstracts from the records and books of
account of Borrowers and their Subsidiaries, (b) to visit and inspect the
Properties of Borrowers and their Subsidiaries, (c) to discuss the affairs,
finances and accounts of Borrowers and their Subsidiaries with any of their
officers, key employees or accountants or with any relevant taxing authority (in
the case of taxing authorities, only with the prior written consent of Borrowers
(not to be unreasonably withheld), and in each case, it being agreed that
Borrowers and their Subsidiaries shall promptly execute and deliver to Bank any
waivers of confidentiality required to permit such discussions), and (d) to
discuss the accounts of Borrowers and their Subsidiaries with customers and
vendors. Upon request by Bank, Borrowers shall promptly furnish to Bank true
copies of all material financial information made
-63-
<PAGE>
available to the senior management of SCI and its Subsidiaries. Audits of the
books and records of SCI and its Subsidiaries and of the Collateral shall be
conducted by Bank or its employees, agents or representatives not less
frequently than once each per year, or more frequently if any Default or Event
of Default exists, if a Material Adverse Effect exists, or if otherwise
reasonably requested by Bank. Bank may, at any time, either orally or in
writing, request confirmation from any account debtor, of the current amount and
status of the accounts receivable upon which such account debtor is obligated to
Borrowers and their Subsidiaries.
5.7 Keeping of Records and Books of Account. Keep adequate records and
---------------------------------------
books of account reflecting all financial transactions in conformity with
Generally Accepted Accounting Principles, consistently applied, and in material
conformity with all applicable requirements of any Governmental Agency having
regulatory jurisdiction over SCI and its Subsidiaries.
5.8 Compliance With Agreements. Promptly comply in all material respects
--------------------------
with all Contractual Obligations under all material agreements, indentures,
leases and/or instruments to which Borrowers or any of their Subsidiaries is a
party, whether such material agreements, indentures, leases or instruments are
with a Creditor or another Person, except that Borrowers and their Subsidiaries
------
need not comply with Contractual Obligations (other than the Loan Documents)
----- ----
under any such agreements, indentures, leases or instruments then being
contested in good faith by appropriate proceedings diligently pursued.
5.9 Use of Proceeds. Use the proceeds of Loans (a) on the Closing Date,
---------------
to refinance the Existing Citibank Loans and to partially finance the
acquisition of Phoenix Airbag in the manner contemplated by the Acquisition
Agreement, and (b) on the day after the Closing Date and thereafter, for general
working capital purposes not prohibited by the Loan Documents and to finance
Investments permitted under Section 6.3, provided that Borrowers shall refrain
--- -------- ----
from using the proceeds of financing provided hereunder (A) to knowingly
purchase "Ineligible Securities" (as defined below) from a "Section 20
Subsidiary" (as defined below) during any period in which such Section 20
Subsidiary makes a market in such Ineligible Securities, (B) to knowing purchase
during the underwriting or placement period therefor any Ineligible Securities
being underwritten or privately placed by a Section 20 Subsidiary, or (C) to
make payment of principal or interest on Ineligible Securities underwritten or
privately placed by a Section 20 Subsidiary and issued by or for the benefit of
Borrowers or any Affiliate of Borrowers.
-64-
<PAGE>
As used in this Section "Section 20 Subsidiary" means any Subsidiary of a bank
---------------------
holding company controlling Bank, which Subsidiary has been granted authority by
the Federal Reserve Board to underwrite and deal in Ineligible Securities.
"Ineligible Securities" means securities which may not be underwritten or dealt
- ----------------------
in by member banks of the Federal Reserve System under Section 16 of the Banking
Act of 1933, as amended.
5.10 Hazardous Materials Laws.
------------------------
(a) Conduct its operations and keep and maintain its Property in
material compliance with all Environmental Laws.
(b) Notify Bank in writing upon, but in no event later than 10 days
after, becoming aware of (i) any and all enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or
threatened against Borrowers, their Subsidiaries or any of their Properties
pursuant to any applicable Environmental Laws, (ii) all other material
Environmental Claims, and (iii) any environmental or similar condition on
any real property adjoining or in the vicinity of the Property of Borrowers
or their Subsidiaries that could reasonably be anticipated to cause such
Property or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use of such Property under any
Environmental Laws.
(c) Upon the written request of Bank submit, at Borrowers' sole cost
and expense, at reasonable intervals, a report providing an update of the
status of any environmental, health or safety compliance, hazard or
liability issue identified in any notice or report required pursuant to
Section 5.10(b), that could, individually or in the aggregate, result in
-------
liability in excess of $250,000.
5.11 Further Assurances.
------------------
(a) Borrowers shall ensure that all written information, exhibits and
reports furnished to any Creditor (whether by Borrowers or their
Affiliates) do not and will not contain any untrue statement of a material
fact and do not and will not omit to state any material fact or any fact
necessary to make the statements contained therein not misleading in light
of the circumstances existing as of the date when made, and will promptly
disclose to Bank and correct any defect or error that may be discovered
therein or in any Loan Document or in the execution, acknowledgement or
recordation thereof.
-65-
<PAGE>
(b) Promptly upon request by Bank, Borrowers shall (and shall cause
their Subsidiaries to) do, execute, acknowledge, deliver, record, re-
record, file, re-file, register and re-register, any and all such further
acts, deeds, conveyances, security agreements, mortgages, assignments,
estoppel certificates, financing statements and continuations thereof,
termination statements, notices of assignment, transfers, certificates,
assurances and other instruments as Bank may reasonably require from time
to time in order (i) to carry out more effectively the purposes of this
Agreement or any other Loan Document, (ii) to subject to the Liens created
by any of the Collateral Documents, all of the Properties of Borrowers and
its Subsidiaries, rights or interests covered by any of the Collateral
Documents, (iii) to perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and the Liens intended to be
created thereby, and (iv) to better assure, convey, grant, assign,
transfer, preserve, protect and confirm to the Creditors the rights granted
or now or hereafter intended to be granted to the Creditors under any Loan
Document.
(c) In the event that Borrowers or any of their Domestic
Subsidiaries hereafter acquire any patents, trademarks, copyrights or other
intellectual property, they shall promptly execute and deliver collateral
assignments thereof to Bank, in form and substance acceptable to Bank,
granting a first Lien to the Collateral Agent therein.
5.12 Deposit Accounts, Collection Accounts and the Concentration Account.
-------------------------------------------------------------------
Subject to Section 6.22:
----
(a) Cause all account debtors with respect to accounts owed to
Borrowers and their Domestic Subsidiaries to remit their payments to a
Lockbox. All amounts remitted to each Lockbox shall be credited to the
Collection Account after allowing for the number of clearance days
specified by the agreements establishing the Lockbox;
(b) Cause all collections, whether in cash or otherwise, to be
deposited by Borrowers and their Domestic Subsidiaries as and when received
in kind (except for any endorsement necessary to vest title to any
instrument in the Collateral Agent) into the Collection Account;
(c) unless otherwise agreed by Bank, from and after the date
which is thirty days following the Closing Date, maintain all of their
material deposit account
-66-
<PAGE>
relationships with Bank of America, and cause the granting of perfected
first priority liens in all depositary accounts maintained by Borrowers and
their Subsidiaries to the Collateral Agent pursuant to documents acceptable
to Bank.
Subject to Section 11.9, Borrowers hereby irrevocably instruct Bank to cause the
----
net collected balance of each Collection Account to be deposited to the
Concentration Account on each Banking Day.
5.13 Holding Companies. Cause each of Borrowers' Investments in their
-----------------
Foreign Subsidiaries to be made and maintained through a United States domestic
corporation (with a separate such corporation for each nation in which Borrowers
conduct business through Foreign Subsidiaries). Each such corporation shall be
a "Holding Company" as defined herein. Borrowers shall cause each Holding
---------------
Company to refrain from directly owning any operating assets or other Property,
other than the capital stock of, other equity securities of, and Indebtedness
- -----
owed to it by its direct Foreign Subsidiary.
5.14 New Subsidiaries. (a) Cause each Domestic Subsidiary hereafter
----------------
formed by SCI or its Subsidiaries to execute and deliver to the Collateral Agent
an instrument of joinder of the Guaranty and the Subsidiary Security Agreement,
(b) cause 100% of the capital stock or other equity interests of each Domestic
Subsidiary to be pledged to Collateral Agent, and (c) cause 100% of the capital
stock or other equity interests of each Foreign Subsidiary to be pledged to the
Collateral Agent (provided that it is understood that the Lien of the Collateral
--------
Agent in 35% of such capital stock or other equity interests shall not secure
---
the Loans, Letters of Credit and Approved Swap Agreement hereunder, but only the
U.K. Facilities and the German Overdraft Facility).
5.15 Military Export Licenses. Promptly obtain properly validated export
------------------------
licenses for all weapons, weapons components and other military hardware
exported by SCI and its Subsidiaries.
-67-
<PAGE>
ARTICLE 6
NEGATIVE COVENANTS
------------------
Unless Bank otherwise consents in writing, so long as any Loan remains
unpaid, any Letter of Credit remains outstanding, any other Obligation remains
unpaid, or any portion of the Commitments remains in force, Borrowers shall not,
and shall not permit any of their Subsidiaries to:
6.1 Disposition of Property. Sell, assign, exchange, transfer, lease or
-----------------------
otherwise dispose of (or contract to do the same), any of its Properties,
whether now owned or hereafter acquired, and whether to an Affiliate or
otherwise, except:
------
(a) the sale of inventory in the ordinary course of business;
(b) sale and leaseback transactions with respect to Property
involving the sale thereof for not less than the fair market value of that
Property pursuant to refinancings of that Property which are permitted by
Section 6.8(g);
------
(c) transfers of Property having a net book value which is not in an
aggregate annual amount in excess of $100,000 during SCI's Fiscal Years
1997 and 1998 or $250,000 during SCI's Fiscal Years 1999 and 2000 from SCI
and any of its Subsidiaries to any of SCI or its Subsidiaries; and
(d) Dispositions of equipment to Persons which are not Affiliates of
Borrowers in an amount which does not exceed $500,000 in the aggregate
during any Fiscal Year.
6.2 Mergers. Merge, consolidate or amalgamate with or into or undertake a
-------
statutory share exchange or other business combination with any Person, other
than the merger of Co. KG with Phoenix Airbag (with Co. KG the survivor) in the
manner provided for in the Acquisition Agreement.
6.3 Acquisitions and Investments. Make any Acquisition or enter into any
----------------------------
agreement to make any Acquisition; or make any Investments except Investments
------
disclosed on Schedule 6.3 and except for:
------------ ------
(a) Investments consisting of trade accounts payable and
accounts receivable with Foreign Subsidiaries (but not additional
Investments of Indebtedness for borrowed money or equity in Foreign
Subsidiaries;
-68-
<PAGE>
(b) Investments in cash and Cash Equivalents;
(c) Investments consisting of loans made after the Closing Date
to bona fide officers, employees and directors of Borrower and its
---- ----
Subsidiaries in an aggregate outstanding principal amount not to exceed
$100,000 at any time;
(d) the Acquisition of Phoenix Airbag through Co. KG in
accordance with the Acquisition Agreement;
(e) other Acquisitions and Investments in an amount not to
exceed $1,000,000 in the aggregate during the term of this Agreement
(provided that this clause (c) shall not be deemed to expand the scope of
the Dispositions permitted by Section 6.1(c));
------
(f) Investments made by (i) SCI and its Subsidiaries in Czech
which are not in excess of $5,500,000 to be used for Capital Expenditures
at Czech, and (ii) in addition thereto, SCI or any of its Subsidiaries in
Foreign Subsidiaries for working capital and Capital Expenditure needs of
such Foreign Subsidiaries, provided that (A) no Foreign Subsidiary may have
--------
Indebtedness to SCI or Subsidiaries of SCI under this clause (ii) which is
in an aggregate amount which exceeds $1,000,000 at any time, and (B) that
all Indebtedness contemplated by this clause (f) shall be evidenced by an
Intercompany Note or another promissory note acceptable to Bank which is
pledged to the Collateral Agent; and
(g) Investments by Borrowers or any of the Domestic Subsidiaries
in other Borrowers or Domestic Subsidiaries, provided that all Indebtedness
--------
contemplated by this clause (g) shall be evidenced by an Intercompany Note
or another promissory note acceptable to Bank which is pledged to the
Collateral Agent.
6.4 Distributions. Make any Distribution, whether from capital, income or
-------------
otherwise, and whether in cash or other Property, except:
(a) any Subsidiary of SCI may make Distributions to SCI or, to
the extent that the same are immediately distributed to SCI in Cash or used
to repay the Loans, to any other Subsidiary of SCI;
(b) SCI may make Distributions consisting of its own capital
stock or warrants, options or other rights to acquire shares of its capital
stock; and
-69-
<PAGE>
(c) Distributions made during SCI's Fiscal Year 1998 and
thereafter, when no Default or Event of Default exists, to repurchase stock
of SCI in an amount which is not greater than the lesser of $500,000 per
------
Fiscal Year or 25% of the amount of Excess Cash Flow during the immediately
preceding Fiscal Year.
6.5 ERISA.
-----
(a) At any time, maintain, or be or become obligated to
contribute on behalf of its employees to, or permit any of its ERISA
Affiliates to maintain or become obligated to so contribute to, any
"employee pension benefit plan" that is subject to Title IV of ERISA other
-----
than those Pension Plans disclosed in Schedule 4.14, and Multiemployer
---- -------------
Plans to which Borrowers or any of their ERISA Affiliates becomes obligated
to contribute pursuant to the terms of a collective bargaining agreement.
(b) At any time, permit any Pension Plan dis closed in Schedule
--------
4.14 to:
----
(i) engage in any non-exempt "prohibited transaction," as
such term is defined in Section 4975 of the Code;
(ii) incur any material "accumulated fund ing deficiency,"
as that term is defined in Sec tion 302 of ERISA; or
(iii) suffer a Termination Event to occur which may
reasonably be expected to result in material liability of Borrowers or
any of their ERISA Affiliates to the Pension Plan or to the PBGC or
the imposition of a Lien on the Property of or Borrowers or any of
their ERISA Affiliates pursuant to Section 4068 of ERISA.
(c) Fail, upon a Responsible Official of any Borrower becoming
aware thereof, promptly to notify Bank of the occurrence of any "reportable
event" (as defined in Section 4043 of ERISA) or of any non-exempt
"prohibited transaction" (as defined in Section 4975 of the Code) with
respect to any Pension Plan described in Schedule 4.14 or any trust created
-------------
thereunder.
(d) At any time, permit any Pension Plan described in Schedule
--------
4.14 to fail to comply with ERISA or other applicable Laws in any respect
----
that could result in
-70-
<PAGE>
a significant liability to Borrowers or any of their ERISA Affiliates.
6.6 Change in Name; Nature of Business. Change the legal name of SCI
----------------------------------
or any of its Subsidiaries without thirty days prior written notice to Bank (and
then only when all steps requested by Bank to maintain the perfection and
priority of Bank's Liens under the Loan Documents have been taken at the expense
of Borrowers) or make any material change in the nature of the business of SCI
and its Subsidiaries as at present conducted, including the entry into new lines
of business not reasonably related to their existing businesses as of the
Closing Date.
6.7 Indebtedness and Contingent Obligations. Create, incur, assume
---------------------------------------
or suffer to exist any Indebtedness or Contingent Obligation except:
------
(a) Existing Indebtedness and Contingent Obligations disclosed
on Schedule 6.7;
------------
(b) Indebtedness and Contingent Obligations in favor of the
Creditors under the Loan Documents;
(c) Indebtedness and Contingent Obligations consisting of the
Approved Swap Agreement;
(d) purchase money Indebtedness and other Indebtedness used to
finance fixed assets incurred within six months following the date of
acquisition of such fixed assets (and related unsecured guarantees thereof
by SCI), provided that (i) no item of such Indebtedness shall exceed the
--------
purchase price of the Property which is the subject of the related
transaction, and (ii) the amount of such Indebtedness incurred in each of
the periods set forth below shall not exceed, in the aggregate, the amount
set forth opposite each such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Closing Date though
March 31, 1997 $ 3,500,000
Fiscal Year 1998 $ 3,000,000
Fiscal Year 1999 $ 2,000,000
Fiscal Year 2000 $ 2,000,000
</TABLE>
(e) (i) additional Indebtedness used to finance fixed assets
acquired by Systems, Galion or ASCI
-71-
<PAGE>
prior to the Closing Date in an aggregate amount which does not exceed
$1,000,000 at any time, and (ii) additional Indebtedness used to finance
fixed assets acquired by ASCL prior to the Closing Date in an amount not to
exceed the lesser of the amount necessary to refinance the U.K. Term Loan
or $1,500,000, in the aggregate, provided that (A) in each case the amount
--------
of such Indebtedness shall not exceed the fair market value of the fixed
assets so financed and (B) the proceeds of such Indebtedness are
concurrently used to repay the Obligations evidenced by the Line B Note in
accordance with Section 3.1(d)(vi);
----------
(f) additional Indebtedness used to finance real property and
related equipment located in the Czech Republic and owned by Czech under
terms and conditions acceptable to Bank, including Bank's satisfaction with
assurances that there will be no material tax liability to SCI or any of
its Subsidiaries from the incurrence of such Indebtedness;
(g) until the date which is 60 days following the Closing Date,
Indebtedness of ASCL under the Midland Facilities and the related unsecured
guaranty of SCI of the Midland Facilities, but not any extensions or
renewals thereof;
(h) the U.K Facilities and the German Overdraft Facility;
(i) Contingent Obligations consisting of the guarantee by SCI of
the obligations to Phoenix in respect of Additional Purchase Price payable
pursuant to Section 15 of the Acquisition Agreement; and
(j) Indebtedness of SCI or its Subsidiaries to one another which
constitutes an Investment permitted by Section 6.3.
---
6.8 Liens; Negative Pledges; Sales and Leasebacks. Create, incur, assume
---------------------------------------------
or suffer to exist, any Lien or Right of Others of any nature upon or with
respect to any of its or their respective Property, whether now owned or
hereafter acquired; or suffer to exist any Negative Pledge with respect to any
of their respective Property; or engage in any sale and leaseback transaction
with respect to any of their respective Property; except:
------
(a) Permitted Encumbrances;
-72-
<PAGE>
(b) Liens and negative pledges in favor of the Collateral Agent
under the Loan Documents;
(c) Existing Liens disclosed in Schedule 6.8; provided that the
------------ --------
obligations secured thereby are not increased;
(d) Liens securing Indebtedness permitted under Section 6.7(d),
------
other Liens securing Indebtedness permitted under Sections 6.7(e) and
------
6.7(f);
------
(e) Liens and Negative Pledges in favor of the Collateral Agent
for the benefit of BofA London to secure the U.K. Facilities and for the
benefit of BofA Frankfurt to secure the German Overdraft Facility, in each
case to the extent granted on the Closing Date or subsequently approved by
Bank in writing;
(f) Until the date which is 60 days following the Closing Date,
Liens and Negative Pledges on the Property of ASCL associated with the
Midland Facilities; and
(g) Sale leaseback transactions with respect to Property which
are completed within six months of the acquisition of such Property
involving the sale of that Property by SCI and its Subsidiaries and the
retention thereof pursuant to operating leases (but not Capital Leases) and
associated Liens.
6.9 Transactions with Affiliates. Enter into any transaction in each case
----------------------------
of any kind with any officer or Affiliate of Borrowers, or any Person that owns
or holds 5% or more of the outstanding common stock of SCI, other than (a) loans
----- ----
to officers, directors and employees permitted by Section 6.4(b); (b)
------
transactions involving the purchase of goods and services on terms at least as
favorable to SCI and its Domestic Subsidiaries as would be the case in an arm's-
length transaction between unrelated parties of equal bargaining power; (c)
issuance of permanent common equity to any Person for Cash and other Property;
and (d) Investments in Subsidiaries permitted by Section 6.3.
---
6.10 Capital Expenditures. Make or incur obligations for Capital
--------------------
Expenditures during any Fiscal Year in excess of the amounts set forth opposite
that Fiscal Year below:
-73-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
March 1997 $12,000,000
March 1998 $4,000,000
March 1999 and each
subsequent Fiscal Year $3,000,000;
</TABLE>
provided however that (a) during the Fiscal Year ended March 31, 1998, SCI and
- -------- -------
its Subsidiaries shall not make any Capital Expenditure or incur obligations for
any such Capital Expenditures in excess of $2,000,000 (and then only to the
extent of any remaining Designated Cash Amount) unless Excess Cash Flow for the
Fiscal Year ending March 31, 1997 is in excess of $1, and (b) the amount of
Capital Expenditures otherwise permitted to be made by SCI and its Subsidiaries
during each Fiscal Year shall be increased by the amount of Capital Expenditures
permitted during the prior Fiscal Year but not expended, provided that the
--------
amount of such increase shall not exceed $4,000,000 for SCI's Fiscal Year 1998
and $1,000,000 for each other Fiscal Year.
6.11 Minimum Fixed Charge Coverage Ratio. Permit the Fixed Charge
-----------------------------------
Coverage Ratio as of the last day of any calendar month (or, if the Conversion
Conditions have been met, as of the last day of any Fiscal Quarter) ending
during a period set forth below to be less than the ratio set forth below
opposite that period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
October 31, 1996 through
February 28, 1997 1.20:1.00
March 31, 1997 1.65:1.00
April 30, 1997 through
February 28, 1998 1.20:1.00
March 31, 1998 through
February 28, 1999 1.25:1.00
March 31, 1999 and thereafter 1.30:1.00;
</TABLE>
provided that (a) in calculating the Fixed Charge Coverage Ratio as of March 31,
- --------
1997, the numerator of the Fixed Charge Coverage Ratio shall be increased by
that portion of the Designated Cash Amount (not to exceed in any period the
amount
-74-
<PAGE>
of Capital Expenditures during that period not financed using purchase money
Indebtedness) which is necessary to assure compliance with this covenant (and
the Designated Cash Amount shall be correspondingly reduced; any remaining
amount being referred to as the "Rollover Amount"), and (b) in calculating the
---------------
Fixed Charge Coverage Ratio as of any date of determination in Borrower's Fiscal
Year 1998, Capital Expenditures shall only be included in such calculation to
the extent that they exceed the Rollover Amount.
6.12 Maximum Leverage Ratio. Permit the Leverage Ratio as of the last day
----------------------
of any calendar month ending during a period set forth below (or, if the
Conversion Conditions have been met, as of the last day of any Fiscal Quarter
ending during a period set forth below) to exceed:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through
February 28, 1998 2.00:1.00
March 31, 1998 through
February 28, 1999 1.50:1.00
March 31, 1999 and thereafter 1.00:1.00
</TABLE>
6.13 Minimum Liquidity Ratio. Permit the Liquidity Ratio as of the last
-----------------------
day of any calendar month ending on or after March 31, 1997 (or, if the
Conversion Conditions have been met, as of the last day of any Fiscal Quarter
ending on or after that date) to be less than 0.85:1.00.
6.14 Minimum Tangible Net Worth. Permit Tangible Net Worth to be less
--------------------------
than $20,000,000 as of the Closing Date and permit Tangible Net Worth, as of the
last day of any Fiscal Quarter, to be less than Tangible Net Worth as of the
Closing Date minus $500,000, plus 90% of Net Income for each Fiscal Quarter
----- ----
which has then ended since the Closing Date (without reduction for any net loss
incurred in any such Fiscal Quarter), minus any increase to goodwill which
-----
results from the Additional Purchase Price accrued or paid under the Acquisition
Agreement during that period, minus any amount expended under Section 6.4(c).
----- ------
-75-
<PAGE>
6.15 Leases. Incur aggregate annual obligations in respect of operating
------
leases which are, in any Fiscal Year, in an amount which is in excess of that
set forth below opposite that Fiscal Year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1997 $1,300,000
1998 $1,400,000
1999 $1,500,000
2000 $1,600,000
</TABLE>
6.16 Change of Location. Change the place of its chief executive offices
------------------
or principal place of business unless Bank has been notified in writing at least
30 days prior to such change.
6.17 Collection of Accounts. Unless Bank otherwise consents in writing,
----------------------
collect any account directly from the related account debtor or, in the event
that any remittance is received by Borrowers or their Domestic Subsidiaries with
respect to any account, fail to immediately remit such remittance in kind to the
Collection Account as required by Section 5.12. Borrowers agree that pending
----
such remittance in the same form received (but with any necessary endorsements
to make any such remittance payable to the Collateral Agent), Borrowers shall
hold any remittances received in trust for the benefit of the Collateral Agent.
6.18 Use of Hazardous Materials. Except as specifically disclosed in
--------------------------
Schedule 4.20, Borrowers and their Subsidiaries will not use, generate,
- -------------
manufacture, treat, store, allow to remain or dispose of on, under, or about its
real property or transport to or from such real property any Hazardous Materials
without prior written consent from Bank.
6.19 Amendment to Certain Agreements. Amend, alter, supplement or modify
-------------------------------
the Acquisition Agreement or waive or fail to enforce their respective rights
thereunder in any manner which is materially adverse to the interests of Bank.
Borrowers shall provide not less than 10 days prior written notice to Bank of
any proposed written amendment to any of the instruments, documents and
agreements referred to in this Section.
6.20 Location of Assets; Deposit Accounts. (a) Open or maintain any
------------------------------------
checking, savings, investment or other deposit account which is not described on
Schedule 6.20A without ten days prior written notice to the Bank (and Borrower
- --------------
shall concurrently provide for a first priority perfected Lien in
-76-
<PAGE>
such account and other rights similar to those contained with respect to other
blocked accounts maintained by Borrower), (b) maintain or store any inventory,
equipment or other tangible personal property at any location which is not
described on Schedule 6.20B without prior written notice to Bank, or change the
--------------
chief executive offices of any Borrower or Domestic Subsidiary to a place other
than 3190 Pullman Street, Costa Mesa, California 92626.
6.21 Locations of Property. Permit Property which is owned by SCI and its
---------------------
Subsidiaries which has a fair market value in excess of $1,000,000, in the
aggregate to be situated at locations which are not disclosed on Schedule 1.1,
------------
or transfer any Property to any location not so disclosed when any Default or
Event of Default has occurred and remains continuing.
6.22 Post Closing Items. Fail following the Closing Date, to:
------------------
(a) Within 60 days following the Closing Date, to terminate the
Midland Facilities and all Liens and Contingent Obligations associated
therewith and enter into the U.K. Facilities with BofA London pursuant to
documentation between ASCL and BofA London (which documentation shall be
solely acceptable to Bank);
(b) Within 60 days following the Closing Date, to enter in to
the German Overdraft Facilities with BofA Frankfurt pursuant to
documentation between Co. KG and BofA Frankfurt (which documentation shall
be solely acceptable to Bank);
(c) Within 30 days following the Closing Date, to enter into
Lockbox Agreements in form and substance acceptable to Bank, and within 90
days of the Closing Date to cause each of its account debtors to make their
remittances to the related Lockboxes;
(d) Within 60 days following the Closing Date cause Co. KG to
execute a lockbox agreement in form and substance acceptable to BofA
Frankfurt with BofA Frankfurt (or another institution acceptable to Bank),
and within 90 days of the Closing Date to cause each of its account debtors
to make their remittances to the related Lockboxes; and
(e) Within 30 days following the Closing Date, to enter into the
Approved Swap Agreement.
-77-
<PAGE>
ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
--------------------------------------
7.1 Financial and Business Information. So long as any Loan remains
----------------------------------
unpaid, any Letter of Credit remains outstanding, any other Obligation remains
unpaid, or any portion of the Commitments remain in force, Borrowers shall,
unless Bank otherwise consents in writing, deliver to Bank, at their sole
expense:
(a) As soon as practicable, and in any event within 30 days
after the end of each calendar month, or 50 days in the case of each
calendar month which is coterminous with a Fiscal Quarter (or, if the
Conversion Conditions are then satisfied, within the same period following
the end of each Fiscal Quarter) including the last month or Fiscal Quarter
in each year, (i) the consolidated, consolidating and divisional balance
sheets of SCI and its Subsidiaries as at the end of such fiscal period,
(ii) consolidated, consolidating and divisional statements of income and
retained earnings and statement of cash flows of SCI and its Subsidiaries
(showing results for that fiscal period and for the portion of the Fiscal
Year then ended), and (iii) a comparison of such financial statements with
the applicable Projections (on a monthly basis) and with the financial
results as of the end of the same fiscal period during the immediately
preceding Fiscal Year (on a quarterly basis), all in reasonable detail.
Such financial statements shall be certified by a Senior Officer of
Borrowers as fairly presenting the financial condition, results of
operations and changes in financial position of SCI and its Subsidiaries,
and shall be prepared and presented in accordance with Generally Accepted
Accounting Principles (other than any requirement for footnote disclosures
----- ----
and except that such financial statements are prepared on an unconsolidated
------
basis), consistently applied, as at such date and for such periods, subject
only to normal and non-material year-end accruals and audit adjustments.
In the case of divisional results, such financial statements shall indicate
financial results for the Automotive U.S., Automotive Europe, Phoenix and
Defense divisions;
(b) As soon as practicable, and in any event within 105 days
after the end of each Fiscal Year, (i) the audited consolidated and
internally prepared consolidating balance sheets, income statement and cash
flows statement of SCI and its Subsidiaries as at the end of such Fiscal
Year, (ii) the audited consolidated statement of retained earnings of SCI
and its Subsidiaries as at the end of such
-78-
<PAGE>
Fiscal Year, (iii) a comparison of such financial statements with the
financial results as of the end of the immediately preceding Fiscal Year
and with the applicable Projections, and (iv) a report prepared by
Borrowers' certified public accountants calculating compliance with each of
the covenants set forth in Sections 6.10 through 6.14 for the fiscal period
---- ----
ending concurrently with that Fiscal Year and calculating Excess Cash Flow
for that Fiscal Year, all in reasonable detail. Such financial statements
shall be prepared and presented in accordance with Generally Accepted
Accounting Principles, consistently applied, and shall be accompanied by a
report and opinion of independent public accountants of recognized standing
selected by Borrowers and reasonably satisfactory to Bank, and a Report to
the Audit Committee prepared by such accountants (and, if recommended or
contemplated by such report, a management letter prepared by such
accountants), which report and opinion shall be prepared in accordance with
generally accepted auditing standards as at such date, and shall not be
subject to any qualifications or exceptions as to the scope of the audit
nor to any other qualification or exception which Bank reasonably
determines is unacceptable;
(c) As soon as practicable, and in any event within 30 days
after the end of each month, a Borrowing Base Certificate as of the last
day of the immediately preceding calendar month;
(d) Within 10 days following any request by Bank, reports
regarding the accounts receivable, inventory and accounts payable of SCI
and its Subsidiaries, including separate segregated agings of the foreign
and domestic accounts receivable of (i) SCI and its Domestic Subsidiaries,
(ii) ASCL, (iii) Co. KG, (iv) Galion (including a breakdown by government
and commercial receivables at Galion), and (v) Systems, in each case as of
the last day of the immediately preceding calendar month, in each case
detailing such information by corporate entity and by division and
otherwise in form and detail satisfactory to Bank;
(e) As soon as practicable, and in any event no later than 30
days prior to the commencement of each Fiscal Year, Projections by calendar
month for that Fiscal Year and by Fiscal Year for each of the following
Fiscal Years through the Maturity Date, all in form and detail reasonably
satisfactory to Bank, prepared and presented in accordance with Generally
Accepted Accounting Principles, consistently applied;
-79-
<PAGE>
(f) Promptly after the same are available, copies of any
detailed audit reports, management letters or recommendations submitted to
Borrowers or any of their Subsidiaries by independent accountants in
connection with the accounts or books of Borrowers or any of their
Subsidiaries, or any audit of any of them;
(g) Promptly after the same are filed (but in any event within
105 days from the last day of the Fiscal Year for the 10-K and 50 days of
each Fiscal Quarter for the 10-Q), copies of each annual report, proxy or
financial statement or other report or communication sent to the
shareholders of SCI and its Subsidiaries, and copies of all annual,
regular, periodic and special reports and registration statements which SCI
or its Subsidiaries may file or be required to file under Sections 13 or
15(d) of the Securities Exchange Act of 1934;
(h) Promptly after request by Bank, copies of any other specific
report or other document that was filed by SCI or any of its Subsidiaries
with any Governmental Agency;
(i) Promptly upon a Responsible Official of Borrowers becoming
aware, and in any event within ten Banking Days after becoming aware, of
the occurrence of any (i) "reportable event" (as such term is defined in
Section 4043 of ERISA) or (ii) "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code) in connection
with any Pension Plan or any trust created thereunder, written notice
specifying the nature thereof and specifying what action Borrowers or their
Subsidiaries is taking or propose to take with respect thereto, and, when
known, any action taken by the Internal Revenue Service with respect
thereto;
(j) As soon as practicable, and in any event within five Banking
Days after a Responsible Official of Borrowers becomes aware of the
existence of any condition or event which constitutes a Default, written
notice specifying the nature and period of existence thereof and specifying
what action Borrowers or their Subsidiaries are taking or propose to take
with respect thereto;
(k) Promptly upon a Responsible Official of Borrowers becoming
aware that (i) any Person commenced a legal proceeding with respect to a
claim against Borrowers or any of their Subsidiaries that is stated to be
$500,000 or more in excess of the amount thereof that is believed
-80-
<PAGE>
by such Responsible Official to be fully covered by insurance (subject to
customary deductibles and retentions), (ii) any creditor or lessor under a
written credit agreement or material lease has asserted a default
thereunder on the part of Borrowers or any of their Subsidiaries, and, in
the case of a lease, such default has not been cured or rescinded within
any applicable cure period under the lease or applicable Laws, (iii) any
Person commenced a legal proceeding with respect to a claim against
Borrowers or any of their Subsidiaries under a contract which relates to
Property or revenues in excess of $500,000, or (iv) any other event or
circumstance occurs or exists that would constitute a Material Adverse
Effect, in each case a written notice describing the pertinent facts
relating thereto and what action Borrowers or their Subsidiaries are taking
or propose to take with respect thereto;
(l) Promptly following the establishment thereof, provide notice
to Bank of each depositary account maintained by Borrowers or any of their
Domestic Subsidiaries;
(m) Promptly following the issuance thereof, provide notice to
Bank of each patent or trademark issued to Borrowers or any of their
Domestic Subsidiaries;
(n) as soon as practicable and in any event within 30 days after
the end of each calendar month, a Compliance Certificate signed by a Senior
Officer of Borrowers;
(o) Promptly and in any event within 90 days following the
Closing Date, an audited opening balance sheet of Phoenix Airbag prepared
by Price Waterhouse, BDO Siedman or other accountants acceptable to Bank;
(p) Not later than 30 days following the last day of each Fiscal
Quarter, an updated listing of existing sales contracts at Galion and
Systems (or other non-automotive sales contracts) and a bid proposal
"pipeline statement" for Galion and Systems;
(q) Within 90 days following the Closing Date, and annually
thereafter, an environmental plan which outlines proposed testing and
remediation plans and related estimated costs with respect to the Galion
manufacturing facility;
(r) promptly following their receipt, copies of properly
validated export license for all weapons, weapons
-81-
<PAGE>
components, and other military hardware exported by SCI and its
Subsidiaries;
(s) within 60 days following the Closing Date, audited financial
statements of Parent for its fiscal year ended March 31, 1996, and, within
90 days of the last day of each subsequent fiscal year of Parent, its
audited annual financial statements; and
(t) Such other data and information as Bank may from time to
time request.
No Creditor party shall be obligated to return any schedules, invoices,
statements, budgets, forecasts, reports or other papers delivered by any Party
pursuant to this Section or any other Loan Document. The Creditors may each
destroy or otherwise dispose of any such schedules, invoices, statements,
budgets, forecasts, reports or other papers at such time as they deem
appropriate in their discretion.
7.2 Inventory and Accounts Receivable. Until the Collateral Agent
---------------------------------
exercises its rights pursuant to the Collateral Documents to collect accounts
receivable of Borrowers and their Domestic Subsidiaries directly from account
debtors, Borrowers and such Subsidiaries may continue their present policies for
returned merchandise and adjustments. Credit adjustments with respect to
returned merchandise shall be made immediately upon receipt of the merchandise
by Borrowers and their Subsidiaries or upon such other disposition of the
merchandise by the debtor in accordance with Borrowers' instructions.
-82-
<PAGE>
ARTICLE 8
CONDITIONS
----------
8.1 Conditions to the Initial Loans and Letters of Credit. The obligation
-----------------------------------------------------
of Bank to make the initial Loans and to issue the initial Letters of Credit is
subject to the following conditions precedent:
(a) Bank shall have received all of the following, each of which
shall be originals unless otherwise specified or, where applicable, the
context otherwise requires, each properly executed by a Responsible
Official of each party thereto, each dated as of the Closing Date and each
in form and substance reasonably satisfactory to Bank and its legal
counsel:
(1) executed counterparts of this Agreement;
(2) The Line A Note;
(3) The Line B Note;
(4) the Guaranty executed by each Domestic Subsidiary with
respect to the Obligations and all future obligations of SCI and its
Subsidiaries (including without limitation the U.K. Facilities and the
German Overdraft Facility);
(5) a guaranty executed by Borrowers with respect to all
future obligations of SCI and its Subsidiaries (including without
limitation the U.K. Facilities and the German Overdraft Facility);
(6) the Security Agreement and the Subsidiary Security
Agreement executed by Borrowers and their Domestic Subsidiaries,
together with sufficient copies of financing statements on Form UCC-1
for filing in every United States jurisdiction in which Borrowers and
their Domestic Subsidiaries own Property;
(7) the Pledge Agreement executed by SCI, together with (i)
the stock certificates described therein; and (ii) separate stock
powers signed in blank in relation to such certificates;
(8) Second Tier Pledge Agreements executed by ASCI,
Holdings Germany and each Domestic
-83-
<PAGE>
Subsidiary of Borrowers which owns any Subsidiaries, together with (i)
the stock certificates referred to therein, (ii) the German Note and
the Czech Note, endorsed in blank; (iii) separate stock powers signed
in blank in relation to such certificates; and (iv) any instruments,
documents or agreements reasonably requested by Bank in relation
thereto;
(9) the Intercompany Notes, executed by each Foreign
Subsidiary and endorsed in blank by the payees thereof;
(10) the Life Insurance Assignment executed by SCI;
(11) with respect to Borrowers and their Subsidiaries such
documentation as Bank may reason ably require to establish the due
organization, valid existence and good standing of Borrowers and their
Subsidiaries, its qualification to engage in business in each
jurisdiction in which it is engaged in business or required to be so
qualified, its authority to execute, deliver and perform any Loan
Documents to which it is a Party, and the identity, authority and
capacity of each Responsible Official thereof authorized to act on its
behalf, including, without limitation, certified copies of articles of
---------
incorporation and amendments thereto, bylaws and amendments thereto,
certificates of good standing and/or qualification to engage in
business, tax clearance certificates, certificates of corporate
resolutions, incumbency certificates, Certificates of Responsible
Officials, and the like;
(12) the Opinions;
(13) a Solvency Certificate executed by the Chief Financial
Officers of Galion and Systems with attached pro forma balance sheets
and consolidating projections for those companies;
(14) evidence satisfactory to the Bank as Collateral Agent
that the Liens and security interest of the Collateral Agent in the
Collateral have been perfected and are of first priority (except for
------
Permitted Encumbrances and Liens referred to on Schedule 6.8);
------------
(15) a landlord consent with respect to the Otay Mesa,
California warehouse maintained by ASCI;
-84-
<PAGE>
(16) a Borrowing Base Certificate as of June 30, 1996;
(17) evidence of the insurance policies required by Section
5.4, together with such endorsements as are necessary (Form BFU-438
---
or an equivalent acceptable to the Bank as Collateral Agent) to show
the Collateral Agent as loss payee thereunder to the extent required
by Section 5.4;
---
(18) a Certificate signed by a Senior Officer of Borrowers
certifying that the conditions specified in Sections 8.1(d), 8.1(e),
------ ------
8.1(g) 8.1(h), and 8.1(i) have been satisfied;
------ ------ ------
(19) a Certificate of the Chief Financial Officer of
Borrowers attaching the Projections;
(20) a Certificate of the Chief Financial Officer of
Borrowers attaching copies of each of the instruments, documents and
agreements evidencing the Midland Facilities;
(21) a Certificate of Borrowers attaching true and complete
copies of the Acquisition Agreement;
(22) a Request for Loan (and, if applicable a Request for
Letter of Credit);
(23) copies of properly validated export licenses for all
weapons, weapons components and other military hardware exported by
SCI and its Subsidiaries; and
(24) such other assurances, certificates, documents,
consents or opinions as Bank may require;
(b) The fees payable pursuant to Sections 3.2 and 3.4 and any
--- ---
amounts payable pursuant to clause (a) of Section 11.3 shall be paid
----
concurrently;
(c) Giving effect to all of the transactions which occur on the
Closing Date, no Loans shall be outstanding under the Line A Commitment;
(d) The transactions contemplated by the Acquisition Agreement
shall each be in a position to close concurrently with the making of the
initial Loans in compliance with all applicable Laws;
-85-
<PAGE>
(e) ASCI shall have formed Holding Companies for each of its
existing Foreign Subsidiaries and shall have contributed its Investments in
such Foreign Subsidiaries to the relevant Holding Company;
(f) Bank shall have reviewed and found satisfactory each of the
following:
(1) any revisions to the Projections delivered to Bank
after July 24, 1996;
(2) consolidated monthly projections for SCI and its
Subsidiaries for the Fiscal Year ending March 31, 1997;
(3) a final sources and uses statement for the transactions
contemplated by this Agreement and the Acquisition Agreement.
(4) the pro forma opening balance sheet of SCI and its
Subsidiaries (giving effect to the acquisition of Phoenix Airbag),
including detail on affiliate accounts;
(5) the terms and conditions of any Material Contracts to
which Galion is a party;
(6) any intercompany agreements between SCI and its
Subsidiaries on the one hand and any other Affiliate of Borrower on
the other hand;
(7) the terms and conditions of the Acquisition Agreement
and each of the instruments, documents and agreements executed in
connection therewith;
(g) SCI, ASCI, Galion and Systems shall have terminated or shall
concurrently terminate their existing credit facilities with Citicorp USA,
Inc., and all Liens securing those facilities and related Contingent
Obligations shall be concurrently released;
(h) The representations and warranties of Borrowers contained in
Article 4 shall be true and correct; and
---------
(i) Borrowers and their Subsidiaries shall be in compliance with
all the terms and provisions of the Loan Documents, no Default or Event of
Default shall have occurred and be continuing, no event shall have occurred
since March 31, 1996 which constitutes a Material Adverse
-86-
<PAGE>
Effect, and Bank shall not have received any materially adverse information
not known or disclosed to the Bank with respect to SCI, its Subsidiaries or
Phoenix Airbag.
8.2 Any Increasing Loan. The obligation of Bank to make any Loan
-------------------
which would increase the principal amount outstanding under the Notes, and the
obligation of Bank to issue any Letter of Credit, is subject to the following
conditions precedent:
(a) except as disclosed by Borrowers and approved in writing by
------
Bank, the representations and warranties contained in Article 4 (other than
--------- ----- ----
Sections 4.5, 4.6 (first sentence), 4.7, 4.11 and 4.18) shall be true and
--- --- --- ---- ----
correct on and as of the date of the Loan or Letter of Credit as though
made on that date (except for any such representations or warranties which
specifically relate to the Closing Date, each of which shall be true and
correct as of the Closing Date);
(b) other than matters described in Schedule 4.11, or matters
----- ---- -------------
not required as of the Closing Date to be therein described, or matters
disclosed by Borrowers and approved in writing by Bank, there shall not be
then pending or threatened in writing any action, suit, proceeding or
investigation against or affecting Borrowers or any of their Subsidiaries
or any Property of any of them before any Governmental Agency that
constitutes a Material Adverse Effect;
(c) Bank shall have received a timely Request for Loan or
Request for Letter of Credit in compliance with Article 2, as applicable;
---------
(d) In the case of the issuance of the Phoenix Letter of Credit,
Borrowers shall have entered into Swap Agreements acceptable to Bank with
respect to not less than one half of the currency risk associated with the
Phoenix Letter of Credit for the term thereof;
(e) Bank shall have received, in form and substance reasonably
satisfactory to Bank, such other assurances, certificates, documents or
consents related to and consistent with the foregoing as Bank may
reasonably require.
-87-
<PAGE>
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES
------------------------------
9.1 Events of Default. The existence or occurrence of any one or more of
-----------------
the following events shall constitute an Event of Default:
(a) Borrowers fail to pay any principal with respect to the
Loans when due or to make any payment with respect to the Letters of Credit
when due;
(b) Borrowers fail to pay any interest, commitment fees or other
credit fees in respect of the Loans or Letters of Credit hereunder within
three days of the date when due, fail to make any payment required under
the Approved Swap Agreement within three days of the date when due, or fail
to pay any expenses or other amounts due hereunder, or any portion thereof,
within three days of the date when due; or
(c) Any failure to comply with Sections 7.1(j) or any covenant
------
in Article 6; or
---------
(d) Any of the Borrowers or any other Party fails to perform or
observe any other covenant or agreement contained herein or in the other
Loan Documents on its part to be performed or observed and fails to cure
such Default within twenty days following the first occurrence thereof; or
(e) Any representation or warranty made in any Loan Document
proves to have been incorrect when made or reaffirmed; or
(f) SCI or any of its Subsidiaries (i) fails to pay the
principal, or any principal installment of, or interest or fees with
respect to, any present or future indebtedness for borrowed money or
Capital Lease of $500,000 or more in the aggregate, or any guaranty of
present or future Indebtedness for borrowed money or Capital Lease of
$500,000 or more in the aggregate, on their part to be paid, when due (or
within any stated grace period), whether at the stated maturity, upon
acceleration, by reason of required prepayment or otherwise or (ii) fail
to perform or observe any other term, covenant or agreement on their part
to be performed or observed, or suffer any event to occur, in connection
with any present or future indebtedness for borrowed money or Capital Lease
of $500,000 or more in the aggregate, or of
-88-
<PAGE>
any guaranty of present or future indebtedness for borrowed money or
Capital Lease of $500,000 or more in the aggregate, if as a result of such
failure or sufferance any holder or holders thereof (or an agent or trustee
on its or their behalf) has the right to declare such Indebtedness due
before the date on which it otherwise would become due; or
(g) At any time, the holder or holders of (A) any present or
future Indebtedness for borrowed money or Capital Lease upon which SCI or
any of its Subsidiaries is an obligor with respect to amounts of $500,000
or more in the aggregate, or (B) any guaranty issued by any Borrower or any
of its Subsidiaries with respect to present or future Indebtedness for
borrowed money or Capital Lease of $500,000 or more in the aggregate,
declares such Indebtedness due before the date on which it otherwise would
become due; or
(h) Any default occurs under the U.K. Facilities or the German
Overdraft Facility if as a result of such default the creditors thereunder
(or an agent or trustee on its or their behalf) have the right to declare
such Indebtedness due before the date on which it otherwise would become
due; or
(i) This Agreement, the Notes, or any other Loan Document at any
time after its execution and delivery and for any reason other than the
----- ----
agreement of Bank or satisfaction in full of all the Obligations, ceases to
be in full force and effect or is declared by a court of competent
jurisdiction to be null and void, invalid or unenforceable in any respect;
or any Party thereto denies that it has any or further liability or
obligation under any Loan Document, or purports to revoke, terminate or
rescind same (other than in accordance with the terms and conditions of the
----- ----
Loan Documents); or
(j) A final judgment against SCI or any of its Subsidiaries is
entered for the payment of money in excess of $500,000 and, absent
procurement of a stay of execution, such judgment remains unsatisfied for
thirty calendar days after the date of entry of judgment, or in any event
later than five days prior to the date of any proposed sale thereunder; or
(k) SCI or any of its Subsidiaries institutes or consents to any
proceeding under a Debtor Relief Law relating to it or to all or any part
of its Property, or is unable or admits in writing its inability to pay its
debts as they mature, or makes a general assignment for
-89-
<PAGE>
the benefit of creditors; or applies for or consents to the appointment of
any receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer for it or for all or any part of its Property; or any
receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer is appointed without the application or consent of that
Person and the appointment continues undischarged or unstayed for sixty
calendar days; or any proceeding under a Debtor Relief Law relating to any
such Person or to all or any material part of its Property is instituted
without the consent of that Person and continues undismissed or unstayed
for sixty calendar days; or any judgment, writ, warrant of attachment or
execution or similar process is issued or levied against all or any
material part of the Property of any such Person and is not released,
vacated or fully bonded within sixty calendar days after its issue or levy;
or
(l) Any Lien on any Collateral created by any Loan Document
(which Collateral has a value in excess of $100,000, in the aggregate), at
any time after the execution and delivery of that Loan Document and for any
reason ceases to be perfected or of less than first priority (subject to
any Lien expressly permitted by this Agreement); or
(m) The occurrence of a Termination Event with respect to any
Pension Plan if the aggregate liability of SCI and its ERISA Affiliates
under ERISA as a result thereof exceeds $500,000; or the complete or
partial withdrawal by either SCI or any of its ERISA Affiliates from any
Multiemployer Plan if the aggregate liability of SCI and its ERISA
affiliates as a result thereof exceeds $500,000; or
(n) The occurrence of an Event of Default (as such term is or
may hereafter be specifically defined in any other Loan Document) under any
other Loan Document; or
(o) The results of any audit of the Collateral shall bring into
question, in the opinion of Bank, (a) the reliability of the accounting
practices or financial information provided, employed or generated by
Borrowers and their Subsidiaries in connection with the Collateral, or (b)
the value of the Collateral in any respect that is material, individually
or in the aggregate; or
(p) Any Change in Control occurs; or
(q) Any of the Borrowers or their Subsidiaries fail to pay or
remit taxes or governmental levies within
-90-
<PAGE>
five days of the date when due, where such failure would result in the
relevant Governmental Agency having priority over any Lien on any
Collateral created by any Loan Document in respect of amounts not paid or
remitted; or
(r) Substantially all of the assets of any of the Borrowers or
their Subsidiaries are sold or otherwise transferred to any other Person or
related group of Persons as an entity or substantially as a entity in one
transaction or a series of transactions; or
(s) Any Material Contract is terminated by reason of a breach,
revoked or suspended, or any counterparty to any Material Contract purports
to terminate (by reason of a breach), revoke or suspend a Material Contract
or denies liability under the same, or is the subject of any proceeding
under any Debtor Relief Laws, or a material breach or default under a
Material Contract occurs and such breach or default either results in a
Material Adverse Effect or is reasonably likely, in Bank's reasonable
judgment, to result in an Event of Default; or
(t) Robert Zummo fails to be actively engaged in the management
and affairs of SCI and its Subsidiaries, or, during the twelve month period
following the Closing Date, John Hakes fails to be actively engaged in the
management and affairs of the European Automotive Division of Borrowers in
a manner which is, in Bank's judgment, materially adverse to the condition
or prospects of SCI and its Subsidiaries; or
(u) There occurs any material change in the relationships
between TRW (U.S.), TRW (Europe), Petri, MST, GM Europe, Belgium, or any
other customer of SCI and its Subsidiaries which change has a materially
adverse impact upon SCI or any of its individual Subsidiaries on a
consolidating basis.
9.2 Remedies Upon Event of Default. Without limiting any other rights or
------------------------------
remedies of the Creditors provided for elsewhere in this Agreement or the Loan
Documents, or by applicable Law, or in equity, or otherwise:
(a) Upon the occurrence, and during the continuance, of any
Event of Default other than an Event of Default described in Section
----- ----
9.1(k):
------
(1) the Commitment to make Loans and to issue Letters of
Credit and all other obligations of the Creditors and all rights of
Borrowers and any
-91-
<PAGE>
other Parties under the Loan Documents shall be suspended without
notice to or demand upon Borrowers, which are expressly waived by
Borrowers, except that Bank may waive the Event of Default or, without
------
waiving, determine, upon terms and conditions satis factory to Bank,
to make further Loans;
(2) Bank may demand immediate payment by Borrowers of an
amount equal to the aggregate effective face amount of all outstanding
Letters of Credit issued to Borrowers as provided in Section 2.5 to be
---
held as cash collateral for the reimbursement obligations of Borrowers
under such Letter of Credit; and
(3) Bank may terminate the Commitments and/or declare all
or any part of the unpaid principal of all Notes, all interest accrued
and unpaid thereon and all other amounts payable under the Loan
Documents to be forthwith due and payable, whereupon the same shall
become and be forthwith due and payable, without protest, presentment,
notice of dishonor, demand or further notice of any kind, all of which
are expressly waived by Borrowers.
(b) Upon the occurrence of any Event of Default described in
Section 9.1(k):
------
(1) the Commitment to make Loans and to issue Letters of
Credit and all other obligations of Creditors and all rights of
Borrowers and any other Parties under the Loan Documents shall
terminate without notice to or demand upon Borrowers, which are
expressly waived by Borrowers, except that Bank may waive the Event of
------
Default or, without waiving, determine, upon terms and conditions
satisfactory to Bank, to make further Loans; and
(2) an amount equal to the aggregate effective face amount
of all outstanding Letters of Credit issued to Borrowers shall be
forthwith due and payable by Borrowers to Bank to be held by Bank as
cash collateral for the reimbursement obligations of Borrowers to Bank
with respect to Letters of Credit issued by Bank, without protest,
presentment, notice of dishonor, demand or further notice of any kind,
all of which are waived by Borrowers; and
(3) the unpaid principal of all Notes, all interest accrued
and unpaid thereon and all other amounts payable under the Loan
Documents shall be
-92-
<PAGE>
forthwith due and payable, without protest, presentment, notice of
dishonor, demand or further notice of any kind, all of which are
expressly waived by Borrowers.
(c) Upon the occurrence of any Event of Default, Bank may
proceed (without notice to or demand upon Borrowers, which are expressly
waived by Borrowers) to protect, exercise and enforce their rights and
remedies under the Loan Documents against Borrowers and such other rights
and remedies as are provided by Law or equity.
(d) The order and manner in which Bank's rights and remedies are
to be exercised shall be determined by Bank in its sole discretion, and all
payments received by the Creditors, or any of them, after acceleration of
the Obligations shall be applied first to the costs and expenses (including
attorneys' fees and disbursements) of the Bank (individually and as the
Collateral Agent), second, to the principal amount of the Obligations and
interest and credit fees thereon. Regardless of how Bank may treat
payments for the purpose of its own accounting, for the purpose of
computing the Obligations hereunder and under the Notes, payments shall be
applied first, to the costs and expenses of the Creditors, as set forth
-----
above, second, to the payment of accrued and unpaid interest due under any
------
Loan Documents to and including the date of such application (ratably, and
without duplication, according to the accrued and unpaid interest due under
each of the Loan Documents), and third, to the payment of all other amounts
-----
(including principal and credit fees) then owing to the Creditors under the
Loan Documents. No such application of payments will cure any Event of
Default, or prevent acceleration, or continued acceleration, of amounts
payable under the Loan Documents, or prevent the exercise, or continued
exercise, of rights or remedies of the Collateral Agent or Bank hereunder
or thereunder or at law or in equity. For the purposes of this clause (d),
all amounts payable by Borrowers under the Approved Swap Agreement (other
-----
than interest on overdue amounts and the costs and expenses of enforcement
----
including attorneys' fees) shall be treated as principal.
-93-
<PAGE>
ARTICLE 10
THE COLLATERAL AGENT
--------------------
10.1 Appointment and Authorization. Bank of America hereby agrees to
-----------------------------
serve as Collateral Agent for its own benefit and that of BofA Frankfurt (as
Creditor under the German Overdraft Facility) and BofA London (as Creditor under
the U.K. Facilities) unless and until Bank resigns as such in accordance with
this Agreement. Each Creditor which relies upon any of the Loan Documents for
liens or security, by acceptance thereof, irrevocably appoints, designates and
authorizes the Collateral Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement and any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Collateral Agent shall not have any duties or responsibilities except those
expressly set forth herein, nor shall the Collateral Agent have or be deemed to
have any trust, fiduciary or other special relationship with any other Creditor,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist with respect to the Collateral Agent.
10.2 Delegation of Duties. The Collateral Agent may execute any of its
--------------------
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Collateral Agent shall
not be responsible for the negligence or misconduct of any agent or attorney-in-
fact that it selects with reasonable care.
10.3 Liability of the Collateral Agent. None of the Agent Related Persons
---------------------------------
shall (i) be liable for any action taken or omitted to be taken by them under or
in connection with this Agreement or any other Loan Document (except for their
own gross negligence or willful misconduct), or (ii) be responsible in any
manner to any of the Creditors for any recital, statement, representation or
warranty made by Borrowers or any of the Affiliates or officers contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Collateral Agent under or in connection with, this Agreement or any other Loan
Document, or for the value of any Collateral or the validity, effectiveness,
genuineness,
-94-
<PAGE>
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of Borrowers or any other Party to any Loan Document to perform
its obligations hereunder or thereunder. No Agent Related Person shall be under
any obligation to the Creditors to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the Properties, books or
records of Parent, Borrowers or their Affiliates.
10.4 Reliance by Collateral Agent.
----------------------------
(a) The Collateral Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to
Borrowers), independent accountants and other experts selected by them. The
Collateral Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it is indemnified
to its satisfaction by the Creditors against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action.
10.5 Notice of Default. The Collateral Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Collateral Agent for the account of the Creditors, unless the
Collateral Agent shall have received written notice referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default".
10.6 Credit Decision. Each other Creditor expressly acknowledges that
---------------
none of the Agent Related Persons has made any representation or warranty to it
and that no act by the Collateral Agent hereinafter taken, including any review
of the affairs of Borrowers and their Subsidiaries shall be deemed to constitute
any representation or warranty by the Collateral Agent to any other Creditor.
Each other Creditor represents to the Collateral Agent that it has,
independently and without reliance upon the Collateral Agent and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, prospects, operations, Property,
financial and other condition and creditworthiness of Borrowers and their
Subsidiaries, and all
-95-
<PAGE>
applicable bank regulatory laws relating to the transactions contemplated
thereby, and made its own decision to enter into this Agreement and extend
credit to Borrowers hereunder. Each other Creditor also represents that it
will, independently and without reliance upon the Collateral Agent and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, Property, financial and other condition and
creditworthiness of Borrowers. Except for notices, reports and other documents
expressly herein required to be furnished to the other Creditors by the
Collateral Agent, the Collateral Agent shall not have any duty or responsibility
to provide any Person with any credit or other information concerning the
business, prospects, operations, Property, financial and other condition or
creditworthiness of Borrowers or any of their Subsidiaries which may come into
the possession of any of the Agent Related Persons.
10.7 Indemnification. Whether or not the transactions contemplated hereby
---------------
shall be consummated, each Creditor shall indemnify upon demand the Agent
Related Persons (to the extent not reimbursed by or on behalf of Borrowers and
without limiting the obligation of Borrowers to do so), ratably from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind whatsoever which
may at any time (including at any time following the repayment of the Loans and
the termination or resignation of the Collateral Agent) be imposed on, incurred
by or asserted against any such Person in any way relating to or arising out of
this Agreement or any document contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby or any action taken or
omitted by any such Person under or in connection with any of the foregoing;
provided, however, that no Person shall be liable for the payment to the Agent
- -------- -------
Related Persons of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from such Agent Related Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Creditor shall reimburse
the Collateral Agent upon demand for its ratable share of any costs or out-of-
pocket expenses (including both domestic and foreign attorneys fees and expenses
and the allocated fees and expenses of any internal counsel to the Collateral
Agent) incurred by the Collateral Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or
-96-
<PAGE>
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein to the extent that the Collateral Agent is
not reimbursed for such expenses by or on behalf of Borrowers.
10.8 Bank of America in its Individual Capacity. Bank of America and its
------------------------------------------
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory or other business with Borrowers and their
Subsidiaries and Affiliates as though Bank of America were not the Collateral
Agent hereunder and without notice to or consent of any future additional Banks.
With respect to its Loans and its risk participation in Letters of Credit, Bank
of America shall have the same rights and powers under this Agreement as any
other Bank and may exercise the same as though it were not the Collateral Agent,
and the terms "Bank" and "Banks" shall include Bank of America in its individual
capacity.
10.9 Successor Agents. The Collateral Agent may resign its capacity as
----------------
such at any time. If the Collateral Agent resigns, the Creditors shall appoint
from among any future Banks a successor Collateral Agent. If no successor is
appointed prior to the effective date of the resignation, the Collateral Agent
may appoint a successor Collateral Agent. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring agent and the term "Collateral
Agent" shall mean such successor agent and the retiring agent's appointment,
powers and duties as Collateral Agent, as the case may be, shall be terminated.
After any retiring agent's resignation under this Section, the provisions of
this Article 10 and Sections 11.3, 11.12 and 11.22 shall inure to its benefit as
---------- ---- ----- -----
to any actions taken or omitted to be taken by it while it was Collateral Agent
under this Agreement.
10.10 Action by the Collateral Agent; Collateral Matters.
--------------------------------------------------
(a) The Collateral Agent is authorized (but is under no obligation
to), without the necessity of any notice to or further consent from any
Person, from time to time to take any action with respect to any Collateral
or the Collateral Documents which may be necessary to perfect and maintain
perfected the security interest in and Liens upon the Collateral granted
pursuant to the Collateral Documents.
(b) Creditors irrevocably authorize the Collateral Agent, at its
option and in its discretion, to release any Lien granted to or held by the
Collateral Agent upon any
-97-
<PAGE>
Collateral (i) upon termination of the Commitments and payment in full of
all Loans and all other Obligations payable under this Agreement and under
any other Loan Document; (ii) constituting Property sold or to be sold or
disposed of as part of or in connection with any disposition permitted
hereunder; (iii) constituting Property leased to Parent, Borrowers or any
Subsidiary of Borrowers under a lease which has expired or been terminated
in a transaction permitted under this Agreement or is about to expire and
which has not been, and is not intended by Parent, Borrowers or such
Subsidiary to be, renewed or extended; (iv) consisting of an instrument
evidencing Indebtedness or other debt instrument, if the Indebtedness
evidenced thereby has been paid in full; or (v) if approved, authorized or
ratified in writing by Bank. Upon request by the Collateral Agent at any
time, each Creditor will confirm in writing the Collateral Agent's
authority to release particular types or items of Collateral pursuant to
this Section 10.10(b).
--------
10.11 Controlled Foreign Corporations. As between the Creditors, it is
-------------------------------
understood and agreed that each guaranty delivered by a Foreign Subsidiary, each
pledge of more than 65% of the capital stock of any Foreign Subsidiary, and each
Lien in the assets of any Foreign Subsidiary granted under the Loan Documents
shall be for the benefit of the U.K. Facilities and the German Overdraft
Facility, but not for the benefit of the Loans and Letters of Credit under this
---
Agreement and the other Loan Documents. The Bank hereby disclaims any such
guarantees and Liens.
10.12 No Obligations of Borrowers. Nothing contained in this Article 10
--------------------------- ----------
shall be deemed to impose upon Borrowers any obligation in respect of the due
and punctual performance by the Collateral Agent of its obligations to the
Creditors under any provision of this Agreement, and Borrowers shall have no
liability to any Creditor in respect of any failure by any other Creditor to
perform any of its obligations to any other Creditor under this Agreement.
-98-
<PAGE>
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Cumulative Remedies; No Waiver. The rights, powers, privileges and
------------------------------
remedies of the Creditors provided herein or in any Loan Document are cumulative
and not exclusive of any right, power, privilege or remedy provided by Law or
equity. No failure or delay on the part of any Creditor in exercising any
right, power, privilege or remedy may be, or may be deemed to be, a waiver
thereof; nor may any single or partial exercise of any right, power, privilege
or remedy preclude any other or further exercise of the same or any other right,
power, privilege or remedy. The terms and conditions of Article 8 hereof are
---------
inserted for the sole benefit of Bank; the same may be waived in whole or in
part, with or without terms or conditions, in respect of any Loan without
prejudicing Bank's rights to assert them in whole or in part in respect of any
other Loan.
11.2 Amendments; Consents. No amendment, modification, supplement,
--------------------
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by any Party therefrom, may in any event be effective unless in
writing signed by Bank and then only in the specific instance and for the
specific purpose given.
11.3 Costs, Expenses and Taxes. Borrowers shall pay the reasonable costs
-------------------------
and expenses (including any sales, use, value-added, goods, services or other
taxes) of (a) Bank (individually and as the Collateral Agent), BofA London and
BofA Frankfurt in connection with the audits and appraisals of Borrowers and
their Subsidiaries and their respective Property, and the negotiation,
preparation, execution, delivery and administration of the Loan Documents
(including reasonable fees and out-of-pocket expenses of domestic and foreign
- ----------
legal counsel to Bank and the allocated costs of internal counsel to Bank),
whether the same are incurred before or after the Closing Date, and (b) of the
Collateral Agent, BofA London, BofA Frankfurt and each other Creditor in
connection with any amendment, modification, supplement, extension or waiver of
the Loan Documents in connection with any refinancing, restructuring,
reorganization (including a bankruptcy reorganization) and enforcement or
---------
attempted enforcement of the Loan Documents, and any matter related thereto, in
each case including filing fees, recording fees, title insurance fees, appraisal
---------
fees, search fees and other out-of-pocket expenses and the reasonable fees
(including any sales, use, value-added, goods services or other taxes) and out-
of-pocket
-99-
<PAGE>
expenses of any domestic and foreign legal counsel (including the allocated cost
---------
of in-house counsel), independent public accountants and other outside experts
retained by the Collateral Agent, and including any costs, expenses or fees
---------
incurred or suffered by each Creditor in connection with or during the course of
any bankruptcy or insolvency proceedings of Borrowers or any Subsidiary thereof,
(c) costs and expenses incurred by the Collateral Agent in connection with any
post-closing audit of Borrowers provided for herein (including the allocated
---------
cost of in-house auditors), and (d) out-of-pocket costs and expenses of the
Collateral Agent, BofA London and BofA Frankfurt incurred in connection with the
administration of the Loan Documents. Borrowers shall pay on demand any and all
documentary and other taxes (other than income or gross receipts taxes generally
----- ----
applicable to banks) and all costs, expenses, fees and charges payable or
determined to be payable in connection with the filing or recording of this
Agreement, any other Loan Document or any other instrument or writing to be
delivered hereunder or thereunder, or in connection with any transaction
pursuant hereto or thereto, and shall reimburse, hold harmless and indemnify
each Creditor, BofA London and BofA Frankfurt from and against any and all loss,
liability or legal or other expense with respect to or resulting from any delay
in paying or failure to pay any such tax, cost, expense, fee or charge that the
Creditors, BofA London or BofA Frankfurt may suffer or incur by reason of the
failure of any Party to perform any of its Obligations. Any amount payable
under this Section shall bear interest at the Default Rate.
11.4 Nature of Bank's Obligations. The obligations of Bank of America and
----------------------------
any future Banks hereunder are several and not joint or joint and several.
Nothing contained in this Agreement or any other Loan Document and no action
taken by the Creditors or any of them pursuant hereto or thereto may, or may be
deemed to, make Bank of America or any such Banks a partnership, an association,
a joint venture or other entity, either among themselves or with Borrowers or
any Affiliate of Borrowers. A default by any Bank will not increase the
percentage of the Commitments attributable to any other Bank. Any Bank not in
default may, if it desires, assume in such proportion as the nondefaulting Banks
agree the obligations of any Bank in default, but is not obligated to do so.
11.5 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained herein or in any other Loan Document, or in any certificate
or other writing delivered by or on behalf of any one or more of the Parties to
any Loan Document, will survive the making of the Loans hereunder (except to the
------
extent the same relate solely to a specified earlier date), and have been or
will be relied upon by Bank and
-100-
<PAGE>
the other Creditors, notwithstanding any investigation made by Bank or any
Creditor or on their behalf.
11.6 Notices. Except as otherwise expressly provided in the Loan
------- ------
Documents: (a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must be
in writing and must be mailed, telecopied, delivered by recognized overnight
delivery service or hand delivered to the appropriate party at the address set
forth on the signature pages of this Agreement or other applicable Loan Document
or, as to any party to any Loan Document, at any other address as may be
designated by it in a written notice sent to all other parties to such Loan
Document in accordance with this Section; and (b) Any notice, request, demand,
direction or other communication given by telecopier must be confirmed within
two Banking Days by letter mailed or delivered to the appropriate party at its
respective address. Except as otherwise expressly provided in any Loan
------
Document, if any notice, request, demand, direction or other communication
required or permitted by any Loan Document is given by mail it will be effective
on the earlier of receipt or the third Banking Day after deposit in the United
States mail with first class or airmail postage prepaid; if given by telecopier,
when sent; or if given by recognized overnight delivery service or personal
delivery, when delivered.
11.7 Execution of Loan Documents. This Agreement and any other Loan
---------------------------
Document may be executed in any number of counterparts and any party hereto or
thereto may execute any counterpart, each of which when executed and delivered
will be deemed to be an original and all of which counterparts of this Agreement
or any other Loan Document, as the case may be, when taken together will be
deemed to be but one and the same instrument.
11.8 Binding Effect; Assignment.
--------------------------
(a) This Agreement and the other Loan Documents will be binding
upon and inure to the benefit of Borrowers, the Creditors, and their
respective successors and assigns, except that Borrowers and the other
------
Parties may not assign rights hereunder or thereunder or any interest
herein or therein without the prior written consent of Bank. Bank
represents that it is not acquiring the Notes with a view to their
distribution within the meaning of the Securities Act of 1933, as amended
(subject to any requirement that disposition of the Notes must be within
the control of Bank). Bank may at any time pledge the Notes or any other
instrument evidencing its rights under this Agreement to a Federal Reserve
Bank, but no such pledge shall release Bank from its obligations
-101-
<PAGE>
hereunder or grant to such Federal Reserve Bank the rights of a Bank
hereunder absent foreclosure of such pledge.
(b) From time to time, Bank of America (and any future assignee
Bank) may assign all or any portion of its interests in the Commitments;
provided that any assignee which is not an Affiliate of the assigning Bank
--------
shall be approved by Borrowers (not to be unreasonably withheld) and by the
Collateral Agent. Upon the effective date of such assignment, the assignee
shall be a Bank for all purposes of this Agreement and the assigning Bank
shall be released from its obligations under this Agreement to the extent
of the assignment. Borrowers agree that they shall execute and deliver
(against delivery by the assigning Bank to Borrowers of its Notes) to such
assignee Bank, Notes evidencing that assignee Bank's interests in the
Commitments, and to the assigning Bank, Notes evidencing the remaining
interests retained by the assigning Bank.
(c) By executing and delivering a Commitment Assignment and
Acceptance, the assignee Bank thereunder acknowledges and agrees that: (i)
other than the representation and warranty that it is the legal and
----- ----
beneficial owner of the interests in the Commitments being assigned thereby
free and clear of any adverse claim, the assigning Bank has made no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
this Agreement or the execution, legality, validity, enforceability,
genuineness or sufficiency of this Agreement or any other Loan Document;
(ii) the assigning Bank has made no representation or warranty and assumes
no responsibility with respect to the financial condition of Borrowers or
their Subsidiaries or the performance by Borrowers or their Subsidiaries of
the Obligations; (iii) it has received a copy of this Agreement, together
with copies of the most recent financial statements delivered pursuant to
Section 7.1 and such other documents and information as it has deemed
---
appropriate to make its own credit analysis and decision to enter into such
Commitment Assignment and Acceptance; (iv) it will, independently and
without reliance upon the Collateral Agent or Bank of America and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) it appoints and authorizes the Collateral Agent
to take such action and to exercise such powers under this Agreement as are
delegated to the Collateral Agent by this Agreement; and (vi) it will
perform in accordance with their terms all of the
-102-
<PAGE>
obligations which by the terms of this Agreement are required to be
performed by it as a Bank.
(d) Bank may from time to time grant participations to one or
more banks or other financial institutions in a portion of its interests in
the Commitments; provided, however, that (i) Bank's obligations under this
-------- -------
Agreement shall remain unchanged, (ii) Bank shall remain solely responsible
to the other parties hereto for the performance of such obligations, (iii)
the participating banks or other financial institutions shall not be a Bank
hereunder for any purpose except, if the participation agreement so
------
provides, for the purposes of Sections 3.6, 3.7, and 11.12 but only to the
--- --- -----
extent that the cost of such benefits to Borrowers do not exceed the cost
which Borrowers would have incurred in respect of Bank absent the
participation, (iv) Borrowers, the Collateral Agent and the other Creditors
shall continue to deal solely and directly with Bank in connection with
Bank's rights and obligations under this Agreement, (v) the participation
shall be of the same percentage of the Line A Commitment and the Line B
Commitment, (vi) the participation interest shall be expressed as a
percentage of the assigning Bank's interests in the Commitments as they
then exist and shall not restrict an increase in the Commitments, or in the
assigning Bank's interests in the Commitments, so long as the amount of the
participation interest is not affected thereby and (vii) the consent of the
holder of such participation interest shall not be required for amendments
or waivers of provisions of the Loan Documents other than those which (A)
----- ----
extend the Maturity Date or any other date upon which any payment of money
is due to Bank or the amount thereof, (B) reduce the rate of interest on
the Notes, any fee or any other monetary amount payable to Banks, (C)
release Collateral or guarantees and (D) increase the amount of either
Commitment.
11.9 Right of Setoff. If an Event of Default has occurred and is
---------------
continuing, Bank may exercise its rights under Article 9 of the Uniform
Commercial Code and other applicable Laws and, to the extent permitted by
applicable Laws, apply any funds in any deposit account maintained with it by
Borrowers or any Property of Borrowers in its possession against the Obligations
of Borrowers. In furtherance of the rights granted in this Section, Borrowers
hereby grant to the Collateral Agent a continuing Lien on, and security interest
in, each Lockbox Account, each Collection Account, the Concentration Account and
each other deposit account maintained by Borrowers with the Collateral Agent to
secure the Obligations of Borrowers under the Loan Documents.
-103-
<PAGE>
11.10 Indemnity by Borrowers. Borrowers hereby jointly and severally
----------------------
agree to indemnify, save and hold harmless BofA London, BofA Frankfurt, each
Creditor and their respective parent corporations, Subsidiaries, directors,
officers, agents, attorneys and employees (collectively the "Indemnitees") from
-----------
and against: (a) Any and all claims, demands, actions or causes of action that
are asserted against any Indemnitee by any Person if the claim, demand, action
or cause of action directly or indirectly relates to a claim, demand, action or
cause of action that such Person asserts or may assert against Borrowers, any
Affiliate of Borrowers or any officer, director or shareholder of Borrowers,
provided that the same relates to or arises from this Agreement, any other Loan
- --------
Document, the U.K. Facilities or the German Overdraft Facility or any
transaction contemplated hereunder or thereunder; (b) Any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee by
any Person if the claim, demand, action or cause of action arises out of or
relates to the Commitments, the use or contemplated use of proceeds of any Loan
or Letter of Credit, or the relationship of Borrowers and the Creditors under
this Agreement, the U.K. Facilities or the German Overdraft Facility; (c) Any
administrative or investigative proceeding by any Governmental Agency arising
out of or related to a claim, demand, action or cause of action described in
clauses (a) or (b) above; and (d) Any and all liabilities, losses, costs or
--- ---
expenses (including reasonable attorneys' fees (including both domestic and
---------
foreign lawyers fees and costs and the allocated cost of in-house counsel) and
disbursements and other reasonable professional services) that any Indemnitee
suffers or incurs as a result of the assertion of any foregoing claim, demand,
action or cause of action; provided that no Indemnitee shall be entitled to
--------
indemnification for any loss caused by its own gross negligence or willful
misconduct. Any obligation or liability of Borrowers to any Indemnitee under
this Section shall survive the expiration or termination of this Agreement and
the repayment of all Loans and the payment and performance of all other
Obligations.
11.11 Nonliability of the Creditors. Borrowers acknowledge and agree
-----------------------------
that:
(a) Any inspections or audits of any Property of Borrowers or
their Subsidiaries made by or through the Creditors are for purposes of
administration of the Loan Documents only and Borrowers and their
Affiliates are not entitled to rely upon the same, nor is any Creditor
obligated to release to Borrowers or any such Affiliate any information
obtained as a result of such inspection or audit;
-104-
<PAGE>
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to any Creditor pursuant to the Loan
Documents, the Creditors shall not be deemed to have warranted or
represented the sufficiency, legality, effectiveness or legal effect of the
same, or of any term, provision or condition thereof, and such acceptance
or approval thereof shall not constitute a warranty or representation to
anyone with respect thereto by any Creditor; and
(c) The relationship among Borrowers and the Creditors is, and
shall at all times remain, solely that of borrower and lenders; no Creditor
shall under any circumstance be construed to be a partner or joint venturer
of Borrowers or their Affiliates; no Creditor shall under any circumstance
be deemed to be in a relationship of confidence or trust or a fiduciary
relationship with Borrowers or their Affiliates, or to owe any fiduciary
duty to Borrowers or their Affiliates under this Agreement; the Creditors
do not undertake or assume any responsibility or duty to Borrowers or their
Affiliates to select, review, inspect, supervise, pass judgment upon or
inform Borrowers or their Affiliates of any matter in connection with their
Property or the operations of Borrowers or their Affiliates; Borrowers and
their Affiliates shall rely entirely upon their own judgment with respect
to such matters; and any review, inspection, supervision, exercise of
judgment or supply of information undertaken or assumed by the Creditors in
connection with such matters is solely for the protection of the Creditors
and neither of Borrowers nor any other Person are entitled to rely thereon.
11.12 No Third Parties Benefited. This Agreement is made for the purpose
--------------------------
of defining and setting forth certain obligations, rights and duties of
Borrowers and the Creditors in connection with the Loans and Letters of Credit,
and is made for the sole benefit of Borrowers and the Creditors and the
successors and assigns of the Creditors (including without limitation BofA
Frankfurt and BofA London). Except as provided in Section 11.8, no other Person
------ ----
shall have any rights of any nature hereunder or by reason hereof.
11.13 Further Assurances. Borrowers shall, and shall cause their
------------------
Subsidiaries to, at their expense and without expense to the Creditors, do,
execute and deliver such further acts and documents as the Collateral Agent from
time to time reasonably requires for the assuring and confirming unto the
Creditors of the rights hereby created or intended now or
-105-
<PAGE>
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document.
11.14 Confidentiality. Bank agrees to hold any financial or other
---------------
confidential information that it may receive from Borrowers pursuant to this
Agreement in confidence, except for disclosure: (a) To other Creditors; (b) To
------
legal counsel and accountants for Borrowers, the Collateral Agent or Bank; (c)
To other professional advisors to Borrowers, the Collateral Agent or Bank; (d)
To regulatory officials having jurisdiction over Bank; (e) As required by Law or
legal process or in connection with any legal proceeding to which Bank is a
party; and (f) To another financial institution in connection with a disposition
or proposed disposition to that financial institution of all or part of Bank's
interests hereunder or a participation interest in the Notes. For purposes of
the foregoing, "confidential information" shall mean any information respecting
Borrowers or their Subsidiaries reasonably considered by Borrowers to be
confidential and marked as such, other than (i) information previously filed
----- ----
with any Governmental Agency and available to the public, (ii) information
previously published in any public medium from a source other than Bank, and
----- ----
(iii) information previously disclosed by Borrowers or their Affiliates to any
Person not an Affiliate, agent or employee of Borrowers without a
confidentiality agreement substantially similar to this Section. Nothing in
this Section shall be construed to create or give rise to any fiduciary duty on
the part of the Collateral Agent or any other Creditor to Borrowers.
11.15 Integration. This Agreement, together with the other Loan
-----------
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
--------
rights or remedies in favor of the Collateral Agent or the other Creditors in
any other Loan Document shall not be deemed a conflict with this Agreement.
Each Loan Document was drafted with the joint participation of the respective
parties thereto and shall be construed neither against nor in favor of any
party, but rather in accordance with the fair meaning thereof.
11.16 Severability of Provisions. Any provision in any Loan Document that
--------------------------
is held to be inoperative, unenforceable or invalid as to any party or in any
jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions or the
operation, enforceability or validity of that provision as to any other party or
in any other jurisdiction, and to this end
-106-
<PAGE>
the provisions of all Loan Documents are declared to be severable.
11.17 Independent Covenants. Each covenant in Articles 5, 6 and 7 is
--------------------- -------------------
independent of the other covenants in those Articles; the breach of any such
covenant shall not be excused by the fact that the circumstances underlying such
breach would be permitted by another such covenant.
11.18 Headings. Article and Section headings in this Agreement and the
--------
other Loan Documents are included for convenience of reference only and are not
part of this Agreement or the other Loan Documents for any other purpose.
11.19 Arbitration Reference.
---------------------
(a) Mandatory Arbitration. Any controversy or claim between or
---------------------
among the parties, including but not limited to those arising out of or
relating to this Agreement or any agreements or instruments relating hereto
or delivered in connection herewith (including without limitation the
documents governing the U.K. Facilities and the German Overdraft Facility)
and any claim based on or arising from an alleged tort, shall at the
request of any party be determined by arbitration. The arbitration shall
be conducted in accordance with the United States Arbitra tion Act (Title
9, U.S. Code), notwithstanding any choice of law provision in this
Agreement, and under the Commer cial Rules of the American Arbitration
Association ("AAA"). The arbitrators shall give effect to statutes of
limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrators. Judgment upon
the arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of
a provisional or ancillary remedy shall not constitute a waiver of the
right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
(b) Real Property Collateral. Notwithstanding the provisions of
------------------------
subparagraph (a), no controversy or claim shall be submitted to arbitration
without the consent of all parties if, at the time of the proposed
submission, such controversy or claim arises from or relates to an
obligation to any Creditor which is secured by real property collateral.
If all parties do not consent to submission of such a controversy or claim
to arbitration, the controversy or claim shall be determined as provided in
subparagraph (c).
-107-
<PAGE>
(c) Judicial Reference. A controversy or claim which is not
------------------
submitted to arbitration as provided and limited in subparagraphs (a) and
(b) shall, at the request of any party, be determined by a reference in
accordance with California Code of Civil Procedure Sections 638 et seq. If
-- ---
such an election is made, the parties shall designate to the court a
referee or referees selected under the auspices of the AAA in the same
manner as arbitrators are selected in AAA-sponsored proceedings. The
presiding referee of the panel, or the referee if there is a single
referee, shall be an active attorney or retired judge. Judgment upon the
award rendered by such referee or referees shall be entered in the court in
which such proceeding was commenced in accordance with California Code of
Civil Procedure Sections 644 and 645.
(d) Provisional Remedies, Self-Help and Foreclosure. No
------------------------------------------------
provision of this section shall limit the right of any party to this
Agreement to exercise self-help remedies such as setoff, to foreclose
against or sell any real or personal property collateral or security or to
obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pen dency of any arbitration or
other proceeding. The exercise of a remedy does not waive the right of
either party to resort to arbitration or reference. At the Collateral
Agent's option, foreclosure under a deed of trust or mortgage may be
accomplished either by exercise of power of sale under the deed of trust or
mortgage or by judicial foreclosure.
11.20 Environmental Indemnity.
-----------------------
(a) Borrowers hereby jointly and severally agree to indemnify, defend
and hold harmless each Creditor and each of their respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person"), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses or disbursements (including reasonable fees and out-of-
---------
pocket expenses of both domestic and foreign legal counsel to the
Collateral Agent and the allocated costs of internal counsel to the
Collateral Agent and the allocated cost of internal environmental audit or
review services), which may be incurred by or asserted against such
Indemnified Person in connection with or arising, directly or indirectly
out of any pending or threatened investigation, litigation or proceeding,
or any action taken by any Person, with respect to: (a) any
-108-
<PAGE>
Environmental Claim arising out of or related to any Property subject to a
Lien in favor of the Collateral Agent or any other Creditor. No action
taken by legal counsel chosen by Bank in defending against any such
investigation, litigation or proceeding or requested remedial, removal or
response action shall vitiate or any way impair Borrowers' obligations and
duties hereunder to jointly and severally indemnify and hold harmless each
Creditor.
(b) In no event shall any site visit, observation, or testing by
the Collateral Agent or any other Creditor (or any contractee of the
Collateral Agent or any other Creditor) be deemed a representation or
warranty that Hazardous Materials are or are not present in, on, or under,
the site, or that there has been or shall be compliance with any
Environmental Law. Neither any of the Borrowers nor any other Person is
entitled to rely on any site visit, observation, or testing by the
Collateral Agent or any other Creditor. Neither the Collateral Agent nor
any other Creditor owes any duty of care to protect Borrowers or any other
Person against, or to inform Borrowers or any other Person of, any
Hazardous Materials or any other adverse condition affecting any site or
Property. Neither the Collateral Agent nor any other Creditor shall be
obligated to disclose to Borrowers or any other Person any report or
findings made as a result of, or in connection with, any site visit,
observation, or testing by the Collateral Agent or any other Creditor.
(c) The obligations in this Section shall survive payment of all
other Obligations. At the election of any Indemnified Person, Borrowers
shall defend such Indemnified Person using legal counsel satisfactory to
such Indemnified Person in such Person's sole discretion, at the sole cost
and expense of Borrowers. All amounts owing under this Section shall be
paid upon demand.
11.21 Choice of Forum. Except as otherwise expressly provided in any Loan
---------------
Document, the parties hereto and thereto agree and intend that the proper and
exclusive forum for any litigation of any disputes or controversies arising out
of or related to the Loan Documents shall be the Superior Court of the State of
California for the County of Los Angeles. Notwithstanding the foregoing, the
parties agree that, with respect to any Collateral given by Borrowers or any
Affiliate thereof to any of the Creditors located in states or jurisdictions
other than California, or in counties of California other than Los Angeles
- ----- ---- ----- ----
County, the Collateral Agent (or at the discretion of the Collateral Agent)
shall be entitled on behalf
-109-
<PAGE>
of such Creditors to commence actions in such states or jurisdictions, or in
such counties of California, against Borrowers or any Affiliate thereof or other
Persons for the purpose of seeking provisional remedies, including actions for
---------
claim and delivery of Property, or for injunctive relief or appointment of a
receiver, or actions to foreclose upon Liens granted to the Creditors. Each
party to any Loan Document, to the extent permitted by applicable laws, hereby
expressly waives any defense or objection to jurisdiction or venue based on the
doctrine of forum non conveniens, and stipulates that the Superior Court of the
----- --- ----------
State of California for the County of Los Angeles shall have in personam
-- --------
jurisdiction and venue over such party for the purpose of litigating any dispute
or controversy arising out of or related to the Loan Documents. In the event
Borrowers or any Affiliate thereof should commence or maintain any action or
proceeding arising out of or related to the Loan Documents in a forum other than
----- ----
the Superior Court of the State of California for the County of Los Angeles, the
Creditors shall be entitled to request the dismissal or stay of such action or
proceeding, and Borrowers and their Affiliates stipulate that such action or
proceeding shall be dismissed or stayed.
11.22 Joint and Several. Each of Borrowers shall be obligated for
-----------------
all of the Obligations on a joint and several basis, notwithstanding which of
Borrowers may have directly received the proceeds of any particular Loan. Each
of Borrowers acknowledges and agrees that, for purposes of the Loan Documents,
Borrowers constitute a single integrated financial enterprise and that each
receives a benefit from the availability of credit under this Agreement to all
of Borrowers. Each of Borrowers waive all defenses arising under the Laws of
suretyship, to the extent such Laws are applicable, in connection with its joint
and several obligations under this Agreement. Without limiting the foregoing,
each of Borrowers agrees to the Joint Borrower Provisions set forth in
Exhibit I, incorporated by this reference.
- ---------
11.23 GOVERNING LAW. EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED
------------- ------
THEREIN, EACH LOAN DOCUMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO THE
CONFLICTS OF LAWS OR CHOICE OF LAWS PRINCIPLES THEREOF).
11.24 PURPORTED ORAL AMENDMENTS. THE PARTIES HERETO EXPRESSLY ACKNOWLEDGE
-------------------------
THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR
MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN
INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. THE PARTIES HERETO AGREE
----
THAT THEY WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL
OR WRITTEN STATEMENTS BY ANY
-110-
<PAGE>
REPRESENTATIVE OF ANY CREDITOR THAT DOES NOT COMPLY WITH SEC TION 11.2 TO EFFECT
----
AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THE AGREEMENT OF THE OTHER
LOAN DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
Borrowers:
SAFETY COMPONENTS INTERNATIONAL, INC.,
a Delaware corporation
By: William H. Myers
----------------------------------
Title: CFO
-------------------------------
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC., a Delaware
corporation
By: William H. Myers
----------------------------------
Title: CFO
-------------------------------
ASCI HOLDINGS GERMANY (DE), INC., a
Delaware corporation
By: William H. Myers
----------------------------------
Title: CFO
-------------------------------
Address for each of the foregoing:
c/o Safety Components International,
Inc.
3190 Pullman Street
Costa Mesa, California 92626
Attn: HARDY MYERS
--------------------------
Telephone: 714-662-7756
--------------------
Telecopier: 714-662-7649
--------------------
-111-
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, asx Collateral
Agent and as sole initial Bank
By: /s/ Elizabeth Amendt
---------------------------------
Elizabeth Amendt, Vice President
Address:
Bank of America National Trust and
Savings Association
3233 Park Center Drive, 2d Floor
Costa Mesa, California 92626
Attn: Elizabeth Amendt, Vice
President
Telephone: (714) 850-6586
Telecopier: (714) 850-6486
-112-
<PAGE>
EXHIBIT 11
SAFETY COMPONENTS INTERNATIONAL, INC.
STATEMENT OF COMPUTATION OF PR SHARE EARNINGS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
Three Three Three Three
Months Months Months Months
ended ended ended ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income.................. $ 853 $ 1,047 $ 853 $ 1,047
========== ========== ========= ==========
Common stock
Shares outstanding from
beginning of period..... 5,048,500 4,060,000 5,048,500 4,060,000
Pro rata shares
Sale of stock............... 119,116 119,116
Purchase of treasury stock.. (18,208) (18,208)
Assumed exercise of warrants
using the treasury stock
method..................... 31,834 31,834
Assumed exercise of stock
options using the treasury
stock method............... 39,142 88,599 39,142 88,599
--------- -------- --------- ---------
Weighted average common
and common equivalent
shares outstanding........ 5,069,434 4,299,549 5,069,434 4,299,549
========= ========= ========= =========
Earnings per common and
common equivalent share... $ 0.17 $ 0.24 $ 0.17 $ 0.24
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 5,461
<SECURITIES> 0
<RECEIVABLES> 15,965
<ALLOWANCES> 0
<INVENTORY> 5,091
<CURRENT-ASSETS> 28,654
<PP&E> 16,468
<DEPRECIATION> 2,510
<TOTAL-ASSETS> 47,137
<CURRENT-LIABILITIES> 6,358
<BONDS> 3,624
0
0
<COMMON> 51
<OTHER-SE> 35,885
<TOTAL-LIABILITY-AND-EQUITY> 47,137
<SALES> 16,172
<TOTAL-REVENUES> 16,172
<CGS> 13,580
<TOTAL-COSTS> 14,726
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 1,372
<INCOME-TAX> 519
<INCOME-CONTINUING> 853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 853
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
